In Australia, a person is ‘technically’ free to choose who should benefit from his or her estate. Testamentary freedom is a well-founded principle. This principle however may be subject to community expectations of moral obligations. Consequently, in some circumstances a Court may order that the terms of a Will be varied to satisfy a claim by an eligible person. These claims are commonly known as family provision claims.
Alternatively, there may be a mutual agreement between the beneficiaries of an estate to vary the terms of a Will for any number of reasons.
Variations to a Will can be legally effective by the parties entering a deed of variation or deed of family arrangement.
Varying a Will in the face of a family provision claim
An eligible person may claim against the estate of a deceased person if he or she can demonstrate that the testator failed to give adequate provision for his or her proper maintenance, education and advancement in life. An eligible person includes:
- the spouse or de facto partner of the deceased at the time of his or her death;
- a former spouse of the deceased person;
- a child of the deceased person;
- certain persons who were dependent on the deceased.
When facing such a claim, an executor or administrator of an estate must make a judgment on whether it is likely the claim will succeed. Some claims will be morally justified by persons who may not have been adequately provided for.
Whilst an executor has a duty to uphold the provisions of the Will, he or she also has a duty to preserve estate assets. This duty includes considering the merits of a justifiable claim and making efforts to resolve it rather than defending it in Court.
In this regard, a negotiated settlement is almost always possible and will avoid costly litigation that may deplete estate assets. A further consideration is that often the legal costs of a successful claim must be met from the estate.
Other reasons to vary a Will
An agreement to vary the terms of a Will need not eventuate in the face of adversity. It may be obvious that the testator’s Will does not reflect what the testator would have intended had he or she been aware of the full circumstances of the claimant. For instance, there may have been a significant material change in a family member’s circumstances rendering the terms of the Will inappropriate and the remaining beneficiaries are on board with adjusting the Will’s provisions.
Another reason for varying the Will is to allow a beneficiary to ‘buy-out’ another beneficiary’s share in real estate.
Alternatively, a reluctant beneficiary may not wish to accept an inheritance due to the financial implications of doing so (such as the loss of a pension) or a falling out with the deceased.
The process of varying a Will
A negotiated settlement, whether the result of mediation or otherwise, is documented in a legally enforceable deed of variation or deed of family arrangement. The deed should be signed by all beneficiaries and the executor (or administrator) to evidence the mutual consent of all parties who have an interest in the deceased’s estate.
The deed makes reference to the deceased and the Will and sets out the agreed variation of its terms. The deed should provide for the beneficiaries to indemnify and release the executor and estate from any future claims.
Depending on the circumstances, it may be advisable for each party concerned to obtain independent financial and legal advice. Beneficiaries should ensure they are fully aware of the legal and financial consequences of the proposed variation. Financial implications include stamp duty and taxation issues such as capital gains tax and any effects on Centrelink payments.
Adverse capital gains tax can be avoided if the deed eventuates from a potential family provision claim and the necessary requirements under the income tax law are met. Court proceedings need not have commenced to evidence a potential family provision claim.
The terms of a Will can be varied to settle a family provision claim that is likely to succeed or to reflect an agreement between the beneficiaries of an estate.
Variations may have significant tax and stamp duty consequences and parties should seek appropriate advice.
If you or someone you know wants more information or needs help or advice, please contact us on 02 9790 7000 or email [email protected].