Business Succession Factsheet: Asset protection post mortem: Managing the risk of claims against your estate

Estate litigation is becoming increasingly prevalent in Australia. Unfortunately, there are a lot of common misconceptions about who is entitled to challenge a will and what steps you can take to avoid a challenge.

In this factsheet, associate Laura Hanrahan dispels some of these myths and explains how the risk of estate litigation can best be managed.

Common myths about the right to challenge a will

We see a lot of clients who believe that if they leave their estranged child a 'nominal amount' in their will, that child cannot challenge their will. Some clients ask us what they need to give their estranged child so they cannot challenge their will.

We also see clients who believe that leaving their estate equally to their children means that their children cannot challenge their will.

In addition, many people struggle to understand why someone should be able to make a claim against an estate - particularly an estate where the deceased left a valid will. For example: "Dad made a will. How can someone challenge how he wanted to leave his estate? His will set out what he wanted and that should be it."

Let's dispel the myths straight away:

  • There is no magical amount which will remove someone's right to challenge your will.
  • Leaving your estate to your children equally does not remove their right to challenge your will.

While it is essential that you make a valid will that reflects your wishes, there are other factors at play that may impact on whether those wishes are ultimately carried out.

You have a legal obligation to make adequate provision for the proper maintenance and support of your spouse, children and dependants on your death. If such provision is not made, then your spouse, children or dependants may make a claim against your estate for further provision.

Who can make a claim against your estate?

If you're a resident of Queensland and you pass away leaving real and personal property only in Queensland, the following categories of people may make a claim for further provision from your estate:

  • Your spouse (including a married spouse, de facto spouse, civil partner or former spouse to whom you still owe maintenance at the date of death)
  • Child (including a biological, adopted or step child)
  • Dependant (only limited people)

These categories of people are entitled to make a claim if they believe that adequate provision has not been made for them in your will. However, this does not automatically mean that their claim will be successful.

As part of a comprehensive estate plan, you must consider the people, in your particular circumstances, that you are obliged to make adequate provision for, who consequently will have the right to make a claim against your estate if adequate provision is not made.

What is 'adequate provision'?

'Adequate provision' will depend on your circumstances. If you have no spouse and no other dependants, dividing your estate equally between your children may constitute adequate provision for each of those children. However, it is not a case of 'one size fits all'. For example, a child who is disabled and requires full time domestic and financial support clearly needs greater provision than a child who owns their own business and is financially secure.

It is important to note that while the categories of claimants listed above apply in Queensland, if you have assets in other jurisdictions, there may be additional categories of people who are able to make claims against your estate based on the succession laws in those jurisdictions.

Minimising the risks of challenges to your estate

If you have not considered your obligations or the potential of a challenge to your will, your executors or administrators may find themselves trying to defend a claim against your estate without the proper artillery (usually information and evidence that, without a proper estate plan in place, will die with you).

Despite what the law says about your obligations to make adequate provision for your spouse, children and dependants, you are entitled to make a will gifting your personal estate to whomever who desire. If you are going to ignore the obligations, you should still consider those people who are entitled to make a claim, assess the likelihood of each individual making a claim, and evaluate the potential strength of their claim. In making this assessment, you will be able to put together the information and evidence your executors or administrators might need to defend a claim.

For example, you might record (in a confidential memorandum of wishes or statutory declaration) that you have considered whether to leave part of your estate to a particular family member, and that you have decided not to do so because other family members (to whom you have left your estate) have greater needs than the person excluded.

What is included in your estate?

An interesting aspect of the law in Queensland, as it presently stands, is that if a claim is made against your estate, a court has wide powers to order provision from your estate for the maintenance and support of the applicant. Importantly, the only assets that the court has the ability to cover in the order are those that form part of your estate. This position is not necessarily the same in other jurisdictions.

As was explained in our factsheet The importance of preparing a comprehensive will and personal estate plan, your estate only comprises assets you hold personally. If you jointly own assets with another person, or if assets are owned by a company or trust, then those assets do not form part of your estate. Therefore, if you transfer an asset into a trust before you die, that asset will not form part of your estate, and will be insulated from claims against your estate.

There are a number of estate planning strategies to minimise the potential for a challenge to your estate and prepare a robust defence if a challenge to your estate is likely. These strategies need to be considered in the context of a comprehensive estate plan, as there are potential tax issues and other matters that will also need to be considered.

If you would like more information about estate planning or challenges against estates, please contact our Estate Planning and Administration team.