It is important to understand the roles and responsbilities of those you choose to have as part of your Estate Planning Team. Power of Attorney, Enduring Power of Attorney, Advanced Health Directive. Understanding these duties and making some thoughtful decisions now regarding your financial and health outcomes will prevent a lot of stress and strain for your loved ones at the time.
7 MINUTE WISDOM PODCAST #17: Planning From The Heart
Estate Planning, it's not just the hard facts and figures. More valuable are the emotional facts—those which you draw from your heart. The instructions you leave behind that will help your family when they are grief stricken with your loss.
7 MINUTE WISDOM PODCAST #14: The Legacy Blueprint
Don’t leave a puzzle for your family to work with after you have gone. Leave clues and documented information that is concise and clear for your loved ones to manage.
7 MINUTE WISDOM PODCAST #13: THE BUSINESS PARTNER FROM HELL
Business partnerships begin with the best of intentions and positive outlook. However, if the partnership breaks down or if one partner suddenly passes, this can often lead to an unqualified beneficiary becoming involved. Effective planning is essential to protect your years of hard work and success.
7 MINUTE WISDOM PODCAST #12: THE BENEFITS OF A TESTAMENTARY TRUST
There are mixed opinions about whether Testamentary Trusts are worth the cost and effort to set up. Tom explains the benefits and how they offer greater control and protection of your estate from potential relationship breakdown, bankruptcy and tax.
Taxman Set for Purple Patch
Prince's DNA tested as claims besiege estate. As the singer had no Will, it is expected more than 50 per cent of Prince's estate will be lost to death taxes.
Prince's estate has been deluged by claims prompting a request for his blood to be DNA tested. Bremer Trust, appointed to temporarily oversee Prince's assets, has been given permission by a Minnesota judge to obtain a sample of his blood held by the Midwest Medical Examiner.
Judge Kevin Eide, who ordered the blood analysis on Friday, said people wishing to make a claim had four months to file a claim. Judge Eide said the request for genetic testing was because "parentage issues might arise".
Prince's estate is estimated to be $300 million and his sister, Tyka Nelson, said he had left no will.
Possible heirs include Nelson and five half siblings. Prince's only known child was a son, Boy Gregory, who died a week after his birth in October 1996, due to a rare genetic disorder called Pfeiffer syndrome. As the singer had no will, it is expected more than 50 per cent of Prince's estate will be lost to death taxes. Minnesota's death tax rate, one of the highest in the US, is 16 per cent. After the US federal government 40 per cent death tax is added, a total of 56 per cent death tax will be applied.
Prince, whose full name was Prince Rogers Nelson, was found dead on April 21 at his Paisley Park home-studio complex in Chanhassen, a Minneapolis suburb. He was 57. The Minneapolis Star Tribune and KSTP-TV reported on Thursday that Prince's autopsy had found the painkiller Percocet in his system. KSTP-TV, citing two unnamed police officials, reported that Prince also had a dangerously low red blood cell count, indicating he had been ill. A spokeswoman for the local medical examiner's office that conducted a post-mortem examination of Prince declined to confirm the reports.
The cause of Prince's death remained undetermined.
THE SYDNEY MORNING HERALD | May 7, 2016 Lenny Ann Low
Therese Reined It In
WOULD $5.2M make you update your legacy documents?
THERESE Rein, wife of federal Labor leader Kevin Rudd, bought shares with a market value of $5.2million from the estate of her dead business partner for a tenth of their worth.
When the executors of the estate tried to stop the sale, Ms Rein took them to the Queensland Supreme Court until they relented, a month ago.
Ms Rein filed a lawsuit last July in which she argued that Frances Jane Edwards, a former nun and physiotherapist who helped establish Ms Rein's successful company Work Directions Australia, now known as Ingeus, had agreed to sell her 5200 shares in the company if she died.
Ms Rein and Edwards - the founding shareholders in the company - signed an agreement on or about May 22, 1998, declaring that their shares would be sold to the other, for a pre-determined price of $100 a share, if either of them died.
Under the agreement, if Ms Rein had predeceased her partner, her beneficiaries would have received the same amount.
Ingeus had revenues of $175million last year and employs 1300 people in 66 offices worldwide. The company is the third-largest provider of services to the federal Government's Job Network Agency.
Edwards had been ill for more than 10 years when she died, of cancer and renal failure, on January 21 last year. She was 74, and had never married. Edwards's will - which she actioned two days before her death but was too ill to sign - left the bulk of her estate to her sister, Martha Sirovs.
Within weeks of the Supreme Court granting probate to three executors, Ms Rein gave notice, on June 21, of her intention to buy the Ingeus shares in accordance with the agreement and sent a cheque for $520,000 and a share transfer form the following day.
