Legal Question – The Top Ten Things You Need To Know About Wills Part 2

Anyone who owns a business or works in a dangerous role needs to think at some point about what they want to do with their assets in the event of their passing. In The Top 10 Things You Need To Know About Wills – Part 1 we began our examination of things to be aware of when planning for your estate. Here are the remaining four things to consider:

What are the Consequences of a Will being Invalid?

If a will is not valid, the consequences could include:

• an older valid will being treated as the will maker’s final will, even though the older will may be significantly different in its effect to the later invalid will.
• the will maker being deemed to have died intestate if he does not have another valid older will.

When a person dies intestate, it basically means that there is no valid will in place, with the result that a statutory or government formula applies. The application of that statutory formula determines how the estate will be distributed, which may be in a completely different way from what the will maker intended. It is especially detrimental to the will maker if he did not wish to include certain family members as beneficiaries under the will.

The following is a summary of the current formula applicable in Victoria if the will maker leaves:

• a partner and no child or other issue – the whole estate to his partner.
• a partner and a child or other issue who is a child of the partner – the whole estate to his partner.
• a partner and child or other issue who is not the child or other issue of the partner:
  • if the estate is less than the amount of the partner’s statutory legacy (which is currently $451,909) – the whole estate (including personal assets) to his partner.
  • if the estate is worth more than the partner’s statutory legacy:
    • personal chattels, the amount of the partner’s statutory legacy, interest on that amount from date of death to date of payment and 50 percent of the balance of the residuary estate – to his partner; and
    • the balance of the estate to such of his children as survive him and if more than one in equal shares but if a predeceased child leaves children of his own, then his share goes to his children and if more than one in equal shares (with this formula continuing to the children of grandchildren until the benefit is exhausted).
  • children but no partner – to such of his children as survive him and if more than one in equal shares but if a predeceased child leaves children of his own, then his share goes to his children and if more than one in equal shares (with this formula continuing to the children of grandchildren until the benefit is exhausted).
  • parents but no partner or children – the residuary estate to such of his parents as survive him and if more than one in equal shares.
  • siblings but no partner, children or parent – to such of his siblings as survive him and if more than one in equal shares but if a predeceased sibling leaves children of his own, then that sibling’s share goes to such of that sibling’s children as survive him and if more than one in equal shares.
  • grandparents but no partner, children, parents, siblings or children or issue of siblings – to such of his grandparents as survive him and if more than one in equal shares.
  • aunts or uncles but no partner, children, parents, siblings or children of siblings – between such of his aunts and uncles as survive him and if more than one equally but if a predeceased aunt or uncle leaves children of his own, then that aunt or uncle’s share goes to such of his children as survive him and if more than one in equal shares.

Why do some Wills get Challenged?

There are two main platforms upon which a person can apply to a court to either treat as invalid or otherwise alter the way in which a will purports to distribute the will maker’s property and liabilities. These are:

1. on the basis of validity. That is, there is an allegation that the will or certain clauses of it should be held to be invalid (and hence not enforceable by a court) on one of the following bases:
   1. The will maker lacked capacity to make a will (for instance, had dementia or another ailment which rendered him unable to properly understand what he was doing by making the will in a particular way); or
   2. The will maker was pressured into making the will either via:
      1. undue influence; or
      2. duress.
   3. that the distributions made under the will maker’s current will do not make adequate provision for a particular beneficiary or a person who is not a beneficiary under the current will.

In the case of the validity argument, a challenger may allege that the will maker:

• did not understand what he was doing when making the will;
• did not understand fully the consequences of the way in which he instructed the lawyer to draft the will;
• lacked the capacity to enter into any legal transaction;
• did understand but felt pressured to make a will with particular consequences because of:
  • unequal bargaining power exerted by another person (for instance, the person putting pressure on the will maker enjoyed holding a position of power over the will maker); or
  • pressure from another person or persons whereby the will maker did not really want to make a will in that manner but felt forced to do so to appease a person or people.

