We all know that making a valid Will means our estate will be handled the way we want, plus is optimised for our loved ones ­- yet nearly half of us don’t have one. Law changes in NSW that might see everything go to an estranged spouse, could, however, be the impetus to change that.

Intestacy law in New South Wales will change from March 2010, part of bringing succession laws across Australia into line. States that haven’t followed suit, soon will.

“Intestacy” is defined as dying without leaving a valid Will, or, leaving a valid Will that still fails to deal with some or all of the assets effectively. (So “intestate deceased” refers to someone who has died without leaving a fully valid Will.)

The changes take account of several surveys, which showed:

• 75% of people with a Will leave everything to their spouse
• in less than 3% of cases, people split their estate between their spouse and children
• between 40%-54% of people don’t have a Will

Peter Townsend, Principal of Townsends Business and Corporate Lawyers, describes these figures as disturbing.

He says many people leave everything to their spouse because they have not been well informed on alternatives that could lead to much better outcomes for their estate. Likewise, the relatively large number who don’t have a Will have not sought good advice about how to better plan for their estate.

The existing NSW intestacy law gives the spouse the whole estate if it’s less than $200,000, and divides any amounts after that between the then-current spouse and the children.

The new law gives the whole estate to the spouse.

A fine mess

And while the new law is designed to simplify things, it could easily mean that children receive nothing and, potentially, an estranged spouse receives everything. That’s because it will be up to the surviving partner to decide how (if at all) the assets will be distributed among the rest of the family.

Prosperity Advisers Estate Planning Specialist Owen Griffiths says where the deceased had an estranged spouse and a de facto relationship, the new laws provide a formula for dividing the assets between the two. Which may not be what the deceased wanted!

In line with existing state and federal law, the definition of “spouse” has been broadened to include anyone with whom the deceased was living in a domestic relationship.

It’s important to remember too, that marriage revokes a previous Will.

What to whom in which case – children

If there were children by a prior marriage, then the existing spouse receives the deceased’s personal effects, a statutory legacy (initially $350,000, adjusted annually for inflation) and half the rest (if any). Children of the prior marriage receive the other half. Children of the existing marriage get nothing as they are expected to benefit from the estate of their surviving parent.

If the intestate deceased leaves no spouse, then the children of the deceased receive the estate in equal shares, regardless of which spouse they were born to. If a child of the deceased has pre-deceased them, leaving children, then that child’s share is divided among those grandchildren.

What to whom in which case – no children

If the intestate deceased leaves no spouse or  children, then their estate goes to their parents. If they have no parents, then the estate goes to their siblings in equal shares. If a sibling dies before the deceased, and leaves children, then that sibling’s share is divided among those nieces and nephews.

Previously, cousins of the deceased weren’t eligible to receive anything, but now, if an aunt or uncle has pre-deceased, the cousins can share the estate.

If there are no eligible recipients, then the estate goes to the state of NSW (called “the Crown as bona vacantia“, or “goods without an owner belong to the Crown”). The state, however, can waive its entitlement in favour of one or more of a wide range of claimants, including an organisation for which the deceased might have been expected to leave something.

It’s just being sensible

Estate planning is certainly part of a holistic financial plan, yet many people still drag the chain on making a Will. Some see it morbid, some think “it won’t happen to me yet”.

Whatever the reasoning, the result can be messy for those left behind. Not to mention lengthy and costly, with delays in administering the estate if a family member makes a claim. This, says Trust Company Head of Estate Planning Jenny McMillan, can lead to financial hardship on others, plus drain the estate financially.

Peter Townsend says while the changed intestacy laws may motivate some people to have proper Wills drafted, there are other, equally as preferable, reasons – including tax minimisation for both the estate and the beneficiaries, the need to handle estate complexity in light of non-estate assets (such as superannuation) and the ability to provide asset protection for beneficiaries.

These changes in intestacy laws attempt to recognise that families are increasingly complex, driven by high divorce rates. Yet under the new laws, the potential is high for the intestate deceased’s estate not to be distributed as they wished. The answer? Get yourself informed and make a valid Will! That goes no matter where you reside.

Source: “Impact of intestacy law changes on Wills”, by Peter Townsend, Principal of Townsends Business and Corporate Lawyers; and “Will your wealth to the one you love”, by Sara Rich, “The Australian” July 08, 2009.

Tags: Estate planning, intestacy