When the executors blocked the sale, Ms Rein asked the court to enforce the terms of the original agreement and award her costs. Ms Rein - who resigned as chair of Ingeus last year but remains on the board and is understood to now have 13,000 shares in the company - withdrew the lawsuit on January 23.
She last night told The Australian the dispute was resolved out of court when the executors agreed to sell the shares for $520,000. "That agreement was upheld to the letter and honoured and the matter was resolved."
The Australian understands Ms Rein owns 13,000 shares in Ingeus worth $13 million, according to a KPMG valuation from June 2004 filed with the court.
The executors, in a defence filed in the court, had disputed the terms of the agreement, and argued Ms Rein had altered the company so much since 1998 the agreement had become void.
Since Edwards signed the agreement, the company has been renamed, three other directors - including former Queensland premier Wayne Goss - had been appointed to the Ingeus board, shares had been sold to nine other parties and the company was no longer a proprietary company. Furthermore, a new constitution filed in 2002 also departed from the terms of the 1998 agreement.
The executors also noted that Edwards's role in the company had changed and the company's profitability had increased, as had the value of the company and its shares, which, at June 30, 2004, were worth approximately $1000 - 10 times as much as listed in the agreement.
Ms Sirovs said yesterday "there is really no problem with the whole situation" but otherwise would not comment on Ms Rein's pursuit of the shares.
The executors' solicitor, Harrold Littler, confirmed the matter had been resolved out of court.
THE AUSTRALIAN FEBRUARY 21, 2007 | Sean Parnell, Brisbane
Estate Planning: Duties of Professional Advisers
Following the recent decision in Calvert v Badenach [2015] TASFC 8, it is imperative for professional advisers to identify the manner in which a client owns property and ensure that the manner of holding is consistent with the client’s estate planning wishes.
Property ownership and death
Co-owners generally hold property as either:
- Joint proprietors; or
- Tenants in common.
If a joint proprietor dies, the property will not form part of the deceased owner’s estate. Jointly held property “automatically” passes to the surviving co-owner(s), regardless of the deceased owner’s Will or the intestacy provisions. For most states and territories in Australia, this means that the property will not be vulnerable to a family provision claim against the deceased’s estate. However, if a tenant in common dies, the deceased owner’s share of the property will form part of the deceased’s estate. The deceased’s share of the property therefore passes in accordance with the deceased’s Will (or in accordance with the rules of intestacy if there is no Will). This means that the deceased’s interest in the property will be vulnerable to a family provision claim.
Adviser’s duties
In Calvert v Badenach, the Court held that when preparing a Will, an adviser owes a duty of care to a Willmaker and his or her intended beneficiaries to:
- identify the manner in which co-owned property is held (i.e joint proprietors or tenants in common);
- inquire as to the possibility of a family provision claim and likely ramifications of such claim; and
- advise the Willmaker as to ways of dealing with his or her interest in the property (and any other assets) to minimise the risk of a family provision claim.
In this case, the Willmaker co-owned two properties with a friend as tenants in common. The Willmaker instructed a lawyer to prepare a Will leaving his whole estate to that friend. When the Willmaker died, his share of the two properties formed part of his estate, with the intention (in his Will) that the properties pass to the friend as sole beneficiary under the Will. However, the Willmaker had an estranged daughter, who successfully brought a family provision claim against the estate. The court found that the lawyer failed to advise his client of the possibility of a claim by the daughter and of the options available for dealing with the deceased’s interest in the properties to minimise or avoid a family provision claim. Damages are yet to be assessed.
Minimising a claim
In this case, the lawyer would have satisfied his duties if he had made independent enquiries as to the manner in which the Willmaker held his interest in the properties and advised the Willmaker to:
- transfer the manner of holding from tenants in common to joint proprietors (so that ownership would “automatically” pass to the friend); or
- gift his share of the property to the friend during his lifetime.
Either option would have avoided the property forming part of the Willmaker’s estate and therefore being available to the estranged daughter in her claim against the estate.
Whether the Willmaker would have actually taken either of these steps was considered irrelevant.
What does this mean for advisers?
It is important for advisers to be aware of:
- the significance and effect of the different types of property ownership during life;
- the significance and effect of the different types of property ownership on death;
- the importance of verifying the manner in which a property is held;
- a client’s personal circumstances and who may be eligible to claim against their estate; and
- how to protect property and other assets from potential claims, including seeking specialist advice where necessary.
Kliger Partners Lawyers, Melbourne.
HOW TO PLAN YOUR ESTATE IN THE EVENT OF BANKRUPTCY
What happens to your assets if your beneficiary goes bankrupt?
Using a Testamentary Discretionary Trust
Bankruptcy is a very real possibility for anyone in business, even as fears about a slowdown in China, the over-heated property market and fluctations in the stock market abound. While many canny business people structure their current circumstances to avoid losing assets in the event of bankruptcy, very few have given thought to what might happen if one of their adult children goes bankrupt. What happens to your assets, if left to a bankrupt child in your will?
