Specific gifting and the risk of ademption

Chattels:

Wills with specific bequests of chattels ought to be avoided. If the assets are of particular sentimental value such as family heirlooms, then they need to be properly identified. It is always better to give a class gift in order to avoid misdescription. For example, what is to happen if the new Lexus is sold and another vehicle purchased in stead? The client should at least consider giving the jewellery, motor vehicles and war memorabilia as class gifts to her various children in order to avoid the failure of these clauses in the Will.

Devises of land:

Specific devises of land have more pitfalls than bequests of chattels.  By way of example; A principle place of residence is likely exempt from capital gains tax (see s118.195 Income Tax Accessment Act 1997 (Cth)(‘ITAA’). Upon your death, the estate will take the property at the value or “cost base” as at the date of the Deceased’s death. The same cost base is then passed on to the expectant beneficiaries (if distributed within the executor’s year).

By contrast; a holiday home  or investment property will likely not be exempt. Particularly if the holiday home was acquired after 20 September 1985 (the date Capital Gains Tax came into operation). This means that the cost base of the holiday property will be passed on to the beneficiary at the cost base the deceased acquired it (see s128.15(4) of the ITAA). When the expectant beneficiary disposes of the property there could be a significant tax liability attached to that asset. If this occurs the will makers testamentary intentions may not be fulfilled. Instructions need to be taken about this issue.

Considering Family Provision Claims in Estate Planning

When parties commence living in a  relationship an obligation to make provision for that partner begins. At the commencement of the relationship the obligation is slight however it becomes more onerous as the relationship develops. There is generally a presumption of advancement for de-jure spouses. If a client has instructed you to include a life interest in their Will. On it’s own, especially if the relationship continues for some time, a life estate may be regarded by the court as inadequate to meet a spouse or de-facto spouse’s future needs.

A de-Jure or a de-facto spouse, has standing to seek additional provision from a person’s estate. To minimise the impact of a potential claim, a defensive asset structure ought to be considered. Asset re-structuring may minimise the impact of a potential claim. For example, the assets may be transferred into the names of the expectant beneficiaries as joint tenants. In doing so they would pass by the law of survivorship to the surviving joint tenants and not be treated as an asset of the estate. They may be transferred into other legal entities; such as inter vivos trusts or companies, which the expectant beneficiaries can or will control. Taking quick action in respect of transferring or dealing with estate assets means that those transfers may not be treated as relevant property transactions, and fall outside of Part 3.3 of the Succession Act’s (NSW) notional estate provisions. The client ought to be advised to check the impacts on her entitlements to social security benefits when considering transferring assets to third parties.

Life interest and rights of occupancy in wills

Life interests create many layers of complexity in the administration of an estate. The taxation implications on a life estates are significant. They usually require specialist accountants or actuaries to quantify the cost bases of both the life and remainder estate. The life tenant may not have sufficient capital to maintain the estate asset for the benefit of the remaindermen. The remaindermen may need to support the life tenant to maintain the property and maintain the insurance on the same. This has been known to create onerous financial obligations on the remaindermen. The asset itself may fall into waste. If this is being considered you may wish to set up a fund sufficient to preserve the property. The creation of a life estate means the remaindermen will be waiting years to deal with the property. The client should consider the value of the life interest and that it may be cheaper to make provision by way of cash or a share in the revenue sufficient to allow their beneficiary to buy a small unit or build on the land they may already own. A right of occupancy may have less onerous tax implications because the occupier does not have the ability to generate income from the property. Due to the potential conflicts between the life tenant and the remaindermen it is advisable that you consider choosing the one or more of the remaindermen as the executor and substitute executors.

Who deals with your body when you die?

Disposal of Body

There is no property in a corpse. The legal personal representative of the Estate has the authority to arrange both the funeral and the disposal of  a persons body. There is only an obligation of consultation with the family and an obligation to identify a locality for the family to grieve. Unfortunately, it is commonplace for a testator’s family to deal with both the funeral and disposal of the body without reference to the Will. It is very important that you select suitable executors and provide a copy of her Will to them. By jointly appointing executors a conflict between executor may arise. It would be better to select the executor who is likely to follow your testamentary intentions. If you were concerned that your executor will deal with these matters without consulting with other family members then a pre-arranged or pre-paid funeral may overcome the issue.