When making a will, it can be just as challenging for your client to decide who to leave out of their estate as it is to decide who is to benefit from it.
They might be driven to exclude someone as a potential beneficiary because of:
- A relationship breakdown;
- Having already provided the person with significant financial support during your lifetime; or
- Fears that they will simply squander any inheritance left to them.
This can lead to difficulties if your client is considering excluding a child from their will. Although their reasons for doing this may be entirely valid, their ability (or freedom) to do so is restricted by law. This is the case throughout Australia.
For example, in Victoria, an applicant can make a claim for a share, or a larger share, of the estate under Part IV of the Administration and Probate Act. In order to be successful, the applicant would need to show that the will-maker had an obligation or ‘moral duty’ to provide for the applicant’s maintenance and support in the ill and failed to do so. Where this is the case, the court can override the terms of a will to rectify the distribution of assets.
The ability to make a claim against an estate is restricted to applicants who can show they are an ‘eligible person’. Children and spouses of the will-maker are automatically deemed an eligible person while grandchildren, stepchildren, registered caring partners and members of the will-maker’s household may also qualify if they can show a dependent relationship with the will-maker.
The success of the application will depend on a wide range of factors, including:
- The nature and value of the will-maker’s estate;
- The financial circumstances of the applicant and other potential beneficiaries; and
- Material factors such as an applicant’s ability to support themselves or earn an income.
With this in mind, is it possible to prevent an eligible person who has been excluded from a will from challenging the estate? The short answer is no; however your client can take steps to minimise potential challenges.
There are a number of strategies that can be employed, depending on the reasons for excluding someone:
- If a beneficiary has already received significant financial support from the will-maker during their lifetime, the will-maker can provide details of that support and reasons for the beneficiary’s exclusion in a statutory declaration that accompanies the will. If a claim is made against the estate, the court must take this evidence into account when determining whether adequate provision has been made to the beneficiary.
- Where the will-maker is concerned that a beneficiary might squander an inheritance, a protective trust can be established for their benefit. The terms of such a trust would restrict the beneficiary’s share of the estate to be distributed for limited uses, such as paying for accommodation, healthcare, education and day-to-day maintenance. This prevents the beneficiary from having direct access to the assets, but still ensures that adequate provision is made for them under the will.
- A commonly held misconception is that claims against an estate can be prevented by leaving a small, nominal sum of money to the potential claimant. This is ineffective, as a beneficiary’s ability to claim against an estate will be determined purely by whether there was an obligation for the will-maker to provide for the beneficiary, and whether that obligation has been met.
- As the law presently stands in Victoria, an effective way to prevent a challenge to an estate might be to ensure there is no estate to challenge. This would occur if the will-maker had structured their affairs in such a way as to own few, if any, assets at the date of death. Assets that are owned jointly, or that have been transferred to a trust or other beneficiaries while the will-maker is still alive will be out of reach for any claimants against the estate. While very effective as a protection against potential claims, this strategy can involve significant taxation consequences and may not be suitable from a financial perspective.
Claiming against an estate can be a costly exercise. Often, it will be the estate that foots the bill. While the parties might resolve the dispute at mediation, if a claim proceeds to a court hearing, it can cost tens, if not hundreds, of thousands of dollars when you take into account the costs of all parties combined. Not only does this diminish the value of the overall estate, but a lengthy dispute will inevitably take a significant emotional toll on the beneficiaries.
Of course, your client doesn't have to be on thier own when navigating this, as professional advice can be very close at hand. If they are considering leaving a substantially lesser amount to (or excluding) a beneficiary under their will, or if they are concerned about a potential challenge to their estate, please contact Partners Legal.