Edmonds Judd

Estate

Will-making when you have overseas assets

Estate, Property
0

Some key considerations

For New Zealanders with overseas assets, ensuring your estate planning arrangements are in order requires careful thought and consultation with us and a tax expert here in New Zealand, as well as in the countries in which those assets are located. We outline some of the key legal considerations, highlighting potential issues that may arise if these factors are not properly addressed.

 

 

Succession in different countries

New Zealanders enjoy a reasonable degree of freedom in how their wills are drafted and to whom they leave their assets. This is, however, not always the case in countries (such as France and The Netherlands) that have ‘forced heirship’ rules. This commonly means that an estate is divided into two parts. One part is distributed to family according to specific rules, and the other part can be dealt with in a will.

Different countries often have different rules for property which is immovable (such as land) and property which is moveable (such as shares or bank accounts). This principle is known as ‘scission.’ It means that succession to land and immovable property is governed by the law in the country where your property is situated, whereas succession to movable property is governed by the law of your last place of domicile.

For people who are, for example, domiciled in New Zealand but own property in France, if your house in France is left to a friend, French succession law will apply as the house is immovable property. Whether such a gift can be validly made will be determined under French law.

 

 

Multiple wills

Not only are there differences in succession laws in different countries, but there can be different taxes applying to property and estates in those countries. For people with immovable assets in multiple countries, there should be consultation with experts to determine whether separate wills are required for each country.

Back to the above French example: there should be one will for New Zealand assets, and a French will should be drafted by a French lawyer that applies to the French assets.

There are, however, traps when multiple wills are signed. The wording is critical and, most importantly, it is essential multiple wills do not inadvertently revoke each other.

A case in 2021[1] illustrates what can happen if proper care is not taken. Beverly McLean signed two wills: an earlier one applying to her New Zealand assets, and a later one applying to her South African assets.  Despite her instructions emailed to her lawyer that the two wills were to deal only with the assets in each respective country, the court confirmed that the later South African will inadvertently revoked the earlier New Zealand will as it stated, ‘I, [name] revoke all previous testamentary dispositions and declare the following to be my Last Will.’ As a result, all of the assets in the estate passed under the South African will.

The clause which featured in the above case is a common clause in a will. However, where a will-maker has multiple wills dealing with assets in different countries, the clause is not appropriate and should not be used.

 

 

Tax implications

Wills can have surprising tax consequences. The choice of executor can be important, and overseas beneficiaries may need to pay tax on their share of an estate.

The situation is straightforward when an executor of a New Zealand estate is a New Zealand resident.

If a will appoints an overseas-based executor, or a person who later moves overseas, this can lead to the New Zealand estate being caught by an overseas tax regime, or the New Zealand estate being treated differently by Inland Revenue. This can be a particular problem between Australia and New Zealand as in Australia, an estate is treated as any other trust for tax purposes. One way to address this in a will is to specify that an executor’s appointment is only valid if they remain in New Zealand.

Beneficiaries can also be liable for tax on their share of an estate. This usually occurs when they live overseas. If they live in a country with inheritance taxes, they may receive a much smaller share of the estate than other beneficiaries who live in a country with no inheritance tax.

If some of the beneficiaries live overseas,  the estate can pay these taxes so that each beneficiary receives the same amount. A will needs to state this clearly, otherwise the default position is for the beneficiary to pay tax on their share of the estate.

Some overseas countries have deadlines for inheritance tax payments. Payment is sometimes required before the beneficiary has received their inheritance. A will can provide for an executor to advance funds in that case, so that the beneficiary is not out of pocket while waiting for their inheritance.

 

 

Be proactive

Preparing wills in New Zealand is becoming complicated as more of us live and travel overseas, and acquire international assets. When considering the provisions in your will, or when reviewing your current will, it’s essential to list your overseas assets, where they are located, and whether overseas lawyers and accountants will be needed.

