Forced mediations involving children seeking guardianship over assets have more than doubled as people live longer and rising asset values, particularly real estate, hugely inflate wealth.
“It’s often a power play to take control over relatives’ affairs,” says Andrew Meiliunas, state litigation leader for lawyers’ Maurice Blackburn, about the sharp rise in guardianship applications.
Family disputes about wills and estates have jumped by more than 80 per cent in the past decade as the number of “blended families” rose sharply, adds Anna Hacker, national manager of estate planning with Australian Unity Trustees.
This is what the experts advise on how to prevent disputes by legally protecting your legacy and having the last say on your will.
Beware DIY wills
Cutting corners to save money preparing wills can result in costly mistakes if courts are called upon to deliberate on what the testator, or person making the will, actually meant.
Problems are increasingly arising from DIY will kits (available online or from newsagents and post offices) or wills based on unqualified advice or homemade, such as letters to beneficiaries.
Craig Sanderson, Master of the Supreme Court of Western Australia, recently warned about the “folly of homemade wills”, adding that money spent on a professionally-drafted will “is a sound investment”. He added that the cost of resolving problems is paid out of the estate.
Meiliunas says common mistakes include:
- Failing to sign each page of the will with two adult witnesses all using the same pen.
- Willing assets the testator cannot give away. Many people believe that bequeathing an asset over which they had control all their lives means it will automatically go to the nominated person or institution mentioned in the will. That does not apply to property held jointly with someone else, joint bank accounts and assets held in trusts, including superannuation.
- Forgetting to revoke a previous will.
- Failing to give everything away.
- Failing to correctly identify beneficiaries, such as particular charities.
Worried about your child’s marriage problems? Or perhaps your offspring is involved with a partner you don’t trust?
One in three married couples in Australia eventually divorces, with an equal percentage involving couples married for at least 20 years, analysis by the Australian Institute of Family Studies shows.
Later separations and the sharp rise in blended families (when a couple creates a home with children from one or both of their previous relationships) are likely to increase the value of shared assets and complexities of their division in the event of a marital or relationship breakdown.
A testamentary trust can provide protection against the financial implications of a relationship breakdown long after the will-maker’s death by holding the inheritance on behalf of the beneficiary.
“It makes them beneficiaries without giving them control,” says Anna Hacker, national manager, estate planning at Australian Unity.
When the will-maker dies, control of assets subject to the testamentary trust passes to a nominated third-party trustee.
This trustee generally has the discretion to decide which beneficiaries receive income from the trust each financial year. Commonly, these beneficiaries are family members or close friends.
The beneficiary does not own or control the assets making up the trust. This means that the beneficiary’s ex-spouse or partner cannot assert a claim to trust property in property settlement claims.
Blended family disputes are on the increase as more relationships dissolve (due to separation, divorce or death of a partner) and new families are formed.
“They get very messy,” says Fiona Reid, a family lawyer and managing director of Reid Family Lawyers, which specialises in negotiating divorce settlements.
A diplomatic way to defuse future bombshells is for the testator to discuss with family members what they can realistically expect, structure financial affairs and sort out ownership of assets.
A traditional legal solution is for the husband and wife to make a will that gives their interest in the family home – usually with all the contents – to each other.
Upon the death of the survivor, the combined estates of both families are split between all the children.
The risk is the surviving spouse changing his or her will to benefit only their children, says Brian Hor, special counsel for superannuation and estate planning for Townsends Business & Corporate Lawyers.
This can be prevented with a “mutual wills arrangement’ that can be enforced after one of them dies, he says.
Alternatively, rather than giving the other assets to the surviving spouse outright, the will of the deceased spouse can establish a trust over the assets. That gives the surviving spouse the right to live off the income for the rest of their life or until entering a new relationship.
“When the right expires, the estate goes back to the children of the deceased spouse,” Hor says.
The will must ensure that whatever is provided to the second or subsequent spouse is sufficient for their needs, he adds.
“While you can put in place these mechanisms for protecting children of a previous relationship, it is still important to look after the current spouse who can take legal action if it is not considered sufficient.”
Fluid family relationships means it’s important to make updates to take account of changing circumstances.
About 4 per cent of Australian families are blended. This includes families with two or more children, at least one of whom is the natural or adopted child of both partners and at least one other child who is the step-child of one of them, according to the Australian Institute of Family Studies.
An additional 6 per cent are step-families, where there is at least one resident step-child but no child who is the natural or adopted child of both partners. There has also been a significant increase in grandparent-led families and more “rainbow” families parented by lesbian, gay, bisexual, transgender or intersex couples.
