Case Study 4: How to protect inheritance equality
In this case study series, we examine how John and Sally’s choice of Will impacts the fortunes of their fictional family.
The purpose of these case studies is not to scare you. Our hope is to inspire you to make an informed choice about your Will, which is easy to do once you know the basics.
Nothing can minimise the pain of losing a loved one. But you don’t have to compound the problems associated with the death of a loved one by relying on the wrong type of Will.
As you will see, there is so much to gain by relying on the right type of Will.
Case Study 4: How To Protect Inheritance Equality
Part 1: Meet John & Sally
Meet John, Sally and their four kids Jane 16, Toby 13, Alex 10 and Alice 6.
John 47, a public servant earns $120k per year.
Sally 44, a part-time physio earns $60k per year.
John and Sally have a family home with a mortgage, some super, about $30k cash in the bank thanks to a small inheritance to John, and Sally has also inherited $50k worth of BHP shares.
They're not rich, but with John’s one million dollar life insurance pay their combined estate including home and super is worth over two million dollars.
Part 2: From bad to worse for poor Sally
As with Case Study 3, in this fictional universe, our main character Sally has not coped with the death of her husband John and dies eight years later due to depression, poor choices and drink driving.
Leaving children less than 18 years of age, Sally’s basic 5-page Will is totally inadequate to deal with this unthinkable, but all too possible scenario.
For John and Sally’s children, because their loving and well-meaning parents continually delayed updating their Wills, they are now faced with an uncertain future.
Part 3: Sally's hopes and wishes to protect equal opportunities
Like most parents, John and Sally had always envisioned a future where they passed away quietly in their sleep at a ripe old age surrounded by their children and grandchildren.
They most certainly wanted for their children to inherit equal shares of their estate, with no one child favoured over another.
They hoped that their children would remain close as they became adults.
However, Sally’s basic five-page Will did nothing to protect their wishes for their children to inherit equal shares of their estate.
Part 4: Goodbye equality, hello drama!
There are three common ways that John and Sally’s hopes for their children to inherit equally could be ruined.
Firstly, Sally’s basic Will might cause inheritance inequality due to Sally’s superannuation death benefit.
As Alice is the only ‘tax dependent’ under federal superannuation law, Alice would almost certainly receive Sally’s entire superannuation death benefit plus an equal share of the remaining estate.
Secondly, there is the issue of loans to some children and not others.
Shortly before her death, Sally had loaned Jane $100,000 to help her buy her first home. This means that not only does Jane get an equal portion of the estate, she also benefits from $100,000 that her siblings will never receive.
Thirdly, Sally passed away while Alice is still a child.
Considering that Alice is four years younger than Alex, six years younger than Toby and nine years younger than Jane, she may be significantly disadvantaged when comparing the money already spent on Jane, Toby and Alex by John and Sally before they died. For example, money already spent on private school fees, extra-curricular activities, overseas trips, first cars etc.
Part 5: The big expensive problem
Unequal inheritances among children is a sure-fire way to start a fight.
And many family fights over money go to Court where it will usually be the estate that covers the costs, not the disputing parties.
And here is the really big problem.
The cost of a disputed estate is usually in the hundreds of thousands of dollars!
Not to mention the devastating long-term impact on the relationships between Sally's children due to feuding over their unequal inheritances.
Part 6: John & Sally's alternate universe
Let's now suppose that John and Sally did not rely on a basic five-page Will but instead relied on Wills from Will Wizard.
All Wills from Will Wizard include sensible equalisation provisions.
Wide powers and instructions are given to executors to assist them in protecting inheritance equality as much as possible.
Let's look at those three scenarios again where John and Sally's wishes for equal inheritances were ruined due to Sally's basic Will.
Part 7: Alice is no longer in superannuation Wonderland
Thanks to John and Sally relying on a Will from Will Wizard, even if young Alice receives Sally's superannuation due to being the only tax dependant, Alice won't also receive an equal share of the remaining estate.
Thanks to Sally's Will including sensible equalisation provisions, Sally's executor is given the authority to redistribute what would have been Alice's share of the remaining estate to her siblings - thus going a long way to protect Sally and John's wishes for inheritance equality.
Part 8: Jane isn't better off than her siblings
In this scenario, Jane received a loan of $100,000 from her parents just prior to Sally's death to help Jane buy her first home.
As a result, Jane benefited from this $100,000 plus an equal share of her mother's estate.
John and Sally's hopes for inheritance would be dashed if it weren't for Sally's comprehensive Will from Will Wizard.
Included in their portfolio is a Beneficiary's Loans Record where Sally recorded her loan to Jane.
The equalisation provisions that helped prevent Alice from receiving Sally's super and an equal share of the remaining estate can be used again by Sally's executor to prevent Jane from receiving more than her equal share.
Sally's Will instructs the executor to take account of any recorded loans provided to certain children and not others in order to protect Sally's wishes for inheritance equality.
Part 9: Alice doesn't miss out on the opportunities of her siblings
In the final scenario, due to Alice's young age, she by default misses out on the benefits of having parents spending money on her during her childhood for things like ballet classes or overseas trips.
Thanks to John and Sally relying on Will Wizard, Sally's Will includes provisions for an Equal Opportunity Trust Fund that allows her executor to provide money from Sally's estate for the types of opportunities and activities that Alice's siblings enjoyed during their parent's lifetime.
Part 10: So, what's the rub?
The conclusion from this case study is simple.
Die without a Will, or die relying on a basic 2-5 page Will and your hopes for your children to get along and inherit equal amounts of your estate will be just that - 'hopes'.
Unfortunately for Sally, due to relying on a basic five-page Will, young Alice received $500,000 of her Mum’s super in addition to her share of the estate.
A protracted legal battle ensued whereby another $500,000 of the estate was lost in Court and legal fees.
Worst of all, her children are now divided and bitter.
Had John and Sally relied on Wills from Will Wizard, the financial outcome and the associated trauma for their children would have been very different.
Food for thought.
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As always, if you have questions about the suitability of any Will for your needs and circumstances, seek independent legal advice.