Those assets are lost to your child's creditors.
But there is a way of planning for this possibility.
A testamentary discretionary trust is a type of trust created under a will, comes into existence only upon the administration of the deceased estate and has four elements: the trustee(s), the assets, the beneficiaries and the discretion. One of major advantages of using a testamentary discretionary trust is for asset protection. There are three examples assets can be protected.
Bankruptcy
Consider this scenario: you have retired after a lifetime of work, and you have your home, your super, and some investments. You’d like to pass on these assets for your son’s benefit and the benefit of his children. Your son is a successful businessman, but the GFC hit him hard. He lost revenue and staff, and now the banks are closing in, threatening to sell off his assets to repay their debts. If you were to die, and your will passes your assets directly to your son, your assets could be used to satisfy your son’s creditors. Section 116 of the Bankruptcy Act 1966 says that when someone becomes bankrupt, all property vests to the trustee in bankruptcy. But S116 (2)(a) adds that this does not extend to property held in trust for another person.
A better approach is to use a testamentary discretionary trust to be created to come into effect upon your death. The trust will own the assets rather than passing directly into the name of your son. Making your son a beneficiary of the trust means that he can obtain the benefits of the assets held in trust without the risk of owning the assets outright. If Sam goes bankrupt, the creditors can’t place a claim on the assets in the testamentary discretionary trust.
This part of the law is extremely complex. Simply creating a testamentary discretionary trust will not solve the problem. The trust must be structured in a certain way, and tailored to meet the client’s specific circumstances. If the trust is properly structured and carefully planned, none of the beneficiaries has an absolute entitlement to capital or income, and for a trustee in bankruptcy to say otherwise would then impact on the rights of other potential beneficiaries.
High-Risk Professions
Because a testamentary discretionary trust is the legal owner of the assets, rather than a person, it is highly attractive to beneficiaries who are at risk of being sued, such as solicitors, doctors, company directors and business owners. Any legal action against them personally cannot take the assets of the trust, which protects the assets for future generations. It is common for such professionals to take care not to own assets in their own names throughout their career, but what about the people they might receive an inheritance from?
Alan is a financial planner in a partnership of four. A regular audit discovered that one of his partners has been conducting business dishonestly, investing funds on behalf of clients that the clients did not authorise. A group of clients launches legal action against the partnership for damages. Fortunately Alan owned very little in his name, preferring to keep assets well out of his (and his creditor's) legal reach. However, when his father died in the same year, his strategy fell apart. His father had made no provisions in his will to take into account Alan’s risk of being sued. The assets were inherited in Alan’s name, and used immediately to satisfy his creditors. Rather than his father’s assets being used for his family’s benefit, they were lost.
A testamentary discretionary trust established by his father would have avoided this scenario. The assets would have been owned by the trust and the creditors would not have been able to touch them. This is a what-if scenario rarely considered by someone who doesn’t know succession law thoroughly.
Spendthrift
Finally, a testamentary discretionary trust can be used to protect assets where a family member has a vulnerability. Inheriting a chunk of assets or money is not always in the best interests of a beneficiary, and a trust can distribute income or capital with discretion not available under a normal will.
An example would be for a child with a gambling problem. Rather than receiving his share of the estate in one big transaction, a trust can distribute an income stream or small capital distributions so that the gambler can’t lose the assets. In this way, assets can be protected from his compulsion for the benefit of his children or other family members.
Bryan Mitchell is an Accredited Specialist in Succession Law (Qld).
Today, Where There's A Will, There's A Way to Fight Over It
Australia faces a growing battlefield over the distribution of deceased estates as more complex family arrangements trigger post-death conflicts, and a “sense of entitlement” by family members results in expensive fights over small amounts.
Special counsel at Paxton-Hall Lawyers Sharon Winn said that, in Queensland alone, 80 to 90 small estate family provision claims were lodged in the Supreme Court every month.
Small estates were those valued at about $500,000 and based around a primary asset such as a house.
Ms Winn said disputes were commonly between a second spouse and children from a first marriage, but the large number also reflected changing social attitudes and greater knowledge of court challenge options through legal firms advertising no-win, no fee.
“We’re seeing a distinct change in the estate dynamic,” she said. “People nowadays are more materialistic and have more assets worth more money, so families want their share.
“There (also) seems to be a societal shift to towards a greater sense of entitlement.”
The comments followed the release of a national report this week calling for community and legal re-education to redress the growing cost of conflict and family fracturing off the back of will disputes.
The research, conducted jointly by the University of Queensland, QUT and Victoria University, found 74 per cent of family challenges to wills were successful, but the disputes were known to drain the entire proceeds of an estate.
