Is Your Will Really a Simple Will?

Many people contact a lawyer asking for a simple will.

Sometimes their instructions are straightforward. They may want to appoint an executor, leave everything to their spouse or partner, and then divide the estate equally between their children.

In other cases, the initial instructions sound simple, but the family or financial circumstances are not.

There may be children from an earlier relationship, a family trust, assets owned jointly with another person, loans to family members, a business, overseas property, a beneficiary who needs additional protection, or concerns about how an inheritance will be managed.

The purpose of asking detailed questions before preparing a will is not to make the process unnecessarily complicated. It is to ensure that the will deals with the property that will actually form part of the estate and produces the intended result.

Your will may need more careful planning if you have children from an earlier relationship, a family trust, business interests, overseas assets, significant family loans or a beneficiary who needs additional protection.

What is a simple will?

A will may be relatively straightforward where:

• the family circumstances are uncomplicated;

• a couple intends to provide for the same children;

• there are no competing obligations to children or partners from previous relationships;

• the estate consists mainly of ordinary personal assets and individually owned property;

• there is no family trust or company structure that needs to be considered;

• no beneficiary requires special protection;

• there are no significant overseas assets; and

• the intended distribution is clear.

A common example is a couple in a first relationship who have children together. Each leaves their estate to the other and, if the other has already died, equally to their children.

Even then, decisions still need to be made about executors, guardians, substitute beneficiaries and the age at which younger beneficiaries should receive their inheritance.

“Simple” describes the nature of the instructions. It does not mean the will is unimportant or that a standard document will be suitable for everyone.

What goes into preparing a will?

A properly prepared will should reflect more than a list of names and percentages.

Before drafting, a lawyer will usually need to understand:

• your relationship and family circumstances;

• whether you have children from more than one relationship;

• what assets and liabilities you have;

• how your home and other significant assets are owned;

• whether you have a family trust;

• whether anyone owes money to you;

• whether you own company shares or have business interests;

• whether you have overseas assets;

• who should administer your estate;

• who should benefit if your first-choice beneficiaries die before you; and

• whether any beneficiary needs their inheritance managed or protected.

The answers determine whether a straightforward will is appropriate or whether a more tailored structure is needed.

Choosing your executors

Your executors are responsible for administering your estate.

Their role may include locating the will, arranging the funeral, identifying assets and debts, applying for probate, dealing with banks and Inland Revenue, selling or transferring property, paying liabilities and distributing the estate.

An executor should therefore be trustworthy, organised and capable of dealing with practical and financial matters.

You should also consider whether the person is likely to be available when needed. An executor who lives overseas, is significantly older than you, has health difficulties or is involved in family conflict may not be the best choice.

Appointing two executors can provide continuity and shared responsibility. It can also create difficulties if the executors have a poor relationship or are likely to disagree.

The choice should be made because the person is suitable for the role, rather than simply because they are the eldest child or closest relative.

What is the residue of an estate?

The residue is what remains after estate expenses, debts, taxes and any specific gifts have been dealt with.

For many people, the residue clause is the most important part of the will because it determines who receives most of the estate.

A will might leave the residue:

• entirely to a spouse or partner;

• equally between children;

• in different proportions between family members;

• to children once they reach a specified age;

• partly to individuals and partly to charities; or

• on trust for one or more beneficiaries.

The will should also say what happens if a residuary beneficiary dies before you.

For example, should a deceased child’s share pass to that child’s own children? Should it be divided among the surviving siblings? Should it pass to someone else?

Without clear substitute provisions, the outcome may be different from what you expected.

At what age should children inherit?

Unless a will provides otherwise, a beneficiary may become entitled to an inheritance at 18.

For a modest inheritance, that may be acceptable. For a larger estate, many parents prefer a later age, such as 21 or 25.

The appropriate age depends on the amount involved, the maturity and circumstances of the beneficiaries, and how much discretion the trustees should have in the meantime.

A will can allow trustees to use funds for a child’s maintenance, education, health or general benefit before the child reaches the specified age.

Delaying final entitlement does not necessarily mean withholding support. It can allow the inheritance to be managed while still meeting the beneficiary’s reasonable needs.

What if a beneficiary dies before you?

A will should anticipate that a beneficiary may die first.

This is particularly important where the intended beneficiary is a child.

You will need to decide whether that child’s share should:

• pass to their own children;

• be divided between your surviving children;

• pass to their spouse or partner; or

• be dealt with in another way.

The answer may be different for each family.

Where grandchildren are involved, the will should also address the age at which they receive their inheritance and what powers the trustees have while they are younger.

Do you need to appoint a guardian?

Parents of children under 18 can appoint a testamentary guardian in their wills.

A testamentary guardian has an important legal role in relation to the child’s upbringing and important decisions affecting the child. However, the appointment does not necessarily determine where the child will live in every circumstance.

Parents should consider who shares their values, has a relationship with the children and is realistically able to take on responsibility.

It is also sensible to discuss the proposed appointment with that person before naming them in the will.

Should you leave specific gifts?

A specific gift is a gift of a particular asset or amount, such as jewellery, a vehicle, a sum of money or a family heirloom.

Specific gifts can be useful, particularly where an item has sentimental significance. They can also cause difficulties.

The asset may have been sold before death. Its value may change significantly. The gift may create an unintended imbalance between beneficiaries. A lengthy list of personal belongings can also become outdated.

