Death

Does marriage, separation or divorce affect my Will?

This blogpost is limited to New South Wales as the laws in each State and Territory differ in relation to these matters.

Marriage

If you get married after you sign a Will, the Will is revoked unless it is specifically stated to have been made in contemplation of that particular marriage taking place.

Marriage will not affect a gift to the person who is your spouse at your date of death or their appointment as your executor.

Entering into a defacto relationship does not have the same impact on a Will as a marriage, but this can give rise to other rights as regards the property of the relationship whilst the parties are alive (and claims in relation to the division of the estate on their deaths).

Divorce

Subject to the contrary intention being expressed in a Will, if you divorce after you make your Will, it only revokes or cancels any gift to a former spouse and their appointment as executor.

It will not however cancel their appointment as trustee of property left on trust for beneficiaries that include children of both you and your former spouse.

Separation

If you don’t update your Will after you separate, your spouse may inherit any property you left to them and they can still be the executor of your estate if named as such in theWill.

The take away

If any time your circumstances change (such as a birth or death in the family, a marriage, separation or divorce or a material change in finances for the better or the worse) you should consider whether your estate planning documents require any updates. It may be that no change is necessary, but it at least should be considered.

FURTHER INFORMATION

For further information in relation to Wills and estate planning, contact McKillop Legal on (02) 9521 2455 or email help@mckilloplegal.com.au 

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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No Will – dying intestate

If you were to pass away without leaving a Will, then your estate will not necessarily pass to the people that you may wish to benefit.

Dying without a Will in place is called dying “intestate” and the ultimate beneficiaries of your estate will miss out on important and valuable benefits that could have been provided had you put in place a Will such as asset protection and tax minimisation opportunities like those in Testamentary Trusts.

Making an application to the Supreme Court to deal with the estate of a person who dies intestate is similar to seeking a grant of Probate but it is called applying for “Letters of Administration”. If a Will is left but fails to appoint an executor, it is “Letters of Administration with the Will Annexed” but at least then the Will would explain who you want to benefit following your death.

In addition to the Summons, Inventory of property and Affidavit of Administrator, things that need to be provided to the Court include: proof of enquiry into the existence and whereabouts of any Will; the identity of the deceased’s eligible relatives (death, birth and marriage certificates); proof of notification of the application to interested persons; an affidavit regarding the relationship status of the deceased; and possibly provision of an administration bond.

The reason for this evidence of a spouse/domestic partner is that the law provides for a formula as to how an intestate estate is to be divided and a lot depends on the marital relationship of the deceased.

Chapter 4 (sections 101-140) of the Succession Act 2006 (NSW) provide that the statutory order of inheritance in relation to an intestacy is:

RELATIVES LEFT

​ENTITLEMENT

A spouse and no children

The spouse is entitled to the whole of the estate.

A spouse and child(ren) from that relationship

The spouse is entitled to the whole of the estate.

A spouse and child(ren) from a that (or a previous) relations​​hip

The spouse is entitled to receive:

  • the personal effects of the deceased;
  • a statutory legacy of $350 000;* and
  • half of the residue of the estate.

The spouse also has a ‘right to elect’ to acquire property from the estate.

All of the deceased’s children, including children^ from previous relationships and from the current spouse (whether they are from a previous relationship or from the spouse) are entitled to equal shares of the other half of the residue.

Multiple spouses

The spouses are entitled to equal shares of the estate (unless varied by Order or agreement between them). There may be more than one spouse if the deceased was married and had one or more domestic relationships/de facto spouses. Children get nothing in this case.

Children only (no spouse)

The children are entitled to equal shares of the estate. If a child of the deceased has already died leaving children (ie, the deceased’s grandchildren), the grandchildren are entitled to their parent’s share in equal shares.

No spouse or children

The deceased’s parents are entitled to equal shares of the estate.

No spouse, children or parents

The deceased’s full and half blood brothers and sisters are entitled to equal shares of the estate.

No spouse, children, parents, brothers or sisters

The deceased’s grandparents are entitled to equal shares of the estate.

No spouse, children, parents, brothers, sisters or grandparents

The deceased’s full and half blood aunts and uncles are entitled to equal shares of the estate.

No spouse, children, parents, brothers, sisters, grandparents, aunts or uncles

The deceased’s first cousins are entitled to equal shares of the estate.

No spouse, children, parents, brothers, sisters, grandparents, aunts, uncles or cousins

The State government is entitled to the whole of the estate.

* Adjusted by CPI. If this amount is not paid within 1 year from the date of death, the spouse is also entitled to receive interest on this amount.

^ Children who are not legally the children of the deceased (eg, step children) are not included. Adoptive children are included.

Special rules also apply in relation to indigenous persons.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to probate, letters of administration, estate planning or business succession, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice.

Please contact McKillop Legal to discuss your needs. Stay up to date – LinkedIn Facebook Twitter

Contract to Make Mutual Wills

A Contract to make Mutual Wills is an agreement between 2 parties (usually a husband and wife, but can be a same sex couple or a de facto couple) to make Wills in an agreed form.

