Wills and Powers of Attorney
If you want some animated conversation at the dinner table ask the people there if they know of a situation where a person’s Will was successfully contested. We have all heard stories about undeserving people successfully challenging a Will and receiving a benefit that they were not entitled to. Think of an estranged child coming back to claim an inheritance after their parent passes away. Or a carer for an elderly person coercing them to change their Will and include them as a beneficiary.
This often leads to people questioning why bother putting a Will in place in the first place if it can be challenged. But fewer than 10% of all Wills are challenged and of those 99% of them are due to the following:
- Using a Will Kit
- Using a template from the internet
- Made by a friend who works for a Law Firm
- Made by a Lawyer who specialises in divorces or traffic violations
- Made a trustee estate company
- Made by a Lawyer in a large firm
The best person to help you with your Will is a specialist Estate Planning Lawyer. It’s a bit like having a heart complaint and instead of going to see a Heart Specialist you make an appointment with your local GP. They know the basics but can’t provide you with expert knowledge.
At BCV we send our clients to see Rohani Bixler, who is a Special Counsel with Burke & Associates. Rohani has experience with blended family scenarios, families with small business interests, vulnerable beneficiaries, beneficiaries with addiction issues and beneficiaries with disabilities.
She has provided us with a couple of case studies that highlight that taking the time to put in place a Will and Powers of Attorney can make a big difference to the outcome. Remember that any mistakes you make in your Will won’t be apparent until after you’re dead and it’s too late to fix them then!
Jack and Coraline were married with two children, but Jack also has a son, Chuck, from a previous relationship.
Chuck has significant mental health issues and decided that he did not want to have anything to do with Jack after Jack started dating Coraline.
Coraline has never met Chuck, and he has never met his half-siblings. Jack, Coraline and their children lived in a home Jack had purchased with his first wife (Chuck’s mother). When they divorced, Chuck’s mother took Chuck to live with her parents and told Jack she didn’t want any of his money.
Jack was tragically killed in a car accident. He did not have a Will.
Coraline contacted Jack’s superannuation fund and discovered that the last death benefit nomination he had signed was in favour of his first wife. This had lapsed, so Coraline submitted a claim with the Fund to receive Jack’s superannuation, however, the Fund decided to pay the death benefit to Jack’s Estate. Before they would release any money, they required Coraline to obtain ‘Letters of Administration’ (which cost her $3,000 with a lawyer’s help).
While Coraline was gathering the information for the application, she organised a title search of the home, and found to her horror that the house was in joint names between Jack and his first wife. As the first wife is still alive, Coraline’s lawyer informed her that legally the house would pass to his first wife by survivorship rules and therefore did not form part of Jack’s Estate.
And matters got worse … after she had filed the application for Letters of Administration to get Jack’s superannuation released, Coraline received a letter from Chuck stating that he was lodging a claim for provision from Jack’s Estate. As the superannuation had been paid to the Estate, these funds were subject to the legal battle from Chuck.
HOW IT COULD HAVE BEEN AVOIDED:
This all could have been very easily avoided by a few actions on Jack’s part during his lifetime:
- Making a Will so that his wishes on where his wealth was to be transferred after his death would be honoured.
- After divorce from his first wife, he could have easily transferred the property into his name. When he then remarried, he could have transferred it into joint names with Coraline ensuring that the ownership of the house passed to her on his death. (Noting that there would been no stamp duty or capital gains tax on that transfer)
- Updating his superannuation death benefit in favour of Coraline would have meant that Coraline would have received the full benefit of the superannuation on Jack’s death without risk of challenge from Chuck.
Michael and Penny run a family business together through a company. They are both shareholders and directors of the company. They jointly own their home and have a self-managed superannuation fund, which owns the business premises. They are the two members of the SMSF, and the two individual trustees.
Penny goes to visit her family in the UK and is in an accident while travelling in France one weekend. She is alive but slips into a coma.
Penny has a Will but has not done a Power of Attorney. Her Will is not relevant as she is still alive.
Michael is advised that the Constitution for their company requires two directors to sign off on all transactions. They have set up the company account to require two signatures on all payments over $5,000.
Penny does not have the capacity to sign or approve anything.
Michael doesn’t have a lot of cashflow and it is an expensive process to transport Penny back to Australia while she is still in a coma. He feels his only option would be to try to obtain a line of credit using the house as security, or to refinance their mortgage, however as Penny is a co-owner of the house, he cannot do either of these things without her signature, or a valid Power of Attorney.
Michael considers travelling to the UK so he can be with Penny there. However, he is advised by his accountant that if he and Penny are both in the UK for an extended period of time, the SMSF may run the risk of becoming non-compliant, as control of the Fund would be outside of Australia.
HOW IT COULD HAVE BEEN AVOIDED:
If Penny had signed a Power of Attorney naming Michael as her attorney, he would be able to sign documents on her behalf, enabling him to act in all of these situations.
The couple also would have been advised to check their company constitution to see if they can appoint a Company Power of Attorney, or alternatively ensure their individual powers of attorney would enable Michael to act in Penny’s role as a shareholder of the company to update the Constitution and allow a single director to sign and approve.
Michael could also use this Power of Attorney to update the banking arrangements for the company. In addition, the couple may appoint an alternate attorney to manage their SMSF on their behalf if they are overseas for an extended timeframe.