When you die without a Will you are called intestate.  And when you are intestate your worldly wealth is carved up according to a strict formula determined by the Government and set out in section 14 of the Administration Act 1903 (the Act).

For decades, the Act has dictated that when a person dies intestate and has a spouse and children surviving them, the spouse will take the first $50,000 of the estate and one third of the residue of the estate. The remaining two thirds are then divided equally between the deceased’s children.  This formula applies regardless of personal circumstances, family relationships or the amount of wealth being split.

We have seen this formula cause enormous problems for husbands and wives who are left behind to care for their children, and then have the added stress of often realising that they either can’t afford to keep their family home or have to transfer a portion of the family home into the names of their children, in order to comply with the formula in the Act.

This provision is now over 35 years old, and is out of line with the current realities of the value of estates and the cost of living.

Consider for example, the very common scenario:

  • Two spouses have two minor children (under 18);
  • One spouse is the main breadwinner of the household, while the other spouse may have taken some leave from work to be the full-time caregiver of the children. The house in which the family live is registered in the sole name of the main breadwinner, and is mortgaged;
  • The main breadwinner passes away leaving surviving them their spouse and two children; and
  • The family home is the main asset of the estate. The deceased also had some superannuation and a life insurance policy attached to the superannuation, the benefit of which is paid to the surviving spouse as the deceased’s ‘dependant’.

In this case, where there are no liquid assets in the estate, the estate is comprised mainly of the deceased’s equity in the family home, leaving very limited options in terms of dividing the estate.

Using the current formula in section 14 of the Act, the surviving spouse will only take the first $50,000 of the estate and one third of the residue, meaning the family home must be transferred into the names of all of the surviving spouse and the surviving children in the appropriate shares. This immediately brings about complications.

If the superannuation and life insurance received by the surviving spouse is sufficient to fully discharge the mortgage registered over the family home, the surviving spouse may choose to pay this off to avoid any problems with the bank. If there are not sufficient funds to discharge the mortgage, it is likely that the bank will not consent to the property being transferred into the names of the surviving spouse and the surviving children, as the children are not able to become borrowers under the mortgage, and the surviving spouse may not be in a position to show that the mortgage can continue to be serviced.

This means the family home will inevitably have to be sold in order to repay the mortgage, which is the last thing a widowed parent dealing with grief needs to be worrying about at such a stressful time.

Fortunately, there is now talk of a proposed change to the Act, which will see the surviving spouse receiving the first $500,000 from the estate (rather than the first $50,000) and then one third of the residue. This means that in many situations, the spouse will be able to take the family home in their sole name as their share of the estate before any distribution to minor children, providing much needed security for the surviving spouse and the family. It is also much more likely that a bank will be more agreeable to allowing a refinance into the sole name of the surviving spouse.

In our view, this is a long overdue change to the Act.  The first $50,000 provision comes from 1982, when $50,000 was close to the median house price in Perth (and which was raised from $30,000 to $50,000).  Raising this to $500,000 is an entirely sensible thing, and is much more in line with today’s cost of living and will hopefully cure a range of issues to be overcome when a spouse passes away. Watch this space for more updates as they come to light.