Further clues to the issue emerged yesterday with the release of survey findings by law firm Slater and Gordon suggesting most Australians did not support funds being left to non-family members. This reinforced the findings of the university report, which found a strong sense of entitlement to “family money” in Australia.
Earlier Slater and Gordon research showed more than a third of Australians had experienced conflict over distribution of assets from an inheritance.
The new research, based on a survey of 2000 people, found 63 per cent of people did not believe that a non-relative was entitled to a significant inheritance even if they visited someone regularly, helped with daily tasks and celebrated holidays together.
Slater and Gordon senior estate planning lawyer Rod Cunich said people needed to be mindful when they were drafting wills of the potential to create family disputes after their death.
“Clearly, these new figures show that the majority of people feel that assets should stay in the family,” he said. “I see quite often many people who don’t have family, or aren’t close to their family members, so they choose to leave their assets to people who they have forged a strong relationship with — and that’s well within their rights.
“But we must remember that in Australia children have the right to contest a Will, so a willmaker should be very clear and concise about how their assets are to be distributed, why, and the likely consequences.”
Ms Winn suggested parties should avoid emotional distress and save money by exploring other settlement avenues such as mediation.
“What people don’t understand is (that) the legal fees surrounding these seemingly small cases can be upwards of tens of thousands of dollars, and that’s before it’s even been to court,” she said. “These cases are labour-intensive, and the same administrative procedures and standard responses need to be followed, no matter how small the estate.”
THE AUSTRALIAN, APRIL 10, 2015, Shane Rodgers, Queensland editor
When is $3million Not Enough?
Q: When is $3 million not enough?
A: When you are the secret daughter of a mining magnate.
Michael Maynard was a Western Australian mining billionaire who died in 2012, survived by his fourth wife and three adult children.
Olivia Mead, dubbed by the media as Maynard’s secret daughter, was born in 1995 to a woman with whom Maynard had a relationship but hadn’t married. As she grew up, Olivia Mead did not have a close relationship with her father, seeing him only sporadically. Maynard did not provide Olivia or her mother with any material support other than the legislated child support requirements. Olivia Mead challenged Maynard’s will, alleging that she was not left adequate provision in the will.
Maynard had set up a trust for Olivia, in which she was left $3 million. To put this inheritance into perspective, the three children from his marriage were each left about $400 million.
Did Olivia Mead have the right to challenge the will?
The children of a will maker have the right to challenge a will if they haven’t been ‘adequately provided’ for in a will. In this case, the judge remarked: “what is adequate depends on the circumstances of the case - the size of the estate, the nature of the relationship between the claimant and the deceased, the claimant's present circumstances and other legitimate claims.”
As the daughter of Maynard, Olivia Mead did indeed have the right to challenge the will.
The trust for Olivia Mead
Maynard established a trust specifically for Olivia, in which he specified that she would receive a property worth about $700,000 and cash and property worth up to $3 million. The trust would give the inheritance to Olivia on the date she turned 30 and included some idiosyncratic terms and conditions. The trustee of the trust was a solicitor whom Olivia Mead had never met, but who had total discretion and control of the trust.
The Judgement
The judge was heavily critical of the terms of the trust, which would have denied Olivia Mead anything had she been convicted of drink driving or if she changed her religion. Until the age of 30, Mead had absolutely no say in the operation and discretion of the trust. The judge points out that: “But this [trust] structure does not guarantee the plaintiff $3 million. There is a real prospect she might get nothing.”
The judge was also critical of the choice of trustee, a man whom the plaintiff had never met yet exercised almost total financial control over her.
The judge relied on actuarial evidence to determine what Olivia Mead would need in provision for her lifetime. He did reject Olivia’s assertions that she needed provision for a $250,000 guitar, saying : “No one needs a guitar of that value - particularly a 19-year-old girl who is not now and never will be a professional musician and who has not had guitar lessons for some years.” However, the judge did go on to say that he felt Olivia was not a greedy or narcissistic individual, but rather a 19-year-old girl who had let her imagination run wild.
Ultimately, the judge awarded Olivia Mead the sum of $25 million, which was due to be paid within 60 days. The figure was based on the actuarial evidence, but the judge admitted that it was largely a discretionary sum, saying:
“The one factor which has influenced me most is the size of the estate. This award will set up the plaintiff and her children and perhaps their children for their lives. Wisely invested the fund will provide enough income so the plaintiff and her relatives will never want for anything again. All that against a background of the award making no difference whatever to the position of the other beneficiaries.”
What can we learn from this?
Will makers are obliged by the law to make adequate provision for family members, including spouses, children, grand-children, step-children and in some cases others who might be ‘dependent’ upon them.
And the larger the estate the greater the chances of an applicant being entitled to more. Sometimes the wisdom is not what's in the will, but in how the wealth is owned.
Bryan Mitchell is an Accredited Specialist in succession law (wills and estates including estate planning).
