Blended Complications – Tetris for Estate Planners

Today, there are increasing numbers of blended families, which often causes confusion and concern when decisions must be made as to who will be provided for in a Will and in what proportions. The definition of a child in the eyes of the law obviously includes biological children. However, it also includes adopted children. Therefore, any such “child” has standing to bring a claim against their deceased parent’s Estate.

An example of a child’s right to adequate provision under a parent’s Will is the decision of Mead v Lemon [2015] WASC 71 which saw the Supreme Court of Western Australia determine that $25 million was adequate provision for mining heiress Olivia Mead – the daughter of mining magnate Michael Wright (“the deceased”) – who commenced proceedings in the Supreme Court under the Family Provision Act 1972 (WA) for further provision from her late father’s Will.

In this case, the deceased died on 26 April 2012. The deceased married four times in his life. He had three children from one marriage and Olivia (his youngest child) was the result of a relationship the deceased had with Olivia’s mother. Olivia’s mother and the deceased never married.  In the deceased’s Will, Olivia was to inherit $3 million (subject to strict conditions), compared to her half siblings who stood to inherit approximately $400 million each. The Executor of the Will has appealed the Court’s decision to award Olivia $25 million and the matter is currently before the Court of Appeal.

This case highlights that making appropriate provision for your children is a crucial consideration in the estate planning process. It also demonstrates that, failing to make adequate provision for your children – even though you may not have had a close relationship with them – may result in those disinherited children bringing a claim against your Estate.

Another issue arising from blended families is the provision for stepchildren.  Until recently, stepchildren were unable to make a claim under the Family Provision Act. The recent amendments to the Family Provision Act provide that a stepchild can make a claim in specific circumstances and usually in circumstances where the stepchild was financially dependent on the stepparent, or where the stepchild’s biological parent left his or her entire estate to their new spouse or partner, who in turn does not leave adequate provision for that stepchild.  Accordingly, even though a stepchild may not be a “child” in the eyes of the law, he or she may still be able to bring a claim against your Estate.

The fact that your children and other close family members can challenge your testamentary wishes highlights the reason why it is crucial to seek sound legal advice when dealing with your estate planning and business succession planning. The benefits of carefully and effectively arranging your estate planning far outweigh the dire consequences of not doing so and leaving important matters unaddressed.

PLEASE CONTACT

Contact us at bbv@bbvlegal.com.au if you wish to discuss this matter further.

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Who Inherits Prince’s Diamonds and Pearls?

Despite achieving the status of music royalty, Prince’s untimely death at the young age of 57 years has once again highlighted the simple fact that no one can avoid the fallout from dying without a Will.

Whilst hard to believe that a superstar of Prince’s status would not execute a single document to say who inherits his wealth,  his family have filed papers to declare that Prince died without a Will. This means that Prince died ‘intestate’ and his family and the Courts are left to deal with the resulting mess that is likely to take years to sort out – not a legacy that Prince is likely to have wished to leave behind.

So, what happens to Prince’s ‘Little Red Corvette’ and other assets?  That will be up to the law in Minnesota… but what would happen if Prince lived right here in Western Australia and held his assets here?…

If Prince lived in Western Australia, there is a formula imposed by section 14 of the Administration Act 1903 that dictates who inherits the estate and in what proportions. Although each person’s intentions are different, it is very unlikely that this formula will mirror exactly what each person wishes to happen to their estate and therefore will most likely be problematic.

For example, if Prince died leaving a wife and children, the wife would receive a statutory legacy of $50,000 and one third of the remainder of his estate. The other two thirds would be divided between his children. Interestingly, the statutory legacy of $50,000 (which represented the median house price in the 1980s – definitely a ‘Sign o’ the Times’) has not increased since 1982.  For many widows or widowers left behind, $50,000 plus a third of the estate is simply not enough to maintain the same standard of living that the widow or widower may have become accustomed to whilst the deceased was alive.

If a beneficiary is not sufficiently provided for by the section 14 formula, their only recourse is to commence proceedings under the Family Provision Act 1972, which normally incurs significant legal costs and entails lengthy delays in finalising the estate.

