Wills aren't always fair, and legally that's OK

A major message here is that spouses have a duty to provide for their partners because if they don't, the courts will step in and do it for them.
A major message here is that spouses have a duty to provide for their partners because if they don't, the courts will step in and do it for them.

There is a common misconception that you can leave your estate to whoever you wish, on any terms you wish, and your will cannot be challenged unless there were are exceptional circumstances, or it was is found to be manifestly unfair.

Think again.

A recent decision from the NSW Court of Appeal in Steinmetz v Shannon [2019] throws new light on what a widow could reasonably expect to receive from her late husband, and how that amount might be calculated.

Just two weeks before he died, the deceased changed his will to leave the contents of his home to his widow, and the rest of his estate of around $6.8 million to the children of his first marriage on the condition that they pay the widow an indexed annuity of $52,000 a year for the rest of her life.

The widow challenged the will, but in that earlier case, Justice Pembroke found that that the annuity provided by the will was, in the circumstances, adequate provision for the appellant's proper maintenance and advancement in life.

This was on the basis that the plaintiff would be able to "continue to live in the home that she has owned since 1991, in the same town, with the same familiar facilities, friends and connections, with an expected annual surplus of income over expenditure of approximately $34,000 and without having to realise her cash deposits and other assets, unless she wishes to do so".

The appeal court were unconvinced. They awarded the widow a lump sum of $1.75 million, less the amount she had already received from the annuity payments. The reasoning was that this would allow her to maintain the standard of living she had enjoyed with her husband when they were living as a couple.

In its judgement, the court said that while Australians generally have the freedom to bequeath their property as they wish, there is an exception. That is that a person must make proper and adequate provision for those for whom the community would expect such provision to be made. It is not a question of fairness or equality; it is a moral duty.

The judgement said that, "in the absence of special circumstances, after a long and harmonious marriage such as this one, a husband has a duty to provide his widow with security in her home for the rest of her life. Furthermore, she should have the capacity to move home if she wishes to, for whatever reason. This means that a mere right of residence will usually be an unsatisfactory method of providing for a spouse's accommodation.

Furthermore, the court ruled that the widow should receive sufficient funds to give her an income enabling her to live in a reasonable degree of comfort, free from financial worries; and to provide a fund for modest luxuries and as a hedge against unforeseen contingencies.

Now obviously, every case is different and must be decided on its merits, but my legal friends tell me that the courts tend to give more attention to the needs of a widow/er than they do to the needs of the children, especially if the children are adults and able to care for themselves.

The court takes into account such issues as the applicant's financial position, the size and nature of the deceased's estate, the total relationship between the applicant and the deceased, and relationships between the deceased and other persons who have been provided for in the will or might have a claim.

Readers should note that leaving a surviving partner a life interest in the family home can be a recipe for disaster. Often, the family home is unsuitable for the survivor, and they may be put in a position where they are unable to move to more suitable accommodation.

A major message here is that spouses have a duty to provide for their partners because if they don't, the courts will step in and do it for them. And the landscape can become incredibly complicated if there are multiple partners, and children from other relationships, especially if any of them have special needs.

It's another example of the importance of getting proper estate planning and involving the entire family when drafting a will.

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Q. I have a self-managed super fund. About 80 per cent of the fund is allocated to me with the remainder to my wife. I am 63 and two years older than my wife. I would like to know if it is possible to change the allocation of the fund to favour my wife with the view to maximising the age pension I will qualify for some three years earlier than my wife.

A. You are both under 65, which means you are eligible to contribute to super. The simpler strategy may be for you to make a tax free withdrawal, and give the money to your wife. She could then make a non-concessional contribution. Take advice because there are heavy penalties for exceeding the caps.

Q. My wife and I are both retired and have signed wills and enduring power of attorney forms arranged by a legal person. If either of us pass the remaining person will be executor of the will and Trustee of the Trusts. When my wife and I both pass our two children will be the joint executors of the will and joint trustees of the trust. What happens if they don't agree on how the remaining assets in the Trust should be split? At present we own our assets. When we pass do the assets then become part of a testamentary trust which would be controlled by the Trustees of the Trust?

A. Elder lawyer Brian Herd of CRH Law says that this query is almost impossible to answer sensibly without seeing what the Wills say as opposed to what you think they say.

The question appears to give the impression that the Wills create a mandatory testamentary trust, initially for each other, and then for the two children, i.e., there is only one trust ultimately for both children. That is generally not wise, both to make it mandatory and to have only one testamentary trust. Two children running one trust is a recipe for dispute.

It is generally preferable to have separate trusts for each of the children to reduce the potential for dispute. However, there could be a situation where each of the children's trusts own an asset between them. In this area expert advice is essential.

  • Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. noel@noelwhittaker.com.au