Four Reasons Your Will Might Not Be Valid
And it's all to do with whether you have a sound mind.
In Australian law, for a person to make a valid will, it must:
• be in writing
• signed in front of two witnesses
• made by a person over the age of 18
• made by a person of sound mind, memory and understanding
What does it means for a person to have ‘sound mind, memory and understanding’ or in legal terms, testamentary capacity?
What is Testamentary Capacity?
For someone to execute a valid will, they must:
• understand the nature and effect of a will
• they must understand what a will is and what it is used for
• know the nature and extent of their property;
• they must know what assets they own
• comprehend and appreciate the claims to which they ought to give effect;
• they must know who they’re leaving their estate to, including who might have a legal claim to their estate
• are not affected by delusions that influence the disposal of their assets at the time they are making their will.
• they must not suffer from a disorder of their mind which influences the way they make their will.
A Case Study
Alison was the oldest child in her family and had three younger brothers. They enjoyed a typical sibling relationship as they grew up and older, even through the loss of both parents. Alison suffered from mental illness most of her life and had an extensive psychiatric history. One of the features of her illness was paranoia and delusion, in particular towards her three brothers whom she was convinced were involved in a conspiracy against her.
As she approached middle age, Alison sadly committed suicide. Her will reflected her wishes that nothing go to her brothers due to the conviction that they were conspiring against her.
The brothers contended that Alison did not have testamentary capacity when she signed her will because she suffered from an illness that influenced the disposal of her assets— in this case, mental illness with symptoms of paranoia and delusion.
In making its decision, the court used Alison’s extensive psychiatric history to make a decision, determining that her mental illness had prevented her from making a valid will and that she had lacked testamentary capacity. The will was deemed invalid and her assets disposed of according to the rules of intestacy (or as if she had died without a will).
However the presence of a mental illness does not automatically mean a will is invalid.
Compare the above case study to Thomas, who also suffered a mental illness with features of delusion. In his case, he was convinced that he was being followed by an FBI agent. He contended that the agent followed him day and night, every day of his life. Psychiatric assessment concluded that the FBI agent didn’t exist and was a delusional symptom of Thomas’ mental illness.
Yet when he died, his will was upheld as valid.
The difference in this case is that the mental illness Thomas suffered from didn’t influence the disposal of his assets in the same way that Alison’s mental illness did.
Who determines whether somebody has testamentary capacity?
In this area of the law, medical opinion and legal opinion merge and both will be considered by a court when making a decision. Other opinions might also be taken in account, such as those of social workers or allied health professionals.
It is considered best practice for the lawyer overseeing the completion and execution of the will to test for capacity. The lawyer should make sufficient inquiries and keep records of his or her knowledge, information and belief that the will-maker had testamentary capacity at the time of signing the will. Equally, the lawyer should make reference of any circumstances or suspicions in which he or she believes testamentary capacity might be diminished.
A specialist in Estate Planning will adhere to best practice and keep detailed notes.
It’s also important to remember that you never know when you’ll lose capacity so it’s best not to put off making a will. Loss of capacity can happen quickly, in the case of a stroke or accident, or slowly as dementia advances. But once capacity is lost, so is the ability to make a will.
We always recommend seeing a specialist wills and estate planning solicitor.
Courts will take into account the opinions of medical professionals, allied health professionals and social workers, but best practice requires the lawyer overseeing the completion and execution of the will to test for testamentary capacity and keep detailed records.
Bryan Mitchell is an Accredited Specialist in succession law (wills and estates including estate planning).
Why is Making a Will Expensive?
It’s too expensive!
These are often the famous last words of regular people when advised to seek the services of a lawyer to draft a will. Yet a recent case handed down by the Supreme Court of Queensland highlights exactly why a specialist succession lawyer is a vital part of any estate plan.
Fernando Masci and Elizabeth Masci were married later in life, after previous marriages and each had children of their own. They did not have any children together. Mr Masci died in 2012. Mr and Mrs Masci decided to draft a will together in 2006, on a pre-printed form. In the document, they appointed Mr Masci’s son and Mrs Masci’s daughter as co-executors of the will. The will was short and not very clear, but appeared to give each other the right to reside in the family home until both had died, whereupon the proceeds of the home and other assets would be equally split between the couple’s children.
Problem 1.
Mr Masci’s son, Graham and Mrs Masci’s daughter, Susan, named co-executors of the will, could not agree on how to administer the will. Graham asked for Susan to be removed as executor from the will as part of his application, while Susan asked that they both be removed as executors and a solicitor be appointed as administrator instead.
Problem 2.
Because the will was homemade and it’s intentions not clear, the court was required to make sense of it in order to grant probate. Justice Dalton remarked that: “the drafting of the will in this case is so poor that I wondered whether or not I could sensibly give any effect to it.”
Problem 3.
