10 things you need to know before writing your will
By Vanessa Walker
Are DIY will kits safe? Can you contest a will? What happens if you die without a will?
Apart from deciding who you want to leave your assets to and who to choose as executor, you need to ensure the document is protected from challenges.
Here, Paul Etherington, founder and principal of Etheringtons Solicitors, explains some estate planning fundamentals.
1. What constitutes a legal will in Australia?
For a will to be legal, it must be in writing, be signed by the testator (the person making the will) and be witnessed by two people who are not beneficiaries under the will.
A legal will is a document that should appoint an executor, give directions in relation to the testator's assets and liabilities, nominate the beneficiaries and provide for substitute beneficiaries in the event that the original beneficiaries pre-decease.
It can give directions for the disposal, cremation or burial of the body and can contemplate the possibility of re-marriage after the will has been made.
Essentially, the will is the document that would make provision for the people the testator is concerned about and ensure that their assets are distributed in accordance with their wishes, whether that is to a family member or a charity.
2. There has been a rise in the number of do-it-yourself will kits available. What dangers, if any, do they present?
A DIY will should only be considered as a stop-gap, for example, if there is an emergency where the testator is about to get on a plane the next day and cannot make an appointment to see a solicitor.
Wills are complex.
Simple errors can be made, such as when they are not signed properly or the witnesses are beneficiaries under the will (in which case the gift would lapse) or if the testator tries to give away assets they do not own or where the assets may be subject to a joint tenancy (therefore the testator doesn't have any choice in how that piece of property is to be transferred).
We have solicitors in this country who can be engaged for a sophisticated service at a reasonable fee.
[The truth is that] when a client begins to answer their questions, the complexity of the testator's affairs - whether it is in terms of relationships, children who were born in previous relationships, prospective challengers to the will or taxation issues - all become clear.
As a result of this complexity, the testator needs a professional who can clearly and objectively understand their circumstances and ensure that the will fits their situation and wishes.
This is not something achieved by a DIY will purchased at the Post Office.
3. What is the role of an executor? What should this person know before accepting this position?
An executor is vital to the administration of an estate. That person needs to be trustworthy and fair.
Generally, they would also know the testator.
Putting a trustee company in that role is appropriate for some, but not for the majority of people. This is because if an executor understands how the testator's family works and the politics within the family, they have a real advantage.
The executor's principal role is to work out the assets of the estate as well as the liabilities. They need to look at the needs of the beneficiaries; work out what assets have to be sold to satisfy debts; and how best to distribute assets.
They also need to consider keeping some assets in their original form, such as a piece of real estate, if a beneficiary does not want a particular item, such as a rental property, sold.
It is an onerous task, and estates can take one or two years or more to finalise. The executor usually does this as a 'love job' for the estate and, in particular, for the testator.
[It's important to note that] an executor is entitled to claim commission for their pain and suffering in the role, and this commission is assessed on the size of the estate. Dealing with beneficiaries who may argue among themselves may mean the executor becomes a referee or a mediator.
The executor also may have to defend the will if it's challenged, meaning they would be a party to litigation in the Supreme Court.
This can be stressful, so it's important to understand that asking a person to be your executor may seem like a simple request but in reality it can be complex.
4. What happens when people die without a will in Australia? How is their estate divided up?
When people die without a will, it's called an intestacy.
There have been some famous intestacies in Australia, such as Robert Holmes à Court, who died with his will in his briefcase - but unsigned. He was reputedly the richest man in Australia at the time, and it led to 20 years of legal challenges.
First of all, the estate has to appoint an administrator and that usually is the next of kin. (However, if there is conflict within a family and the next of kin is not the right person to be the administrator, others can make an application to be the administrator and the court would decide.)
The estate is then administered in accordance with a formula based on Latin law in relation to bloodlines.
Each State has some variations to this formula but, essentially, there is a bias in favour of: a spouse/de facto, then children, then parents, siblings, nieces and nephews, then children of nieces and nephews, grandparents, aunts and uncles and then cousins. And if all that fails, the estate passes to the Crown.
So, if the testator wants to ensure that their estate doesn't end up in the hands of a relative for whom they have no affection, or if they don't want it to pass to the Crown, then that in itself is a reason to make a will and to ensure it is kept up-to-date.
5. Do superannuation and life insurance beneficiaries need to be addressed separately to a will?
Superannuation generally falls outside a will and therefore outside an estate. If someone dies, that is a trigger point for the trustee of a superannuation fund to make a payment to a nominated beneficiary.
Those nominations are done by what's called a binding nomination. Some nominations lapse after three years and others don't. Why is that? Ask the Federal Parliament.
You can change your binding nomination from time to time.
However, most binding nominations need to be signed with two witnesses, in the same way that a will is signed, to minimise fraud. Some more enlightened superannuation funds will allow you to change your nominated beneficiary online.
If you want to direct your superannuation into your estate, then you need to nominate your 'legal personal representative' on the nomination form.
From a taxation perspective, in a regular spousal situation the testator would give their superannuation to their spouse because there are tax advantages in that spouse maintaining a pension from the other spouse's fund.
However, if a testator had a car accident in which they and their spouse died, and the testator had nominated their spouse without a substitute, then ordinarily the trustee would make the payment of the superannuation into the estate and then it would be treated simply as an asset of the estate and distributed in accordance with the will.
However, the trustee (usually an accountant in an insurance company) does have discretion as to who receives this gift (to which you may not be agreeable - but you are not there to argue).
In relation to life insurance, sometimes a deceased person is the only life assured and the policy can be owned by a spouse and the benefit goes to the spouse or another person.
Or if they were single and the owner of the policy, they may nominate someone in particular to receive the death benefit upon their demise.