By delaying the crucial exercise of making a Will, you run the real risk of dying intestate.  It is unfortunate when fighting over money takes precedence over mourning the loss of a loved one. To actively attempt to avoid disputes with respect to your estate, everyone should have (at the very least) a basic estate plan, including a valid and up to date Will.

PLEASE CONTACT

Contact us at bbv@bbvlegal.com.au if you wish to discuss this matter further.

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The Will to Challenge

Modern life (and the complexities that come with it) mean that we must consider our estate planning very carefully.   With the increase in conflicting moral obligations to spouses, de factos, children, step children and other loved ones, even the most careful Willmaker may find that there is someone who feels that they should have received more.  Where a person dies without a Will, it is also a real possibility that someone may feel that the laws of intestacy do not leave them with adequate provision from the deceased’s estate. 

The aim of the Family Provision Act 1972 (WA) (the Act) is to make provision for the maintenance and support of the dependants of a deceased person where those dependants do not receive an adequate inheritance from the deceased’s Will (or by section 14 of the Administration Act 1903 (WA) if the person died without a Will). 

The following classes of people may apply to the Court for further provision:

  • a spouse or de facto partner;
  • a child;
  • a parent

and, in certain circumstances:

  • a grandchild;
  • a stepchild; or
  • a former spouse or former de facto partner.

The claim must be made within six months of a Grant of Probate or Letters of Administration being made by the Court.

The Court has a wide discretion to determine what is fair and adequate provision and will consider a number of factors, such as the claimant’s:

  • financial position;
  • lifestyle;
  • medical needs;
  • relationship with the deceased,

as well as other factors such as the:

  • needs of other beneficiaries;
  • size of the deceased’s estate; and
  • moral obligation to provide for the claimant.

The existence of the Act highlights the importance of ensuring that your Will is always valid and up to date in order to protect the rights of your beneficiaries.  It also highlights the importance of seeking advice from an experienced estate planning lawyer in order to ensure that all measures are taken to protect your estate from potential legal fees after your death – an ineffective Will can be expensive to your estate!

The existence of the Act also highlights the importance of seeking appropriate legal advice if you were a dependant of a deceased person and do not believe that you have received an adequate or fair share of their estate.

PLEASE CONTACT

Contact us at bbv@bbvlegal.com.au if you wish to discuss this matter further.

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What is the Net Asset Pool?

Following on from my colleague’s article “What Do You Mean It’s Not Mine?”, I have reflected upon one of the more basic, yet most important, question in family law property settlement – what makes up the net asset pool?

Simply stated, the net asset pool is all of the parties’ assets minus their liabilities.

That sounds simple enough, but what exactly is an asset, a liability, or a financial resource, is sometimes not so simple.

Identifying and Valuing the Net Asset Pool

The asset pool includes assets which are:

  • owned by either party prior to the marriage;
  • accumulated during the marriage; and
  • acquired post separation.

The Family Court can deal with an asset which is:

  • registered in the sole name of a party;
  • registered in joint names; and/or
  • registered in the name of a company or trust which a party controls or in which a party has an interest.

The Court also has regard to the financial resources of a party, such as any benefits which may flow to a party from a trust.

There are often disputes between parties as to:

  • the identity of assets;
  • the value of assets; and/or
  • assets which may have been dissipated either before or after separation.

The Court recognises the concept of an “add-back” or “notional property”.  This means that the Court can “add-back” into the net asset pool those assets which:

  • formed part of the asset pool but have been spent (for example, funds in a joint account spent on a party’s legal costs);
  • have been gifted to a third party;
  • have been recklessly wasted by one of the parties (for example, gambling or extravagant expenditure); and/or
  • have not been disclosed or are unaccounted for.

In determining the net asset pool, it is necessary to consider any contingent or latent tax liabilities which may arise upon the division or transfer of assets.  Transfers of assets between parties, pursuant to orders of the Family Court are normally exempt from stamp duty and parties can claim capital gains tax rollover relief.  However, where other assets are transferred, such as sale or transfer of shareholdings, or superannuation splits, different considerations may apply.  Parties should obtain independent financial or accounting advice in relation to these matters.

