Things You Need to Know about Wills, Estate Planning and your Situation.

Here is a common scenario that can lead to legal problems:  you and your partner make wills.  You appoint each other as executors and leave everything you own to each other.  If you both die together (or upon the death of the last of you to die) you leave everything to your children.

Got it all covered, right?  Maybe not so.  Assume a few years after making the wills you die.  Everything goes to your partner as planned.  All good so far.  Then a few years later, your partner meets another person and they eventually enter into a long term relationship together and decide to move in together.  They sell their homes and buy a new house together as joint tenants.

At that point your (former partner) decides they had better update their will.  They still want “what I had when I first met my new partner to go to my children (i.e. your children)”.  Their new partner also has children from a previous marriage and similarly wants their share of the property to go to his children.

There are a number of legal principles that come into play in this situation:

 

Rule No. 1: A person can always make a new will.

 

Rather obviously, a will only comes into operation once a person dies.  Unless there is a contractual agreement (called a ‘mutual will’) your partner is perfectly entitled to make a new will after you die that is different from the one they made with you.  In the scenario above, your partner wants to ‘honour your agreement’ (and benefit your children).  But what if they didn’t?  They would be perfectly entitled to leave everything to their new partner.

 

Rule No.2: You must understand the difference between Joint Tenancy and Tenants in Common.

 

It is very important to understand how assets are held. Property (such as the family home) can be held either as joint tenants or tenants in common.  In both situations, the property is registered in the names of both of the owners.  However, in a joint tenancy situation, if one member of the couple dies that person’s interest in the property ends immediately and passes (by what is called “the right of survivorship”) to the surviving member of the couple.  Really, this means you only own half of a jointly owned property whilst you are alive.  When you die, your surviving co-owner owns it all (“The Winner Takes It All”).    

Think about that:

It means, that if you have prepared a will on the understanding that it covers “your half” of the property, you are mistaken – jointly owned property passes automatically to the surviving joint tenant irrespective of the terms of your will.  

In the scenario above, this means that your partner’s interest in the jointly owned property with their new partner passes automatically to the new partner if your former partner dies. The new partner then owns the whole property.  They can then make a will leaving their entire estate to their children (see rule 1).  YOUR CHILDREN will miss out altogether. 

If, however, property is held as “tenants in common” it means that interest in the property can still be dealt with in the will.  In the scenario above, your former partner could leave their half share to your children if the property were held as tenants in common in equal shares.

But see Rule 3.

 

Rule No.3: The Family Provision Act.

 

A will may be the subject of a challenge. In the scenario above, your former partner’s new partner may renege on the understanding that they had with your former partner that they each leave their interest in the property to their respective children.  Or it simply might be the case that they challenge the will because they really do need the money (‘can’t afford to sell the house’, ‘not enough to buy another house’ etc)

 

Rule 4: “Step Children” are in a difficult position.

 

In Western Australia, adult step children can only challenge a step parent’s will where that step parent “received or was entitled to receive property from the estate of a parent of the stepchild’ to a value of greater than $513,000.00.  This is a flaw in the legislation as it means that assets acquired by the step parent through a joint tenancy arrangement ARE NOT regarded as having been acquired from the estate.

 

What can be done?

 

There are essentially three ways that you can deal with this situation (both at the time when you and your partner make your wills and – you having died – when your partner and their new partner make their wills) :

  1. Simply make “mirror wills” and trust your spouse not to subsequently make a new will after one of you dies.  (Many people choose to do this – “it won’t bother me, I’ll be dead” and that is why there will always be work for lawyers)

 

      2. To make “mutual wills”.  A “mutual wills” are an enforceable agreement whereby the persons making the wills agree not to vary the terms of their will without the consent of the other person (which consent cannot, of course, be given if one person dies).  A mutual will must be carefully drafted to be appropriate to each particular situation.  For Example:

    1. Is only the principal place of residence to be included?
    2. Are any limitations to be placed on the ability to deal with assets during the surviving person’s lifetime?

 

3.  To sever the joint tenancy now by changing the title of the property to tenants-in-common in equal shares.  This would then allow (for example),  each person to give to the other a life estate enabling the other to live there (or in any substitute property) during their lifetime but upon that person’s death (or remarriage if that is thought appropriate), the property is to be sold your share dealt with according to the terms of your will.

 

You will need to carefully weigh up these options and in particular have regard to the time it may take to attend to all the steps necessary in the third option.

Another option, is for your former partner to prepare a Financial Agreement with her new partner (although this will not override any possible challenge under the Family Provision Act.

 

What you shouldn’t do.

If your spouse or partner has died and you are contemplating making a new will you really should not use a will kit but should have a solicitor prepare your will.