How to create an airtight will

Your wishes for your inheritance are legally stipulated in a will – but that doesn’t mean they will be honoured.

More and more wills are being contested. Mainly, due to children or dependents believing that they deserve a larger share of the will than what was stipulated. The Intergenerational Wealth Transfer between Baby Boomers and their children is estimated to be 2.4 trillion dollars. This issue is only going to become more common.

The most common reason to contest a will is on Family Provision grounds. Wills and Estate Lawyers Australia believe that on average, 74% of Family Provision Claims in Australia are successful.

Looking at these figures, it is more than likely that there will be a variation to how your assets are distributed when you die from what you intend. Here are a few considerations for estate planning and establishing your will.

What is the most common contest?

Family provisions is a claim that the estate is unfairly distributed. It is usually children that have been excluded from an estate. To make this claim, you must be considered an ‘eligible person’.

Under Section 57 of the Succession Act, an eligible person is defined as:

Surviving husband or wife of the deceased.
De-facto of the deceased.
Child of the deceased, including adopted children.
Former divorced husband or wife of the deceased.

Someone who was either:

Wholly or partly dependent on the deceased.
A member of the deceased’s household.
A person who was in a close relationship with the deceased.

These claims are raised when children are estranged, if they have married a partner that the parents do not agree with, or simply if they believe they deserve a larger share of the estate.

It can also come from carers – even professional carers – that may have received payments outside of contractual payments.

There are many circumstances for which Provisions can be claimed. Here are a few tips to making your will as airtight as possible.

1. Consider whether your bequests are what you actually want

Abbey John from Partners Legal Solutions believes that it is important to take a step back from the space you’re in when you are establishing a will and look at why you may be allocating larger portions to some dependents and not others.

Figure: Abbey John, Partners Legal Solutions. Source: Supplied

She explains that a very common reason is that some children may be living closer to parents while others might have moved interstate or overseas. Due to this, the parents may decide to give a larger portion to the children that tend to visit more often and take on the caring responsibilities. In her perspective, a reflection on the circumstances of each child shows that their limited contact is not out of malice or indifference, but the barriers of distance and time commitments. Many of her clients tend to revise their wills upon this reflection.

This can also prevent any ill-will or contests which will push family members apart, which may be the last thing that parents wish for after their passing. Depending on the size of the estate, distributing in equal portions when there is no strong reason not to will also mean the estate will not be reduced by legal fees incurred during mediation or court proceedings.
If a parent is appreciative of a dependent or child providing care, partial gifts prior to death may be a good compromise.

2. Ensure that you have it drafted by an estate planning lawyer

It is extremely important to have a legal professional construct your will. The cost for this can vary depending on the structures in place for the estate. Abbey gives an estimate of under $1,000 for a simple will, and upwards of $2,000 for more complex situations.
Complex situations might include complex asset structures, the involvement of trust or companies and blended families.

Going through this process gives you peace of mind that there are no contests based on ambiguity in the will, and also means that there will be an established process for housing your will. An estate planning lawyer will also be able to give you advice on structuring your assets to reduce the possibility of contests. They can arrange for your documents to be stored in a safe location.

Abbey explains that having it professionally drafted means that at a particularly emotional time in people’s lives after the passing of a loved one, it is important to have a plan with clear intentions to avoid as much ambiguity as possible.

3. Depending on the size of the estate, consider a testamentary trust

A testamentary trust gives the inheritance protection, rather than giving it to the dependent directly and in their own name. Abbey has used this with clients in a number of different situations. For example, if there are children involved that may need protection from themselves – such as if they have unhealthy habits or addictions. In some instances, the parents may not agree with a marriage and choose to use a testamentary trust to protect the inheritance from potential separation or divorce proceedings.

The trust means that there is a trustee that will make the investment or withdrawal decisions, and there is a benefit to this layer of protection in circumstances where the dependent should not have direct access to the assets.

Setting up a testamentary trust can be an expensive endeavour, so may only make sense for larger estates.

4. Have conversations with your family and make intentions clear

Encourage a conversation where the intentions of the will are verbalised. Although this has no legal validity, it will give a clear reference point to the wishes of the deceased and a starting point for constructive decisions about how these assets will be handled when the owner dies.

5. If your assets are mainly in cash, consider joint accounts

Abbey mentions that to make the transfer of assets easier, you are able to utilise joint accounts. This means that if there is a dependent that you would like the funds to go to upon death, opening a joint account with them allows them to access the funds immediately.
You can also use joint accounts with other asset types, but the sale of assets may trigger higher tax consequences that an inheritance may.

6. Spend the money, or gift it, before death

Nobody likes talking about death, but ideally, parents and children should discuss both the estate plan and the specific assets held. Transparency is beneficial. Most of the investors that I speak have an innate desire to better their children’s lives and are purposeful about planning bequests.

If a parent chooses to leave money to their children, they want the money to be useful. It is worth a conversation about the intentions for the funds because the tax situation can be managed prior to death. I understand that this is uncomfortable, but it can end up benefiting both parties.

Younger people are likely to have lower marginal tax rates. There’s another group of people that are likely to have lower marginal tax rates – those in retirement. Tax situations are unique, but in many cases a retiree will have a lower marginal tax rate than their children. If the funds are held in super, I’ve written an article that specifies the various tax treatments depending on your circumstances.

Proper planning can determine whether it is worth selling the assets while the owner is alive, pay the taxes and hold the funds in a way that will benefit the child the most. If the beneficiary wants to use shares to fund a mortgage, to travel, or any other goal that requires liquidating assets to cash, it may be a pathway worth considering. After all, it may bring parents joy to see their beneficiary’s lives enriched while they are alive.