Usually, they provide that the parties may not act such that those Wills don’t get given effect to, such as:

  • revoking or destroying the Will;
  • making a new Will; or
  • disposing of assets so that they do not pass to the agreed beneficiaries

without the consent of the other party (or the executors/administrators of their estate  if they have died).

Often they are put in place when the parties have had a prior marriage or marriages and there are children of the prior relationship/s and the current relationship.

The benefit of such contracts (or deeds as they often are) is that the parties can take some comfort in providing for the other during their lifetimes (for example by gifting their entire estates to each other in their Wills), but with the overall distribution of their combined estates (on the death of the last of them) passing as agreed in the Wills made pursuant to the document.

Where a party breaches the agreement (such as by changing their Will), that party (or their estate) may be sued by the other party (or their executors/administrators if they have died) for breach of contract.

Whilst mutual Wills can be an effective estate planning tool, they are not for everyone and they can cause unintended complications due to their inflexibility, particularly around subsequent marriages, children and unexpected events following the death of a party.

As with most things, there are also other options or alternatives to consider to get a similar result, including creating life interests in real estate or establishing trusts.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to estate planning, business succession or any other commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your estate planning needs.

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Buy/Sell Deeds explained

WHY HAVE A BUY/SELL DEED?

A Buy/Sell Deed is an agreement between the owners of a company or unit trust that upon the death or permanent disablement of a director or key person associated with a shareholder/unitholder, that shareholder/unitholder must transfer its shares to the remaining shareholders in exchange for payment.

The method of determining the price is agreed and the funding of that payment usually comes from the proceeds of insurance policies to be taken out for those risks by the shareholders/unitholders.

A Buy/Sell Agreement is not a general Shareholders Agreement or Unitholders Agreement so it does not regulate all dealings in relation to the company.

COMMON SCENARIOS A BUY/SELL COULD HELP PREVENT

Consider the following and how it may affect you and your company…

  • A shareholder dies and you as the remaining shareholder inherit an unintended (and potentially non-income producing) business partner such as the deceased shareholder’s spouse (as they receive the deceased’s assets via their Will), with company profits being paid out according to the shareholdings.
  • You have to buy shares from a deceased shareholder’s estate above their value.
  • Your family do not get the best price for your shares in the company.
  • The remaining shareholders don’t have available funds to pay out a deceased shareholder or a shareholder who can no longer contribute to the business due to total and permanent disability.
  • The business either needs to be sold or funds need to be borrowed by the remaining shareholders or the company to make the payments.
  • A key person to the company has died, leaving the company in the position of losing a key source of revenue, client relationships and knowhow, affecting the value of the company and its business and its viability in the future.

CERTAINTY

A Buy/Sell Agreement is designed to bring certainty in relation to the exit from a business as the result of death or permanent disability of a key person – certainty for an ill shareholder, a deceased shareholder’s family, the remaining owners and the company itself. Don’t leave it to chance.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to Buy/Sell Deeds, Shareholders Agreements, any or any commercial dispute or issue, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your legal concerns or objectives.

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Superannuation Death Benefit Nominations

Did you know that on your death, your superannuation balance will not necessarily be dealt with in accordance with your wishes unless you have a valid beneficiary death benefit nomination in place. That’s right, your Will probably doesn’t have any effect as regards your super.

The trustees of most super funds have a discretion as to who to pay a benefit to and usually, the fund rules specify the member’s dependants as the class of beneficiaries to be considered first, with the trustee to determine the amounts/proportions.

Imagine what happens if you are separated (but not divorced) and you are living with another person (as a de facto) – a dispute could easily arise. What if you have children? What would/should the split be?

If you have no dependants, the trustee will likely pay it to your estate, but why take the risk? and does your Will adequately deal with that asset?

To minimise disputes and avoid applications to the Superannuation Complaints Tribunal or the Supreme Court of NSW, make a nomination. There are generally 2 types: Non-binding and Binding

NON-BINDING NOMINATIONS

A non-binding nomination is an indication to your trustee of your preferences but it is, as it states – non-binding so the trustee can ignore it. This can be a good idea if there are significant changes in circumstances before your death where you haven’t got around to updating your nomination. The trustee’s discretion could prevent it going to your ex or avoid the situation of you accidentally omitting one of your kids from a benefit.

BINDING NOMINATIONS

A binding nomination is exactly that – binding (provided that it is valid as at the date of death). There are 2 sub-categories of binding nomination: lapsing and non-lapsing.
  • LAPSING – Most funds provide for the lapsing type – these need to be renewed every 3 years or the nominations lapse.
  • NON-LAPSING – Some Self-Managed Super Funds (SMSFs) and some retails funds allow in their deeds for nominations that never lapse (unless you update it). Older SMSF Deeds and their Rules do not allow for the non-lapsing type and may need to be updated.

There are requirements for making any nomination legally valid, witnesses etc.

Speak to us about your estate planning and ensure your wishes are properly documented.

FURTHER INFORMATION
If you would like any further information in relation to superannuation death benefit nominations or updating SMSF deeds , please contact us on (02) 9521 2455 or email craig@mckilloplegal.com.au

So what actually is Probate?