If you need advice about your will and where your assets are located, please don’t hesitate to contact us. We are happy to help.

[1] Re McLean [2021] NZHC 1463.

 

 

DISCLAIMER: All the information published in Trust eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Trust eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

The plight of stepchildren

Estate, Kids, Relationships
0

Non-traditional family structures can result in unfair estate outcomes

When a parent dies and leaves their child or children out of their will, those children are entitled to bring a claim against their parent’s estate under the Family Protection Act 1955 (FPA). While a financially stable adult child may not have a claim to a large  proportion of their parent’s estate, they will usually still have a claim for ‘recognition.’

The same is not true for children claiming against the estate of a stepparent.

Stepchildren are only entitled to bring a claim against the estate of a stepparent in very limited circumstances – usually when they are financially dependent on their stepparent at the date of their death.

This can become a real problem when a parent dies, leaving everything to their spouse or partner, who is trusted to make provision in their own will for their stepchildren, but fails to do so.  Stepchildren are often left without a remedy, and this is an increasing source of perceived unfairness in a society where non-traditional family structures are becoming common.[1]

 

 

How does the law respond?

When someone inherits all their partner’s property, but ultimately fails to provide for their partner’s children in their own will, those stepchildren typically must look for alternative ways to bring a claim against the estate of their stepparent, outside of the FPA. Commonly this includes two possible actions:

 

  1. Making a mutual wills claim

Where the parent and stepparent originally had wills which left everything to each other, and then after the death of the second, made provision for each of their families, it might be argued that the wills were intended to be binding and that the stepparent was not intended to be able to change their will later on to leave out their stepchildren. If successful, a mutual wills claim would bind the stepparent’s estate to make the promised provision for their stepchildren.

The difficulty is often found in showing that there was an agreement between the parent and stepparent that the wills would not be changed. This may have been assumed, but it is rarely spoken about or expressed in writing. It can also be difficult when the stepparent clearly did not feel that they were bound by such an agreement.

 

  1. Testamentary promise claims

Claims are sometimes brought under the Law Reform (Testamentary Promises) Act 1949.  As the name suggests, these claims require some sort of promise to have been made.  The stepchild will need to show that:

  • They rendered services to their stepparent
  • Their stepparent promised to reward them for those services in their will
  • The promise was motivated by the services, and
  • The stepparent failed to keep their promise in their will.

Difficulties often arise in showing ‘qualifying services.’ Normal things that one might do for a close family member, such as helping in their older age, will not usually qualify. While some stepchildren have successfully argued that they abstained from making a claim against their parent’s estate, and that was a service to their stepparent, many children don’t ever seriously think about making such a claim, so it is hard to make that out as a ‘service.’

Promises are often vague, and New Zealanders do not always like to talk about money.

Even where there are services, and a promise to reward, in many cases the promise is found to have been motivated by the close relationship rather than the services themselves.

It can be very hard to make a successful testamentary promises claim.

 

 

Case example

In a 2015 case,[2] a child failed in several claims against his stepfather’s estate. The High Court said:

“While I have sympathy for the position Paul finds himself in, his personal claims against the estate appear to me to fall within the rock of the [Family Protection Act 1955] and the hard place of the [Law Reform (Testamentary Promises) Act 1949].”

There are also a variety of claims available to stepchildren such as a constructive trust, estoppel or unjust enrichment. These generally make similar arguments, but often fail for the same reasons as in the Blumenthal case.

Stepchildren often miss out because they wanted to do the right thing when their parent died, and they made the unfortunate decision to trust their stepparent to do the right thing later.

 

 

 

Will this change?

The Law Commission identified the plight of stepchildren in its 2021 Succession Review Issues Paper, but it did not propose any new avenue for stepchildren to bring claims against the estate of a stepparent, simply because they have ‘missed out’ on their parent’s estate.[3]

Further, the law reform project has stalled, leaving things in a rather unsatisfactory position for stepchildren who are more and more commonly in this situation.

