Your Will - Inheritance and your children

Introduction:
This article is just one within a set about wills.

It explains the legal position of your children when you die. It specifically addresses the Family Provision Act and how best to safeguard your assets until your children are capable of receiving them.

Additional claims on your will:
If the deceased left a will then the executor(s) must apply for a grant of probate, which is an order stating that the will is valid and the executor(s) can distribute the estate according to the wishes of the deceased.

The Family Provision Act allows certain people, whether beneficiaries or not, to make claims (or larger share) and, if their claim is successful, the gifts made by you may be altered. The people who may make a claim under the Family Provision Act include:

a spouse or de facto partner;
children;
former spouses in some special circumstances;
a person who was dependent upon the deceased;
a person who was a member of the deceased's household, for example a carer or a homosexual partner.

How to protect against such claims:
What is reasonable depends upon all the circumstances of the individual case. The Wills Trusts and Probate wills system provides for you to make a statement explaining why you have left little or nothing to a particular person. Such a statement does not of itself defeat a claim, but may well have that effect in enabling your executors to provide reasons for your decisions whether or not a claim comes to court. Thus by acting now, you still have your say.

An application to make a claim under the Family Provision Act must be made to the Supreme Court within 18 months after the person has died. Frustratingly for the deceased, the Court generally makes orders that the estate pay the cost of such applications. In considering a claim the Court will take into account the circumstances of the applicant's relationship with the deceased person and the needs of the applicant. The Court will also consider any contribution made by the applicant to the welfare, financial or otherwise, of the deceased.

Appointing guardians for your children:
If you have or may shortly have children, you will of course want to consider who will care for them in the event of both parents dying. In South Australia, guardianship of children is dealt with by The Family and Community Services Act 1972 (and similar acts in other states) and the Succession Act 1981(and similar acts in other states). You can appoint a guardian by will only if you have "parental responsibility" for the child. That means all the legal rights, duties, responsibilities and authority of a parent.

The following people have parental responsibility:

the natural parents of a child who were married to each other when the child was born;
the child's mother whether or not she was married to the father when the child was born;
the father of a child (who was not married to the mother at the time of the child's birth) who has been given parental responsibility by a valid parental responsibility agreement entered into with the child's mother;
a person granted parental responsibility in relation to a child by a court;
a guardian appointed in accordance with the relevant act.

Gifts to young people and trusts:
There are several matters here, cover one by one, You should consider:

At what age is your donee going to be trustworthy enough to make best use of your gift?
Each of us is unique. Children grow up at different rates. Whatever age you choose, someone else could argue that it is too soon or too late. However, it is indisputable that the older people get, the wiser they become with their money at least, from age 18 into their twenties, it is most likely that a person will be capable of making rational decisions. Most trusts assume that a beneficiary receives income at 18, but capital not until age 25. Despite this, the choice is entirely yours, as testator. Of course most trusts provide for the trustees to be able to use income or capital of the trust for "education and training", a definition which continues to be stretched to encompass more unusual activities each year!

Who should hold money for them until they reach the age you specify?
Your options are:
give them the money as young as possible;
give the money to their parents or guardians(income at least);
use trustees to hold the money and keep it invested;

Can parents say no?
Parents may not be good at saying "no" when a child wants the money for a drum set so the child can join a cannabis loving rock band. But who wants to wait until 25 before they can lay hands on their inheritance? A good idea might be to compromise by specifying in precisely what circumstances the money can be distributed and as to its use. The more precisely you specify, the easier it will be for your trustees to refuse an offer in contravention of your wishes. Common examples of such occasions and purposes are:

reach age 18, 21, or 25;
on marriage;
on birth of their child;
on buying a house;
on going on "expedition", usually abroad;
on attending university or other higher education facility;
on graduating;

Discretionary trusts:
Trustees can hold money (and property) either at their own discretion as to distribution of capital and income, or on behalf of some specified beneficiary (either outright, or subject to a condition, such as the attainment of a particular age). The former is a "discretionary trust". The second is an "interest in possession" trust, even while the condition remains unsatisfied.

A beneficiary can legally demand his entitlement immediately as the trust conditions are satisfied, or at age 18 if none are specified. Of course, as you can imagine, legal claims of enforcement are rare. Eighteen year olds are not likely to sue a trustee aunt or parent!

Advantages of discretionary trusts:

They can prevent a generous spendthrift from having access to all of the capital at once. A "spendthrift" may simply be a young person who has never previously had access to a large sum of money.
They can prevent a large amount of cash falling into the hands of an ex-spouse, through the divorce courts. Because there is no interest in possession, a beneficiary cannot be said to "own" any part of the fund. Accordingly, none of it can pass to an ex- spouse (or trustee in bankruptcy). However, the divorce judge, in considering the division of other assets, will take account in broad terms of the likelihood of the beneficiary receiving a distribution in the future.
they provide flexibility and freedom to the trustees to use the money in what they see as the best interests of the children. Capital can be distributed over many years.

. . . And possible disadvantages:
$ Trusts = tax!

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