Legal health check

Wills and estate administration

In this, the first of a series of bulletins, we will deal with some of the issues and the terminology that arises in relation to wills and associated documents and the administration of the estate of a deceased person.

The legal health check

The legal health check is a shorthand expression for a checklist of issues which are likely to be relevant whether an individual’s affairs are straightforward or more complicated.  It involves a review of 4 key documents:

• the will;
• the enduring power of attorney;
• the advance health directive; and
• the superannuation binding death benefit nomination and other post death superannuation directives.

The will

In simple terms, the will is the document which controls the destination after death of the assets owned by an individual, and which also appoints, usually other individuals (but occasionally a company) to positions of responsibility.

The part of the will which controls the destination of assets after death is usually referred to as the dispositive provisions.  These can take the form of:

• sums of money – usually referred to as pecuniary legacies;
• specific bequests – specifically described gifts of assets other than interests in land;
• specific devises – specifically described gifts of interests in land;
• residuary provisions – the “bucket disposition” which disposes of all of the assets which are not exhausted by any combination of pecuniary legacies, specific bequests and specific devises, after payment of all debts.

In more complex wills, there can be other dispositive provisions:

• life interest provisions (in simple terms, provisions which provide for a beneficiary to receive the use or income from an asset, without receiving the asset itself) – any life interest provision must be coupled with;
• a remainder interest – the dispositive provision which deals with the asset which was the subject of the life interest provision;
• long-term testamentary trusts – generally, these are provisions which defer the ownership of assets until sometime after death. The most straightforward long-term testamentary trust is one which is in favour of individuals who are under the age of legal capacity, as required by the terms of the will, at the time of death, meaning that the asset must be preserved, protected and managed (“held in trust”) until the individual attains the required age;
• testamentary discretionary trusts – a special form of long-term trust whereby the maker of the will has prescribed an array of beneficiaries who may receive benefits from a particular part of the estate, but who delegates to those who preserve, protect and manage that part of the estate (trustees) the decision of how income and capital benefits are distributed among that array of beneficiaries.  Testamentary discretionary trusts serve a number of purposes based on the fact that the trustees can hold that part of the estate intact pending the most propitious time to decide who among the beneficiaries will receive benefits.

The part of the will which appoints individuals to responsibilities deals with:

• the appointment of executors – the executors are initially responsible for the early administration of the estate.  Over time, and as their duties and responsibilities evolve, the executors usually evolve into trustees.  Put more simply, the executors have responsibility in the early stages of estate administration, whilst the trustees have responsibility in the later stages.  The responsibilities of both are to a significant degree associated with the financial management of the estate.  In the majority of wills, the same individuals are appointed as both executors and trustees, but this is not essential.  Every will should appoint at least one executor;
• the appointment of guardians – this relates to the long-term care, welfare and development of children who are under age. Such an appointment would usually be found only in the will of a parent whose parental responsibilities have not been terminated by a Court order;
• less commonly, appointments which the maker of the will is permitted to make by virtue of other structures which are already in existence.  For example, some clients have what is known as a family trust, and the constituent document (known as the “trust deed”) will sometimes permit the maker of the will to designate by his or her will, who will succeed to decision-making responsibilities after death for that family trust.

A professionally drawn will also contains an array of trust powers and declaratory provisions.  These represent guidelines within which the individuals who are appointed to responsibilities, may act.  Some of the declaratory provisions are also designed to prevent unexpected consequences arising, based on periodic surveys made by the Paxton-Hall wills and estate administration team of decisions made by Australian Courts touching upon interpretation problems which have arisen in other wills that have come before those Courts.

More to come

In subsequent bulletins, we will consider how even a very simple will (the type that people are sometimes inclined to make for themselves) can be deficient and can be improved.

Enduring power of attorney

An enduring power of attorney is a document whereby you appoint trusted people to make decisions on your behalf in certain circumstances. The special facility of such a document is that the decision-makers who you appoint can make those decisions for you even after the onset of a mental incapacity to make those decisions for yourself.

Such a document is therefore not certain to operate – you may go “from cradle to grave” fully able to make those decisions for yourself. However, the future is unpredictable – no one can tell whether an unexpected accident or illness may rob you of your present ability. In that sense therefore, an enduring power of attorney is in the nature of “sensible insurance” to give you some protection from the future unknown.

