Some clients are concerned that the Will which they prepare may be challenged by “disgruntled beneficiaries” – people who think that they ought to have been beneficiaries and are not, or people who are beneficiaries and believe they ought to have received more than they do.
“Disgruntled beneficiaries”, who are your spouse, child or dependant, are able to ask a Court to make an order, effectively changing your Will. This can often happen in a farming/family business setting when one family member has been promised the farm/business in return for working for minimal wages over an extended period.
However, broadly speaking, the challenges can only be made against assets actually owned by you at the time of your death.
Thus, subject to certain claw back periods in respect of transfers before death, assets given away to an appropriate structure such as a trust will not be available to attack by “disgruntled beneficiaries”. Further, removal of assets to a discretionary trust can provide immediate asset protection.
You can still have continuing control of, and continuing benefit from, the trust and its assets, during your lifetime. However, there are often impediments to restructuring ownership of assets, not the least of which are stamp duty and capital gains tax.
The concept of a Contractual Will is an alternative approach. A Contractual Will commits you to leave assets to particular people or entities.
Despite a recent High Court case called Barns Case, a Contractual Will can still be used to achieve the objective of creating rights in third parties, i.e. the trustee of your trust, which will take priority over claims against the estate by “disgruntled beneficiaries”. Special care is needed with the contract content.
Who will be the parties to the contract? Clearly, you (the Testator) will be a party. The other party could be the trustee of a discretionary trust. You can be in control of that trust until your death.
You may prefer to have a more restrictive form of discretionary trust, for example, a BloodlineTM Trust. This is a specially crafted trust under which the flow of capital is restricted to your designated bloodline.
- The most effective way to prevent a challenge to the Will is to ensure that the assets in question are not owned by you.
- The best destination for such a transfer of assets is an appropriately structured discretionary trust.
- If impediments such as CGT or stamp duty discourage such a transfer, a properly structured Contractual Will can still achieve the same objectives.
- Further, the Contractual Will can provide you with very significant asset protection immediately.