The relevant date for the determination of the net asset pool is the date when the Court hears the application.  If parties negotiate a settlement, the appropriate valuation date will be at the time of a settlement.  Many litigants do not appreciate that assets acquired pre-marriage or post separation can also be brought to account by the Court.

What is an Asset for the Purposes of Property Settlement?

Some of the more common assets are

  • real estate
  • motor vehicles
  • personal property (artwork, jewellery, furniture, antiques and personal possessions of value)
  • shareholdings in publicly listed or private companies
  • savings/deposits
  • superannuation (save and except in de facto property cases in Western Australia)

The following may also be deemed an asset of a relationship

  • goodwill of a business
  • interest in a partnership, franchise or other business
  • property held overseas or interstate
  • surrender value of a life insurance policy
  • patents and copyrights
  • antiques and artwork
  • lump sum redundancy/long service leave payments, provided they have already been received
  • lotto winnings or other windfalls (such as insurance payments and inheritances in certain circumstances)
  • contingent assets such as loan accounts in family trusts
  • vested interest in an estate, such as a life interest in property
  • frequent flyer points
  • water rights for rural properties
  • livestock

The assets taken into account by the Family Court include those owned by either party prior to the marriage, accumulated during the marriage or acquired post separation.

The Court also has regard to the resources of a party, which may include the following

  • benefits which may flow from family or discretionary trust or other entity
  • benefits received as a company director (company car, computer, phone)
  • inheritance shortly to be received
  • superannuation (in de facto property cases in Western Australia)

What is a Liability for the Purposes of Property Settlement?

Some of the more common liabilities are

  • mortgages
  • credit cards
  • personal loans (car loans and hire purchase leases)

The following may also be deemed a liability of the relationship

  • current outstanding taxation liabilities including income tax liabilities and capital gains tax
  • tax liabilities which may arise upon the division or transfer of assets
  • capital gains tax to be incurred from the sale of a property or shareholdings
  • outstanding land tax
  • HECS/Fee Help debt
  • monies owed to family entities

Ultimately what forms part of the net asset pool varies on a case by case basis.  A careful analysis of your financial position is prudent.  You may also need to speak with your accountant to help you prepare a schedule of your assets and liabilities.

PLEASE CONTACT

Contact us at bbv@bbvlegal.com.au if you wish to discuss this matter further.

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What Do You Mean It’s Not Mine?

With the increase in sophisticated financial plans and the heightened awareness of the benefits of asset protection strategies, what seems like a simple question actually requires careful consideration – what do you own?

This question is important when considering your estate planning objectives. Is it your vision for your children to take over the family business? Have you taken out life insurance to ensure that your spouse can pay the mortgage? Who will take control of your family trust after your death? When you own, or have an interest in, what are commonly referred to as ‘Non-Estate Assets’, additional planning is required.

An ‘Estate Asset’ is an asset owned personally in your name.  You may transfer ownership of Estate Assets in your Will to your preferred beneficiaries.  An Estate Asset includes any asset that you own solely in your personal name or (if with someone else) as a tenant in common.  Estate Assets can include real estate, personal belongings, shares, investments and/or cars.

If you do not own an asset in your personal capacity (i.e. in your name) then that asset is a ‘Non-Estate Asset’. Non-Estate Assets include:

  • assets owned with someone else as a joint tenant;
  • assets owned by a Trust;
  • superannuation or life insurance proceeds (subject to binding nominations and trustee discretion); and
  • assets owned by a company.

It is not possible to transfer ownership of a Non-Estate Asset by your Will as technically it is not yours to give away.  For example, company assets belong to all of the shareholders of a company, trust assets belong to all beneficiaries of that trust and superannuation does not automatically form part of your estate.

So, how do you deal with Non-Estate Assets and achieve your estate planning objectives? It is crucial to seek appropriate legal and financial advice with respect to succession of these entities and distribution of the relevant assets. Your lawyer and financial adviser will often work together with you in order to create a strategy to reach your goals and ensure that your legacy is passed on in accordance with your wishes.

PLEASE CONTACT

Contact us at bbv@bbvlegal.com.au if you wish to discuss this matter further.