More to come

In subsequent bulletins, we will consider issues such as:

• who is involved in bringing a valid enduring power of attorney into existence and legal effect;
• what sorts of matters your attorneys can deal with;
• when and in what circumstances their authority commences;
• who you should appoint; and
• what happens if you do not make an enduring power, and lose your capacity.

Advance health directive

An advance health directive is a document which deals purely with future health issues.

There can be a small degree of crossover between an enduring power of attorney and an advance health directive. The reason for this is that under an enduring power of attorney, your attorneys can be given the power to make health-related decisions for you.

Very broadly speaking however, medical institutions tend to regard the advance health directive as “trumping” the enduring power of attorney, where the 2 documents appear to cover the same field. The basic reason for this is that the advance health directive is written as your personal direction as to future health care, whereas the enduring power of attorney is regarded as the substituted decision-making by another person.

More to come

In subsequent bulletins, we will consider issues such as:

• Who is involved in bringing a valid advance health directive into existence and legal effect?
• What does an advance health directive actually say?
• Why you have to be careful filling out part of an advance health directive?
• What is the nature of the “legal force” of the directives that you set forth in the document?

Superannuation binding death benefit nominations and other post-death directives

A binding death benefit nomination is a document which exists solely in relation to superannuation.

In simplest terms, it acts as a “superannuation will” in the sense that it mandates what happens to your superannuation account balance after death.

Superannuation is quite strictly regulated by legislation. The recipients who can be validly and effectively nominated to receive your superannuation account balance after death (the “eligible recipients”) are limited. As a consequence, binding death benefit nominations which are made without knowledge of who within your family circle are eligible recipients, may prove legally ineffective.

More to come

In subsequent bulletins, we will consider issues such as:

• What is the difference between a binding death benefit nomination and a non-binding death benefit nomination?
• What considerations bear on whether you should make a nomination which is binding or non-binding?
• How does any form of nomination work in conjunction with your will?
• What happens to your superannuation death benefit if you do not make any nomination?
• What income tax consequences are associated with any form of death benefit nomination?
• Who are eligible recipients?
• How do you make a valid death benefit nomination?
• How does the role of the death benefit nomination vary as between different types of superannuation funds?
• Is a death benefit nomination the only way of controlling the post-death destination of your superannuation account balance?

Overall

You will see that there are a number of components to the legal health check, and it is important that they all be considered to ensure that your estate planning requirements are fully covered. Our estate planning and estate administration team are always happy to discuss your queries and assist you with your estate planning needs.

Estate administration

This expression refers to the period of time, and the events which occur within that period of time, which begins at the death of the individual in question, and which ends when all of the assets of the deceased, net of liabilities, have been finally distributed.

Estate administration can sometimes be lengthy and complex. Generally, the reasons for a lengthy or complex administration arise by virtue of:

• the circumstances in which the will was brought into existence; or
• the terms of the will; or
• the array of assets; or
• the behaviour of the individuals who are legally relevant to the administration of the estate – usually, the executors and trustees, the beneficiaries, and sometimes the next-of-kin.

Estate administration is always controlled by a distribution pattern, and that pattern derives from or is controlled by:

the terms of the will; or

if there is no will, or if the will is inadequate to completely cover the distribution pattern (any part of the estate not covered by the terms of the will is known as “intestacy”), the intestacy provisions which are contained in an Act of Parliament; either of which can be further controlled by:

a Court order which:

• may deal with the fundamental issue of whether the will is valid (in those circumstances, the will is said to have undergone a challenge for validity); or
• may proceed on the basis that the will is valid, but may vary the distribution pattern (in those circumstances, the will is said to have undergone a family provision challenge); or
• declares what the meaning is of the will (in those circumstances, the will is said to have undergone a construction); or
• makes directions as to how the administration of the estate is to proceed (in those circumstances, the will is said to have undergone Court direction).

More to come

In subsequent bulletins, we will consider issues such as:

• What does probate mean?
• Why is it required in some estates and not in others?
• Is there some equivalent to probate for estates where there is no will?
• How does one apply for probate or its equivalent?