What does it mean to have ‘mental capacity’ when it comes to signing a will or an important legal document? This has recently become a hot topic, with new case law shining some much-needed light on the subject. It’s also something that families need to be aware of as their loved ones age.
Mental capacity, as a concept, seems straightforward and self-explanatory. Common sense would suggest that if there is even a slight question as to a will-maker’s capacity, an assessment should be carried out to ensure they fully understand the provisions in their will, as well as the possible consequences that could arise from them.
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As parents age, their children often find they need to take an increasing role in looking after them. Unpalatable as it seems, it’s important to think about the legal difficulties that can arise where one member of the family has assumed responsibility.
If questions are asked some time later, it may not be enough to say “but that is what mum/dad wanted”. We also explain the restrictions on when an attorney (the person who holds the Enduring Power of Attorney) can benefit from the decisions they make. We touch on the issues where a parent later needs to go into care.
Often elderly people do not want to live alone. Buying a unit in a retirement village, or some other form of sheltered accommodation, may be a good option. Others may find buying a unit is not financially possible or desirable. Some prefer to stay with one of the family. In that case, an increasing burden may be thrown on the family member who is providing care. These arrangements should be recorded carefully and it’s important to get legal advice.
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Entitlements under your spouse or partner’s will
When your spouse or partner dies you will need to make a very important decision between your entitlements under their will and potential claims against their estate. We discuss the implications of that decision, some of the issues that it raises and the consequences of the choice that you make.
In 2002 the law in New Zealand was changed so that when one of the spouses to a marriage or one of the partners in a de facto relationship of more than three years dies, the death for most purposes is treated the same as separation. Under the Matrimonial Property Act 1976, when a married couple separated the general rule was that their matrimonial property was split 50/50.
The changes to the law in 2002 extended this division to the situation where one of the spouses or de facto couples dies leaving a surviving spouse or partner. For practical purposes, death is treated the same as a separation under the Property (Relationships) Act 1976, known as the PRA.
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Can it be fair for everyone?
Making sure everyone you care about gets a fair share of your property after you die is an issue most of us grapple with. This may also have additional complications when you have a blended family.
It’s not always as easy as just writing your Will and specifying who gets what. There are several statutes that give family members and/or your new partner’s family, a right to contest your Will. The two main statutes are the Family Protection Act 1955 (FPA) and the Property (Relationships) Act 1976 (PRA).
Leaving it all to your partner?
A common way of structuring your affairs is to leave everything to your partner or spouse, knowing they will provide for your children as well as their own in their Will. These are often called ‘mirror Wills’. Unfortunately, this structure doesn’t always satisfy all the children involved, as we have seen in several recent court cases. You also run the risk of your partner or spouse changing their Will at a later date after you have died.
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Having an Enduring Power of Attorney (EPA) is as vital as making sure you have a Will. Whether you’re 18 or 80 years old, you never know when you may need to have a responsible person to make decisions on your behalf.
What is an EPA?
An EPA is a set of two legal documents, one for personal care and welfare, and the other for property. They appoint an attorney to act on your behalf to carry out your wishes at times when you may lack the mental capacity to do so yourself or, in the case of property matters, at your discretion. Lack of mental capacity can be caused by, for example, a brain injury, an accident, or a medical condition such as a stroke or Alzheimer’s.
It’s important that you appoint someone you trust, and who understands you, to be your attorney. It can be difficult to talk about, but you should consult with your family about your EPAs so that everyone knows what to do if you become unwell and can’t manage your affairs by yourself.
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Keep it protected
For many people a gift by Will (also known as a legacy) from a relative or friend can be very significant – both personally and financially. The relative or friend wants to show you kindness but also usually wants the gift to be of real benefit to you personally. The gift is not intended to benefit other parties such as creditors, the Official Assignee or a de facto partner, however, unless it’s protected, that can be the unintended outcome.
Relationship property claims
If you are a beneficiary under a Will and you’re married, in a civil union or de facto relationship, the gift (under the Will) is separate property (as opposed to relationship property). The difference is important because if your marriage or relationship breaks down or you die, your spouse or partner cannot claim half of the gift (or its proceeds) because it’s separate property which is not subject to the equal sharing regime under the Property (Relationships) Act 1976.
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Planning is key
Most owners want to ensure their business will continue after they have died. Often they want their family to be able to carry on the business. A common form of business in New Zealand is the family farm and this poses particular problems all of its own. Most people know that they need to have an up-to-date Will and Enduring Powers of Attorney (EPA) to cope with any unexpected events. However, there is a lot more planning that you should do as well.
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Some key proposals
In late 2013, the Law Commission completed a report recommending that a new Trusts Act replace the Trustee Act 1956. The public consultation phase began last December with the release of the exposure draft Bill. It is intended that the new legislation will be the primary source of trust law in New Zealand. We outline below some key proposals.
Definition
Most trusts in New Zealand are established with a written trust deed or other document such as a Will. These are known as ‘express trusts.’ The Bill only applies to express trusts. Characteristics of express trusts are defined in the Bill as:
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Who pays for your funeral?
Most Wills have a clause directing the executors to pay funeral expenses as well as other usual estate liabilities. Often there is also a clause saying whether you want burial or cremation. Are these directions binding?
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How you can help avoid a claim on your own estate.
In December 2015 the Sunday Star Times reported on a dispute amongst the members of the Ropati family in respect of their mother’s estate. The article contains the following statements:
“Figures released by the Ministry of Justice show that the number of disputes over wills rose by nearly a third in just two years … In 2012 there were 252 contested wills, and last year the figure reached 325 … Claims against estates can be brought by widows, widowers, de-facto partners, children, step-children and grandchildren … A claimant has to prove that the deceased failed to discharge a moral duty to provide for him or her … In one extreme case, two sisters battling over their mother’s $80,000 estate took their fight to the Supreme Court … The dispute between Judith Guerin and Marta Hayes lasted more than five years.”
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