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Articles by The Professional Trustee Team.

Dad, Where's My Inheritance?

AUTHOR: The Professional Trustee Team

POSTED: 08 September 2009

An interesting case has recently been handed down from the courts. This case now provides parents with the rights to strip their children of inheritances.

The judgment goes against what was previously believed good law.

To date, we have all thought that parents owe a duty to their children to provide for them in some way upon their deaths. The courts have been littered with cases where children have brought claims against the estates of their parents when their parents failed to leave them a little something...

By and large the courts have been sympathetic and have awarded children something out of their parents' estates, even, in some cases, stating parents have a duty to provide for their children, irrespective of the child's age.

Well that reasoning may go by the board if the latest case is anything to go by.

The Case

The case goes something like this. Dad, Mum and two daughters lived happily together but when Mum died and left her estate to Dad, the two daughters fought over the estate. The result was the daughters ended up with $56,000 whilst Dad received $20,000. The ultimate outcome however was the daughters fell out with their father. This is a huge cost – far more than the money involved that's for sure.

Dad decided that he would place his affairs with the Public Trust and so he completed a Will in which he left nothing to his daughters. He also left instructions with the Public Trust that they were not to tell his daughters about his death, his funeral or his Will.

Dad's statement to the Public Trust went along the lines that his daughters gave him nothing, not even respect, and that is what he intended to give them on his death - Nothing.

When Dad died the Public Trust actioned his instructions. Herein lies the problem. No death notice was published. The Public Trust did, however, advertise for creditors of the estate to come forward but none ever did. This is standard policy when dealing with a personal estate.

The Public Trust did not inform the daughters and the estate, valued at circa $250,000, was passed to his de facto partner, in accordance with the deceased's wishes expressed in his Will.

The eldest daughter, learned of her father's death about two years after the event. Two years is a long time in legal beagle land and time had run out for her and her sister to lodge a claim against her father's estate. This, however, didn't deter her. Instead, she sued the Public Trust, citing they had a legal duty to advise her of her father's death. If she won the claim, she would likely received approximately $62,000.

The Judgment

The Court, however, didn't quite see the daughter's side of the story. Instead they issued a judgment stating that executors (the Public Trust in this particular case) did not have a general duty to inform potential claimants about a death or even a general duty to advertise for claimants. Rather, executors have a duty to tell a person only when they know that person wishes to make a claim. So, executors have to have actual knowledge of a potential claim rather than pre-supposing someone might make a claim.

The Court finished up by saying that the Public Trust did not have actual knowledge that the daughter would make a claim and therefore, was not liable.

Lessons for Us All to Learn

So what does all this mean for parents and children?

Well to start with, we want all families to play together and stay together. The emotional cost of falling out with each other is huge.

Secondly, we would like to see all assets held in a trust, not in a person's personal name and personal legal capacity. Why? Because trust assets can be passed from trust to trust meaning they can be passed from a parent's trust to a trust established for their children upon that parent's death. This protects those assets from creditors and the Official Assignee and of course, negates gift duty.

Thirdly, everyone should have an up to date Memorandum of Wishes. This document will tell your surviving trustees what you want done with the assets of the trust when you are dead.

Lastly, everyone should have a current Will which deals with the assets that you do actually hold in your personal name at the time of your death, such as tools, jewellery, etc.

Of course, asking your parents what they intend to do with your inheritance is often a difficult subject to broach. A way of opening up this type of discussion with your parents is to tell your parents what you intend to do with your own assets for your own children. It can be a difficult topic of conversation but there are ways to handle it and as always, open communication is the best policy.

One of the lessons to be taken from this case is if you want to protect the inheritances you are going to receive from your parents and if you want to protect the inheritances you intend to leave to your own children, ensure you take action.

Don't leave assets in your personal names but put them into a trust and ensure you have current Memorandum of Wishes and Wills in place. Also make sure you have a good discussion with your parents about the topic and get them to transfer their assets to a trust, later to be transferred on their death to your own trust.

As always, if I can be of help with any of these conversations, just let me know. You can request an interview for a no obligation and confidential chat.

Request a Meeting

The Professional Trustee Team

09 522-7955

[email protected]

© Gilligan Rowe & Associates LP

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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.

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