Why do I need to have a Will?
Earlier this year Public Trust released research that found approximately 65% of parents and guardians in New Zealand with children under 5 years of age do not have a Will. These statistics paint a stark picture that, as a country, we have a tendency to neglect our personal affairs, at least until we are older and more established in life.
Taking a proactive approach to your personal affairs can be a critical step in maintaining family relationships, especially in situations that involve second marriages and children from prior relationships. By planning ahead and having a Will or estate plan in place, you not only ensure that your wishes are clear and legally protected but also reduce the potential for misunderstandings and conflicts among your loved ones during times of emotional distress.
A Will is a legal document that allows a person to set out, amongst other things, how they want their personal assets to be dealt with upon their death. A Will does not, therefore, deal with assets which are owned by a Trust, or assets which are owned jointly with another person (joint assets won’t be distributed in accordance with a Will, but transfer by way of survivorship to the surviving owner(s) unless a contrary intention is expressed).
Dying without a Will
When someone in dies without a Will, they are said to have died “intestate”, and lose the ability to have a say in how their assets should be distributed after their death. Instead, the law steps in to dictate what happens next, and any assets must be distributed in accordance with section 77 of the Administration Act 1969.
This section sets out, rather rigidly, who is entitled to benefit when someone dies intestate. This will generally be the closest living relatives, but depending on who is living at the time, the outcome could differ significantly from what may have been intended.
For example, if someone dies leaving a spouse (or de facto partner) and one or more minor children living at their death, many people are surprised to learn that the surviving spouse won’t be entitled to benefit from the whole of their deceased’s spouses Estate, but will only be entitled to receive:
- All household and personal items;
- The first $155,000 (with interest); and
- one third of the remaining assets.
The surviving children will share in the two-thirds of the remainder that was not distributed to the surviving spouse/partner. This could mean then, depending on how a couple owned their assets:
- A surviving spouse would not necessarily be entitled to complete ownership of their family home (unless it was owned jointly); and
- If two thirds of the remainder needs to be held on trust for minor children, those funds won’t be available to the surviving spouse for raising the family.
This also highlights the need for care to be taken when deciding how assets should be owned, and the intended ownership if someone were to die unexpectedly.
From a practical standpoint, dying intestate adds an extra layer of complexity to the administration of an Estate, resulting in increased legal fees and time delays. For the surviving family, the time, cost and uncertainty can be particularly stressful.
Separated or divorced?
Because the Administration Act applies to all estates for people who have died without a Will, people who have recently separated from their spouses should be particularly mindful of how the law could apply if one spouse happens to die unexpectedly, without a Will, before the dissolution of marriage has been finalised.
In New Zealand, a dissolution of marriage can only be applied for once a couple has been separated for two years. Up until the Court has granted an order dissolving your marriage, an estranged spouse would still legally be classified as a “spouse” and would stand to benefit under the intestacy provisions of the Administration Act. This situation can and should be avoided by having a new Will put in place, as soon as practicable after separating.
Remarriage and providing for children from prior relationships
It may also come as a surprise for many people to learn that a Will is automatically revoked upon a marriage taking place (unless that Will was specifically made “in contemplation” of the marriage occurring). Parents who have children from prior relationships and are entering into a new marriage should be particularly mindful of this fact and how it could impact their estate planning.
If a marriage has caused an earlier Will to be revoked, then it will be necessary to prepare and sign a new Will that takes into consideration both the new spouse and any children from a prior relationship.
Preventing claims against your Estate
The freedom to decide who should receive your assets on death is, to some extent, restricted by New Zealand laws intended to provide relief to those (often family members) who have not been provided for, in a Will, to an acceptable level.
A robust estate plan needs to recognise the potential claims that could be brought, and should address and manage those risks so as to mitigate or, where possible, eliminate the likelihood of a claim being brought.
Two significant pieces of legislation that can, in the right circumstances, alter what has been provided for in a Will are the Family Protection Act 1955 and the Property (Relationships) Act 1976 (PRA).
Under the PRA, when a spouse or de-facto partner dies, the surviving spouse/partner can choose to apply for a 50/50 division of the couple’s “Relationship Property”, instead of accepting what has been provided to them under the Will or, in the case of an intestacy, what they would have been entitled to receive under s 77 of the Administration Act. The rationale for this is that a surviving partner should be no worse off on the death of their partner than if the couple had separated. If a couple has previously entered into a Contracting Out Agreement (sometimes informally referred to as a “pre-nup”) that determined the classification of “separate property” and “relationship property”, that agreement and classification would apply (unless the surviving spouse or partner attempts to have the Contracting out Agreement overturned).
Under the Family Protection Act 1955, a person has a moral obligation to provide for the proper maintenance and support of certain family members (including spouses/de facto partners and children). Where a Will does not provide for those family members to an acceptable level, the Court will have the power to re-write the Will and order that further provision be made to the excluded or “slighted” family member, but only to the extent necessary to remedy the breach and provide adequate maintenance and support.
It is not an uncommon scenario to encounter someone who has re-married later in life and updated their Will to provide for their new spouse to receive the whole of their estate on death, to the exclusion of their adult children from an earlier relationship. This scenario could lead to the neglected adult children bringing a claim against the estate for further provision, which would incur legal costs, reduce what the surviving spouse receives and, most significantly, deplete the overall pool of assets available for distribution. It will also likely negatively impact family relationships.
Approximately 1,500 New Zealanders die each year without a Will in place, the ramifications of which can be complex, affecting not only the timely distribution of assets but also the emotional well-being of the surviving family.
Putting in place a valid Will ensures that your wishes are honoured, your legacy is preserved, and the burden of uncertainty is lifted from the shoulders of your family and beneficiaries. By seeking specialist advice, you will ensure that potential claims are considered and managed appropriately, which can be invaluable in reducing the likelihood of contentious claims being brought after death.
While it’s easy to postpone these decisions, the peace of mind that comes from putting your affairs in order, providing you and your loved ones with security and assurance should not be overlooked.
For further information on creating a Will please contact a member of our private client law team.
Special thanks to Partner Lisa Small and Associate Jonathon Russell for preparing this article.
Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.