This situation for stepchildren highlights the continued importance of having proper estate planning arrangements in place – particularly for blended families. There can be a significant financial and emotional cost when these things are not discussed and addressed while both parents and stepparents are alive and capable.

 

[1] The Law Commission noted in 2021 that only 7% of children lived from birth to age 15 in households containing only nuclear family members: Te Aka Matua o te Ture | Law Commission Review of Succession Law: Rights to a person’s property on death (April 2021, Wellington, NZIPC 46) at [1.15].

[2] Blumenthal v Stewart [2015] NZHC 3187, affirmed on appeal.

[3] Te Aka Matua o te Ture | Law Commission Review of Succession Law: Rights to a person’s property on death (April 2021, Wellington, NZIPC 46) at [4.70].

 

 

 

 

DISCLAIMER: All the information published in Trust eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Trust eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Contracting out agreements for relationships late in life

Estate, Property, Relationships, Trusts
0

A wise move as financial affairs are more complex

You may think that a ‘pre nup’ is most commonly used when a young couple begins a relationship and there is a significant difference in their financial position. However, these agreements, formally known as contracting out agreements (COAs), can be entered into at any time during a relationship. They are particularly useful for couples entering into a de facto relationship, or marrying later in life, as both parties are more likely to come to the relationship with more complex financial affairs.

 

 

Why have a COA?

One of the couple may have been through a previous separation or the loss of a spouse. They may have children – dependent or adult. They may also have trust or company structures that make their overall asset profile less straightforward from a relationship property perspective than younger couples who are just getting started with their lives together.

In these cases, a COA can give both parties (and their families) clarity about what will happen to their assets if one of them dies, or if they decide to separate.

A COA is a way of opting out of the default rules as to how the division of property is dealt with under the Property (Relationships) Act 1976 (PRA). Without a COA, the default approach would apply; this generally means that relationship property assets are divided 50:50. An equal split, however, is not always appropriate. In complex cases, parties can end up in protracted court cases trying to figure out how the PRA applies to their particular situation.

While the default rules are a helpful fallback position where people cannot agree how property will be divided, the PRA does not necessarily reflect what all couples would regard as ‘fairness.’ The legislation also does not take account of fact-specific or unusual cases. COAs allow couples to set in place clear and bespoke rules that apply to their particular circumstances, and their specific assets, in the event their relationship or marriage breaks down.

 

 

Opens up discussion

One of the benefits of considering a COA is that it opens up the discussion between a couple as to what they would like to happen to their property, or what they might consider fair, in the event that one of them dies or they separate. Often we find that couples have never had this conversation, but have made assumptions about what will happen or what their partner thinks should happen.

In particular, these assumptions can be harshly tested and shown to be wrong when a partner dies unexpectedly. The surviving partner may find that they have radically different expectations about what will happen compared with the deceased partner’s children and any other parties involved in such an estate.

The same issue can arise if a couple separates. Efforts to resolve relationship property issues may be made in circumstances where the partners’ perceptions of fairness have changed over time. There may have been unequal financial contributions made during the relationship or owing to events, such as infidelity, that have occurred during or which ended the relationship.

 

 

Complex finances

Where a couple has a complex financial situation, including trust and company structures, a COA should be supported by documents between the parties and the trusts or companies, so that no assets fall through the cracks or fail to be taken into consideration. It is important for couples to seek independent advice about the types of documents required, and their effect.

 

 

Review a COA regularly

It is also critical that couples review their COA as life changes. When properties are bought and sold, home improvements funded or other big changes happen, the COA may become out of date and difficult to apply. A new agreement, or an amendment to an existing agreement, can ensure that everyone has clarity about what the changes mean and what their effect will be if there is a death or separation.

A COA can only be enforced if both parties have received independent legal advice and both lawyers certify the agreement. This requirement ensures that both parties are fully informed about the effect of the agreement.

