How poor estate planning can increase the risk of an estate challenge

It is common for people who control valuable structures and entities outside of their estate to make provision for their family through those entities when they die, as opposed to leaving gifts to them in their Will. This is commonly done where people have longstanding family business that their children have been involved with and in blended families.

In the recent Queensland case of Darveniza v Darveniza & Drakos [2014] QSC 37, the deceased tried to use this strategy as part of his estate planning to provide for his children but was unfortunately, unsuccessful.

In Darveniza, the deceased was survived by his second wife and seven children from three different relationships. His estate was estimated to have a value of approximately $28 million. He did not make any provision for a number of his children in his Will and gave reasons for this. Several of his children made claims against his estate, but only one (a claim by one of his sons) proceeded all the way to trial.

The reasons given by the deceased for not making any provision for his son were:

1. he had purchased income producing properties for his son during his lifetime and he had recently transferred the management of those properties to him;
2. his son was a potential beneficiary under various trusts established by the deceased during his lifetime; and
3. his son had an indirect interest in other properties owned by a company established by the deceased, in which he was a shareholder.

The son was estimated to have a net worth in excess of $2.5 million at the date of trial.

Ultimately, the son was successful and received further provision of $3 million, despite the substantial wealth he already had.

Some of the judge’s reasons behind the decision included:

1. the fact that there was no real prospect of the son receiving any distributions from the trusts of which he was a beneficiary; and
2. the deceased was misconceived in understanding the nature and estimating the value of the properties that he passed control of to the son during his lifetime.

This case emphasises the importance of estate planning and getting the structure right.

It is a well-established principle that discretionary trust rights will not be taken into account in family provision claims, because discretionary beneficiaries have no rights or entitlement to any assets of the trust. Therefore, if you intend to make provision for a beneficiary through a trust, it is important to ensure that control also passes to that person when you die so that they are not reliant on others to receive distributions.

Further, it is important to ensure that a person’s reasons or explanations for their estate plan are clearly stated and accurate. If a beneficiary is excluded from a Will on an incorrect or misconceived basis, a Court will be more likely to overlook the testator’s wishes and make further provision for the applicant, if there are assets available to do so.

If you would like advice in relation to your estate planning or challenging a Will, please contact a member of our Wills and Estates team.

Article by Hannah Kulaga