• Costly litigation. The failure of many standard Wills to acknowledge and make some provision for children of prior relationships more than likely will expose the surviving spouse, and almost certainly the children of the marriage, unnecessarily to the risk of claims by the previous children under the Family Provisions Act. Such court action not only will erode the value of the estate, but will mean that payment of inheritances will be held up, possibly for years. In the case of the claim being against the surviving spouse, this could be devastating. This should have been anticipated when the Will was drawn up and steps taken to guard against this eventuality.

• Uncertainty as to entities. While the family home and some other jointly owned assets will pass automatically to the surviving spouse, and superannuation benefits would normally pass to the surviving spouse, there would be less certainty with assets held in other entities under a simple Will. This is because control of such entities passes in accordance with the documentation establishing them. In most family situations, the control would usually pass to the surviving spouse or children, but not necessarily, as the governing documentation may provide otherwise.
• No equality of distribution. The lack of direction about who might end up with any residue of super, or ownership of assets in entities is likely to frustrate the intentions of those with simple Wills to achieve equality between children.
• Paying unnecessary income tax. Beneficiaries who inherit their share of their estate in their own names will end up paying high levels of income tax on income received from inheritances. In many instances, nearly 50% of the income can be lost in income tax.
• No asset protection. Another major shortcoming of receiving an inheritance in a beneficiary’s own name is the risk of those assets being exposed to claims by others. The most common is where there is a marriage breakdown and the Family Court treats the beneficiary’s inherited assets as part of their family assets. Inherited assets are also exposed if the beneficiary is in business and it falls on hard times. In those circumstances, the assets are liable be claimed entirely by creditors or t he bankruptcy trustee.

Back to Effective Estate Planning.