Estate litigation is often cited as the single largest growing area of law.
It’s no wonder with the biggest exchange of intergenerational wealth lurking in the wings. The increase in wealth through for example, superannuation, insurance and inheritance means there is a lot more for people to argue over.
This article looks at the basics you need to be aware of regarding challenges to an estate.
who can challenge an estate?
There is law in each State of Australia allowing for the terms and provision of assets of a deceased estate to be challenged.
While each State has its own rules, the core parts and purpose of the law appears relatively consistent across all States.
Importantly, people must be aware that there are time frames setting out about how long an aggrieved party has to challenge the estate (with the time periods varying in each State, generally between 6-12 months).
challenging an estate can be broadly divided into a two-step process:
1. the person challenging the estate must be one of the people able to challenge the estate of the deceased under the relevant law; and
2. the court then examines the factual scenario before it in determining whether further provision should be made.
In relation to question one, while again, the rules in each State vary slightly, the general categories of people that can challenge an estate include:
- a spouse (which includes a de facto partner);
- an ex-spouse;
- a child;
- a step-child; and
- a dependent, of the deceased.
People should always be aware when preparing their estate planning documents of the persons that fit within these categories and ensure they have considered the adequacy of provision to those people, even if it’s for the purpose of reducing the success of a challenge to the estate.
what is ‘proper maintenance and support’?
The law allowing for further provision empowers the court to ensure that the estate provides for the proper maintenance and support of the relevant party.
What is ‘proper maintenance and support’ has been widely explored in cases.
A recent high-profile case where a child of a will maker challenged an estate successful comes to mind. The initial judge ordered that instead of the modest $3M her billionaire father left her in his will, that she should receive $25M. Known colloquially as the ‘diamond studded guitar case’ (due to the daughter’s request that $250,000 be reserved for the purchase of a guitar), this was at the time, the single highest amount of money awarded in an estate challenge.
A collective sigh of relief could be heard when the Court of Appeal found that the initial Judge erred in their reasoning in granting the substantial amount. In particular, the Appellate Judge focused more on the actual needs of the daughter in terms of housing, education, annuities and added in contingencies, with reference to, for example, the costs of acquiring a house in her area of residence.
Ultimately the daughter was awarded just over $6M.
This case sheds light on what many practitioners would argue is the real purpose of the law regarding estate challenges – ensuring that people dependent on the deceased are adequately provided for, while still largely maintaining a person’s right to divide their assets on death as they see fit.
what does the court consider?
In determining if the court should actually make further provision, the cases highlight that the following points are considered to be critical in determining whether further provision should be made:
- The size of the estate;
- The financial and physical needs of the person challenging the estate and the same needs and priority of other people the deceased had to provide for;
- The relationship between the deceased and the person challenging the estate.
Ultimately, the court will explore a series of factors relevant to the circumstances in determining if further provision is appropriate.
who pays the legal fees associated with the challenge
Ultimately, estate planning should be aimed at reducing the ‘white noise’ people experience in administering an estate. One key factor that is often not considered is the effect that a challenge to the estate has on the parties.
While a Judge has discretion regarding the payment of costs, a large percentage of costs awarded in estate challenge cases are paid out of the estate.
This on its own may not bother people initially, until they find out the actual amounts being charged by those assisting with legal claims. It’s not hundreds of dollars – its hundreds of thousands of dollars. This means that a significant proportion of what you wanted to leave to your intended beneficiaries can be reduced due to the payment of legal costs.
what can you do
While there is no way around an estate challenge if someone is eligible to challenge an estate, there are active steps you can take to minimise the risk of a successful challenge.
What steps you can take ultimately depend on your circumstances and objectives, but can include things like:
- Reducing the pool of assets available to be challenged and other restructuring methods;
- Specific gifts funded by insurance or superannuation;
- Preparation of detailed information regarding your decisions with respect to the division of your assets set out in your will.
Specialist legal advice should be sought regarding what steps you might need to take if it is possible that someone may challenge your estate.
Ensuring your estate plan has actively considered the likelihood of a challenge and investigated possible avenues to mitigate that risk is critical.
For those that haven’t considered whether you should prepare a will with legal advice, see our recent post on the biggest misconceptions about making a will.
General Advice Disclaimer
Information provided on this website is general in nature and does not constitute financial or legal advice. Every effort has been made to ensure that the information provided is accurate, but information may become outdated as legislation and new government announcements are made. Individuals must not rely on this information to make a financial, investment or legal decision as it does not take into account their personal circumstance. Before making any decision, we recommend you consult a licensed advisor or legal practitioner to take into account your particular objectives, circumstances and individual needs.