I was watching the Television show Sunday a couple of weeks back. The edition focused on James Takamore, the father of two, who’s place of burial has been the subject of years of legal wrangling since his death in 2007. It was quite interesting.
It made me think how many issues come up from people not having wills, enduring powers of attorney and memorandum of wishes up to date at the time of their death. I am currently involved in an assignment where this happened. A dispute arose between family members and now lawyers have been fighting over the estate for over a year. The honest truth is the only people who win from these situations are the lawyers. The families relationship with each other have been left destroyed….. all this over money.
The television show prompted me to call Trudy Talbot from Greerton Law. We have had quite a few discussions about it over the last couple of weeks.
So what is it all about and why bother?
A will is an enforceable summary of how you want your assets distributed upon your death.
If you don’t have a will, then you die ‘intestate’. In this situation your affairs can be difficult for loved ones to administer during a difficult time. It is also a costly process to apply for letters of administration and assets are distributed according to the Administration Act 1969. In all likelihood this will be contrary to your wishes and may not recognise special needs of various family members and children.
If you die intestate then your assets will be distributed as follows:
One third will go to your spouse and two-thirds will be divided amongst your surviving children. In most cases this will not be what you want. The following is a good example of intestacy gone wrong.
John and Jane are married and have two children. Jane dies unexpectedly without a will. John and Jane own a house as tenants in common but have a joint mortgage. Jane’s third of the property transfers to John and two-thirds is divided between the two children. John has been left with the entire mortgage, as he is jointly and severally liable under the mortgage with Jane. In this scenario John is liable for the full mortgage yet he only owns 66% of the property, with the children owning 34% of the property.
ENDURING POWERS OF ATTORNEY
There are two types of powers of attorney. You may appoint two attorneys, one for property and one for your personal care and welfare. These two documents allow for someone else to manage your financial and personal matters if you cannot. You can also attach special conditions to limit the attorney’s power.
There is a fundamental difference between a will and an enduring power of attorney. Your will takes effect upon your death, while a power of attorney is used to manage your affairs while you are alive.
Why have an enduring power of attorney?
In relation to property an enduring power of attorney can come into effect immediately, unlike an attorney for personal care and welfare, which comes into effect only if you lose mental capacity. Enduring powers of attorney are good to have in place to manage affairs if you are absent or incapacitated, as your affairs are more likely to be managed and run smoothly.
If you don’t have these documents in place, no one has the ability to manage your affairs unless they apply to the Family Court for property and welfare orders. This will take time and cost significantly more than the initial outlay for setting up powers of attorney. Court Orders must be reviewed and accounts must be submitted and this will be an additional cost to you.
MEMORANDUM OF WISHES
Many families today hold assets in trust but have little idea of how trusts would be administered in the event of their death. A memorandum of wishes sets out how you see the trust being managed and the assets distributed. Having said that, the law is quite clear – one cannot dictate from the grave as to what must happen with trust assets.
Trustees are not bound by memorandum of wishes but are expected to take those wishes into account when making decisions, bearing in mind they have the ultimate responsibility of managing assets of the trust for the benefit of the beneficiaries. If your memorandum of wishes is not drafted properly and, for example, if without good reason your memorandum of wishes favours one beneficiary over another, then the trustees may have to ignore that. The trustee’s overriding obligation is to all of the beneficiaries. It is also good practice to nominate a close and trusted family member to be the replacement trustee in your will.