For some personal items, a separate memorandum of wishes may offer greater flexibility. The legal effect and appropriate approach should be discussed when the will is prepared.

What property does your will control?

A will generally deals only with property that forms part of your estate.

Not every asset you use or benefit from will necessarily fall into that category.

For example:

• jointly owned property may pass directly to the surviving joint owner;

• assets owned by a family trust do not usually form part of your personal estate;

• KiwiSaver and life insurance proceeds may be dealt with under their governing arrangements;

• company assets belong to the company rather than its shareholders; and

• overseas assets may be affected by the laws of another country.

This is why a will should not be prepared without first understanding how significant assets are legally owned.

Someone may intend to leave the family home equally to their children, only to discover that the home is owned by a family trust or jointly with another person and cannot be distributed under the will in the way they expected.

When does a will become more complex?

A more tailored will may be needed where:

• there is a blended family;

• you want to provide for a partner while preserving assets for your children;

• you want a partner to remain in a home for life;

• there is a family trust;

• your estate or trust has made loans to family members;

• a beneficiary has a disability, addiction, financial vulnerability or relationship-property risk;

• you own a business or shares in a trustee company;

• you have children who are estranged or whom you do not intend to benefit;

• there is a relationship-property agreement;

• you own assets in another country; or

• there is a realistic possibility of disagreement or an estate claim.

These circumstances do not mean that the will needs to be unnecessarily long or difficult to understand. They mean the drafting needs to address the particular risks and outcomes involved.

Blended families

A common challenge in blended families is balancing two objectives:

1. providing properly for a surviving spouse or partner; and

2. preserving an inheritance for children from an earlier relationship.

Leaving everything outright to the surviving partner is simple, but it gives that person complete control over the assets.

The surviving partner may later change their will, enter a new relationship, spend the assets, make substantial gifts or leave the estate to different beneficiaries. The children of the first person to die may ultimately receive little or nothing.

A life interest or right to occupy can sometimes provide a better balance. These arrangements allow a surviving partner to use a home or receive income while preserving the underlying capital for other beneficiaries.

However, they require careful provisions about expenses, maintenance, sale of the home, replacement properties, residential care, remarriage and the circumstances in which the interest ends.

Family trusts

A family trust creates a different set of issues because trust assets are not controlled by the will.

The will should be reviewed alongside:

• the trust deed;

• any variations;

• the identity of the current trustees;

• the power to appoint and remove trustees;

• any trustee company;

• loans between the trust and the estate;

• beneficiary current accounts; and

• any memorandum of wishes.

A well-drafted will cannot correct poor trust succession planning on its own.

The person who becomes executor may not automatically gain control of the family trust. Shares in a trustee company, directorships and appointor powers may each pass or operate differently.

The estate plan and trust plan therefore need to work together.

Can a surviving partner choose not to take under the will?

A surviving spouse or partner may have rights under the Property (Relationships) Act 1976.

Following a death, the survivor may generally choose between taking under the deceased’s will or intestacy and seeking a division of relationship property under the Act.

This can affect the value of the estate available to other beneficiaries and is especially relevant where the will leaves unequal provision, there is a blended family, or significant property is held in one person’s name.

A relationship-property agreement may also affect the position.

A will should therefore be prepared with an understanding of the client’s relationship-property arrangements rather than treated as a completely separate document.

Can family members challenge a will?

There are limits on complete freedom to leave an estate in any way a person chooses.

Claims may arise under legislation including the Family Protection Act 1955, the Property (Relationships) Act 1976 and the Law Reform (Testamentary Promises) Act 1949.

The possibility of a claim does not mean that every family member must receive an equal share.

It does mean that a person who intends to make unequal provision, exclude someone who might reasonably expect to benefit, or depart from an established family arrangement should obtain advice about the risks.

In some cases, it may also be appropriate to prepare a separate statement explaining the reasons for the decisions made. Whether that will assist depends on the circumstances and how it is written.

When should a will be reviewed?

A will should be reviewed after significant changes such as:

• marriage or civil union;

• separation or dissolution;

• the beginning of a new relationship;

• the birth or adoption of a child;

• the death or incapacity of an executor or beneficiary;

• the establishment or wind-up of a family trust;

• the purchase or sale of significant property;

• a substantial change in financial circumstances;

• a beneficiary developing additional needs;

• moving permanently overseas; or

• changes to business ownership.

Marriage or entry into a civil union can revoke an existing will unless the will was made in contemplation of that particular marriage or civil union.

Separation alone does not necessarily have the effect people assume. A will should be reviewed promptly rather than relying on a relationship change to produce the intended legal outcome.

Is your will genuinely simple?

A simple will may be entirely appropriate for someone with straightforward family arrangements, ordinary assets and clear instructions.

The difficulty is that clients do not always know which facts make their estate more complicated.

A short discussion about family, asset ownership, trusts, relationships and intended beneficiaries can reveal issues that would otherwise be missed.

The aim is not to make every will complex. It is to prepare a will that is as simple as it can be while still dealing properly with the client’s actual circumstances.

How we can help

We prepare wills ranging from straightforward reciprocal wills to more detailed estate plans involving blended families, life interests, family trusts, businesses and vulnerable beneficiaries.

Our process includes identifying what you own, how it is held, who you need to provide for and whether your will needs to work alongside a family trust or relationship-property agreement.

If you are unsure whether your instructions amount to a simple will, contact us with a brief outline of your family circumstances and assets. We can identify the issues that need to be considered and advise on the appropriate scope of the will.