How to Prevent a Will from being Challenged

Legislation which regulates who is permitted to challenge a will (for making insufficient provision for a particular person) has been tightened up to some extent. The good consequence of this change is that, at least under Victorian law, very few people now have ‘standing’ to apply to a court to challenge the adequacy of the will in providing for a particular person.

However, other than a person not qualifying as a person who can challenge a will, the short answer is that it is not possible to outright prevent anyone from challenging a will, although certain strategies to reduce the risk of such a challenge can be adopted.

In the case of some people, a testamentary trust can be used, wholly or in part, to protect some of the assets. It does this by holding the assets of the estate (or some or part of them) upon trust with the result that some or all of the assets are not fully given to a beneficiary. Usually, this mechanism provides for a beneficiary to receive an income from the assets during his lifetime, but the assets themselves are never owned by the beneficiary. However, this model is only suitable for some people.

Stating reasons for why a particular person has been excluded as a beneficiary is sometimes helpful. However, those reasons need to tie in with legislative factors which are relevant to whether or not adequate provision has been made by the will maker to that beneficiary (during the will maker’s life). Many reasons which will makers think should be relevant (such as the challenger not having much contact with the will maker) are not relevant under the legislation and hence are not factors which a court can seriously take into account.

Hence, if only legally irrelevant reasons are mentioned, it may well be that they work against the will maker and not is his favour. Careful attention should be made about what relevant reasons exist (if any) for the will maker to exclude or provide to a lesser extent for certain people under a will and, further, whether any of those reasons should be stated in the will or in another document which accompanies it.

If there is an argument that the will maker made adequate provision for a particular person during that person’s lifetime as the reason for excluding that person as a beneficiary under the will (hence upon the will maker’s death), then the will maker should leave extensive evidence of the financial provision that he made to that person during the will maker’s lifetime. For instance, this may include evidence of the payment of expenses of the excluded person and payments made in favour of the excluded person, bank statements highlighting monies paid to the excluded person, loan agreements, receipts and the like. Ideally, the will maker should also provide either an affidavit or statutory declaration recording such matters.

This action will assist the executor of the will with being able to defend any challenge to the will. Further, the production of such evidence (by the executor to the excluded person) may potentially deter the excluded person from commencing legal proceedings and hence potentially save the estate significant expense (in the form of avoiding significant legal costs from being incurred by the executor).

What needs to be kept in mind is that, if someone challenges a will, the person who would usually be the primary witness (the will maker) will no longer be in existence and hence cannot give evidence from the grave to assist the executor!

Why do so many Challenges to Wills get Settled out of Court?

Many court cases seeking to challenge either the validity of a will or to request that the distribution under a will be altered on the basis that it does not make adequate provision to a particular person end up being settled out of court. That is, such court proceedings are usually resolved out of court by agreement between the parties as opposed to a judge hearing the evidence and determining the outcome of the matter.

The major reason for this is that there is often not solid evidence to defend such a challenge. Obviously, the person who would usually be the principal and most important witness in the matter is not available because, of course, he has passed away. The only other witnesses can only give secondhand evidence of what they heard the will maker say about his intentions or about an excluded beneficiary. Hence, much the evidence of such witnesses is often very indirect, unreliable and easy to challenge.

Further, the will maker may have left very little clear written evidence of pertinent matters. For instance, if the executor is attempting to defend a challenge on the basis that the will maker did not make adequate provision for the challenger during his lifetime, the executor would ideally need evidence of how the will maker provided (financially and otherwise) for the challenger during his lifetime. For instance, this could include evidence that the will maker paid school fees for the excluded person’s children, provided free child care to the excluded person’s children, or made gifts of value or wrote off loans to the excluded person.

Without such evidence, the executor may accept legal advice to compromise its position and settle the dispute because of the risk of the challenger succeeding in the action and the legal costs involved in defending the proceedings, which erodes the existing pool of assets required to be distributed to the beneficiaries.

It is for these reasons that careful attention should be paid to the best way in which a will should be drafted and to leaving evidence to assist an executor in having to deal with any disputes about the estate in the will maker’s absence.