The contents of your parents’ Wills are none of your business. However, the risk of losing your inheritance means that there may be very good reasons for a discussion about your parents’ estate planning arrangements.
No-one wants to appear too eager to discuss their inheritance, but it can be sensible to discuss future potential scenarios.
Whilst your parents may be very much alive and kicking and focused on spending your inheritance, they will want to ensure that whatever assets left behind are enjoyed by their children and grandchildren.
What are the Risks?
It’s common for parents to be unaware that some or all of their inheritance could be taken from their children.
Where a parent prepares a standard Will, their assets will be transferred directly to their child. The parent’s assets become their child’s assets following their passing.
Where someone has a legal claim against you, all of your assets (including what were your parents’ assets) may be at risk. A successful claim may result in those assets being seized and sold, and the sale proceeds paid to the claimant.
Ways in which you could lose your inheritance
Family Court dispute
Where you separate from your spouse, the Family Court may decide that your spouse should receive a significant portion of your assets. These assets might include assets you received from your parents.
Debts owed to creditors
Where a creditor sues you and obtains a judgement for the payment of money, your assets (including any assets received from your parents) might be seized by the court bailiff and sold, with the proceeds of sale paid to the creditor.
Where you are or become bankrupt at the time your parent’s estate is being administered, instead of those assets being transferred to you, they may be transferred to your ‘Trustee in Bankruptcy’.
The Trustee will sell the assets, with the proceeds of sale paid to the creditors. After the Trustee’s fees and selling costs are paid, if any money is left over – this will be paid to you.
Business or professional risk
Where your business or profession involves risk, you should avoid owning assets in your own name due to the potential for legal action to be taken against you. Regardless of how successful you may be, where you are successfully sued by a creditor or become bankrupt, the consequences mean that you could lose your assets, which includes what once were your parents’ assets.
Disability or drug addiction of your sibling
Where one of your siblings suffers from a psychological condition, disability or addiction, there is a risk that your parents’ assets could be lost through the actions of your sibling or others exploiting your sibling’s circumstances.
What is a potential Solution?
People are often not even aware that there may be a problem, let alone that there is a solution!
Rather than making a standard Will where your parents assets are transferred directly to you and your siblings, your parents can make a comprehensive Will containing one or more Testamentary Trusts for you and each of your siblings.
Using this Will, the assets will not be owned directly by you and your siblings, but rather will be owned by a Trustee of each Testamentary Trust for the benefit of each child. You control the Trust of course! This way, where any claim is made against you or your siblings, the assets in the Testamentary Trust should be protected.
By ensuring that your parents take decisive action and prepare a comprehensive estate plan, thousands of dollars, or hundreds of thousands of dollars could be saved – depending on your family’s circumstances.
It is your parent’s decision. However, by explaining the potential for all of their assets to be lost, your parents will realise that the benefits far outweigh the costs.
In a later article, we will talk about the other benefits of a comprehensive Will with Testamentary Trusts, which include significant financial benefits through substantial tax saving.
Disclaimer: The above is to be considered as general education. This is not advice and it is not to be acted upon without advice from a qualified professional who understands your personal circumstances.
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