Was the will executed together by the Masci’s considered a mutual will? A mutual will is when a couple make a certain will on the understanding and expectation that the last person to die will not change their will. In most instances, the agreement is that the assets will pass to the surviving spouse first, then to the beneficiaries. Mutual wills become most tricky when, as in this case, there are children from previous relationships. If the court finds that it was a mutual will, the beneficiaries are afforded some legal protections in the event that the surviving spouse does not honour the mutual will.
The Court’s Findings
Problem 1.
Justice Dalton agreed that it was impossible for Graham and Susan to continue as co-executors and considered whether to remove both as executors and appoint a solicitor to take over the task. However Justice Dalton remarks: “a paid administrator would be a significant imposition on what will remain of the funds of the estate…..I am conscious that even if an unpaid executor is left in charge….they will need to consult lawyers because of the complexity of the problems still to be dealt with, and that legal costs will therefore necessarily be incurred in any event.” Justice Dalton eventually appointed Graham as sole executor. However, the message here is clear: the inability of the executors to agree has and will continue to cost the estate dearly.
Problem 2.
Justice Dalton was required to interpret the will, given it was unclear, in order to grant probate. He agreed to grant probate, after considering the intentions of the will-makers. However there was a great deal of argument over the wording contained in the will. The executors could not agree on what the term “stay in the house” or “handle all monies” meant or how it should be handled. It’s imperative to understand at this point that it is prohibitively expensive to have the court determine what these terms mean, rather than having a specialist succession lawyer draw up wills which clearly deal with these matters.
Problem 3.
Justice Dalton had to answer the question as to whether the will could be construed as a mutual will. The question of whether it is or isn’t revolves around whether the will-makers agreed not to revoke their wills without giving the other notice. There does not have to be an express declaration of this, but is implied in the making of a joint will. Justice Dalton found this to be the case and this decision gives some protection to Mr Masci’s beneficiaries. Mrs Masci is conscience-bound by the mutual will to ensure that Mr Masci’s beneficiaries receive an inheritance as he intended.
What can we learn from this case?
· Homemade wills invariably do not save money. Whilst in the short term, it is tempting not to spend money on receiving expert advice, in the long term, estate litigation is much more expensive. In this case, to such an extent that even the judge urged the parties to reach agreement or “none of them will have any of the benefit which their parents intended for them.”
· Homemade wills are often unclear or lead to confusion. No matter the purity of the will-maker’s intentions, it may be difficult to interpret what they mean after they've passed away. This is especially true when no legal advice has been sought by the will-maker, and they haven’t known what they should cover in the document. In this case, while Mr & Mrs Masci probably thought the term “all monies” was clear, the co-executors couldn't agree on its meaning to the extent that they required the court to decide the meaning. This is a very expensive exercise.
· Blended families bring a level of complexity to estate planning. If ever there was a situation that requires careful thought and planning, it’s a blended family situation. A specialist succession lawyer can provide the protection of beneficiaries and flexibility required to cover many of the possibilities that could arise.This situation is very complex and requires specialist advice from a lawyer experienced in Succession Law.
Bryan Mitchell, Accredited Specialist in Succession Law (wills and estates including estate planning). Mitchells Solicitors, Brisbane.
Will Your Spouse Do the Right Thing?
I know she’ll do the right thing....
Thelma and Walter Bauer were married for twenty five years and each had children from previous relationships. Walter Bauer died in 1992 and Thelma died in 2007. When Walter died, he left everything to his wife. After he died, Thelma did two more wills, and when she died, she left everything to her children. Isn’t this normal?
Walter’s children from his first marriage didn’t think so and challenged the will. The Queensland Supreme Court held that the couple had entered into an agreement for mutual wills; a term of which was that the estate of the last to die would flow equally between Thelma and Walter’s children. The Court of Appeal upheld the decision.
What is a mutual will?
An agreement for mutual wills is essentially that a couple make certain wills on the understanding and expectation that the last spouse to die will not change his or her will. The agreement will in most instances leave the assets they own to each other in the first instance, and then to any dependents.
Usually this agreement is entered into without benefit of legal advice, and is done so because the couple want to make sure the other is comfortable as the surviving spouse. This agreement is often not made in writing, but something agreed upon at the kitchen table and which sounds reasonable at the time. It’s possible that nobody else knows about the existence of this agreement.
That sounds good in theory but....
Mutual wills most often become tricky when there are blended relationships, and the spouses have children from previous marriages. There is no obligation for the surviving spouse to keep the agreement and will often leave the estate to their own children, cutting off their spouse’s children completely.
Litigation in this specific area of succession law arises because the children of the first spouse to die have received nothing under the will of their step-parent. As in the case of the Bauer’s, the court found that the estate should have been split equally between both groups of children.
Litigation can usually only occur when there is some evidence that such an agreement took place, often because the children were present at the kitchen table when the agreement was reached.
