Case Study 1: The right way to inherit
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 1: The Right Way To Inherit
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 when it is all added up their combined estate including house and super was worth well over a million dollars.
Part 2: The tragedy
John was driving to work when he received a text message from his wife Sally.
“Hey hun, I’m having an anxious moment…do we have Wills? I remember us talking about it. Did we ever organise them? I can’t remember.”
Sally’s anxiety passed over to John.
John had been meaning to look finding a solicitor, but life always seemed to get in the way. He eventually bought a cheap Will from the Post Office.
John quickly began typing a response to Sally promising to look into getting proper Wills over the weekend.
Just as John pressed send on his text, a loud aggressive horn from a passing motorist startled John, falsely coercing him to accelerate into the intersection.
Poor John only realised his fatal mistake a millisecond before Sally’s smartphone beeped with his final reply.
Part 3: When Gary met Sally
Since the sudden accidental death of her husband John, Sally has found life difficult.
The combination of her own emotional trauma, going back to working full time and looking after four children has pushed Sally to her limits.
Feeling depressed, angry, and alone, Sally quickly increases her intake of cheap white wine to help her cope with all the stress.
It is late one night after a few too many drinks that Sally connects with Gary on Tinder.
Part 4: Losing the family home
Fast forward three years and Sally’s mental state has slowly deteriorated having entered into a disastrous relationship with the younger and volatile Gary.
As John and Sally’s home was held ‘jointly’, John’s half of the home passed directly to Sally outside of John’s basic Will.
The family home is now held in Sally’s name only, without protection, essentially up for grabs if legal proceedings commence in the Family Court following a break-up with Gary.
Gary turns out to be a real creep, cheating on Sally with a 22-year-old personal trainer.
When Sally decides to dump him, Gary takes Sally to the Family Court.
Given their de facto relationship status and his financial dependence on Sally, Sally loses half of her home (or roughly $500,000) to Gary!
John’s cheap 5-page Will provided Sally with no protection for Sally whatsoever.
Part 5: Sally gets her groove back
Fast forward two years and Sally has finally moved on from losing half of her house to Gary, having downsized to a three-bedroom flat. Sally is no longer self-medicating and has started her own physiotherapy business.
Unfortunately, Sally’s run of bad luck continues.
An economic downturn combined with being sued by an unreasonable patient leads to her business failing.
Sally is unable to pay her creditors.
Thanks to John’s cheap 5-page Will, the remainder of Sally’s inherited property was seized by the Bankruptcy Trustee in order to repay her debts. At 50 years old, Sally is left almost penniless.
Part 6: John and Sally's alternate universe
Let’s now pretend that John and Sally relied on Will Wizard, or an experienced estate planning solicitor, for their Wills.
Despite Sally’s run of bad luck, the trauma and financial loss from these unfortunate situations could have been greatly minimised.
John’s comprehensive Will would have provided beneficiaries like Sally with the ability to manage and protect inherited assets in a testamentary trust established by John’s Will after his death.
John’s Will Wizard portfolio would have included a host of helpful supporting documents also.
One of these documents, The Guide For Will Owners, would have made John and Sally aware of the advantages of converting their home from being held ‘jointly’ to being held as ‘tenants in common in equal shares’.
Part 7: Protecting your castle
As a result of changing to ‘tenants in common in equal shares’ Sally could then have held John's share of the home under a right of occupation (an option included in all Wills from Will Wizard) which protects at least John’s half of the family home from Gary’s claim.
Other assets that Sally inherited from John (cash, life insurance pay out, shares, super paid to the estate etc) would also be able to be held in a testamentary trust by Sally.
During Gary’s court proceedings, these assets that are now held in a testamentary trust would be protected from Gary’s claim, as the Family Court considers assets held in a testamentary trust to be privileged, and not part of the Sally and Gary’s combined assets.
Part 8: What financial problems?
Furthermore, when Sally was unable to pay her business debts, the Bankruptcy Tribunal would have been unable to seize Sally’s inherited assets.
Property held in a testamentary trust is also viewed as privileged by the Bankruptcy Tribunal and thus protected.
Part 9: What about the kids?
Had both Sally and John died in that car crash while relying on comprehensive Wills from Will Wizard, each of their children could have received their inheritance in their own testamentary trust.
With each child managing their inheritance in a testamentary trust, the inherited assets would be protected should any of them suffer a de facto relationship breakdown or divorce.
Each child’s inheritance would also be substantially protected should they have financial problems which can be caused by any number of common problems such as poor decision making, an addiction, or as in Sally’s case, a business failure.
Quick aside....so what is a testamentary trust exactly?
Testamentary trusts are a special kind of trust that can only be established for beneficiaries by a comprehensive Will that includes the required testamentary trust legal provisions and trust terms. Basically, the Will includes a comprehensive trust deed that spells out all the rules of any trust established by that Will such as who can be a beneficiary; who is the trustee; who is the appointor; how can assets be managed; who makes the decisions if a beneficiary is unable to make decisions for themselves...and a host of other important rules and terms.
And, testamentary trusts can only be created for beneficiaries of the Will after the death of the Will owner.
After John's death, Sally would have become the trustee (i.e. the controller) of her own testamentary trust, having full personal control over her inherited trust assets – kind of like her own personal bank she fully controls.
However, the important difference is that her assets are not held personally in her own name.
Instead, her inherited assets are held by her trust (which Sally chose to name 'The Sally Gets Her Groove Back Trust') for her benefit.
Sally can still use and invest her inherited assets as she wants.
But the testamentary trust provides important protections and tax benefits to Sally that she would not have if the assets were in her own name.
Learn more about testamentary trusts here.
Part 10: So, what's the rub?
The conclusion from this case study is simple.
Die without a Will at all, or die relying on a basic 2-5 page Will and your inherited assets can be lost by your beneficiaries all too easily.
Unfortunately for Sally, all property inherited from John (including half of the family home) was open to seizure by the Family Court and the Bankruptcy Tribunal.