This short six part case study series examines some highly important issues parents must consider if they want their Will to plan for the best and worst their spouse and children will likely be forced to deal with unnecessarily.
Case Study Series One
Dying To Get Her Message Across
For John and Sally’s children Toby, Alex and Alice, their parents’ aversion to professional financial advice has produced a result that will severely affect their future. With both loving parents choosing to rely on simple 2-3 page Wills, their early deaths has left an underfunded estate for their children to rely on, and what inheritances they have received are without protection from future crisis, unnecessary taxes and family disputes. As with Part 4, in this issue we will further examine the issues facing children inheriting from an inadequate Will. This ‘serial’ case study will highlight the very real dangers of relying on simple Wills, and the advantages and protections provided by ongoing professional financial advice coupled with a modern estate planning Will.
John and Sally Standard had very typical circumstances – the type of simple circumstances that would have certainly benefited from proper estate planning advice and documentation.
John 47, public servant on $110k per year.
Sally 44, part-time physio on $60k per year.
Married 16 years - no previous marriages.
Kids - Toby 12, Alex 10 and Alice 6.
Family home held jointly, with $350k owing.
Spent $100k on renovations, current value est. $800k.
Sally inherited $50k of BHP shares from her aunt.
John has a 20% share in a holiday shack, approx. value $60k.
John $105k super, Sally $60k super, nominating beneficiaries.
Issue 5: Child Beneficiaries (cont.)
At the time of John’s death, Toby is 20 and at university, Alex is 18 and just finished high school, while Alice is only 13.
Issue 4: Inheritance Equality
One of the many benefits of having ongoing professional advice is the exposure parents have to services like estate planning. These services form an integral part to any long term financial plan and bring to the attention of parents many important issues that they would otherwise be unaware of. For instance, many parents like John and Sally who are without proper financial advice may never live to understand that the simple 2-3 page Wills or Will kits they rely on do not protect their wishes for their children to inherit equally.
As John has passed away while Alice is still a child, and considering she is four years younger than Alex and six years younger than Toby, she may be significantly disadvantaged when comparing the money already spent on Toby and Alex by their parents. For example, money already spent on private school fees, overseas trips, loans, first cars etc. Another example of a simple Will causing inheritance inequality is with superannuation.
As Alice is the only ‘tax dependent’ under federal superannuation law, Alice would almost certainly receive John’s entire superannuation death benefit ($105,000) plus an equal share of the remaining estate. While Alice’s circumstances do make her a worthy and appropriate beneficiary of her father’s superannuation, it does highlight the common deficiency of simple Wills in protecting inheritance equality. Such inequities if left unchecked can cause enormous problems, and often lead to unnecessary and damaging family disputes that can cost the estate up to $100,000 per day in court.
A modern estate planning Will would have provided the executor of John’s Will with detailed equalisation provisions and instructions to assist in ensuring that inheritance equality is protected as much as possible. Considering the potentially enormous personal and financial problems, the cost of relying on a simple Will is simply far too great. In our next issue we will examine the benefits of crisis provisions provided by modern estate planning Wills.
CASE STUDY 1.5
Child Beneficiaries part 2
From 'Dying To Get Her Message Across'