Concerned about potential challenges to your estate? There are numerous strategies to mitigate, and sometimes eliminate, the risk of a contested Will. Will disputes, claims for further provision and challenges regarding testator family maintenance often stem from individuals feeling they haven't been adequately provided for in a Will. Evaluating your assets, their ownership structure, and the rationale behind your testamentary decisions are pivotal in minimising these risks.
What assets are exposed?
In most jurisdictions, only assets owned solely by you become part of your estate upon your passing. In comparison, jointly owned assets pass directly to the surviving joint owner, shielding them from estate claims. Many opt to restructure asset ownership to mitigate risk, though careful consideration and professional advice are imperative due to potential tax and duty implications.
Trust assets
Assets held in trusts, like family or discretionary trusts, aren't personally owned, offering protection against estate claims. However, outstanding amounts owed to you by a trust, such as unpaid distributions or loans, could be contested. Proactively addressing such issues is crucial in pre-empting potential challenges.
Unfortunately, people often focus on tax effectiveness and forget to “play out” how their trust structure and personal estate will interact upon death. This oversight can lead to undesirable outcomes when outstanding loans or unpaid present entitlements haven’t been maintained or appropriately forgiven under the Will. Consequently, the trust may have to liquidate significant assets to repay the estate.
Injecting significant cash assets into an estate post-death can increase the risk of disputes and challenges. Furthermore, it may result in nest eggs that were set aside in trust for future generations being unexpectedly liquidated and paid out as fixed entitlements to beneficiaries under the Will.
Careful consideration and professional advice are needed when considering how to deal with unpaid distributions or loans as part of an estate plan, as legal and tax implications often arise.
Superannuation and the importance of the right death benefit nomination
The distribution of superannuation funds after death hinges on a valid death benefit nomination (DBN). A valid binding DBN mandates the trustee to follow specified instructions, while without one, the trustee decides the distribution. Reviewing and updating your DBN to ensure it aligns with your wishes and prevents assets from entering your estate is essential for mitigating estate risks.
Stating intentions
Clarifying the rationale behind your testamentary decisions can bolster defence against challenges. Jurisdictions often require courts to consider these reasons when assessing claims. Options for documenting these reasons include separate affidavits or statutory declarations, which are advisable over including them in the Will to maintain privacy and potentially deter emotional responses or challenges.
Unique provisions in New South Wales
In New South Wales, specific provisions empower courts to reclaim assets transferred out of an individual's name within three years before their death without adequate compensation, especially when the estate lacks sufficient funds to meet potential claims. This extends to superannuation benefits not passing directly into the estate. Therefore, meticulous planning and asset structuring are imperative in this jurisdiction.
There are no such provisions in Western Australia (for the time being).
Key points to remember
Strategic asset ownership structuring and transparent reasoning behind testamentary decisions can significantly reduce the likelihood of successful estate challenges. Regularly assessing your estate planning arrangements, including DBNs, can pre-emptively identify and address potential vulnerabilities.
It’s also imperative your legal, accounting and financial advisers communicate effectively, to properly understand your structure and intentions, ensuring key issues and risks are considered ahead of time and mitigated as much as possible.
While the strategies discussed are general, seeking tailored advice based on your circumstances is crucial. The internationally recognised Private Clients team at Hall & Wilcox offers extensive expertise in simple and complex estate planning, navigating Will and trust disputes and managing claims for further provision, including asset restructuring and rationale documentation.
Want to know more? Get in touch with McLane.
