How to stop a stranger robbing the kids of their inheritance
Australian Financial Review | 15 May 2023 – 5:00am
Peter Townsend Contributor
A few tweaks to your will is all that’s needed to ensure your offspring don’t lose out after one of you dies and the other takes a new partner.
How would you feel if your estate went to a complete stranger – a person you’d never met? It’s more common than you might expect.
Jack and Jill were married in 1981 and had two children. They were happily married for 32 years. In that time, they both worked and saved and, with help from some late-career compulsory super, built up a tidy nest egg.
In their wills Jack and Jill left their respective estates to each other. They agreed that the survivor would look after the children.
Jill died from breast cancer at 68. Jack was heartbroken and alone for the first time in decades.
Try as he might to fill his life with hobbies, kids, grandkids and friends, Jack was lonely. He missed the closeness of a trusted, intimate partner – the companionship for those times when family and friends weren’t around. That’s when, at 71 met Mary, 15 years his junior.
For Jack nothing could replace the wonderful years he had spent with Jill. But his life with Mary alleviated that loneliness. They had been dating for about six months when Jack invited Mary to live with him. They became a de facto couple.
After a while Mary began to feel that, as she was likely to outlive him, it would be only fair for him to make provision for her in his will. She understood Jack wanted his kids to have most of his estate but felt she should get something.
As time passed Jack became more reliant on Mary and thankful for her care. One day, after Mary confirmed to him that she’d look after his children, Jack agreed to give everything in his estate to Mary.
When Jack passed, Mary was his sole beneficiary. In her view, Jack’s children, who’d never been very close to her, were doing fine and didn’t really need any of Jack’s estate. Mary went about managing Jack’s estate for her and her son’s benefit alone.
The money and assets that Mary inherited from Jack included all the wealth that Jill had worked so hard for, believing her kids would ultimately benefit. Jill’s estate had passed to a complete stranger.
Is this case unusual? No, it is quite common.
There are a number of different estate planning strategies to avoid this. But first, couples have to acknowledge Jack and Jill’s story could happen to them. Couples need to have the conversation acknowledging that when one of them dies, things change forever.
That change is not a reflection on the past. It does not alter in any way the importance of their relationship. It simply reflects a new situation – a situation neither of them has ever been in and that is therefore unknown. Couples must have the courage to focus on the issue, and if they are concerned about bringing up a touchy subject they can use their solicitor to introduce the topic.
To protect her estate for her children and as a half-owner in the family home, Jill could have given Jack the right to live in the family home until his death or re-marriage – after which the home would be sold and the proceeds from Jill’s half share given to the children.
Care should be taken in the drafting to ensure any right to the matrimonial home extends to the conversion of the capital value of that home into a refundable accommodation deposit with Jack’s chosen aged care facility.
Jill could also have arranged for Jack to receive only the income from her share of the couple’s other assets and ensure that the capital would go to the kids once Jack died. If the income was particularly low in any year, then Jack could have some capital to make up the difference.
Jill could appoint Jack and her two children as joint executors so that her wishes were met. Similar safeguards need to be taken in respect of the control of any family trust or SMSF after Jill’s death.
Protecting your children’s inheritance is about good planning and facing the possibilities.
Peter Townsend is principal of Townsend Business & Corporate Lawyers.