 

 

DISCLAIMER: All the information published in Trust eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Trust eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Providing for your family in your will

Estate, Kids, Property, Relationships, Retirement
0

You have some legal obligations

We all want to look after our families – both during our lives and after we die. One way you can make sure that your family is looked after when you die is by leaving behind a clear, well-drafted will.

 

In New Zealand, we have considerable ‘testamentary freedom,’ meaning we can generally choose how we want to distribute our personal assets after our deaths. Testamentary freedom has been a fundamental feature of New Zealand law for many years. There are, however, limits to testamentary freedom. We see these limits in action when claims are made against a family member’s estate.

 

Claims against an estate

Claims against estates can be made under the Family Protection Act 1955 which provides that you have  a moral duty to provide adequate maintenance and support for certain family members after your death. They include your spouse, children and sometimes grandchildren. Even if you have family members with whom you have had a poor relationship during your lifetime, if you do not adequately provide for their maintenance and support in your will, there is a risk they could make a claim against your estate.

 

If you want to leave unequal shares of your estate to your family members, or leave a close family member out of your will entirely, it is important to state this expressly in your will and to provide your reasons for doing so. This can reduce the likelihood of a successful claim being made against your estate.

 

Protecting beneficiaries from their own folly

If you are concerned about how a particular family member (a beneficiary) may use (or misuse) their share of your estate, you should discuss this with us before your will is drafted. Leaving your family members with a significant lump-sum of cash is not the only way to provide them with their share of your estate. There are options such as establishing a protective trust for their share or appointing trustees to manage money on their behalf. These options may ease your concerns.

 

Family members having different needs

If your family members have different needs, you may want to consider adjusting their share of your estate. With family members who have significant health issues or support needs, your obligation to provide for them may be greater.

 

Earlier this year, the High Court made a decision in a case,[1] upholding an earlier decision of the Family Court. That decision increased the proportion of a father’s estate that was awarded to his unwell son by a small amount. His son had been unable to work for several years due to his illness, and incurred costs associated with managing his illness. When his father awarded him a smaller share of his estate than his sister, the court decided this had breached his father’s duty to him. The duty to provide adequately for maintenance and support applied, even though the relationship with his father had been strained and dysfunctional over several years before his father’s death.

 

Repercussions of not providing for your family

If any of your family members have been left out of your will or have not been adequately provided for, they could make a claim against your estate.

 

When such a claim is made, the court can review the circumstances and make an award from the estate to remedy failure to provide adequate maintenance and support. This is why it’s important to talk with us about the drafting of your will. We can help you adjust your will to minimise the possibility of a successful claim against your estate.

 

Estate claims can cause increased distress, conflict and delays during an already challenging time for your family. The legal costs associated with defending such a claim can also significantly reduce the value of your estate.

 

Important to think this through

If you’re tempted to write your wayward son, estranged daughter or irresponsible spouse out of your will, it’s well worth getting advice first. This may spare your family a claim against your estate, and the stress and expense that goes along with such claims.

 

 

[1] Emeny v Mattsen [2024] NZHC 291.

 

 

 

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Receiving an inheritance during your relationship

Estate, House, Property, Relationships
0

Relationships can be complicated waters to navigate at the best of times, but it can become even trickier when thought needs to be given to relationship property matters.

One such thorny issue is when one person receives an inheritance or other significant gift from a third party. For a variety of reasons, it may be important for that inheritance to be kept separate from other property of the relationship. This article focuses on the complications of keeping it separate.

Relationship property and intermingling

In most cases, after three years in a relationship, all property acquired during that relationship will be classed as relationship property to be divided equally between the couple if their relationship ends (either by separation or death).

Property that each person owned before the relationship is separate property and does not get divided with the other person. Inheritances or other gifts received during the relationship are, in most situations, also separate property and are not divided.