In the case of the Bauer’s, the children had been told by Walter and Thelma that the assets they owned would be split equally among the five children. This constituted verbal evidence and assisted the court to make judgement in favour of the plaintiffs, Walter’s children.
When should mutual wills be used?
Bryan Mitchell says only as a last resort, because a) there is no other option, or b) the clients insist upon it (whether we like it or not). They are most often entered into by spouses with children from previous relationships who are concerned that their own children will not receive their due inheritance. There are other ways of ameliorating this concern.
Other solutions exist that include:
- Direct provision to children from a previous relationship, rather than giving it all to the spouse
- Flexible life interest/right to reside agreements
- Using a discretionary trust
No matter which vehicle is used, Bryan Mitchell suggests that ensuring your wishes are completed in writing under the advice of a wills and trusts specialist is vastly superior to a verbal kitchen-table agreement that may or may not be upheld once you pass away.
If a client continues to insist upon mutual wills, they should be:
- In writing
- Drafted thoughtfully
As always, it’s important to remember that good estate planning consists of more than a will and that often there are factors which may impact your estate of which you aren’t aware.
Bryan Mitchell, Accredited Specialist in Succession Law (wills and estates including estate planning). Mitchells Solicitors, Brisbane.
A Tale of Marriage for Money
J. Howard Marshall was an American multi-millionaire who graduated top of his class at Yale Law School and went on to own one of the most successful oil companies in the United States. However, it is perhaps his third marriage and death soon thereafter that made him most famous. At the age of 89, he married 26-year-old model Anna Nicole Smith. When he died 14 months later, a bitter dispute erupted over his estate, worth almost $500 million, between Smith and his son from a previous marriage. Until her own death of a drug overdose, Smith was often accused of marrying Marshall for his money.
Perhaps Smith did marry Marshall for his money, targeting an old man whose previous wife had died years earlier. Did Marshall know what he was doing when he married Smith? Did he really promise to leave her half of his considerable wealth? Ultimately, the lawsuit ended up in the United States Supreme Court.
You may be surprised to hear that this scenario happens here with regularity, even among people who don't have vast reserves of wealth. Often we see an senior gentleman marrying a much younger woman who immediately sets out to enjoy, and sometimes outright steal, his money. Usually the children of the gentleman discover the disappearing money too late and a bitter dispute is played out before the courts.
How does this happen?
The main reason this scenario is common is because someone's capacity to consent to be married is arguably more relaxed than the test of capacity for someone to sign a will. This means that a person who may suffer from cognitive dysfunction can still consent to be married. In succession law, the act of marriage revokes any previous will which is the first victory for any unscrupulous new spouse. From here it is relatively easy to gain access to bank accounts, assets and even to have him sign a new will.
At Mitchells Solicitors, we believe this scenario is actually a form of elder abuse. If elder abuse can be defined as "any act within a relationship of trust that results in harm to an older person" then exploiting an older person financially clearly falls within this definition.
It is vitally important to address financial exploitation through marriage while the older person is still alive. The court will only award a statutory will (a court-appointed will made when the older person is deemed unable to make their own will) while the person is still alive. Even then, there must be obvious and significant mental impairment for the court to take this step.
Perhaps the best method of seeking to address the problem is to seek an annulment of the marriage. An annulment may be given under the Family Law Act (Commonwealth) if one person is deemed to be mentally incapable of giving consent to be married, or if the marriage occurred under duress.
This situation is very complex and requires specialist advice from a lawyer experienced in Succession Law.
Bryan Mitchell, Accredited Specialist in Succession Law (wills and estates including estate planning). Mitchells Solicitors, Brisbane.
Who Needs a Trust?
Who needs a trust and why?
What does a trust have to do with a will?
What is a discretionary testamentary trust?
A discretionary testamentary trust is a type of trust that is created under a will and comes into existence upon the death of the will maker. There are advantages to establishing a trust like this, which include tax minimisation, protection of assets and flexibility.
A discretionary testamentary trust must have a trustee: a person/s or company who will be charge of the trust.
The trust will own assets under the will, and assets can include cash, real estate, shares, cars, boats, artworks or any other assets.
The trust will have beneficiaries – those people who may benefit under the trust; usually family members and can be other persons or entities.
The trustee has discretion to distribute income or capital from time to time in varying proportions, amounts and categories to the beneficiaries of the trust. The trustee has the discretion to make distributions so any appointed trustees should be reliable and trustworthy.
Advantages of a Discretionary Testamentary Trust
Often one of the biggest assets owned by someone is their life insurance policy. When owned by the trust (by being paid out into the estate of the person whose life was insured), the income from the proceeds of such life insurance policy can be split among children and others rather than one person paying all the tax on it (at much higher rates). This is because the recipient of the income pays the tax, rather than the trust. From a tax point of view, sharing the taxation burden makes sense. Tax is still paid; just paid at much lower rates.
