They're 18, they’re beautiful and they're no longer ‘yours’

One regularly asked question in estate planning is ‘do my kids need estate planning documents?’.

The one word answer is – absolutely.

The more detailed answer to provide some context is as follows:

1. Assuming a person otherwise has mental capacity, they are entitled to implement estate planning documents on reaching the age of majority (i.e. 18 years).
2. The main exception to this rule is that a married person may implement estate planning documents, even if they have not reached the age of majority.
3. If a person has reached the age of majority, but does not have estate planning documents in place, an array of complications can arise.
4. If the person dies, then their estate will be administered in accordance with the intestacy rules (previous posts have looked at various aspects of these rules, please contact me if you would like access to these and can not easily locate them).
5. Invariably, the intestacy rules trigger a ‘triple whammy’ – significantly more costs, significant time delays and often a distribution that does not reflect the wishes of the deceased.
6. Where a young adult loses capacity, the adverse consequences for the family can in some cases be even more traumatic than a person dying intestate.
7. In particular, without an enduring power of attorney, it is essentially a government department that has the default right to make the decisions on behalf of the incapacitated person.
8. While there is a statutory process that allows interested parties (for example, parents of the young adult) to have themselves appointed, this again invariably causes a ‘triple whammy’ of increased costs, increased delays and the risk that the preferred people are not in fact appointed.

Unfortunately, we have seen a myriad of horror stories involving young adults without any estate planning arrangements in place, for example:

1. A 21-year-old who died with over $1 million in assets. These assets were as a result of being a member of multiple superannuation funds that she had joined working in a range of casual positions during university. Each fund had automatic insurance, regardless of the member balance, that totalled over $1 million. 50% of these entitlements went to the lady’s estranged father whom she had not even spoken to for over 15 years.
2. A 19-year-old man who had been gifted over $300,000 by his parents to help acquire his own unit. On his death the unit passed to a lady who claimed to be his de facto, but whom the parents had never in fact met.
3. An 18-year-old man who was left stranded in an incapacitated state in Spain following an accident at the ‘running of the bulls’. As his parents were not appointed as his enduring attorney, they had no legal authority recognised by the Spanish authorities.

As a separate comment - the popularity of recent posts leveraging pop references has been used again, with a song, the most popular version arguably recorded by Beatle’s drummer Ringo Starr.

** For the trainspotters, the title of today's post is riffed from the song ‘You’re sixteen, you’re beautiful and you’re mine’.

View arguably the most popular version recorded by Beatle’s drummer Ringo Starr here:

Age of entitlement

Following last week's post some questions were raised about at what age a person can be entitled to receive benefits under a will.

The issues in this regard are a little more complex, however broadly:

1. If a specific entitlement under a will passes to anyone under the age of 18, the trustee of the will effectively holds it for them on a bare trust until their 18th birthday. 
2. If an age is nominated in the will for a beneficiary to receive their entitlement, it will be held on trust until that age, unless the will is not drafted correctly (there are some complex issues that can apply in this regard). If the will is not drafted correctly, then regardless of the age nominated, the beneficiary can get access to the gift on their 18th birthday. 
3. Generally, none of the above rules are applicable where the asset passes to a testamentary trust – in this instance, the assets normally remain indefinitely within the trust structure, regardless of the age of the beneficiaries. 

Until next week.

Age of majority

Last week an interesting issue arose with the child of a client who was about to travel overseas on an exchange. 

The child was a part time employee and member of a superannuation fund. Under the superannuation fund, they were automatically entitled to a life insurance policy which gave a payout of $200,000 on death. The fund required that any payout be made to the legal representative of a deceased member.

The parents of the child felt that it would be prudent to ensure that on receipt of these insurance proceeds the estate would be able to administer them easily – the obvious answer in this regard was the creation of a will.

Unfortunately, in these circumstances, no will is able to be made because in order to make a will, the individual involved must be 18 years of age.

The only substantive exception to this rule is if the will maker, being under the age of 18 years, has lawfully married.

Until next week.