Wealth and longevity pose new challenges to estate planning

By James Dunn

Some of Australia’s wealthiest families have been embroiled in disputes over deceased estates, but far from the headlines is a story of increasing acrimony and legal action from families disputing wills.

The property boom of recent years means that a modest family home in a capital city may be so valuable it is worth fighting for a slice of the sales proceeds.

Australians are living longer – which means they have built up considerable assets – and, due to compulsory superannuation, the superannuation death benefit may be the largest asset in the estate.

Sydney barrister Therese Catanzariti says the growing size and nature of estates are two of the main reasons why challenges are on the rise.

“Australians are living longer, and there’s more time to build up assets. Also, if people are dying later, they can have children whose lives have become radically different,” she says.

“Previously, when people died at about 60 or 65, their children were often at similar stages of all having children, having jobs and a mortgage [and] paying school fees.”

People dying at about the age of 90 can have children who are in very different circumstances.

There could have been divorces, second relationships, health problems, career disappointments and so on.

Some of the siblings may be financially successful while others are struggling.

Personal relationships with the deceased can vary widely.

There could be children living interstate or overseas, and one living close to mum who over the years has provided an enormous amount of help – while the other children see her once or twice a year.

“The others don’t love mum less, but they’re not here and not at her beck and call,” Catanzariti says.

An estate divided equally can be seen as unfair by the child who has been more involved with caring for older parents.

Inevitably, personal resentments arise, and these can be compounded by the financial differences.

An inheritance can represent the last chance to get enough money to either put a deposit on a house, or to help their own children buy a house, Catanzariti says.

“We’re dealing with human nature, and there are a lot of people who are willing to challenge a will to get more money if they convince themselves that the will is unfair.”

Expanded criteria for claimants

Kimberley Martin, director at Worrall Moss Martin Lawyers, says that over the past decade, the scope of the Testator’s Family Maintenance legislation has been greatly extended.

In virtually every jurisdiction in Australia, there have been amendments that have expanded the scope of who is an eligible claimant, although some jurisdictions have gone further than others.

Martin gives the example of her own state, Tasmania, which in 2017 expanded the criteria for eligible claimants to include stepchildren.

Prior to 2017, if a couple were together when one died and they had children from a previous relationship, those children would have to challenge the estate if the deceased left everything to their second spouse.

The children had no claim on their step-parent’s estate if he/she left all the assets inherited from their parent to other children.

“The 2017 extension opened up a completely new avenue for stepchildren in Tasmania to be able to challenge the estate of a deceased parent’s partner.

“A similar broadening of eligibility has happened in other jurisdictions, so in scope to challenge there has definitely been an increase – and this scope will continue to increase,” Martin says.

 

"The law relating to will challenges in Australia is state-based, but in some states... there is a big disincentive to make a claim against a will because if you lose, you may not get your costs paid." 

 

The grey area of de facto relationships also comes into play. Catanzariti says many older people re-partner after the death of a spouse, but they often don’t remarry.

“De facto relationships is really a fraught legal area, whatever the age. It’s not uncommon for older people to re-partner, but not necessarily tell their children that they are living with someone in a de facto relationship. That can be a complicating factor if a will is changed.”

The far greater prevalence of blended families means that more people may feel they should be recognised in a will.

However, while estate lawyers all have cases of the second spouse against the first children, or the first children against the second children, opinion is divided about whether these are the biggest disputes.

“I don’t actually think it’s as big a catalyst as people think,” says Catanzariti.

“In my experience, and I believe many estate lawyers would concur, the most contentious disputes over wills are between siblings.”

Who pays when challenging a will?

The cost of challenging can, however, still be a barrier.

Franco Camatta, director at law firm Camatta Lempens, says more people ask about challenging a will these days, but there is a “natural brake” coming to bear on challenges by the increasing reluctance of courts to allow legal costs to come out of the estate.

“The law relating to will challenges in Australia is state-based, but in some states, for example South Australia and New South Wales, there is a big disincentive to make a claim against a will because if you lose, you may not get your costs paid,” he says.

You will likely not only have to pay your own costs, but you could have to pay the estate’s costs if the court thinks that you have acted unreasonably in the process.

“If you challenge without a very strong basis, you could end up holding the can,” Camatta says.

The rise of “entrepreneurial” law firms advertising for will-challenge customers – often on a “no win, no fee” basis – is also a driver of challenges, says Catanzariti.

She sees cases where if a matter went to court, the claimants would never get any money, but are “encouraged by these firms to bring proceedings, knowing people will settle.

Some of that activity is, frankly, spivvy, and we have all seen quite reprehensible things in this area of the law.

Sometimes, it is better for those firms to be involved than for nobody to be involved,” she adds.

Martin says do-it-yourself (DIY) will kits are also a factor in the increased number of claims.

“We often joke that if we could put a DIY will kit in everyone’s letterbox, it would increase our estate administration and estate litigation practice threefold.”

Using a DIY will kit opens up a greater likelihood of the will being challenged.

This is because one of the core reasons why people choose to challenge a will – and the thing that perpetuates the initial reaction to challenge a will – is the lack of explanation of why a will contains certain provisions.

Documentation is crucial, Martin says.

“You can exclude people, you can include people, you can give one child a greater share of the estate than another child, you can do virtually whatever you want – but if you don’t document all the ‘whys’, you are leaving your will open to be challenged. That is the danger of a will kit.”

The last stop on the line is intestacy – dying without a will – and while for some people it might sound attractive to have a court determine how assets are divided, Martin does not recommend it.

“I have not met a single person who has told me that the intestacy provisions in any jurisdiction are exactly what they want. It is simply a defined set of principles that apply; it is different in every jurisdiction, and it is unlikely to suit every family in every case.”

There are many cases in which judges have described the circumstances in which they have to uphold the law as unjust because the relevant intestacy provisions did not suit the family in those particular cases.

Virtually any properly drawn-up will is going to be better, Martin says.

Three things accountants should do

1. Get on the same page as your client and the client's lawyer.

Catanzariti says there can be a fundamental mismatch between the tax structures put in place – which sometimes are deliberately structured to shift ownership of assets – and someone’s estate planning.

“Clients should be made very well aware that asset ownership for tax purposes can limit the amount of the money they can distribute as part of their estate,” she says.

“Accountants, lawyers and their clients should make sure that all three are on the same page with regard to understanding this.”

2. Check that your client's will is up to date.

“Times change, assets are bought and sold, and the assumptions and the law on which existing estate planning and wills were prepared may change completely,” Martin says.

“Your clients should review their estate plan and will each time there is a major life event, and at least every four or five years, if not more frequently.”

3. Encourage clients to talk to their lawyer if they are concerned about a challenge.

“Estate lawyers can go a long way towards structuring your estate planning, such that claimants cannot challenge your assets, but the legislation is different in different jurisdictions of Australia,” Martin says. “There is no substitute for checking, and checking again, with your client’s estate lawyer.”

Disputing wills in Australia

In Australia, estate legislation is governed by the states rather than the Commonwealth, and data on the number of disputes is hard to find, although most lawyers who practise in the field believe disputes are increasing.

A 2015 study – Having the last word? Will making and contestation in Australia – by the University of Queensland, Victoria University, Queensland University of Technology and the Australian Centre for Health Law Research found adult children were the most common claimants in will contests, and attributed disputes to “need, greed or entitlement”.

The report found people who challenged a will had a high rate of success, with a review of disputed will cases with the various state public trustee offices finding 77 per cent of claims were successful.