ESTATE PLANNING
Most of us now know the importance of making a will, but there is still a vast lack of understanding about the ramifications of one that is badly drawn. In fact, in some cases a badly drawn will can have worse consequences than no will at all. The following letter is typical:.
"I am an aged pensioner. My husband died seven years ago. Before he died he got his lawyer to draw up a will to leave me the house as long as I live and then it is to be divided between the two children. As a result, the will gives me both the use and benefit of the house until I die. Now I find that the house is most unsuitable because it has stairs and I need a single level home. I went to a lawyer and paid a lot of money only to be told that there was no way out because it was not my property"
The problem was caused because the deceased was endeavouring to stay in control of his assets after he had died. He was a good husband inasmuch as he was trying to ensure that his widow was adequately provided for after his death, but at the same time he did not have faith in her ability to manage the family assets. This is why he did not leave the property to her. Giving her the use of the property, while leaving the ownership in the names of the children, seemed to him the logical way to protect the estate. It's an attitude which is typical of many of the older generation who often fear that a widow will be vulnerable to predatory males.
Attempts to control beyond the grave are always fraught with difficulty but in this case a good solicitor could have created a win/win. If the husband was adamant that the assets be preserved for his children he could have had the will drafted to allow the executors to sell the existing home if requested by the widow, and replace it with one that was more suitable to her. The estate would retain the asset and she could live in a home that suited her changing circumstances. A further alternative would be to incorporate a testamentary trust controlled by independent persons for the wife's benefit. We'll talk about this in another column.
A far more common example of the problems caused by wrong estate planning is the death of a pensioner. Often the couple have used a will form from a stationery shop and completed it so that the entire estate goes to the surviving spouse on death. Alternatively they have all their assets in joint names, which has the same effect. This can lead to severe financial difficulties
Case Study: Jack and Jill are aged pensioners who own their own home and as well have assets of $320,000, which comprise bank accounts, and managed funds. They receive a pension of $318 per fortnight as well as most of the fringe benefits. Jack dies suddenly and all the assets pass to Jill. As the limit for the assets test is $277,000 Jill now has too many assets to be eligible for the pension. She loses not only her pension, but also the prized fringe benefits.
Yes, she could alleviate the position by placing part of the assets into a complying annuity and thus reduce her assets to the extent where she could qualify for the fringe benefits as well as a tiny pension. However, our experience is that many widows of this generation are too distressed by the sudden death of their life time mate to want to make major financial decisions. The death of the spouse, followed by the loss of the pension, is a trauma.
If the will had been drawn in consultation with their financial adviser, the couple's affairs could have been arranged so that a major part of the assets went to the children on death of one of the parents. Obviously this would only be done if there was complete trust between the family members but it would mean that the loss of a loved one was not followed by the loss of the Health Card.
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