Separate property can, however, become relationship property in a variety of ways during the relationship. In the case of an inheritance, this happens when that property is ‘intermingled’ with other relationship property with the express or implied consent of the owner. The law says that the intermingling needs to have had the effect of making it too difficult or impractical to continue to identify the portion of separate property.

How this can happen

The most common example of intermingling occurs when money is inherited. If the money is deposited into a joint or other relationship bank account and other money is going in and out of that account, it can be very difficult to identify what part of the funds left in that account are still inheritance funds.

Another example is when inheritance funds are used to buy assets for family use or pay relationship debts.

In both examples, the inheritance could well be regarded to have been intermingled with the express or implied consent of the inheritance recipient. The inheritance would become relationship property.

Another common issue is when a party intends to keep an inheritance separate by putting it into a separate account (in their own name) but also uses that account to receive money that would be classed as relationship property, such as income. The inheritance may be regarded as intermingled with relationship property because income generally is a relationship property asset, despite the income being received into a separate account. Ultimately, however, each case will depend on its own facts.

While inheritances often take the form of cash, the same principles apply to a house or any other type of property that has the potential to be intermingled. In the case of a house, although it is usually easily identifiable as the source of the inheritance, that might change if significant renovations are undertaken by both parties to the relationship, or if the house is sold and the money received from the sale is intermingled with other relationship money.

Protecting inheritance

If you know you are going to receive an inheritance and you wish to protect it, it is important that you get professional advice to discuss how the inheritance might be used and how it can be best protected. The best option for you will depend entirely on your circumstances and plans for the inheritance. Some common protections include:

  • Keeping the inheritance completely separate either in a bank account set up for that purpose or in a separate investment in your sole name
  • Establishing a trust to hold the inheritance and keep it separate from your relationship, or
  • Having a contracting out agreement (prenup) prepared that sets out your separate property and the relationship property, and how all of that property would be divided if you separate or when one of you dies. These agreements can be entered into at any stage of the relationship.

No option is completely foolproof and each option has its own pros and cons.

If you are expecting an inheritance, or have recently received one, it can be a delicate topic to bring up with your spouse or partner. You may of course be perfectly happy to intermingle inherited property. It would, however, be prudent for you to talk first with us to discuss the options above and any implications that may bring to your relationship.

 

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Do I still need a trust?

Commercial, Estate, House, Property, Retirement, Rural, Trusts, Your Own Business
0

Thousands of Kiwis have, over the years, established family trusts for a variety of reasons. However, it’s well worth considering whether those reasons are still relevant today and evaluating whether your trust may have outlived its usefulness.

You may have established your family trust for:

  1. Avoiding estate duty: before 1992 it was common for high value assets (such as farms) to be transferred to a trust so your personal estate would not have to pay estate duty
  2. Eligibility for the residential care subsidy: trusts were often settled to increase the likelihood of being eligible for the residential care subsidy; the Ministry of Social Development (MSD) only considered assets you owned personally when considering eligibility for the subsidy
  3. Minimising tax: Fluctuating tax rates over the years have sometimes provided a lower tax rate for trusts than the highest rate of personal tax
  4. Creditor protection: Transferring your personal assets to trust ownership means that your personal creditors may have more difficulty accessing those assets to recover personal debts you owe
  5. Estate planning: Children may make claims against their parents’ estates where they believe their parents have made no, or inadequate, provision for them. Transferring assets to a trust during one’s lifetime leaves little or nothing for children to claim against on your death. Trusts also allow assets to be ring-fenced to help with the care of differently abled children
  6. Relationship property: settling a trust, either before your relationship is ‘in contemplation’ or afterwards (provided a contracting out agreement is also signed), is one way to help remove assets from the potential pool of relationship property that would be available for division if your relationship ends.

Things have changed

These days, however, estate (and gift) duty is no more, the top personal tax rates will soon be realigned with trust tax rates, and MSD takes a closer look at trusts when considering residential care subsidy applications. There has also been increasing court action on trusts where it is believed they may have been used to avoid creditors, claims by children and relationship property claims.