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You Have Decided to Separate… Now What?

With the increase in sophisticated financial plans and the heightened awareness of the benefits of asset protection strategies, what seems like a simple question actually requires careful consideration – what do you own?

This question is important when considering your estate planning objectives. Is it your vision for your children to take over the family business? Have you taken out life insurance to ensure that your spouse can pay the mortgage? Who will take control of your family trust after your death? When you own, or have an interest in, what are commonly referred to as ‘Non-Estate Assets’, additional planning is required.

An ‘Estate Asset’ is an asset owned personally in your name.  You may transfer ownership of Estate Assets in your Will to your preferred beneficiaries.  An Estate Asset includes any asset that you own solely in your personal name or (if with someone else) as a tenant in common.  Estate Assets can include real estate, personal belongings, shares, investments and/or cars.

If you do not own an asset in your personal capacity (i.e. in your name) then that asset is a ‘Non-Estate Asset’. Non-Estate Assets include:

  • assets owned with someone else as a joint tenant;
  • assets owned by a Trust;
  • superannuation or life insurance proceeds (subject to binding nominations and trustee discretion); and
  • assets owned by a company.

It is not possible to transfer ownership of a Non-Estate Asset by your Will as technically it is not yours to give away.  For example, company assets belong to all of the shareholders of a company, trust assets belong to all beneficiaries of that trust and superannuation does not automatically form part of your estate.

So, how do you deal with Non-Estate Assets and achieve your estate planning objectives? It is crucial to seek appropriate legal and financial advice with respect to succession of these entities and distribution of the relevant assets. Your lawyer and financial adviser will often work together with you in order to create a strategy to reach your goals and ensure that your legacy is passed on in accordance with your wishes.

PLEASE CONTACT

Contact us at bbv@bbvlegal.com.au if you wish to discuss this matter further.

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My Will Is My Business – The Essential Connection

We are constantly reminded of the importance of having a Will. The reality is, no adult is too young to make a Will and we must all confront our reluctance to plan for our succession.  Whilst the majority of us want to ensure that we provide security to our loved ones and our own legacy, many people never get around to actually doing anything about it.

So, what happens if you never execute a Will? Well, there are risks…

The most obvious risk is the complete loss of control of the distribution of your estate. If you die intestate, your estate is distributed in accordance with State Government Legislation. This means that your wishes or intentions have no relevance – the laws of intestacy dictate who gets your estate. Not only do you not have a say in who receives your estate, but you also lose control of imposing terms and conditions, such as age restrictions for beneficiaries to control their inheritance, implementing testamentary or special disability trusts or considering a fair and reasonable distribution between beneficiaries.  This gap between what the law says and what you might have wanted for your beneficiaries may quite possibly result in disharmony between beneficiaries and hardship for your administrator, as they try to navigate through administering an intestate estate.

Without giving thought to your estate planning, you also do not have a chance to properly consider binding death benefit nominations for your superannuation, Enduring Powers of Attorney for your financial affairs or Enduring Powers of Guardianship for your health and lifestyle needs.

Beyond considering your personal estate is the need to consider any assets that your business entities may own.  There is a wide misunderstanding about who owns assets that form part of any business entity.   If you operate as a sole trader, your business assets are your personal assets and accordingly do form part of your estate. On the other hand, assets owned by (for example) a trust or company belong to those separate legal entities and not to you personally.

The question then is, how do you ensure that your loved ones benefit from your business assets? Those persons in control of your business entity decide how the assets are dealt with.  It is therefore important to pass control of these entities to the right people, so that your intended beneficiaries eventually do receive the benefit of those assets.  This entails giving careful consideration to such mechanisms as gifting shares in a company or giving units in a unit trust to your intended beneficiary, or appointing that beneficiary as the successive appointor of your family trust.  If you die intestate and do not take the opportunity to give thought to whom or how you will pass control of these entities, you may leave your business (and possibly your family’s source of income) floundering.

