Recent studies consistently tell us that around half of the adult Australian population does not have a Will, and it is certainly our experience that it usually takes a major event, like the start or end of a relationship, serious illness, or the arrival of children, for most people to really stop and think about the need for proper estate planning. With the arrival of COVID-19 and its staggering spread, we are seeing an extraordinary increase in enquiries from people wishing to create or update a Will. Although the impetus for this increase is truly dreadful, from an estate planning perspective it is heartening to know that more of us are putting effective strategies in place to manage our affairs. This is all the more important when you consider the broad-reaching effect of the pandemic on all aspects of our lives, from our relationships to our finances, and what this will mean for estate planning disputes moving forward. There are three major areas we are keeping our eye on at the moment:
1. Economic downturn leading to an increase in family provision claims;
2. Relationship breakdowns; and
3. Undocumented gifts and loans, and the havoc they wreak on estate administration.
Family Provision claims
All of us have either seen the reports of mass job losses and financial hardship or are sadly experiencing it ourselves. By all accounts, the economic impact of COVID-19 will be felt for years to come. How does this intersect with estate planning? Well, it means that people who were once comfortable financially may find themselves in a much more precarious position and in dire need of assistance from the estates of their parents, especially where their parents’ Wills were prepared before the outbreak while their children enjoyed greater financial security.
‘Challenging’ a Will – or more precisely, making a family provision claim – is not always a decision made by estranged or greedy children, looking to take the lion’s share of their parent’s estate. Frequently, it is in fact a difficult decision taken by a family member who genuinely feels that they fit the Court’s criteria of being a person for whom the estate has not made ‘adequate provision…for [their] proper maintenance, education and advancement in life’. In our line of work, we often see claimants who feel they have no choice but to make a claim, for various reasons. And it is for those people, genuinely in need, that the ability to make a claim exists.
We are anticipating a surge in estate planning disputes over the next 12 months and beyond, as the shifting fortunes of many Australians force some difficult decisions to be made. As always, having a Will – including one drafted pre-pandemic – is far better than the alternative, but we do encourage everyone to take a moment and reflect on their current estate plan, and whether it properly provides for the important people in your life, whose circumstances may be drastically different in the current economic climate.
Another trend that we are watching closely is the rise in separation and divorce. The emotional and financial pressure caused by current events, coupled with the significant shift in our social activity while we spend much more time in the home in close proximity to those who share our household, has our colleagues in family law practice reporting significant increases in enquiries regarding separation, and calls to relationship counselling services also on the rise. There are significant estate planning consequences that must be considered during times of separation and divorce – although a divorce will nullify a Will (leaving you intestate if you have not made another Will ‘in contemplation of divorce’), separation will not. Separation also will not negate the operation of the Administration Act in determining who receives a share of your estate where you do not have a Will. The following scenarios are all too common:
1. Sally and John got married in 2010, and after the wedding, Sally made a Will giving her entire estate to John. Sally and John separate in 2019 but Sally does not update her Will. When Sally dies in 2020, still separated, but not divorced, from John, Sally’s Will remains in force and John is still entitled to her entire estate.
2. Although Sally and John married in 2010, Sally did not make a Will. When she dies intestate in 2020, even though she and John have been separated since 2019, John remains entitled to a large proportion of Sally’s estate.
It would be safe to assume that neither of the above two scenarios would reflect Sally’s wishes. Without a Will that adequately reflects Sally’s changed circumstances following her separation however, it is almost certain that John will benefit from Sally’s estate.
Undocumented gifts and loans
Rounding out the top three issues we are keeping our eye on at the moment is loans provided by parents to assist struggling children who may be suffering financially from the effects of the pandemic, but without properly documenting the loan. All too often we meet with clients in a he said/she said fight over whether money provided to their siblings, or themselves, was a gift or a loan, and whether it needs to be repaid prior to any distribution of the estate. Frequently these loans are significant sums, and so for both the person in receipt of that loan, and for the other beneficiaries of the estate, it can make an enormous difference to their ultimate distributions whether or not the loan is repaid. No matter the nature of the advance of sums, be it gift or loan, it is always a good idea to keep proper records so that there is no ambiguity when it comes time for your executors to administer your estate, and to include your intentions regarding those funds within the Will itself.
Staying ahead of the game
We are all dealing with so many unknowns right now, and it can be difficult to identify where to start in protecting ourselves and our loved ones against the impact of the COVID crisis. As always, prevention is better than cure.
Step 1 is to review your estate plan. Do you have one? Does it still reflect your wishes, or does it need adjustment given recent changes to the relationships and economic circumstances of you and your beneficiaries? If not, then Step 2 is to get in touch with an estate planning professional, who can help you navigate these waters and ensure that your estate will be dealt with in the way you intend.
We’re here to help, so feel free to get in touch with us if you’d like to talk about your own estate planning needs.