We are often asked to prepare a Will that cannot be challenged. In the financial year ending 2013 approximately 30,000 Probate applications were made in New South Wales. Only a small percentage of those were challenged. Most of the time, there is no family provision claim, and the Will is therefore binding.
However when preparing a Will you need to take into account the people who might challenge your Will. This is particularly important if you are in a blended family, for example a marriage where one or both of you have children that are not your spouse’s children. The most common disputes occur between the deceased’s children and the surviving spouse who is not the ‘natural’ parent of those children. Another potential issue is, what if you die while you are still young, and your spouse re-marries, and dies before their new spouse?
In short, if you want to protect against challenges to your Will, you can do several things, such as:
- Leave a written statement to assist in defending your Will
- Enter into Mutual Contract Wills
- Set up a trust
- Obtain consent from the Supreme Court
- Enter into a Financial Agreement covering what would happen in the event that your relationship ended, and what would happen when one of you died
Set out below is a short summary in regarding to those options.
We are often asked to act for an Executor who is defending a Will, but we do not have the information necessary to assist the Executor. If there is a person who is likely to make a claim, such as an estranged child, then we could assist you to prepare a statement in relation to that person setting out the factors that are relevant when you are preparing your Will. Your executor may not know this information, or if they know the information the person making the claim may say that their understanding is incorrect. A statement from the deceased person can be very helpful and in some respects powerful.
Mutual Contract Wills
While these documents have some inherent problems, many clients want to create a contract to ensure that they leave their assets to their current spouse but on the death of that spouse, their share goes to their children. If this is your intention then a mutual contract will is what you have in mind. What this contract would provide is that neither party can revoke the Will without serving notice on the other, and that notice can’t be served after the party had died or lost capacity.
This would allow the surviving spouse to use the Estate as they please, for instance to sell it to buy into a retirement village, or mortgage against it. But on the death of that surviving spouse, all property owned in that person’s name would have to be dealt with in accordance with the mutual contract wills. Unfortunately mutual contract wills are still considered to be open to a family provision claim. Again, they are binding until that challenge is made. If the deceased had changed their Will then the beneficiaries could approach the Court and seek enforcement of the contract, but if there is an eligible person under the family provision legislation such as a new spouse the contract will not always defeat that future claim.
A more effective way to ward off a family provision claim is to set up a family trust in your mutual contract wills, appointing your spouse as trustee, and allowing them broad powers to use and invest the assets during their life but on their death the assets held in the trust would pass to your beneficiaries. They have to serve notice on you during your life, or if the spouse is going to make a family provision claim, they need to do it within a year of your death. It is less likely that your spouse would challenge your will, than that their new spouse would challenge their will.
In relation to mutual wills, the Court has suggested that a Capital Gains Tax liability may arise as a result of the mutual contract wills. There would also be costs associated with setting up a Trust. Before entering into them you would need to obtain tax advice about that. You would also need to sever any joint tenancies, for instance in real estate or bank accounts.
You can seek the approval of the Court for an agreement. The Court will not ‘rubber-stamp’ a release, there must be some advantage, financial or otherwise, to the parties. A classic example of this consideration might be, a family law financial agreement (dealt with below), a payment or gift to one party, or perhaps changing a Will from leaving assets to the children, to leaving all assets to the spouse but on the basis that the assets would then go to the children. This court approval will not preclude the Court from taking into account future life changes, such as a future spouse.
Family Law Financial Agreement
It is possible to enter into an Agreement under the Family Law Act providing what would happen if your relationship came to an end, and what would happen on the death of either party. These Agreements also are not binding on the Court, but are taken into account and have the benefit that both parties have received independent legal advice. You can approach the Court for approval of the Financial Agreement, but this would probably only work for the death of the first spouse, and not the death of the second spouse. The Court will not be bound in the approval by circumstances that are not yet known to them (that is, the further spouse of the widow).
The other use of a Family Law financial agreement is, if you are the surviving spouse, you should obtain one of these agreements upon entering into a new relationship, and if necessary seek Court approval for that later agreement. This means you trust that your spouse will do if you die, it is more effective because the Court would at the time of giving the approval be aware of the circumstances of the widow/er’s new spouse and could bind that new spouse.
Inter Vivos Trust
This is a trust created during your life. It has the benefit of being binding even against family provision claims. It has the disadvantage that it is usually expensive, not only in terms of advices from lawyers and accountants but also stamp duty that would have to be paid on changing the ownership of the assets into the name of the trust.
So what do I do?
In the current legal landscape, you cannot absolutely bar any claim in the future, except for with an Inter Vivos trust. If you don't want to do this, you could:
- agree with your spouse to enter into mutual contract wills, providing that you will each create a trust on your death giving your spouse use of the assets, but leaving your estate to your children; or
- do an ordinary will but agree that on entering into a new relationship the surviving spouse will approach a family lawyer about entering into a family law agreement and obtaining approval from the Supreme Court ; or
- do an ordinary will but prepare a written statement relating to a person you already know who you feel may make a claim against your estate
Alternatively, you could trust your spouse to take whatever measures they consider appropriate in the future, or you could consider leaving some of your Estate to your children now so that a future spouse cannot inherit it. There is unfortunately no single perfect answer for every situation and you should speak with one of the solicitors at Coode & Corry about the best option for your individual situation.
Make an appointment
You should make an appointment to come and speak with Hamish Williams about your Estate planning needs. He can talk about the various advantages and disadvantages of the abovementioned options, and you can make an informed decision about your asset pool and your families needs.