The most common and most dangerous estate planning myths

There are an extraordinary number of succession myths that keep circulating, like rumours that just don’t go away. Some go back generations and are passed down by friends and family. Some are pretty innocuous, but most are downright wrong and can have significant consequences on estate planning.

Here are the myths we alarmingly hear time and time again that need to be dispelled.

Thinking you don’t need a Will because you’re married.

This one is disarmingly common and a persistent myth. Many people mistakenly believe that once they are married all their wealth simply goes to their spouse, automatically, no questions asked. They are, of course, invariably shocked to hear that this is not the case and that without a Will their spouse will only get only about one-third of their assets, their children the rest, and if they are minor children, in trust being controlled by others. The consequences of dying intestate (without a Will) are many and complex and stretch well beyond this simple outcome. We know where this myth comes from though – it comes from prior generations who had fewer assets and held them very simply. It used to be routine for the family home to be owned jointly by husband and wife, as too the one bank account. Joint assets like these do go automatically to the other joint owner. So if all your assets are owned jointly, then you do not need a Will to cover them, as the path of inheritance of these assets is already set. This is worth thinking about beyond husband and wife, because putting assets in joint names can also be a useful strategy to make sure certain assets are not left in a Will, and so therefore not challengeable.

Believing that you don’t need a Will because you have no assets.

This is very common for those young adults who have just entered the workforce. They invariably are surprised to learn that their super fund, with maybe only a few hundred dollars in it, may also have a very large life insurance policy attached to it, that on death can cause an estate to swell from modest to large. It’s also common to forget about future assets, in particular what you may inherit yourself. If you have children, then a Will becomes very important for determining who becomes guardian for your minor children, regardless of whether you have many assets. If a client is in this position, we usually recommend they see a financial advisor to talk about life insurance. Having a sizable policy provides enormous comfort for the children who might be orphaned without the Will maker.

The “just give them something” and they cannot challenge myth.

This one keeps appearing like a bad penny. There is a persistent myth that when writing a Will if you leave someone something, anything, even $1, then that person cannot challenge the Will. It’s nonsense and it’s one of the most dangerous assumptions we see people make. What matters is whether the amount you have left them is adequate and proper in all the circumstances, which is a very subjective test with many considerations that vary from person to person and change from time to time. One dollar may in fact be adequate and proper, if you have others who have much greater need and you have very modest assets to begin with, but it’s nothing to do with “leaving them something”, it’s to do entirely with it being calculated as adequate in all the circumstances.

A Power of Attorney is my right to access assets.

A Power of Attorney does not mean someone can start helping themselves to a bit extra at the ATM or carving up parental assets as if they have already passed away. Not true. Not ever.

If you are an Attorney for someone you undertake to use their assets only for their benefit and best interests. This is a contract you are subject to under the Guardianship and Administration Act, and if you misuse another person’s assets you are personally liable for the loss. In particularly egregious cases this can result in criminal sanctions. Sadly, this myth perpetuates and encourages some people to indulge in what is called elder abuse. A word of caution to anyone thinking they can get away with it because no-one is looking; more often than not financial elder abuse ends up being fully investigated and subject to Court proceedings once other family members find out about it, and if only in the name of self-interest only, because they see that their future inheritance as set down in the Will is getting diminished at the hands of the abuser.

Executors have the keys to the castle.

A myth that still circulates is that the Executor of your Will can do as they please with the estate assets, including making up their own mind on who gets what, and when. In rare circumstances some Wills are specifically drafted to give their Executor very broad discretionary powers, but unless you create such a Will, your Executor is bound to follow your Will to the letter. If the Will says I give one quarter of my estate to the dog home, the Executor cannot change that simply because the dog home is not his favourite charity. We know where this myth comes from, it’s that Executors do have power to administer the estate, which includes selling assets, transferring assets, paying debts and taxes, organising inventories and the funeral and many more tasks. And some people think this degree of administrative power gives them extended powers. The thing is, the administrative freedom they may have is always tempered by the purpose and terms of the Will.

If my Will says give one quarter to the dog home, then the Executor does have power to work out what exactly one quarter is, to sell assets to find the money to make it happen and then go about it, but the dog home must still get the quarter. The Executor does get the literal keys to the castle, but only so they can open it up, have a good look so they can inventory what’s in it, make sure it stays insured and kept in good condition before either selling it and its contents or carving it up or transferring it precisely as the Will says. We’ve seen Executors think that they are allowed to move into the castle and live there for months or even years, rent-free. Unless the Will allows this, then doing such a thing makes the Executor liable to the beneficiaries for their loss.

A “you get nothing in the Will if you challenge” clause.

Another very common, very persistent myth, particularly among the elderly. This myth is that an effective clause in the Will goes along the lines of “Anyone who challenges this Will or fights over it gets nothing”. Such a clause is worthless from a legal perspective. We suppose the only value such a clause has is that it might be persuasive if other family members believe in the same thing. But any beneficiary who goes to see a lawyer will be told swiftly to ignore it, it’s meaningless. Courts will not entertain them, and the reason is simple – it’s because the right to challenge a Will is not given by the Will maker, it’s given by Parliament via legislation. And neither you or I or anyone else (other than another Act of Parliament) can take that lawful right away. The only way I can stop someone challenging a Will is to either die with no assets that are in my estate able to be challenged, or actually make adequate and proper provision for the person.

You must treat all children equally.

This is a tough one. We all like to think we are equal, especially among our siblings. But we are not. And there is no law which says I must treat them equally in my Will. In fact, it might just be the opposite; I might have to leave things to them unequally. The hard thing about this one is that morally we feel obligated to treat our children the same, because we love them equally.

But this might not be reflected in financial consequences of inheritance. For example, if I have four children, three of whom have gone and made good lives for themselves earning good salaries and such, and one who at age 35 is still living with me at home, whom I support and look after because for whatever reason they have never been able to get on their own two feet, notwithstanding that I might love all four of them equally, my obligation to look after the least successful of them is higher. Depending on how much wealth I have to leave overall, I might actually have to give a larger share, or even all, to the dependent child, who, without me there to continue looking after them may fall on hard times.

Naturally this can be deeply upsetting to the successful children, who usually harbour a view that the ‘black sheep’ is their own worst enemy and should not get more due to their own failures. This is a surprisingly common scenario, and care is required here, great care, to create a landscape that gives best results to all.

Testamentary Trusts are just for the rich.

Just as we see the use of Discretionary (Family) Trusts at all levels of Australian society, so too is the use of Testamentary Trusts in Wills valuable for every strata of Australians. From young adults to the very elderly, from the modestly provisioned to the very richest of us; Testamentary Trusts are the answer. They are our best defence to attack of beneficiaries’ inheritances from divorce and from bankruptcies, but they are also tax-effective harbours for assets for children who are not lawfully allowed to inherit until they are adults. Testamentary Trusts are also almost infinitely customisable, and their limits are really only bound by your own imagination.

Want to make sure a spendthrift child does not blow his or her whole inheritance on Prada handbags and Veuve Cliquot champagne? A Testamentary Trust is the answer. Want to make sure your partner, who is a true believer in cryptocurrency, is only allowed to invest in blue chip stocks and shares? Look to a Testamentary Trust. We once saw a Testamentary Trust in a Californian Will of an incredibly wealthy man which provided a very large sum of cash on his death to each of his five children (which was still only a small proportion of his enormous estate). After that first gift, the amount each of them would next receive depended entirely on them each demonstrating that their initial gift was invested wisely and was not spent on frivolities. The possibilities in crafting novel Testamentary Trusts to really make sure your precise wishes are carried out are as varied and unique as each client who has them in place.