In addition, there are further consequences in settling trusts in New Zealand if you are an American citizen, from the UK (even though you may be tax resident in New Zealand), or if you are tax resident in Australia.

Notwithstanding the above, trusts are still very useful vehicles, particularly for creditor protection, estate planning and relationship property purposes.

Trust deeds, however, should be carefully drafted and have the correct documentation in place around them. Excellent legal, accounting and tax advice is needed to ensure that your trust will do the job you want it to.

If you have a family trust that may no longer be fit for purpose, or you think you need an asset protection plan, please talk with us about the options available to you.

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Who is responsible for managing someone’s affairs?

Estate, Health Issues, House, Kids, Property, Relationships, Retirement
0

Enduring powers of attorney and the transition from attorney to executor upon death

Enduring powers of attorney are legal documents that allow individuals to appoint someone to make decisions on their behalf in case they become incapacitated.

 

There are two types of enduring powers of attorney that someone can put in place:

 

  1. Property: this grants authority over financial and property matters including managing assets, paying bills, and making financial decisions. A person could appoint more than one attorney to act jointly and/or severally and direct that the powers of attorney can immediately come into effect so that the attorney can manage their property while they have mental capacity and continue to act once they become incapacitated. They can appoint a successor attorney to act in the event the first attorney is unable or unwilling to act.

 

  1. Personal care and welfare: this delegates authority over personal matters like health care and consent to treatments. A person can only appoint one attorney at a time, and it can only come into effect when they have lost their mental capacity. A successor attorney can also be appointed.

 

Specific requirements and restrictions can be put on the attorney such as a requirement to consult with or provide information to another person or to only act in relation to specific property matters. The attorney can only act in accordance with the powers given by the enduring power of attorney document. These powers are only to be used when the person who appointed the attorney is still alive.

 

When a person dies, their enduring power of attorney comes to an end, shifting the responsibility of managing their estate to the appointed executors named in their will.

 

Although an attorney may have been appointed to manage the deceased’s affairs when they were alive, the same person may not be appointed as the executor of the deceased’s estate upon their death. It is essential for individuals to understand the transition of responsibilities from enduring powers of attorney to executors upon their death. The attorney will cease to act, and the executors named in the will or appointed by the court step in to manage the deceased person’s estate. This includes handling the distribution of assets, paying off any debts, and ensuring that the deceased’s wishes are carried out according to their will.

 

You should speak to your lawyer to ensure that your affairs are managed how you intend in the event you die or become incapacitated.

New Year – New Will

Estate, Health Issues, House, Kids, Property, Relationships, Retirement
0

The new year is an opportunity to reflect on your life and your wishes for the future, including how you want to provide for your loved ones when you pass away.

 

The most important aspects of your will include the people in charge of your estate (your executors), what happens to your assets, the guardian of your children and your funeral/burial wishes. If you do not have a will or a valid will, then you do not get to decide these aspects for yourself.

 

Having a will is particularly important for parents and those with assets worth $15,000 or more (including Kiwisaver).

 

If you have a will, you should review it regularly to ensure your will is practical, up to date and valid.

 

Is my will valid? Common traps

 

Marriage or Civil Union

Ordinarily, a will is automatically revoked when you marry or enter into a civil union. If you have a will but have since married or entered into a civil union (or intend to in the near future), then you should review or update your will to ensure it is still valid.

 

Divorce or Separation

A separation does not automatically revoke your will. If you have separated and your ex-partner is still in your will, any gifts to them will remain valid unless you have a separation order or a court order dissolving the marriage or civil union.

 

For this reason, your will should be updated as soon as possible post-separation.

 

Witnessing Requirements

There are strict requirements for a will, one of which is having two adult independent witnesses. To be independent, the witnesses cannot benefit under the will or be a spouse, civil union or de facto partner of a person who will benefit under the will.

