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 into 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 make an adequate provision in their will for the specific person’s 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.
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 to avoid costly litigation that may deplete estate assets is possible. Often the legal costs of a successful claim must be met from the estate.
Other reasons to vary a Will
- The Will does not reflect the testator’s intentions in relation to the claimant’s circumstances. For instance, when there has been a significant material change in a family member’s circumstances.
- To allow a beneficiary to ‘buy-out’ another beneficiary’s share in real estate.
- A reluctant beneficiary not willing to accept an inheritance due to 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 the 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. It is not necessary for court proceedings not have commenced to evidence a potential family provision claim.
Conclusion
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 need any assistance contact one of our lawyers at info@legallysmart.com.au or call 02 8332 6126 for a no-obligation discussion and for expert legal advice.
This article is for information purposes only, and it is not intended to be a legal advice.