This is a question that we are often asked.
You may be in a blended family situation, or may have a child who has become distant from you, or you may have a large estate and concerned that your children will fight over it when you die.
The Inheritance (Family Provision) Act ("the Act") provides that certain people can bring a claim in the Supreme Court against the estate of a deceased person, if "adequate provision" has not been made in the will for that person's "maintenance, education or advancement in life".
These are the top 12 ways in which you can avoid an inheritance claim being made against your estate.
- Spend it all before you die
The less estate you have when you die, the less there is for your children and other potential claimants to fight over. Fortunately, some of our clients are able to achieve this outcome without too much effort or advice from us!
- Make a balanced, fair will
Making a fair will does not necessarily mean dividing your estate equally among your beneficiaries. What it may mean is that you ought to be realistic about who has a proper claim on your estate and make a will accordingly. Here obtaining legal advice is the key.
- Move assets to a different jurisdiction
If you're fortunate enough to be able to own assets in different jurisdictions, you may be able to avoid a family provision claim by shifting assets or transferring them into a jurisdiction which does not have the equivalent inheritance family laws.
- Gifts during life/life tenancy
An effective gift of an asset during your life means that the asset will not be legally owned by you on your death and therefore does not form part of your estate upon which a family provision claim may be made.
- Joint tenancy
Similarly, assets you may hold as joint tenants with your second spouse or other persons (eg your children from a second marriage) do not form part of your estate. A joint tenancy can apply to any real or personal estate. Property held as joint tenancy with the intended beneficiary passes to that person or those persons automatically by right of survivorship and does not form part of your estate.
- Gift secured by a rent charge
One option which you find appealing is to make a gift of an asset (for example, the family home or other real estate) to a beneficiary and then require the beneficiary to provide an annuity or pay a rent charge to you for the remainder of your life. Legal title passes to the beneficiary during your lifetime, but you derive a benefit in the form of income from the gift which can maintain your during the rest of your life.
- Creating a liability for the estate
One way to achieve this is to establish a discretionary trust specifically tailored for a particular beneficiary and members of the beneficiary's family with the succession provisions hardwired into the trust deed so that the favoured beneficiary gets control on your death.
You may borrow money over the security of the family home and that money is then settled into the trust.
Upon death, the favoured beneficiary gets control of the trust with the cash in it, and the estate is left with the family home as an asset encumbered with a debt, which it has to pay from the sale proceeds leaving the balance (if any) available for attack under the Act.
- Survivorship provisions in partnership agreement
If you own an asset in a partnership (for example a business) you can ensure there is a provision in your partnership agreement that on your death your partner or partners succeed to your partner's beneficial interest in the partnership, thereby excluding that interest from your estate.
- Discretionary trusts
Putting assets in a discretionary (or family) trust means the asset is owned independently of you and does not form part of your estate upon your death. You can still maintain control of the asset as the trustee of the trust during your lifetime and can pass on that control in your will without the risk of there being a claim made against the asset.
- Life insurance
If you have a policy of life insurance on your life and the policy provides for the payment of an amount to another person when you die, this does not form part of your estate for the purposes of the Act.
Superannuation funds are governed by legislation which does not enable contributors to nominate a beneficiary of the member's entitlement and provides that any lump sum benefit must be paid by the commissioner to the member's legal personal representative, or, if none can be found, to any individual or individuals as the trustee determines.
- Gifts made in contemplation of death
If you own significant personal property, you can make a gift to a beneficiary before you die in contemplation of your death (called a donatio mortis causa) which is not part of your will and therefore cannot be attacked under the Act.
For such a gift to be effective you must:
- Make it in contemplation, but not expectation, of your death;
- Intend that the gift should not be absolute until you die; and
- Part with the dominion (control or ownership) over the subject matter of the gift.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.