self-managed superannuation fund administrators

The Estate Planner

The Estate Planner

 

The Best Laid Plans…Untitled

De Facto relationships and

estate claims

 

We often hear of people who meet later in life and, having heard “horror stories” of claims by new “de facto” partners, take careful steps to protect their assets for their adult children. It is not uncommon for a couple to retain their independent residences, and ensure their finances are kept separate, in an effort to avoid that “De Facto” label. They may go so far as to make a Will leaving all their Estate to their children, possibly subject to a specific gift or provision for that close companion in an effort to avoid a claim. And then, that very careful person passes away. And those very carefully laid plans begin to unravel. . .

In the recent case of Semmler v Todd [2015] VSC 567, her Honour Justice Zammit confirmed that a loving and close relationship, underpinned by an emotional commitment to each other, even if they did not live together, may give rise to a moral obligation to make financial provision.

The question of financial need may also be an essential element in a successful claim, however recent cases indicate that this is somewhat subjective, and may depend on the size of the Estate. In Semmler, the plaintiff was unsuccessful in her claim on the basis that the Estate was relatively small (around $280,000 after legal fees), and the adult children of the deceased named as the beneficiaries in his Will were in greater financial need than the plaintiff. However, compare this with the judgement in the case of Unger v Sanchez [2009] VSC 541, in which the plaintiff, having assets herself worth around $Imillion, was granted the sum of $200,000 from an Estate valued at approximately $1.7million.

These types of cases are increasing with the continued prevalence of blended families and development of relationships later in life. The law in this area continues to develop with each judgement, and it is important to stay aware of new cases and developments to ensure that your intentions are carried out, and not overridden after your death.

Life Interests and Blended Families

One of the most common scenarios we come across in the Estate Planning area of our practice is that of the “Blended Family” A couple who may or may not have married, but each have children from previous relationships, and want to plan for their future to make sure that the survivor of them is “taken care of” when one passes away, but also to protect an inheritance for their respective children.  Brady family

Where the assets are plentiful and roughly equivalent, it may be possible to pass a gift immediately to one’s own children at the time of death without any significant detriment to the surviving partner. However, all too often this is not the case. One common strategy is the Essentially, a life interest allows the surviving partner to continue to enjoy the benefit of the assets during their lifetime, the only restriction being a restriction in the use or depletion of the capital. That is, the survivor can continue to live in the house, or can rent it out and receive rental income, or sell it and either receive income from invested funds or purchase a substitute property. The survivor cannot sell the assets and give the proceeds of sale away, or spend the money on a 10 year cruise (etc.). The assets continue to be owned by the Estate of the deceased partner, and then are distributed to the children when both partners have passed away.

There are, as with most things in life, limitations and “down-sides” to this structure. For example, it will only cover assets held in the sole name of the deceased. Jointly owned assets generally pass directly to the survivor as an absolute benefit. There may be tax implications of structuring superannuation (as one example) into a life interest rather than passing this directly to the survivor as an absolute gift. Depending on the difference in age between the surviving partner and the deceased’s children, it may create a situation in which the children may realistically miss out on their inheritance entirely (although it may pass to their children instead). It can also operate to form a continued _tie’ between the adult children and surviving partner, which in some circumstances is less than ideal.

Clearly, a life interest isn’t for everyone, and there are certainly other options to consider. However, it is a fairly popular _compromise’ for people in more complex family situations, and may be at least a starting point toward a comfortable position for many.

Chris Hill
LL.B; B.Juris; Oip.FP; CFP; TEP; LiV Accredited Specialist; SMSF Specialist Advisor
Principal
Hill Legal
Lawyers and Consultants
Disclaimer
The material contained in this publication is general reading only information and does not constitute advice on the subject matter. While every effort has been made to ensure accuracy, you should not rely on the information provided without seeking professional specialist SMSF advice on your individual needs and circumstances and the relevance and appropriateness of the ideas and strategies mentioned. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication and Hill Legal, Lawyers and Consultants will not be liable to the reader in contract or tort (including for negligence) or otherwise for any loss or damage arising as a result of the reader acting upon any such information or recommendation.

 

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