WHAT IS PROBATE?

An application for Probate ought generally to be made with the Supreme Court within 6 months of the date of a person’s death. If more than 6 months has elapsed, the Court may require evidence in the form of an affidavit explaining the reasons for the delay.

Many entities that record asset ownership (such as the Department of Lands, banks, aged care facilities and share registries) will not release or transfer the assets of a deceased estate until Probate is obtained. If real property (land) is involved, a Grant of Probate will be required.

HOW DO YOU APPLY FOR PROBATE?

Probate is obtained by making an application to the Supreme Court. Documents including a Summons, Inventory and Affidavit of Executor are filed and various notices are published. Most people use a lawyer to do this for them.

If the executor’s application for probate is approved or granted, the executor is given a sealed document called a “Grant of Probate”.

If a deceased person does not leave a Will, their estate is not administered after obtaining a Grant of Probate however, a similar document called “Letters of Administration” can be obtained by family members, such as a surviving spouse or children. The estate is then distributed as governed by the laws of intestacy – a statutory formula for how a person’s estate is divided if they don’t have a valid Will.

IS PROBATE NECESSARY FOR JOINT ASSETS?

If the deceased person owned assets jointly with other people (such as a spouse), probate is not required to deal with those particular assets because, at law, those assets pass to the surviving joint owner immediately on the other joint owner’s death.

Where a deceased estate comprises only of a few assets of small value, it is common for banks and the like to dispense with the requirement to obtain a grant of probate provided that the executor provides an indemnity for any claim made by others for wrongly releasing the asset.

WHAT HAPPENS AFTER PROBATE?

After a Grant of Probate is obtained, the executor can get in all of the deceased’s assets, pay any estate liabilities and distribute the estate as required by the Will, subject to there being no unsatisfied claims by creditors or family members such as those under the Succession Act 2006. Often distribution takes place around 12 months after death.

WHAT DOES IT COST?

There are 2 aspects of dealing with an estate and the costs for each part are charged separately: the first part is the cost of obtaining Probate or Letters of Administration; the second party is actually administering the estate as required by the Will.

The cost of applying for probate is determined and fixed according to a scale set out in Schedule 3 to the Legal Profession Uniform Law Application Regulation 2015, with the cost being calculated by applying the statutory formula to the total value of the estate.

The costs of administering the estate after probate (selling or transferring the assets) are not capped, are usually charged at hourly rates and an estimate of costs should be provided.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to probate, estate planning or business succession, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

Wills with testamentary trusts – why you need one

WHAT IS A TESTAMENTARY TRUST?

A Testamentary Trust is simply a trust established by a person’s Will.  As opposed to more “simple” Wills, where beneficiaries receive the benefit of any gift personally, with a Testamentary Trust, the beneficiaries receive the benefit of the gift but rather than having it legally owned by them personally, a trustee holds the relevant asset in trust for them.

Wills with Testamentary Trusts are recommended by many lawyers, accountants and financial advisers for various reasons, including asset protection and taxation advantages.

ASSET PROTECTION

Because of the legal ownership being different to the beneficial interest, Testamentary Trusts can offer beneficiaries significant and important advantages such as asset protection. As the trustee of the Testamentary Trust owns the asset (not the primary beneficiary personally), creditors and trustees in bankruptcy of the relevant beneficiary cannot gain access to the asset.

Often, beneficiaries are in business for themselves and have implemented asset protection measures so as to keep their assets safe from claims by third parties. The last thing that beneficiary may want is to receive an inheritance in their personal name, effectively undoing all of their efforts to safeguard their assets!

There can be significant tax advantages in taking an inheritance through a testamentary trust, in addition to asset protection.

Testamentary Trusts can be drafted so as to have the beneficiary effectively control the trust and for that control to be relinquished on the occurrence of certain events, such as bankruptcy or divorce/marital separation, with a nominated person to act in the role of trustee whilst that incapacity remains.

TAXATION BENEFITS – INCOME SPLITTING

Rather than taking a gift in a personal capacity as would usually be the case with a more “basic” Will, with a Will that incorporates Testamentary Trusts, beneficiaries have the ability to split income earned among other people in their family such as spouses, children, grandchildren or any other company or trust in which they have an interest.

Where an estate has income producing assets such as an investment property, under a more “simple” will, the person who received that gift would have the income earned from that asset added on top of the income they already receive from their employment or investments. This could mean that they go into the next marginal tax bracket and pay significantly more tax.

A Testamentary Trust allows the income earned to be split amongst the various family members, many of whom are likely to either not be working (so the tax free thresholds become available) or earn lower incomes (and are therefore in lower taxation brackets).

Children that receive income from a Testamentary Trust are taxed at marginal rates as if they are adults (as opposed to the usual discretionary / family trusts, where they are taxed at unearned income penalty tax rates) so for a family with a non-working spouse and several children, significant income can be received whilst very little or no tax may be payable on the testamentary trust income.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to estate planning, business succession or any other commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.