The legal profession love DIY Wills and power of attorney kits because they are the gift that just keep giving, in legal fees that is. At Shartru Wealth Management we know this to be fact, because we have had to walk with our clients through the minefield that is, poorly considered and constructed estate planning.
Its expensive and its unpleasant. So what are some of the dangers?
The Will not properly executed
Often we see the Will has not been properly executed or properly witnessed. This can increase the costs of obtaining probate or worse it can lead to the Will being invalid.
Terms of Will are not clear
Wills need to be drafted so as to ensure the terms are certain to avoid the need to apply for declarations from the Supreme Court.Often “DIY” Wills the beneficiaries or the gifts to them have not been adequately described which leads to confusion and additional costs.
Sometimes it is the case that the Will seeks to set out terms that are unusual or uncertain, which may place situations that are either offensive, against public policy or difficult to interpret.
Non-estate assets not effectively dealt with
There are assets that a Will cannot deal with effectively. For example life insurance will pass to the beneficiary under the policy, regardless of what the Will says. Superannuation proceeds will be paid in the discretion of the trustee of the superannuation fund or alternatively in accordance with a valid and current binding death benefit nomination executed by the Will maker.
Control of family trusts will pass in accordance with the Trust Deed and a careful review of the Trust Deed is necessary. Jointly owned property will usually pass to the surviving joint owner, regardless of what the Will says. Ensuring that all estate and non-estate assets pass to the correct people requires careful consideration.
Estate not disposed of properly
Even in a simple estate, care needs to be taken in drafting a Will to ensure the estate is disposed of properly. Often “DIY” Wills refer to assets which the deceased no longer owns or which do not actually form part of the deceased estate such as superannuation, trust assets and property owned jointly with another. We also often see “DIY” Wills where the principle family home has not been effectively disposed of which leads to a partial intestacy (a distribution according to legislation set out by parliament).
Failure to consider Tax
The tax treatment of distributions to different beneficiaries is a complicated area and one which requires a detailed knowledge of Tax and Succession laws. Superannuation for example can be taxed differently depending on who it is being paid too and sometimes it is beneficial for one beneficiary to receive the superannuation and other beneficiaries to receive a larger portion of other assets.
Different beneficiaries may face differing tax outcomes, so you may wish to consider any inherent capital gains tax liabilities that the beneficiary will inherit with the asset. Often beneficiaries will benefit greatly from a testamentary discretionary trust set up in the Will which not only has many tax benefits but is also a good asset protection strategy for the beneficiary. The above matters simply cannot be dealt with in a “DIY” Will.
Claims against the Estate
Where you think one of your family members might make a claim against your estate, special care needs to be taken to minimise the risk of such claims. Usually claims can only be made against assets in the estate and there are numerous ways to ensure that assets against which a claim can be made are minimised on your death.
If a Will sets out why a potential beneficiary, is not participating in benefits, particular care needs to be taken to ensure that the beneficiary cannot use those reasons to their advantage in making a claim later on. “DIY” Wills simply do not cater for such claims and can make matters worse.
The dangers of “DIY” Wills are many and varied. They can simply lead to increased costs in administration of the estate. They can result in the estate or the beneficiaries paying much more tax than they should. Finally they can lead to expensive applications to the Supreme Court by executors for declarations on how to interpret the Will or by disgruntled family members which could have been avoided.
In general lawyers make more money from botched DIY Wills than they do from the few hundred dollars they make in constructing a well thought out Will.