However, if they directed that the death benefit be paid into their estate, that's when the life policy forms part of the estate and is distributed as an estate asset. But life policies can, in theory, remain outside the estate if the policy owner has nominated someone as the beneficiary who survives the deceased.
6. On what basis can people contest the validity of a written will?
A validly written will can be challenged on a number of grounds, such as:
• Duress: People can exercise coercive conduct and duress over a vulnerable testator, especially if that person is a senior citizen or has a disability.
• If the testator has a lack of mental capacity and didn't understand the nature of a will, the size of their estate and the extent of the beneficiaries that they should consider, then the will can be proven to be of no effect.
The most common way to challenge a valid will is when a beneficiary or someone who has missed out on being a beneficiary alleges that there is inadequate provision for them and their circumstances.
For example, a will may not provide adequately for a spouse or children. Curiously, in Australia in 1916, the Testator's Family Maintenance and Guardianship of Infants Act (replaced now by the Succession Act 2006) was brought into effect to ensure that husbands did not fail to adequately provide for their wives and children because, in those days, property was generally owned by men.
This legislation was quite novel and has gradually been taken up by many jurisdictions around the world. It enables the court to vary the provisions of a will if it has come to the view that inadequate provision has been made by a testator for people whom the testator should have provided.
The list of people who can challenge a will for inadequate provision is extensive, but there generally had to have been some financial dependency between the testator and the claimant at some point in the claimant's life.
That financial link can relate to a former spouse, a former de facto spouse or a person who was in a close personal relationship with the deceased at some point in their life.
This formula for defining an eligible person has led to a number of unusual outcomes, including where a very friendly lodger in somebody's home has been found to have been an eligible person and has been able to upset a will.
This was much to the disappointment of the children of the deceased, as the lodger argued he was resident at the home of the deceased at the date of death and needed to be provided for. The court agreed.
7. Who can challenge a will and on what basis (because the testator hasn't provided adequate provision for them or because they have been left out of a will)?
Challenging a will because of inadequate provision all comes down to the circumstances of the challenger and the deceased and the other people who primarily benefit from either the will or the intestacy formula.
For example, I have been involved in a case where a husband in a second marriage had a will that was out of date because the second wife received everything (and his property portfolio had grown considerably after the will was made).
He did not make provision for the children from his previous marriage. My client, his first wife - a mature-age university student with three children - was left out in the cold.
The will was challenged and, fortunately, the matter was resolved, because the solicitors recognised it did not affect a fair outcome considering the size of the estate that was available for distribution.
The other point is that if a testator has given away some of their assets in the three years before their death in a way that was designed to avoid a potential challenge to the will, then the concept of 'notional estate' comes into existence.
This means that if the testator has disposed of an asset, either for zero consideration or by giving it away, the asset can be put back into the estate for the purposes of assessing what should have been available for distribution among the beneficiaries.
Challenging a will is easy when the testator has not considered the people they should consider. The court will generally intervene to ensure that proper provision is achieved.
When a will is contested, litigants should realise that generally the costs of the court case come out of the estate. This means if you don't want the lawyers getting more than the beneficiaries, then settle the case early.
8. You have decades of experience in estate planning. What advice do you have for families wanting to avoid a feud over an inheritance?
Feuds are to be avoided.
Ensuring that the testator gives most people who are eligible to be beneficiaries a gift is one way of minimising the risk of a challenge as the court needs reassurance that you have considered people before you made a will.
If, on the other hand, the testator wants to avoid giving a beneficiary a gift at all - or one of very small value - the best thing to do is to set out their views in a statutory declaration when they sign their will.
That statutory declaration is not attached to the will, so it doesn't need to be seen by anybody, unless there is a challenge, and then it can be used in court for everyone to read.
In that statutory declaration, the testator can set out why they have not given a gift to somebody in particular. Examples could include:
• The person has been lent money in the past and didn't repay it.
• The testator believes the person has a drug or alcohol problem and that they spent considerable sums of money trying to assist in rehabilitation in the past; or they fear that any gift will be spent on that habit. Setting out reasons gives the testator the greatest opportunity to minimise claims.
9. In terms of practical matters, what estate planning steps should a person take in the first couple of days after the death of a loved one? Who should they notify and how?
I tell people to focus on the funeral and, if they want, they can approach a bank where the deceased held an account and provide a copy of the death certificate and generally the bank would allow for the funeral costs to be from a deceased's bank account, providing the payment is made directly to the funeral director.
There is no need to start giving instructions to a solicitor in relation to the estate immediately after the death.
The priorities are the funeral, the disposal of the body (cremation or a burial?), organ donation if relevant and making sure that the deceased receives a proper send-off.
The second step is stopping credit cards, freezing bank accounts, ensuring that income is still being received from the deceased's investments, making sure the executor has an understanding of the deceased's assets, liabilities and superannuation and then bundling all that up and delivering it to the solicitor.
10. What are their options when it comes to asking the estate to cover expenses for unpaid/overdue bills accumulated by the loved one, for example, council rates?
As mentioned, a funeral can be paid generally from a bank account of the deceased on production of a death certificate.
With other bills, an executor can write to a creditor and advise that the person has passed away but that the executor has the bill and it will be paid once probate is obtained. Most big corporations will accept that approach.
If the deceased had private health insurance, quite often there's a funeral benefit; perhaps there is one from the Department of Veterans' Affairs. If the deceased was a pensioner, Services Australia should be notified to stop the pension being paid into a bank account.
Organisations such as local councils and water and energy companies would allow the services to still be used to a reasonable extent.
They would also put a timeline on when they would expect to be paid and then they will start chasing the executor. If the executor does not communicate with them, they will be more assertive in their attempts to recover money owing.
But if the executor communicates with them and accepts that a debt exists, then they would act reasonably in allowing time to pay.
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