Children under 18
While it may not be a pleasant thought, it is worth taking some active steps to ensure that your wishes for your children under 18 are formally documented in case both parents die.
If there are no specific instructions in a will then relatives, such as grandparents or close family, can apply for guardianship, which will be assessed by the Family Court based on the best interests of the children.
A parent can appoint a guardian for their children aged under 18 in their will, says the Australian Institute of Health and Welfare, a government agency. Key criteria for choosing a guardian include aligned lifestyle, religious beliefs, capacity to bond and financial and emotional capacity to take on the role.
“It is very important to discuss your intentions, obtain consent and discuss your expectation with the prospective guardian,” says the institute.
A nominated guardian should not face financial difficulties or loss because of the role. This means the guardian will have access to the child’s share of the estate at the discretion of the trustee.
“It makes sense to have two different individuals acting as executor/trustee of your estate and guardian of your child respectively,” says the institute.
The executor/trustee of your estate will be in charge of distributing the money to your child’s guardian in accordance with the terms of your will. The child’s guardian will be responsible for making lifestyle decisions for your child.
That helps avoid conflicts of interest or any potential misconduct.
Remember for children inheriting your super, they are tax dependants which means they will receive it tax-free. Super that is left to adult children is taxed at 15 per cent (or 30 per cent from an untaxed fund such as an old government scheme) plus two per cent Medicare levy.
When extra help is needed
Making additional payments to a child who needs more support can cause friction with other beneficiaries, such as siblings.
“Problems occur when children believe they are being treated unfairly, so it needs to be done with care,” says Hacker.
She recommends testators divide the estate equally between children and make an additional bequest to the more needy children with an explanation that it is needed for extra support.
There are strategies for testators, typically parents, worried their children might waste an inheritance on gambling or drugs but still wanting to provide financial support.
“People do not normally exclude someone from their will because of concerns about addiction,” says Hacker. “They hope they will recover and continue to want to offer help, even if there has been bad behaviour, stealing or aggression.”
A restrictive trust can be established in an open-ended legal structure that attempts to balance the needs of a beneficiary with appropriate controls to ensure an inheritance is not wasted on an addiction.
The trustee, typically an expert third party, has authority to top up capital distributions and even vary the terms of the trust if the beneficiary overcomes their addiction.
But the trustee also has power to say “no” if there are concerns assets are being misused.
Paul Huggins, an investment banker and classic car collector, is setting up a charitable car trust that could help those fearful about what might happen to their collections.
“What happens to these wonderful cars?” Huggins asks. “What happens if the beneficiaries do not have the skill set to handle their correct disposal?”
It is a problem faced by many people who have spent a lifetime building up collections, ranging from classic cars to art, that will likely be sold by beneficiaries soon after they die.
“After the mourning and grief, after probate is paid, beneficiaries sell,” Huggins says. “More than 90 per cent will automatically sell the assets and the likelihood is they’ll only get 60¢ or 70¢ in the dollar because they don’t have the contacts or network to achieve fair value.”
His planned Momentum Heritage Classic Charity Trust will handle the vehicles’ expert sale to local and overseas buyers with a portion being donated to chari
Huggins, who has put together his own collection of nearly 70 cars over 40 years, says prices for rare classic cars are rising “faster than gold”.
Some family items, such as war medals or jewellery, have a sentimental value well beyond their financial worth and can be the cause of bitter family disputes.
Meiliunas says the best strategy for a testator is to explicitly state intentions, such as giving away an item before their death, or make a specific bequest in their will.
“It is imperative the item is clearly described,” he says “Don’t leave instructions vaguely referring to a painting in the living room.”
Some avoid confusion by putting stickers on items that indicate the beneficiary.
Alternatively, you can write a “statement of wishes”, which provides guidance about final wishes but is not binding on the executor.
A not-for-profit service called Include a Charity encourages gifts to be made in wills from a selection of around 1200 charities, ranging from global heavyweights such as World Vision through to community groups.
IAC allows donations to be directed only to registered charities with an Australian Business Number allocated by the Australian Taxation Office that are annually audited, which reduces the chance of funds being misdirected or gouged by outsized administrative fees.
Gifts range from the whole of an estate to a percentage or specific assets, such as money, shares and property. Alternatively, there are residual gifts, which are the remainder of an estate after first leaving gifts to other beneficiaries.
The average individual donation is about $50,000 split between three to five charities.
Parents can also include a “disaster clause” in their wills so that the money goes to a charity if their children predecease them.