Blended families and the 1 November 2017 changes to succession legislation

31 October 2017
David Coombes, Partner, Melbourne

1.    Intestacy

In Victoria, if a person dies without a valid Will (intestate), or with a valid Will but such Will does not deal with all of their assets (partially intestate),1 then the intestacy provisions of the Administration and Probate Act 1958 (the Act) will be applied. These provisions dictate the manner in which the deceased’s estate, or so much of their estate as is not deal with by their Will, is to be distributed, following the payment of their debts and expenses, if any.

On 1 November 2017, the Administration and Probate and Other Acts Amendment (Succession and Related Matters) Act 2017 (the Amending Act) will come into operation. In addition to other matters, the Amending Act changes the provisions of the Act relating to intestacy and, of particular interest, what is to occur when the deceased leaves a partner and a child or children outside of that relationship, or multiple partners (i.e. a blended family scenario).

2.    Deceased survived by partner and children outside of that relationship

Section 70L of the Act, as inserted by the Amending Act, provides that the surviving partner of the deceased is to receive all of the deceased’s chattels and a ‘statutory legacy’ being the sum of $451,909, indexed to account for inflation from the beginning of the 2018-19 financial year. Necessarily, if the net value of the deceased’s estate is less than or equal to the amount of the statutory legacy, the surviving partner of the deceased receives all of the deceased’s net estate.

If, however, the net value of the deceased’s estate (excluding chattels) exceeds the amount of the statutory legacy, the surviving partner is also entitled to 50% of the amount by which the deceased’s net estate (excluding chattels) exceeds the statutory legacy. The children of the deceased are then to receive the remaining 50% of the amount by which the deceased’s net estate (excluding chattels) exceeds the statutory legacy, and if more than one child, in equal shares.

EXAMPLE

By way of example, if a person died without a valid Will on 30 November 2017:

    1. leaving a de facto spouse, two children from a former relationship, and two ‘step-children’; and
    2. with personal chattels worth $50,000, other personal assets worth
      $1,050,000 and debts of $100,000 (i.e. a net estate value of $1,000,000
      inclusive of chattels),

then the new intestacy provisions would
operate as follows. The de facto spouse would be entitled to the sum of $750,954.50, or in excess of 75% of the deceased’s estate. This sum comprises the $50,000 in personal chattels, the $451,909 statutory
legacy and $249,045.50, being 50% of the amount by which the deceased’s net estate (excluding chattels) exceeds the statutory legacy. The children from the previous relationship would each be entitled to the
sum of $124,522.75, or less than 12.5% of the deceased’s estate each.

Any ‘step-children,’ being children of the partner from a prior relationship, are not entitled to anything under the intestacy provisions, but consider the following:

    1. when the de facto spouse subsequently dies, he or she is likely to make provision for his or her children in his or her Will, or by virtue of the intestacy provisions, and, as such, the step-children will indirectly inherit all or part of the 75% of the deceased’s estate received by their parent; and
    2. despite not being entitled to a share of the deceased’s estate under the intestacy provisions, the step-children are still eligible persons to bring a family provision claim in respect of the distribution mechanism effected by the Act, as outlined in the recent case of Scott-Mackenzie v Bail [2017] VSCA 108.

Accordingly, it is entirely possible that a deceased’s step-children may ultimately benefit more from the deceased’s estate than the deceased’s natural born children, in an intestacy scenario.

3.    Multiple partners

A person may die leaving multiple partners, within the meaning ascribed to such term in the Act, typically as a result of separating from but not divorcing their spouse and then re-partnering. Prior to 1 November 2017, the Act apportions the entitlement of the partners to the deceased’s estate according to the length of the time the non-(spouse/registered domestic partner) had been living with the deceased. While this may be seen as an imperfect solution, it provides a default position, should neither partner choose to challenge it in Court.

From 1 November 2017, section 70ZE of the Act, as inserted by the Amending Act, covers the situation in which a person dies leaving multiple partners and children who are not of those partners. It provides that the legal personal representative of the deceased shall divide the estate equally among the partners unless, within three months of having given the partners notice of their intention to do the same, one of the following has occurred:

    1. the partners have agreed to some other division of the deceased’s estate; or
    2. an application has been made to the Court for an order as to the distribution of the deceased’s estate.

The difficulties this new provision pose are obvious. First, one or more of the partners of the deceased may not be aware of the existence of the others. Second, it seems unreasonably optimistic to consider that multiple partners will agree to an equal share of the deceased’s estate or will be able to come to some other arrangement – unfortunately, a Court dispute seems the most likely outcome.

Finally, if a person dies leaving multiple partners and children who are not of those partners, then the distribution gets even more convoluted. Section 70ZB of the Act, as inserted by the Amending Act, provides that the process outlined above will apply separately to:

    1. the deceased’s personal chattels;
    2. the deceased’s net estate (excluding chattels) up to the statutory legacy; and
    3. one half of the amount by which the deceased’s net estate (excluding chattels) exceeds the statutory legacy (if any).

 

The child or children of the deceased who are not of the deceased’s partners are entitled to the other half of the amount by which the deceased’s net estate (excluding chattels) exceeds the statutory legacy (if any) and, if more than one, equally.

4.    Next Steps

In light of the above, it is of particular importance that individuals in a blended family scenario seek expert advice in relation to their estate planning, in order that an estate plan tailored to their particular circumstances be prepared and the intestacy provisions be avoided.

If you require any further information in relation to this update, please do not hesitate to contact Teresa Catalano (Partner and Victorian Accredited Wills and Estates Specialist) or James Birnie.

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1.    There are a number of reasons a person may die intestate or partially intestate:
(a)    they may never make a Will;
(b)    their Will may be lost or destroyed;
(c)    beneficiaries in their Will may have died;
(d)    their Will may not account for all of their assets, particularly if the Will is dated and their asset position has changed and/or the person has themselves received an inheritance prior to death;
(e)    their Will may be poorly drafted;

(f)    their Will may have been incorrectly executed; or
(g)    their Will may have been made prior to a divorce. Divorce invalidates all clauses in a Will relating to the ex-spouse and if, as is common, the Will provided for all or some of the person’s estate to go to the (now) ex-spouse, a total or partial intestacy will result.

 

This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.

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