In the children’s story of the’ Magic Pudding’ by the Australian author Norman Lindsay, no matter how many slices were eaten, the pudding renewed itself. In life that is less likely to occur. But it is foreseeable that at different stages of life a person’s assets will vary. During working years many people take on a mortgage and also contribute to superannuation in anticipation that they will consolidate wealth after some years of paying down the mortgage and increasing their superannuation or savings.
As you might expect working out how to best divide your estate under your will when you remarry or re-partner, can be complicated especially if you have youngish children from a prior relationship and therefore a higher obligation to them than might exist say in 20 years’ time. So, provisions you make today may not be appropriate in retirement years while in the years prior to retirement you do need to take account of all your current parental as well as spousal obligations.
Think of your estate as a ‘Pie’, small or large, sweet or savoury. On your death how will it be sliced? Especially if you have several current obligations but there is only one ‘pie’ to cut. There may already be slices that have been committed and will be removed automatically on your death to pay debts leaving less for the beneficiaries. The more assets you have might make it easier to sort out how to slice your pie.
Real Property
Do you only own one property as the principal place in which you reside?
- Who resides with you?
- Your spouse/partner?
- Your children?
How Do You Own Your Real Property?
- In your own name
- As tenant in common in equal or unequal shares with your spouse/partner? If so, then on your respective deaths you each will own the specific share of the property as an asset of your respective estates
- As joint tenants if so, then on the death of one owner the survivor is entitled to the whole property.
- How do you provide for your spouse if the property was solely in your name or you own a specific share as tenant in common?
- Is there a mortgage obligation to be satisfied? Would your home have to be sold to pay out that mortgage? Or could a beneficiary arrange refinance in their own name?
- It is possible to give your spouse /partner a life estate or a right to occupy the matrimonial home so the property remains part of the asset of the estate for eventual distribution to your children. But it is important to consider if this is the most practical solution or might it lead to problems?
What is meant by: life estate/right to occupy?
- There is a distinction between right to occupy and life estate.
- If a person is given a life estate, that ‘life tenant’ need not live in the property but could for instance rent it out and obtain income or leave it vacant or whatever.
- Under a right to occupy the occupant with that right, can live in the property as their principal place of residence for long as they like but could not rent it out or vacate it to live elsewhere for any extended length of time.
- In either case it is possible under a will to allow a substitute property to be acquired by the life tenant or occupant, but that involves the trustee of the estate to be involved in sale and purchase.
How do you provide for your children if the property you own at death is held in joint tenancy with your spouse?
- This is a common situation where a person has children from their first marriage and on remarriage buys property with their new spouse as joint tenants. On death of the first joint owner, the survivor ordinarily becomes solely entitled to the jointly owned property.
- This leaves the children of first marriage with little expectation they would benefit from the surviving partner’s estate in due course especially if there are competing interests of other children from the surviving partner’s first marriage or children born of the second marriage.
Are there mandatory obligations to benefit your children?
- If you fail to make satisfactory provision under your will to an ‘eligible person’ that person has a right to pursue a claim under Family Provision sections of the Succession Act NSW.
- Eligible persons include your spouse and children.
- Being an eligible person does not guarantee the right to a share in the estate of a deceased person. There is a further issue for consideration namely that of the comparative financial needs of claimants against the estate and the relevant beneficiaries of the estate.
- The potential entitlement of an adult financially independent child would not usually be the same as the entitlement of a minor child or one with special needs.
- Another factor for consideration is the size of the estate.
What about superannuation interests?
- When you die before your superannuation has vested, then distribution of the Superannuation entitlements of the deceased is determined by the trustee of the superannuation fund.
- Superannuation entitlements are not automatically an asset of the estate but can be distributed to appropriately entitled dependents of the deceased.
- Every person in a Superannuation fund has the right and should make a binding death nomination about which person or persons they nominate to receive their superannuation or the superannuation member can direct the Superannuation entitlements to be paid directly to the estate to be distributed according to the person’s will.
- Under superannuation legislation only certain persons are eligible to receive Superannuation entitlements direct from a Superannuation fund. You cannot create a binding death nomination leaving superannuation to your parents or siblings or niece or nephew. If you want to benefit persons not eligible under the legislation you must direct your Superannuation entitlements, be paid to your estate to be dealt with under your will.
- There are tax consequences relevant to the final distribution of the superannuation which may be one factor in making a decision as to whether your spouse, your children or your estate should benefit from your superannuation.
- If the superannuation is a substantial asset then it may be worth having it paid into your estate for distribution according to your will to satisfy competing obligations of your family.
Periodic review of your circumstances
A will is important. While sometimes the decisions relevant to making a person’s will are straightforward at other times the issues can be much more complex. Some people put off making a will because of possibly a subconscious fear of thinking about death. There is an old saying that death and taxes are inevitable. Think of making a will as a form of insurance for the future not because of any likely immediacy of death but just to have that protection for your family in place.
Every person’s family situation is unique to them and at the time of making your will, it is important to give consideration to what in the foreseeable future will protect your family in the best way. It is also important to be mindful that as your circumstances change over time you should review your will to see if it still meets your families needs in the best manner possible.
If you or someone you know wants more information or needs help or advice, please contact us on 02 9699 9877 or email [email protected].