Brian Hor
If the deceased’s Will conflicts with the family’s current circumstances or with the wishes of the beneficiaries they can take steps to change it.
There are many reasons why such a disconnect could arise.
There are many reasons why the terms of a Will can be changed:
- The deceased’s Will could be out of date and not reflect the current family dynamics
- The beneficiaries might want to re-arrange the distribution of the estate for tax purposes, or to improve the flexibility of access to their inheritance
- Maybe a beneficiary doesn’t think they’ve received enough and wants to make a claim.
It’s NOT too late to change a Will – even after death!
Although, there are a couple of little catches:
- the deceased themselves can’t actually update their own Will – because they’re no longer with us; and
- the new Will may not be quite what the deceased would have actually wanted – at all!
So, how can this actually be done?
Well, even if there is nothing obviously wrong with a deceased person’s Will, but after the Will maker’s death, one or more of the beneficiaries of the Will maker (or other interested persons) makes, or advises that they intend to make, a family provision application. As well, the beneficiaries may agree to alter the distribution of the Will maker’s estate under the Will, they may be able to enter into a so-called “deed of family arrangement”.
In order to avoid a claim being made against the estate, resulting in the estate being tied up in litigation for months or even years to the detriment of all concerned, the beneficiaries might enter into a deed of family arrangement in order to settle their claims in respect of the distribution of the deceased estate and effectively “rewrite” the Will by mutual agreement.
Some important points to note:
- the deed should be signed by all interested parties (including the executor);
- for greater certainty you could also seek the approval of the court to its terms;
- it is not necessary for a beneficiary to actually institute court legal proceedings in relation to their claim before a deed of arrangement can be entered into – a claim may be established by a potential beneficiary communicating to the executor their dissatisfaction with the Will;
- if the requirements of s 128-20(1)(d)(i) of the Income Tax Assessment Act 1997 (Cth) (the Act) are met, then there should be no adverse capital gains tax consequences of entering into the deed of arrangement;
- there may be stamp duty implications, although some concessions may apply, such as under section 63(2), Duties Act 1997 (NSW).
ATO Taxation Ruling TR 2006/14 provides further guidance for ensuring that the deed will attract the exemption under s 128-20(1)(d)(i):
- the deed must be entered into in order to settle a claim to participate in the estate;·
- any consideration given by the beneficiary must consist only of the variation or waiver of a claim to an asset or assets that formed part of the estate;
- the deed must be entered into prior to the administration of the estate being completed, unless the beneficiary can demonstrate that a court would, at the time the deed was entered into, have entertained their application for family provision, or an extension of time in which to make such an application (note that determining whether a court would entertain applications such as these depends on the succession laws in each State or Territory).
Note also that a deed of family arrangement can also be entered into whilst the Will maker is still alive. This might be done where the Will maker is expecting that one or more persons are likely to challenge their Will after they die, so the Will maker tries to get all his or her intended beneficiaries to agree in writing now on their entitlements to the Will maker’s estate after his or her death (and to agree that they will therefore not challenge the estate).
In this instance, the deed would need to be signed by the Will maker as well as all the beneficiaries, and the beneficiaries should be required to seek independent legal advice before signing the deed. However, note that in Queensland and Victoria, parties cannot contract out of their rights to bring a family provision claim, and therefore the deed will not be binding on the parties to the extent that it prevents them bringing such an application after the Will maker’s death. In NSW, it is also possible to apply to the court for an order approving the deed.
Again, note that there may be taxation and/or stamp duty implications which must be considered, depending on the final form that the deed takes.
The main downside of the Will maker entering into this exercise whilst they are still alive, is that persons who may not have actually intended to challenge the Will maker’s estate after their death may, once they learn of what the Will maker intends to give (or not give) them under their Will and/or once they receive independent legal advice about their potential entitlements under the Will maker’s estate, suddenly decide that they are unhappy with the Will maker’s intentions! This may mean that, not only will they not agree to sign the proposed deed of family arrangement now, but they may become determined to make a claim against the estate after the Will maker dies.
Another possible downside of this approach is that the circumstances of the beneficiaries may materially change between the date of entry into the deed and the date of death of the Will maker, rendering the distribution of the estate in accordance with the deed inappropriate.
Therefore, depending on the circumstances, the use of a deed of family arrangement whilst the Will maker is still alive may be a “two-edged sword”, and the Will maker should be carefully advised of the potential advantages and disadvantages of this approach.
By Brian Hor, Special Counsel, Superannuation & Estate Planning