 

For example, Jane has a will that leaves everything to her son and daughter. Jane prepares her will at home and has her friend and her son’s wife witness her will. Unfortunately, her son’s wife is not independent and therefore the gift to Jane’s son will be void.

 

Circumstances that should trigger a will review

 

If one or more of the following apply to you, it’s time to review your will:

 

  • Family births or deaths;
  • Aging – contemplating the possibility of residential care;
  • Family members moving overseas (especially if they are your executor, as this can add cost and complication to your estate administration);
  • Creation of a family trust;
  • Winding up of a family trust;
  • Buying a property;
  • Change in assets or financial status;
  • Change in relationship status;
  • Change in family dynamics (e.g. estrangement); and/or
  • Simply a change of wishes.

 

Most people will have multiple wills during their lifetime, simply because life is full of change. If you don’t have a will, it’s been a while since you’ve reviewed your will or you’ve had a change in circumstance, we encourage you to speak with your lawyer about your will.

Estates and guarantees

Estate, Trusts
0

Can cause difficult legal issues

Guarantees entered into by a person during their lifetime can create some difficult legal issues for their executor after they die.

 

Limiting a guarantee

The terms of most guarantees allow a guarantor to give notice; this stops further liabilities accruing. In an estate situation, this will not alter the liabilities accrued to date, however the executor who is aware that an estate is liable under a guarantee may need to issue a stop notice to protect the estate’s position to maximise the value of the estate.

This can be a difficult decision for an executor, particularly where (for example) a guarantee is important for the ongoing viability of, say, a family member’s business.  However, where the estate does not have an interest in that business, the executor may need to do this anyway as the estate’s position is the executor’s responsibility, and the interests of all beneficiaries must be prioritised, even if the decision causes dissatisfaction for one.

 

Calling up a guarantee

Where a guarantor has died, and the guarantee is called up after their death, the estate is liable to the lender in the usual way.

In the situation where the estate is only one of several co-guarantors, the executor may need to decide whether to seek contributions from the co-guarantors. The executor may also need to take legal action to enforce payment by co-guarantors.

Where any of the co-guarantors are also beneficiaries of the estate, it may also be necessary for the executor to take advice about the extent to which any liability for contribution to the guarantee can be met by funds that the beneficiary is to receive under the terms of the will.

 

Rights of contribution between co-guarantors

The default position is that co-guarantors share an equal liability to meet a common debt. Where one guarantor pays more than their fair share of the debt to the lender, they are entitled at equity to seek an equal contribution from their co-guarantors.

Complications can arise, however, where a co-guarantor is insolvent. In that situation, the other solvent co-guarantors may have to contribute proportionally to meet the shared debt. This means that an estate might be held liable for more than its ‘fair’ share of the debt.

 

Co-guarantors who are also beneficiaries

The situation becomes more complex when a co-guarantor is also a beneficiary of the estate that has paid the debt. Can the executor claim contributions towards the debt paid by withholding the beneficiary’s share of that debt from their entitlement under the will? Although the court has confirmed that a beneficiary owing money to an estate cannot claim a share of their interest without first settling the debt, an executor should not automatically deduct a debt from a beneficiary’s entitlement.

Rather, the first step will usually be for the executor to approach the relevant beneficiary first by letter and then a formal demand. If a beneficiary persistently refuses to fulfil their debt, an executor can then retain that beneficiary’s share or interest to recover their relevant contribution. The executor should then seek the approval of the High Court to deduct the beneficiary’s share of the debt from their estate entitlement.

 

Interests of beneficiaries take priority

Personal guarantees can create tricky issues for an executor to deal with, particularly in family situations. The estate’s position is the executor’s responsibility, and the interests of the beneficiaries of the estate must be the executor’s priority – even if it means one beneficiary is unhappy because they are affected by the executor’s decision.

While it does not commonly arise, the right of contribution is also something the executor may need to explore for the benefit of the estate as a whole and seek some advice. In some circumstances the executor may also need to go to the High Court for assistance where one beneficiary will not cooperate.

