• More onerous revenue claims against wills/estates have led to the increasing desire to protect estates from future claims
• ‘Blended families creates potential for unhappy spouses and step children contesting the will

Anecdotal evidence suggests 2/3rds of Australians do not have a will: Townsend lawyers.

The current available survey evidence is that many adults in America do not have a will^[1].  Anecdotal evidence suggests the same in Australia.  Combine this statistic with the estimated two thirds of existing wills likely to be out-of-date owing to an individual’s changed circumstances, this leaves around 85% of adults without any means of adequately allocating assets in the event of death.

This is a tragedy.  Many of these people will let their families down by not having in place the proper arrangements to protect family members and minimise tax on both the estate and the family member.

There have been a number of significant social and regulatory changes which have led to the situation that even if one does have a current will in place, it may no longer suffice to cover all future eventualities.

What has changed?

Previously, the will was used to ensure certainty in the transfer of assets on a person’s death to their family, and to avoid any disputes arising from this process.

Now a number of factors have complicated the process:

• There has been a massive growth in the uptake of financial products such as discretionary and superannuation trusts and funds, that fall outside the parameters of a will.  One of the drivers of this growth has been changes in superannuation law making this vehicle so much more attractive from a tax point of view and as a safe haven from bankruptcy trustees.  A will cannot regulate how these trust assets will be distributed
• There has been substantial growth in litigation disputing the allocation of assets upon death by beneficiaries. Lawyers are even now specializing in estate challenges.  Courts have ruled that solicitors owe a duty of care to the deceased’s beneficiaries so that if the will has not been properly drawn those beneficiaries can sue the solicitor who prepared it
• The growth in the incidence of divorce and partnership breakdowns, leading to what is now called the ‘blended family’, has created the potential for unhappy spouses and step children to contest the will
• More onerous revenue claims against wills and estates have led to the increasing desire to protect estates from future claims
• Growing levels of wealth in baby-boomers sometimes held across different countries, in different structures, and even subject to claims by disparate beneficiaries from different families!

The result is that a significant proportion of ordinary people now need a comprehensive range of documents in an estate planning package to cover all eventualities after their death. A will has become only one of the documents a person needs to have in their portfolio to protect their assets for future generations.

An effectively drawn will and the other estate planning documents need not cost a fortune and will repay the set up costs many times over.

[1] http://west.thomson.com/about/news/2008/06/30/findlaw-survey.aspx

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Ross Higgins

Many things can go wrong when preparing wills and setting out clear instructions for dispersing an estate. Ross Higgins from Austock Life highlights some of the big mistakes that he see in his work with lawyers and financial planners.

1. Not achieving intergenerational wealth transfer objectives
2. Leaving your Will open to legal challenge
3. Not simplifying complex wills and estates
4. Dedicated purposes in estate planning – clear direction of your intent

“So what big mistakes are people making with their wills?

“What can upset the wishes of people when they die and lead to their wills being disputed?

“Is this a growing problem with blended families?

“I believe that contested wills and estate planning bungles are a big problem that some plain thinking and sensible planning can avoid,” said Ross Higgins, MD of Austock Life.

1. Not achieving intergenerational wealth transfer objectives

Testamentary trusts are a common vehicle to pass on wealth and can also establish a level of control beyond one’s death. These are not straightforward structures and are usually created under a person’s will. A testamentary trust not only requires establishing the trust under your will and finding ‘willing’ trustees, but can be impracticable for smaller dollar bequests. As a form of trust they also require annual administration and tax reporting costs and can be inflexible and costly to unwind.

As an alternative, parents (and especially grandparents) can use modern insurance bonds to plan ahead with “peace-of-mind” about how, when and to whom their estate’s wealth (or part of it) will be distributed to the next generation.

Some modern imputation bonds have special design features for passing money cleanly to children and grandchildren – and with the following advantages:

• allow for multiple beneficiaries with different entitlements;
• be tailored for meeting small and large bequests;
• are low cost; and
• operate in a low maintenance “set and forget” and tax-effective environment.

2. Leaving your Will open to legal challenge

Legal challenges can arise due to disgruntled beneficiaries and others left out of the Will, or someone just being unhappy and wanting to overturn elements, such as a charitable bequest. This can cause costly, lengthy (and unhappy) legal disputation.

There is a simple and tested solution though:

“It is better to place the money out of reach of the Will and put it beyond challenge. Modern insurance bonds are increasingly being used for making protected bequests and can even be done as ‘secret/confidential bequests’.  They can also be established for ‘set purposes’, which can be particularly useful to create inheritances for children and grandchildren.

“Because Insurance Bond Nominations can be set up as “excluded assets” from legal estates – therefore bequests made in this fashion can be put beyond Will disputes” said Mr Higgins.

“The other upshot of using Insurance Bond Nominations for non-estate bequests is that these can be made in secret because these types of inheritances are not subject to Probate procedures (and costs) and hence not brought within the public domain.”

3. Not simplifying complex Wills and estates

An Insurance Bond Nomination being outside the deceased’s Will and legal estate (and possibly made in secret) opens strategies to use a Nomination in conjunction with a Will, or as an alternative estate planning arrangement.

For instance you can use a standard Will for certain beneficiaries, but separately establish Insurance Bond Nominations to provide for other beneficiaries.  The Nomination could:

• provide for children of previous marriages or a new spouse’s children;
• solve potential conflicts and inequities between children and grandchildren that might be difficult to handle just under a Will; and
• privately (secretly) meet moral obligations to someone such as a good friend or trusted employee.

4. Dedicated purposes in estate planning – clear direction of your intent

“We are now seeing a significant proportion of our new business (just over 40%) invested into ChildBuilder bonds – and many of these are established with a “stated intended purpose” for the child’s or grandchild’s expected use of the investment’s proceeds.

ChildBuilder’s most common ‘intended purposes’ that Austock Life is seeing include:

• first home deposits and funding the move out of home
• education funding and job qualifications
• or simply starting a family

“A special innovation with ChildBuilder is an extensive menu of ‘intended purposes’ that parents (or grandparents) can choose from when establishing a ChildBuilder Bond” said Mr Higgins.

Specifying an intended purpose for ChildBuilder works in much the same manner as someone expressing non-binding instructions in their Will for the particular use of a bequest.

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What are non-estate assets?

• Jointly owned assets, such as the family home that automatically passes to a surviving spouse as joint owner
• Assets held through a family trust
• Life insurance policies – where a nomination of beneficiary is made
• Superannuation nomination benefits are also normally a non-estate asset

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