It is common for people who control valuable business or tax structures and entities outside of their estate to make provision for their family through those entities when they die, as opposed to leaving gifts to them in their Will.
A recent Queensland case highlighted where, unfortunately, this was not successful. The deceased was survived by his second wife and seven children from three different relationships. His estate was worth approximately $28million.
He did not make any provision for a number of his children in the Will and gave reasons for this. Several children made claims, but only one proceeded all the way to a trial. The reasons given by the deceased for not making any provision for this particular son were:
- He had purchased income producing properties for his son during his lifetime and had transferred the management of those properties to him.
- His son was a potential beneficiary under various discretionary trusts established by the deceased during his lifetime.
- His son had an indirect interest in other properties owned by a company established by the deceased, in which he was a shareholder.
- The son had an estimated net worth of $2.5million at the date of the trial.
The Court granted the son $3million out of the estate in addition to the substantial wealth he already had.
The judge’s reasons behind the decision included:
- There was no real prospect of the son receiving any distributions from the trusts of which he was a beneficiary.
- The deceased was misconceived in understanding the nature and estimating the value of the properties that he had passed to the son during his lifetime.
- It is a well-established principle that discretionary trust rights will not be taken into account in family provision claims because discretionary beneficiaries have no right or entitlement to any assets of the trust.
Therefore, if a Will-maker intends to make provision for a beneficiary through a trust, it is necessary to ensure that control of the trust also passes to the intended beneficiary when the Will-maker dies so the intended beneficiary is not reliant on others to receive distributions.
It is also important to ensure that a Will-maker’s reasons or explanations for their estate plan are clearly stated and accurate. If a beneficiary is excluded from a Will on an incorrect or misconceived basis, a Court will be more likely to overlook the Will-maker’s wishes and make further provision for the applicant if there are assets available to do so.
These issues highlight the need for a thorough analysis of the Will-maker’s assets, in which entities they are held and whether, or how, the Will-maker can achieve their objectives to pass assets, or control of assets, to their intended beneficiaries.
At Solari & Stock, we undertake a careful analysis of these issues and often need to consult with the Accountants or Financial Advisers of our clients in order to ensure our client’s achieve their objectives. If the objectives are not met, we ensure that steps can be taken to address these issues whilst the client is still able to do so, or alternative solutions can be recommended.
Ensure both yours and your clients’ legal affairs are in order. Join us at our free Wills, Powers of Attorney & Guardianships Seminar on 11 March 2015. Click here for further information and to secure your spot.