As a shareholder of a company with multiple shareholders, it is vital to remember that if one of your fellow shareholders passes away and the shareholders haven’t addressed a succession plan for the company, then you could end up being in business with whomever inherits the deceased’s shares.  This may be his or her spouse, children or even someone entirely different. This can lead to significant disharmony and in turn could also lead to the company suffering financial loss and other prejudice because of a lack of proper management.  By implementing a business succession agreement (and the right insurances if necessary) or a shareholders agreement, one is able to ensure that they know exactly who they will be doing business with in the future and ensure the positive ongoing operation of the company and its officers.

It is quite clear – estate planning goes hand in hand with good business planning!

PLEASE CONTACT

Contact us at bbv@bbvlegal.com.au if you wish to discuss this matter further.

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Contested Wills

– The West Australian

Contested wills are among the most rapidly growing form of litigation in Western Australia.  Booming property values over the past ten years, along with enforced superannuation contributions, means that many older people are leaving behind life-changing amounts of money.  And the rise of divorce, de facto relationships and blended families makes for many more potential claimants than in the past. 

In my experience, as soon as the value of an estate exceeds $500,000, the likelihood of someone challenging a Will becomes very much higher, although I also see challenges to estates that are more modest.  And with the average family home in Perth worth over $500,000, many estates present high value targets.

The law provides that, so long as you are mentally competent, you may leave your assets to whoever you chose.  But this seemingly unfettered discretion is tempered by what the Courts have described as a “moral responsibility” to make provision for certain family members.  

The Family Provision Act, formerly known as the Inheritance Act, opens your will to challenge if you do not make “adequate provision” for the “proper maintenance, support, education or advancement in life” of certain family members. These family members include spouses – current, former and de-facto  – children, step-children, grandchildren and parents, to name the main groups.

 

The Supreme Court can, and often does, over-ride the wishes expressed in a will that fails to make adequate provision for these family members.  By allowing a successful challenge, the court can effectively rewrite your will after your death.

How do you avoid such a challenge?

Obviously every individual is different, and specific legal advice on your own situation should be taken.  The greatest complexity is that adequate and proper provision is different not just for every family, but for different members of the same family and at different times in their lives:  what is adequate and proper for the a young child of a multi-millionaire is different to that for an adult child with their own means with a more modest upbringing. But by way of a few general guidelines:

·        Make sure you leave adequate and proper provision for family members who could prove that they are even partially dependent on you materially.  For example, even though you may have a very difficult relationship with a step-son, if he lives rent-free in your granny flat and you don’t make provision for him in your Will, he may have a good case for making a successful challenge after you die.

·        Be a ‘wise and just testator’ as opposed to a ‘fond and foolish’ one.  Leaving $50,000 for the continued care of your beloved cat while making no provision for your defacto’s irksome daughter, who still lives at home, is an example of a Will that is open to challenge.

·        Explain your decisions in your Will or in another document clearly.  Such explanations can strengthen it against challenge.

·        Update your Will every three years.  Life moves on, relationships change, and what was once a sound plan of action may be overtaken by events. 

·        Be as open as possible with your children and beneficiaries about your plans for your estate and how much wealth you have.

This last point – conversations about inheritance – is worth emphasising.  Many parents avoid it, not wishing their kids to feel entitled, uncertain about their own intentions, feeling uncomfortable talking about their own death, or for various other reasons.  Children, similarly, may feel awkward, not wanting to appear greedy, believing ‘it’s Mum and Dad’s money after all,’ and so on.  A recent study by UBS Bank Investor Watch in USA revealed that only 54% of people had discussed estate plans with their children, and only 34% told their heirs how much money they had.

From a legal perspective, the fewer unresolved issues there are, the less likely a legal challenge.  Discussion not only clears the air, but by identifying potential problems down the line, a parent can make a plan that’s legally more robust.  All of which enables the smooth transfer of assets in accordance with your wishes.

As always, sound legal advice at the outset is the best possible step you can take.  A properly drafted Will can prevent disputes, whereas a poorly drafted or inadequately thought out Will is fertile ground for protracted, expensive and acrimonious litigation.  Legal advice, and open conversations with your family, are the key.

PLEASE CONTACT

Bowen Buchbinder Vilensky Lawyers: (08) 9325 9644 or bbvlegal.com.au

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