Why EVERYONE needs a will

It is estimated that more than half of Australians die without a will (or, dying ‘intestate’). Clearly, most Australian are under the impression that they do not need a will, or otherwise that it is not really a high priority.

However, there are a number of reasons why practically anyone over 18 (and definitely anyone with a family!) should have a will made. In basic terms, a will allows you to:

1. appoint someone to look after your children and act as their legal guardian;
2. distribute your assets according to your wishes (as opposed to what the government says);
3. save your relations or beneficiaries time and money, and potentially tax;
4. protect your beneficiaries’ inheritance from their creditors, a possible divorce from their partners, your previous spouses, and sometimes themselves; and
5. make provision for special circumstances.

Appointing a guardian

Most people are fixated with the financial aspect of a will – that is, they think a will is only about the distribution of your material assets. However, and perhaps more importantly, a will can be used to appoint someone as your children’s legal guardian.

A guardian assumes legal responsibility over your children. This means they make both financial and other decisions over their life until they reach 18 years of age. If both parents die without a will (or with a will which fails to appoint a guardian), the state will determine who will be appointed as guardian for any children.

This is the last thing you want to leave open in the very unfortunate event that something happens to you and your partner. Appointing a guardian for your children is important – it’s a massive decision both for the children and for the guardian, and should be done after prior consultation. Save everyone the hassle at a time of grief and consider this in advance.

Distributing your assets

Writing a will allows you to distribute your assets exactly the way you want to. If you don’t write a will, your assets will be distributed according to the laws of intestacy (see below) chosen by the government. This gives you no real choice, for example, to leave certain items to certain people, make a gift to a friend or relative, or make a charitable donation. Most people prefer to have some more control over their legacy.

The Laws of Intestacy

The laws of intestacy are default provisions which govern what happens when a person dies without a will. In NSW, they are basically as follows:

1. if you have a spouse and no children, or a spouse and only children whom you had with that spouse – your spouse inherits your entire estate.
2. If you have a spouse and children from a different spouse, then:first of all, your spouse receives (or if you have multiple spouses, they share between them) a gift of $350,000 (adjusted to CPI);
3. the spouse/s also get your personal items (this includes motor vehicles!)
4. the spouses also get one half of the rest of your assets;
5. then, all of your children split the remainder of your assets between them in equal shares.
6. When (and if) children receive a share, they split that share equally. However, if one of your children predeceased you, their children split his ‘share’ of your estate equally between them. So, if you have 3 children, they each get a third, but if one dies before you, their children will share his ‘third’ between them.
7. If you have no spouse and no descendants, the estate is distributed to first to your parents, then (if there are no parents) your siblings, then your grandparents, then aunts and uncles, then first cousins.
8. If you have none of the relations in the previous paragraph, the state government may get your assets!

Saving time and cost

Administering a written will is a much simpler and cheaper process than obtaining ‘letters of administration’ – the process which is followed when you die without a will. You are also usually able to structure your will in a way which allows to save money on taxes, and to ensure that certain assets (for example, the proceeds of superannuation, compensation payment, and life insurance) are not used to pay the debts of your estate.

Your will appoints an executor who handles all of these affairs (usually with the help of a lawyer). In particular, it is much easier (and cheaper) for an appointed executor to sell your real estate assets.

Protecting your assets from risk

Did you know that inheritance payments are one of the biggest reasons for civil disputes? When people hear that a person has inherited a sum of money, they tend to come knocking with claims and lawsuits. Writing a will can help you prevent your inheritance from ending up in the hands of creditors, ex-spouses, or even worse: lawyers.

This is usually done through ‘testamentary trusts’. Trusts are essentially arrangements where a person or entity (the Trustee) holds property for the benefit of others (the Beneficiaries). Trusts are very complicated and this article won’t attempt to explain them completely. However, you should know that trusts provide the following benefits:

1. Good system for children – a trust is a good way of leaving money to your children to provide for their future, but without giving them unlimited access to the money (which may result in them squandering it).
2. Asset protection – since the beneficiaries don’t fully own the trust property (in this case, the inheritance), any creditor or claimant they may have also can’t access that property. So, if your beneficiary owes $300k to a bank, or smashes a Lamborghini and had no insurance, or their spouse is making a family law claim, the creditor won’t be able to get their hands on the inheritance.
3. Income-splitting – the trust can make distributions to the beneficiaries and can split the income in whatever way the Trustee wishes. This means that the income can be distributed to the persons in the lowest tax bracket to avoid high tax rates. For example, if one partner in a relationship earns $300k a year but the other partner earns $40k, they could distribute the trust money to the second partner and save a lot on tax.
4. Tax-free distributions to minors – testamentary trusts allow for tax-free distributions to minors up to $18,200. This means that you can distribute to the children and the first $18,200 will not be taxed at all!

Besides the use of testamentary trusts, you should also be aware that in a will you can draft clauses which protect your assets against family provision claims and will disputes (ie, when people try to contest your will).

Provision for special circumstances – blended families, disabilities etc

The importance of writing a will escalates exponentially depending on:

1. the amount of assets and business structures you have; and
2. the complexity of your family situation (eg, previous marriages, children with special circumstances or risk of divorce).

Your will could provide special provision for business succession – namely, the transition of control of your businesses. The will could also create special provisions for children (or other family members) which have disabilities, addictions and may require special care. In particular, those who currently receive disability payments from the government may lose that source of income if they receive a large inheritance directly.

Superannuation and life insurance

Remember that traditionally superannuation death benefits and life insurance payments do not form a part of a person estate and accordingly are not distributed as part of a will. If you want those payments to be made part of the estate, you must nominate (if possible) your estate as the beneficiary of those payments with your respective superannuation fund/insurer.

Why should get a real lawyer to do it

Please do not get yourself a ‘will-kit’ or attempt to draft a will on your own. Besides for the fact this is an incredibly important document, wills also have a series of very complicated rules about them which may result in your DIY will either failing to carry out your intentions or being ruled outright invalid. Get a professional to do it.

Contact us and disclaimer

Please remember this blog post is merely a general summary of law and should not be relied upon as legal advice. If you need further advice on this issue, please contact me on 0404 886 075 or via email on doron@slglawyers.com.au.