Written by
Edwin Montoya Zorrilla
Reviewed by
The transfer of wealth from one generation to the next through inheritance is a significant event that affects many Australian families.
While inheriting assets can provide financial security and opportunity, it can also give rise to a range of complex legal issues.
In this article, we’ll explore some of the most common legal challenges that arise during periods of large inheritance transfers in Australia, with a particular focus on the importance of clear and specific language in Wills to ensure equitable distribution and minimise disputes among beneficiaries.
Estate planning and Will disputes
One of the most fundamental legal issues in inheritance transfers is ensuring that the deceased person’s wishes are carried out as intended. This is typically done through a legal document called a will, which specifies how the deceased’s assets should be distributed among their beneficiaries.
However, disputes over the validity or interpretation of a Will are not uncommon, particularly when large sums of money or valuable assets are at stake.
In Australia, a Will can be challenged on various grounds, such as undue influence, lack of testamentary capacity, or failure to make adequate provision for eligible persons.
Eligible persons may include the deceased’s spouse, de facto partner, children, or dependents who believe they have not been adequately provided for in the Will. If a challenge is successful, the court may vary the terms of the Will or even set it aside entirely.
For instance, where a new Will unbeknownst to a person’s family is revealed by a recent partner that changes the distribution of assets, family members may question the validity of the new Will.
To minimise the risk of Will disputes, it’s crucial to engage in proper estate planning with the assistance of a qualified legal professional. This may involve drafting a clear and unambiguous will, communicating your intentions to your beneficiaries, and considering the use of testamentary trusts or other structures to protect your assets and provide for your loved ones.
However, even with careful estate planning, the use of vague language in Wills can lead to disputes and unintended consequences. Even language that would make sense to a layperson such as “shared equally between my children” can cause problems when distributing assets that cannot easily be divided like properties, share portfolios, and companies.
Taxation and superannuation
Another significant legal issue in inheritance transfers is taxation. In Australia, there is no inheritance tax or death duty at the federal level, but there may be tax implications for the beneficiaries depending on the nature and value of the assets they receive.
For example, if the deceased owned property that has increased in value since it was acquired, the beneficiaries may be liable for capital gains tax (CGT) when they sell the property. However, there are some exemptions and concessions available, such as the main residence exemption or the Capital Gains Tax discount for assets held for more than 12 months.
Superannuation is another area where tax issues can arise in inheritance transfers.
In Australia, superannuation is not automatically included in a person’s estate and is governed by its own set of rules. If the deceased had a valid binding death benefit nomination in place, their superannuation will be paid directly to their nominated beneficiaries.
If not, the trustee of the superannuation fund will have discretion to distribute the funds in accordance with the fund’s rules and relevant legislation.
It’s important to seek professional advice from a financial planner or tax specialist to understand the tax implications of inheriting assets and to develop a strategy for managing them in a tax-effective manner.
This is particularly important when dealing with complex assets like shares, where underlying capital gains tax liabilities can vary significantly between different parcels of shares, even if they appear to be of similar value.
Family provision claims
Family provision claims are a common type of legal dispute that can arise in inheritance transfers. Under Australian law, certain eligible persons have the right to challenge and make a claim from a Will if they believe they have not been adequately provided for.
Let’s say a father passes away dividing assets unequally between two siblings. However, the sibling with the smaller share has a disability and requires ongoing financial support. They might decide to appeal to the court for a larger share of the estate.
To make a family provision claim, the claimant must demonstrate that they have a legitimate need for financial support and that the deceased had a moral duty to provide for them. The court will consider various factors, such as the claimant’s financial circumstances, their relationship with the deceased, and the size and nature of the estate.
Family provision claims can be emotionally charged and legally complex, particularly when multiple claimants are involved or when the estate is insufficient to meet all of their needs. In some cases, the court may order that the estate be redistributed in a way that is more equitable, even if it goes against the terms of the will.
To avoid or minimise the risk of family provision claims, it’s important to have open and honest conversations with your loved ones about your intentions and to seek legal advice on how to structure your estate plan in a way that is fair and reasonable.
Involving beneficiaries in the estate planning process can also help manage expectations and reduce the likelihood of disputes, although this should be approached with caution in cases where there may be a risk of elder abuse or undue influence.
International inheritance issues
In today’s globalised world, it’s not uncommon for people to own assets or have beneficiaries in multiple countries. This can create additional legal complexities when it comes to inheritance transfers, as different countries have different laws and tax regimes governing the distribution of assets.
For instance, an Australian citizen may have a parent who passes away while living overseas, and then has to deal with the tax implications of bringing their assets here.
Or there may be situations where someone has left inconsistent wills in different jurisdictions, or else a will in one jurisdiction where they have assets but not in the other.
To navigate these international inheritance issues, it’s important to seek advice from legal professionals who have expertise in cross-border estate planning.