 

DISCLAIMER: All the information published in Trust eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Trust eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Making a bequest to a charity

Estate, Trusts
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Careful will drafting is essential

For many charities, gifts in wills (bequests) are a significant source of funding.

Sometimes, however, charitable bequests cannot take effect when wills are not carefully drafted. There can be considerable time and cost associated with addressing that situation and trying to ensure the bequest can go to the charity you intended. This article looks at ways your wishes for a charitable bequest have the best prospect of being fulfilled.

Most of the time, bequests to charities fail (and cannot take effect) because there are changes in charitable organisations over time, the will is not updated for many years and/or the will does not contain a suitable power for the executors to address these situations.

 

Changes in charities over time

It is common for charities to restructure.  Many charities once had a number of local branches, which were all registered as individual charities, but they have now consolidated into one overall national organisation, and the local branches  disestablished. Some organisations may have changed their name or amalgamated with other charities.

Wills frequently misdescribe charities. The name of the charity may not have been checked on the Charities Register to ensure it was correctly described or the organisation may have restructured since the will was prepared. Wills commonly leave bequests to charities that no longer exist. This can mean the bequest fails.

 

Wills can include special clauses

In some cases, these problems can be addressed by careful will drafting. Wills can include clauses addressing the potential for charitable organisations to be misdescribed or to change over time. Also, many wills contain a power for an executor to pay funds to the trustees or officers of a charitable organisation without being required to follow up on how the gift is then used. For example:

  • A power could be included providing that if a charitable organisation has been misdescribed, the executor of the will may pay the gift, at their discretion, to what they consider to be the correct organisation, and
  • A power could be included that says that if a particular charitable organisation no longer exists in the form described, the gift may be paid to:
  • Any successor organisation
  • Any amalgamated organisation which the named organisation became a part of or its assets were transferred to, or
  • If the organisation has entirely ceased to exist, to such charitable organisation as the trustees, at their discretion, consider most closely carries out the same charitable purposes.

Where wills do not contain clauses to this effect, the High Court may be able to assist, although this can be very expensive.

 

An example

In a recent case[1], Margaret Barrow’s will (which was drafted in 2000) left funds to the Medical Research Council of New Zealand (MRC). The MRC existed until 1990 when it was dissolved by Parliament, and a new Crown entity, the Health Research Council of New Zealand (HRC), was created in its place.

Ms Barrow’s executor applied to the High Court to interpret the reference to the MRC as referring to the HRC.

Despite the fact that the MRC had not existed for 10 years when the will was drafted, it appeared that neither Ms Barrow nor her lawyer had realised that the MRC had been succeeded by the HRC. The will file, which was more than 20 years old, had been destroyed, so there was no record of Ms Barrow’s instructions to her lawyer. Evidence was given, however, that in 2000, there was no online register of charities, and it is possible that this was the reason for the misdescription.

The High Court noted that the assets and liabilities of the MRC had become the assets and liabilities of the HRC, and the HRC was clearly the successor organisation. It ordered that Ms Barrow’s will should be interpreted as referring to the HRC rather than the MRC.

If the High Court had not been able to interpret Ms Barrow’s will to refer to the HRC, the next step may have been to prepare a scheme under the Charitable Trusts Act 1957. That process is time-consuming and often more expensive than applying to the High Court to interpret a will. If an application to interpret the will is an option, it will usually be faster and less expensive. However, it is best if an application to the High Court can be avoided entirely.

 

Check the Charities Register

When making bequests to a charity, it is prudent to check the Charities Register here to ensure that charity still exists. It is also useful to include clauses in wills that address the possibility of the charity being restructured or disestablished. This can save time and cost, and help carry out a will-maker’s intentions more effectively.

[1] Re Barrow [2023] NZHC 1146.

 

DISCLAIMER: All the information published in Trust eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Trust eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650