One of the most common misconceptions people have about dying without a Will is that their spouse will get all of their assets on their death.
With the exception of property held jointly (e.g. family home held as joint tenants, bank accounts in joint names), the deceased person’s spouse (being a legal or de facto partner) only inherits the first $50,000 of the estate under the current laws. The balance of the estate is split between the spouse and the children of the deceased in a 33:67 split (if the deceased had more than one child) or a 50:50 split if the deceased only had one child.
You may think, “well, that’s alright, we don’t have any children, so my spouse will get the lot.” In that case, life actually gets more complicated! In the event that your spouse dies without a valid Will, you are entitled to the first $75,000 of their estate; the remainder is split 50:50 between you and their family, being those of their parents and siblings or deceased siblings’ children.
Example: Peter and Jane are a recently married couple who met and married in their late 20s. Before their courtship, each owned their own home in their own name; they now live in Peter’s house and rent out Jane’s house. Both houses are mortgaged. They have not yet taken steps to move Peter’s house into their joint names
Unfortunately, Peter is killed in a tragic accident not long after their wedding. Jane now not only has to deal with the grief of losing her husband, she now realises that Peter’s mother and three brothers, none of whom she likes, are now entitled to a half share in her marital home (Peter was a smart investor and had over $75,000 in shares, which Jane is entitled to take). Facing pressure from Peter’s family, and the reality of attempting to service two mortgages on her sole income, Jane is forced to sell their marital home and move back with her parents until the lease on her rental property expires.
The WA government is currently considering a Bill to raise the spouse’s entitlement to $435,000 where the deceased had children, or $650,000 where the deceased had no children. This sounds good, but an increase to the statutory distribution was first proposed in 1990! Rather than leaving your estate plan to the whims of government, there is a simple step you can take: make a valid Will. Having a Will puts you in the driving seat of your estate plan, and reduces the stress and shock to your spouse at an incredibly difficult time.
So, you’ve done a bit of searching and you’ve found the perfect home to buy together. You both are contributing half the deposit, and you intend to split the loan repayments equally. Your settlement agent asks if you want to own the home as joint tenants or tenants in common. What’s the difference?
If you own the home as joint tenants, you both own 100% of the home together. However, if you own the home as tenants in common, you each own 50% of the home.
Why does this matter, you ask (and it’s a great question)? Well, the major difference between joint tenancy and tenancy in common is the treatment of the property on your death. If you own the property as joint tenants then when one of you dies the other inherits the property automatically under the law.
This may be fine and exactly what you want, particularly if you are married or a de facto couple intending to share your assets for life. However, if your intention going into the purchase is that each of you is able to leave your share of the house to your own family in your Will, which would certainly be the case if you were friends rather than partners, you need to hold the property as tenants in common.
The tenancy question doesn’t often get picked up when you sign the Contract, but your settlement agent will check. Changing a tenancy from joint tenants to tenants in common, or vice versa, is possible, but it can be a faff, particularly if a bank is involved, and there may be additional charges for your bank to produce a consent to lodgement of the amending transfer. Far better to get it right the first time round!
While the Will might be the super hero of the estate planning process, there a three trusty sidekick documents you should consider as part of your estate plan:
- EPA stands for Enduring Power of Attorney. The EPA allows you to appoint one or two people to manage your financial and legal matters in the event you are unable to act for yourself, either mentally or physically.
- EPG stands for Enduring Power of Guardianship. Your EPG gives your spouse, children or trusted friend the ability to make care and lifestyle decisions about medical treatments and decisions about what type of aged care you might receive.
- AHD stands for Advance Health Directive (these sometimes get called ‘Living Wills’). The AHD is your opportunity to formalize your end of life treatment decisions in a legally binding format. You can either consent to or refuse various medical and procedural options.
While everyone over the age of 18 should have a Will, whether or not you need an EPA, EPG or AHD will depend on your assets and personal circumstances. For a free chat about the best options for you, give us a call on 08 9841 1189.
Gone are the days when farming families had to wait with bated breath to find out how Dad had divvied up the family farm in his Will. In modern farming families, the willingness to discuss the farm succession plan has grown exponentially over the past twenty years.
Start early, chat often
One of the main frustrations of the families that we have worked with over the years is that younger generations to get a commitment from the landowning generation to start a structured succession planning process. Conversely, the landowning generation can become frustrated with the impatience (real or perceived) of the younger generations.
Ideally, the conversation starts when the youngest generation is coming back to the farm (around the late twenties/early thirties). This can be a slow process, and personal benchmarks and needs often change as time goes on. Opening the discussion early on, though, allows trust to build so that both sides of the equation feel able to raise issues as they arise.
In addition to your agronomist or financial advisor, we recommend getting a team of people with different skill sets together to help craft the succession plan. At a bare minimum, we suggest bringing your accountant and your lawyer in on any major discussion points, such as asset acquisition discussions and estate planning meetings. For other families, where the discussion is likely to touch on significant personal and familial pain points, a mediator or relationship counsellor might be a useful addition to the team.
It is important to remember that the family farm is a business like any other, whilst simultaneously like no other business on Earth. Any discussions, formal or preliminary, should be put into writing and signed by all relevant family members to demonstrate their acknowledgement of the current state of the succession plan. This provides everyone with a roadmap and can head off disagreements about what exactly was said by whom and when
Fair doesn’t mean equal
Our final tip applies as much to the landowning generation as it does to the off-farm family members. Although it seems fair to split the asset pool equally between all your children, it is rare that a farming family will be able to use this strategy. Fairness has to be considered in the context of the lifetime of the family, and consideration given to sacrifices made by those members staying on the farm. An effective succession plan, established over many years, will allow for fair gifts to be made in the final Will.
It has been our privilege to work with farming families across the Great Southern at all stages of the succession planning process. For more information on our succession planning packages and agribusiness services, please call 9841 1189.