This may involve drafting multiple Wills for each jurisdiction where assets are held, or using international trusts or other structures to minimise tax liabilities and ensure that assets are distributed according to the deceased’s wishes.
Charitable giving and philanthropy
For some individuals, leaving a legacy through charitable giving or philanthropy is an important part of their estate planning. In Australia, there are various ways to structure charitable gifts in a Will, such as making a specific bequest to start a charity, establishing a charitable trust, or leaving a portion of the residuary estate to charitable causes.
However, there are also legal and tax considerations to keep in mind when making charitable gifts in a Will. For example, not all charities are eligible for tax-deductible donations, and there may be limitations on the amount that can be claimed as a deduction.
Additionally, if the charitable gift is substantial or involves ongoing management of assets, it may be necessary to establish a formal charitable structure such as a private ancillary fund.
To ensure that your charitable intentions are carried out effectively and efficiently, it’s important to seek advice from a legal professional with experience in philanthropic giving and estate planning.
Intestacy and locating heirs
If a person dies without a valid Will, their assets will be distributed according to the laws of intestacy in their state or territory. This can lead to outcomes that may not align with the deceased’s wishes and can create challenges in locating and identifying legitimate heirs.
To avoid the challenges of intestacy, it’s important to have a valid and up-to-date Will that clearly outlines your wishes for the distribution of your assets. It’s also a good idea to keep a record of your family tree and to communicate with your loved ones about your intentions.
Executor duties and responsibilities
The role of an executor is to administer the deceased’s estate and carry out the instructions in their will. This can be a complex and time-consuming process, particularly if the estate is large or if there are disputes among beneficiaries. Any decision made by the executor may be subject to scrutiny and challenge from actual or potential beneficiaries of the will, or family members of the deceased.
Executors have a legal duty to act in the best interests of the estate and to carry out their responsibilities with care and diligence. This may involve obtaining probate, communicating with beneficiaries, resolving disputes, and distributing assets according to the terms of the will.
If an executor is unable or unwilling to carry out their duties, they may choose to renounce their appointment or delegate certain responsibilities to a professional such as a solicitor or accountant. It’s important for executors to understand their obligations and to seek legal advice if they are unsure of how to proceed.
Updating and revising estate plans
Estate planning is not a one-time event but an ongoing process that should be reviewed and updated regularly to ensure that it reflects your current wishes and circumstances. Life events such as marriage, divorce, the birth of children or grandchildren, and changes in financial situation can all impact your estate plan.
It’s a good idea to review your will and other estate planning documents every few years or after significant life changes. This may involve updating beneficiary designations, revising the distribution of assets, or appointing new executors or trustees.
It’s also important to communicate any changes to your estate plan to your loved ones and to ensure that your documents are stored securely and can be easily accessed by your executor or other relevant parties when needed.
Tools for clarifying intentions and providing flexibility
Given the challenges of using vague language like “equally between my children” in Wills, estate planning professionals recommend several tools for clarifying intentions and providing flexibility to executors.
Equalisation clauses ensure that all assets, including those outside the Will such as superannuation and trusts, are included in the total estate to be distributed to beneficiaries. This can help prevent situations where one beneficiary receives a disproportionate share of the estate due to the way assets are structured.
Appropriation clauses give executors the power to allocate specific assets to specific beneficiaries, rather than simply dividing everything equally. This can be useful in cases where certain assets may have sentimental value or where there are tax implications to consider.
A letter of wishes is a non-binding document that provides guidance to executors on how the will maker would like their assets to be distributed. While not legally enforceable, a letter of wishes can help clarify intentions and provide context for the decisions made in the will. It can also be a useful tool for addressing personal items or explaining the reasoning behind certain distributions.
Conclusion
By taking a proactive and informed approach to inheritance transfers, you can help to ensure that your legacy is a positive one that benefits your loved ones and the causes you care about for generations to come.
If you are facing an inheritance dispute or need assistance with estate planning, it’s important to seek the advice of a qualified solicitor or estate planning professional. They can help you navigate the legal complexities of inheritance transfers and ensure that your wishes are carried out in a way that is fair, effective, and legally sound.
For more information or to request a fixed-price quote from Lawpath’s network of experienced estate planning lawyers, contact us today. Let us help you navigate the complexities of estate planning with confidence and ease.
FAQ
What are inheritance laws in Australia
Inheritance laws in Australia dictate the distribution of your estate, usually through a Will or, if absent, under the rules of intestacy, varying slightly by state.
Can my de-facto take my inheritance
Yes, your de-facto partner can potentially inherit your estate, especially when you don’t have a Will, but it will depend on your state’s specific laws.
How long does it take to get inheritance money in Australia?
The process to receive inheritance money in Australia usually takes between 6-12 months, though this can vary with the estate’s complexity and legal disputes (if any)
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