A discretionary testamentary trust can protect assets is from bankruptcy. Because the owner of the assets is the trust, they cannot be liquidated if one of the beneficiaries goes through a bankruptcy.
There could also be protection if a beneficiary enters a relationship that ultimately fails. If there is a property settlement, it is less likely that the assets of the trust will form part of the marital pool of assets that will be divided.
There are also advantages in the area of capital gains tax. The sale of an ordinary asset will trigger a capital gains tax event. But if the asset is held in a trust, it can quite often be moved to a beneficiary without triggering a capital gains tax event.
Overall discretionary testamentary trusts offer more flexibility, especially when catering for a myriad of ‘what-if’ events.
Case Study
John and Judy establish a discretionary testamentary trust which comes into effect upon their deaths. They have a son, Peter, who will be the trustee of the trust. Beneficiaries of the trust include Peter, his wife Sarah, their children and grandchildren.
The assets in the trust include both life insurance proceeds, the family home, an investment property and some cash. When Peter assumes control of the trust after the death of his parents, he is able to split income from the life insurance proceeds to his children and grandchildren at low tax rates.
Later, he will also be able to transfer the family home and investment home to his children (if he chooses to do that) without paying capital gains tax on the asset transfers.
Should he, his children or grandchildren face bankruptcy proceedings, the assets held by the trust should not be liquidated, offering protection for future generations.
Should Peter and Sarah divorce, there is a better chance that the assets in the trust will be protected from the property settlement.
The benefits of a discretionary testamentary trust will only come into effect upon your death, but it is worth considering to protect assets for future generations. You should seek specialist advice when considering establishing a trust.
Bryan Mitchell is an Accredited Specialist in succession law (wills and estates including estate planning). Mitchells Solicitors has a second, brand new location. You can visit us by appointment only at: Riverside Centre Level 18, 123 Eagle Street, Brisbane.
New Changes to Estate Litigation
On 21 October 2014 the Justice Legislation Amendment (Succession and Surrogacy) Bill 2014 Act (the Act) received assent – it is now official, the landscape for Estate litigation has changed.
What is the impact?
The Act changes the law as to who can challenge an Estate in Victoria (Estate claim). The Act comes into effect from 1 July 2015 and will apply to :
- an estate of any person who dies on or after this date; and
- any claims made after this date.
Up and until 1 July 2015, any person can continue to bring an Estate claim on the basis that the Estate (either by Will or the intestacy laws) does not adequately provide for them. The range of persons who can claim can be as wide as children, domestic partners, step children, grandchildren, carers, related family members and non-family members (such as friends, neighbours).
Who can claim?
From 1 July 2015, essentially two categories of persons will be able to claim. Only those who are ‘eligible’ and who fit into a defined category will be able to claim, they are:
Group one – related/immediate family members :
- a spouse or domestic partner;
- a child or stepchild of any age with or without a disability;
- a person who for a substantial period during the life of the deceased believed that the deceased was his/her parent and was treated by the deceased as a natural child of any age; and
- a former spouse or domestic partner (only if no property settlement reached).
Group two – others :
- a grandchild;
- a registered caring partner;
- a spouse or domestic partner of a child of the deceased (including a step child or person who for a substantial period during the life of the deceased believed that the deceased was his/her parent) if the relevant child of the deceased dies within one year of the deceased’s death; and
- a person who, at the deceased’s death is a member of the household in which the deceased was also a member (or had been in the past and would have been likely again in near future have the deceased not died).
If an eligible person forms part of group two :
- that person must be wholly or partly dependent on the deceased for proper maintenance and support; and
- the Act casts an obligation upon the Court to assess that person’s ability to, by reasonable means, provide for their own proper maintenance and support.
The Act is not as restrictive for adult children/step children as what was contemplated in the Bill. For instance, the requirement that an adult child or step child be wholly or partly dependant on the deceased for their maintenance and support has been removed.
It is likely that there will be a significant number of claims issued leading up to 1 July 2015.
Post 1 July 2015 it is likely there will be a significant increase in the number of persons who become a registered carer, with Births, Deaths and Marriages. Those persons who can be registered as a ‘registered caring partner’ do not need to be a direct family member.
There is also likely to be an increase in executors or administrators delaying applications for a grant of probate or letters of administration for a deceased Estate so as to avoid claims being brought before the commencement of the Act. This may well result in different litigation being issued to force an executor/administrator to apply for a grant of representation, rather than stall.
The positive outcome is that a Willmaker’s fundamental rights to leave their estate as they see fit is strengthened and deceased estates will be less susceptible to opportunistic claims.
To read the full article, please click here.
If you have any queries please either contact Sam Frey, Jennifer Maher or Sharon Favero.
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