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The Professional Trustee Team

Inheritances Lost Unnecessarily


Every parent wants their children to have an equally good if not better life than what they've lived. To achieve that objective, parents tend to work hard to build up assets so they have something to leave their children when they die.  This is done with the hope children will use their inheritances to make their lives more meaningful and interesting.

Despite all good intentions, however, inheritances can be threatened. Most people understand claims can be brought by relationship parties and creditors which can jeopardise inheritances being received and most importantly, kept, by a child. But what parents often overlook is the threat unchecked instructions can pose.  

If you don't instruct an advisor who understands and has experience in Trusts and Estate Planning or alternatively, you instruct an advisor who does not carry out your instructions, the inheritance you intend to leave can be vulnerable.  At worst, the assets you want your children to receive can end up benefiting the Official Assignee rather than your offspring.  This latest case demonstrates just this - an inheritance lost.  Read on to ensure your affairs don't suffer this fate.

The facts

  Mr Ernest Sutton stated in his Will that when he died, his estate should be divided and given to his three children.  In the case where one of his children had died, that child's share should go to the children of that child. 

  Mr Sutton died leaving behind three adult children. 

  Mr Warren Sutton was one of deceased's children.  At the time of his father's death he was an undischarged bankrupt.

  The Public Trust paid Mr Warren Sutton's share of the inheritance he was expecting directly to the Official Assignee rather than to Mr Warren Sutton or his children (i.e.  Mr Ernest Sutton's grandchildren).

  The Public Trust made this payment on two bases:

1.  Current insolvency legislation deems property (inheritance) must be transferred to the Official Assignee when a person is an undischarged bankrupt; and

2.  No provisions existed in the deceased's Will that stated should a beneficiary be bankrupt, that beneficiary could not receive a share of the estate and that such a share should be directed to another party.

  Mr Warren Sutton and his children were naturally upset about the inheritance going straight to the Official Assignee.  They accordingly brought Court proceedings against the Public Trust for failure to carry out instructions left by the deceased.

  In Court, Mr Sutton alleged a discussion had occurred between himself and his parents, along the lines that should his financial position become precarious, the inheritance he expected to receive would be directly given to his own children, being Mr Ernest Sutton's grandchildren.

  Mr Warren Sutton said his father had told him he had visited the Public Trust and had requested changes to his Will be made along the above lines.  

  The Public Trust advised the Court they had no recollection nor evidence of instructions received from the deceased to amend his Will in this regard.  Accordingly, when a new Will for the deceased was prepared, such specific instructions were not contained in it.

  The Court found on the evidence shown that the Public Trust had received no specific instructions from the deceased and thus, Mr Ernest Sutton's Will stood.  

  The Court's decision meant no damages (monetary order) were made against the Public Trust.

  Ultimately, the Official Assignee received the inheritance.


Summary

This case concentrates on a Will.  It could just have easily involved a Memorandum of Wishes, however.

If either via a Will or a Memorandum of Wishes the property (inheritance) had been pointed to go directly to another Trust, the issue would never have arisen.  The inheritance would have been protected against the creditors and the Official Assignee.

However, this assumes two things:

  A competent advisor, experienced in asset protection (including but not limited to estate planning and trust matters) is in charge of preparing the Will and Memorandum of Wishes; and

  The Will and Memorandum of Wishes actually gets prepared and executed.


What you should do

Given the above, I suggest you do the following:

1.  Review your Will and Memorandum of Wishes to ensure it reflects your current wishes.

2.  Check your Will and Memorandum of Wishes contain provisions to direct inheritances to Trusts for your beneficiaries rather than to the beneficiaries directly.

3.  Call your insurance broker to verify your life insurance is directed to your Trust.

4.  Discuss your Trust and estate planning wishes with your Professional Trustee and ask your Professional Trustee to confirm that conversation in a written email back to you.

5.  Work only with competent advisors who understand your structuring needs, including your estate planning requirements.

Five minutes of your time spent checking through this list will ensure your instructions have been correctly noted in your Will and Memorandum of Wishes.  It will also mean your children's inheritances are protected. 

Remember this doesn't just apply to your affairs; you should check on your parents, as if their Wills and Memoranda of Wishes do not contain appropriate provisions, your own inheritance could be at risk.  

For details on what provisions your Will and Memorandum of Wishes should contain, refer to the chapter 'Dying Tidily' in Janet Xuccoa's book Money Secrets 101.

As always, if I can be of assistance, please just contact me at [email protected] or telephone 09 522 7955.


The Professional Trustee Team
© 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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