Inheritance laws due for a shake up: what does it mean for you?
13 July 2022
This article was first published in the Whakatāne Beacon and online at the Eastern Bay App.
In June the Law Commission caused quite a stir in the media when it released its proposed changes to Inheritance Law. The changes are intended to simplify the law around estates and bring it up to date with the lives and values of New Zealanders today.
Let’s look at some of the key proposed changes:
A proposal to remove the ability for adult children (aged 25 or over) to challenge their parent’s Will. At present any child – regardless of age – can make a claim against the estate if they believe they have been inadequately provided for. In general, but depending on the circumstances, the law expects a parent to leave around 10-15% of their estate to an adult child. An alternative proposal is for any child to be able to contest a Will, based on their financial need.
Stepchildren would gain the right to challenge a stepparent’s Will if they believe they haven’t been provided for adequately.
A proposed change to Wills law so that if you pass away without a Will, your surviving partner will inherit your entire estate (at present in this situation the estate is divided between your partner and any children). If you have children from a previous relationship and pass away without a Will, the proposal is that your partner will inherit half your estate and the other half will be shared equally between your children.
Trusts will be under more scrutiny. A court may look at assets transferred to a Trust or held jointly with another party when deciding what award to make to a claimant. This means if the court believes that assets had been transferred to defeat a person’s rights under the proposed inheritance laws, it could take assets from the Trust.
So, what does this all mean for you? One thing we can say is that legislative change can be slow moving – new legislation could be several years away. In saying that, the proposals spark an important conversation all New Zealand families need to be having about their future.
It’s a difficult question to pose, but one we all need to address: What would happen if you were not here tomorrow? Would your family be looked after in the way you’d want?
With change on the horizon, now is a good time to take stock of how your legal affairs are structured, and whether they might need updating to better reflect your wishes and current situation.
Here are 5 things you can do to prepare for the future you want:
1. Consider ways to provide for your family today
As times have changed, the idea of “inheritance” has also changed. Many people are now asking us, how can I support my family now - not just when I pass away? Talk with your lawyer and accountant about how you could best structure your assets for the benefits to be passed on in your lifetime.
2. Review your Will – or make one!
Comment from the legal profession is that the proposed changes to Inheritance Law will make Wills even more important. As lawyers, we sometimes find that people want to tick off their Will as quickly as possible. And that’s understandable – it can be difficult to think about a time when we are not here for our loved ones.
However, your Will needs careful consideration. Without legal advice specifically tailored to your personal circumstances, your family may find itself in a position where your Will can be challenged, or your estate distributed differently than you’d wished.
If you’ve already made a Will, it could be a good time to review and ensure its provisions match your current circumstances. Important times to review a Will include:
Marriage or family and relationship changes
If your executor or a significant beneficiary in your Will passes away
If your assets or debts increase significantly
3. Review your Family Trust
Trusts have long been used as a flexible vehicle for asset protection. However, Trust Law has become more stringent. If it’s deemed the Trust is being used to “hide” assets for means testing, inheritance or relationship property purposes it can be looked through.
There may be other ways to structure your assets that fit your personal circumstances, so it’s important to ensure your Family Trust is still fit for purpose and is being administered correctly.
4. Document your Family or Personal Loans
Sometimes known as “the Bank of Mum and Dad”, personal loans have become increasingly common as house prices trended ever upwards. If you are lending money privately to adult children or other family members, it’s important to clearly document the agreements reached to avoid any misunderstandings in the future.
5. Get thinking about Succession Planning
Succession Planning is not just about handing over to the next generation - it’s also about ensuring the necessary legal structures and processes are in place to fully realise the value of your assets - as well as ensuring business continuity in the face of the unexpected.
This article provides information of a general nature. If you would like to find out more specific to your individual & family situation we encourage you to get in touch.