Don’t Let Poor Estate Planning Tear Your Family Apart
Radical reshaping of our inheritance law is under way – so it’s the perfect time to consider what will happen to your assets after your death, writes Andrew Watkins, Partner at Wynn Williams.
14 December 2022
Two things are certain in life: death and taxes. You probably spend a considerable amount of time setting up your tax situation to your best advantage, but have you put as much thought into what happens to your money and assets on your death?
Estate planning has never been more important or complicated. How do you balance the needs of first partners against subsequent partners, natural children against stepchildren and whether to pass on inherited family wealth or spend it? Death without a well-thought-out succession plan can throw your entire family into disarray, causing arguments and resentments that can tear apart those left behind.
A recent Law Commission report concluded that New Zealand’s current succession law is outdated, confusing and difficult to navigate. It recommended over 140 changes including:
• Simplification of legislation
The Law Commission recommends replacing the Family Protection Act (FPA), Law Reform (Testamentary Promises) Act and the death provisions of the Property (Relationships) Act (PRA) with one brand new act: the Inheritance (Claims Against Estates) Act (the proposed Act). This will simplify the law, make it more consistent, easier to find, and easier to understand.
• ‘Topping up’ payments to settle relationship property claims
Currently under the PRA, if your spouse or partner dies you can choose to either take your entitlement under the will or elect to apply to the Court for an equal share of relationship property. The proposed Act will simplify the process by allowing you to receive your entitlement under the will and a “top up” from the estate to meet your relationship property entitlement.
• Family provision awards
Currently spouses, children and grandchildren may generally bring claims under the FPA for further provision from the deceased’s personal estate. Controversially, the proposed Act may stop certain family members of the deceased from applying for a ‘family provision award’.
There are two alternative proposals: either all children and grandchildren should be able to apply for a ‘family provision award’, as they can now, or only children under 25 years and disabled children would be able to apply. The proposed Act would set out a number of relevant considerations to assist the resolution of family provision claims where the claimant has insufficient resources to maintain a reasonable, independent standard of living.
• Anti-avoidance mechanisms
Currently awards under the FPA can only be made against the deceased’s personally owned assets. Assets (such as houses) in joint names pass to the survivor and are therefore not part of the estate. Trust assets are also not included.
The proposed Act would allow a clawing back into the estate of any property which has been disposed of with intent to defeat an entitlement or claim under the Act, or any property interest owned as a joint tenant. This is a significant change to the existing law and would cover the situation where a house owned by one party is put into joint names and then fully passes to the surviving partner on death, leaving the deceased’s estate without assets to pass on to his or her children.
• Contracting out agreements for family provision claims
Couples who enter into contracting out agreements dealing with the division of relationship property currently can’t contract out of their moral obligations
under the FPA. Under the proposed Act, partners would be able to contract out of the PRA and also family provision claims. You would need independent legal advice about the written agreement, and it would have to be signed and certified by a lawyer to be valid. Such agreements could only be set aside if they were or became ‘seriously unjust’.
What you should do
A radical reshaping of the law is under way. Take these potential changes as a reminder to carefully consider how you would like your property to be distributed on death.
Informed Investor's content comes from sources that Informed Investor magazine considers accurate, but we do not guarantee its accuracy. Charts in Informed Investor are visually indicative, not exact. The content of Informed Investor is intended as general information only, and you use it at your own risk.