The Great Wealth Transfer: Harmonising Family Law and Estate Planning

Succession Act 1981 (Qld)

Succession Act 2006 (NSW)

• Peter Kozak, a farm labourer in a de facto relationship with wealthy Jacqueline Messer, entered into a BFA to prevent claims against each other’s estates. Messer had terminal cancer and died shortly after. Kozak then made a Family Provision Application claim against her estate, seeking enough funds to buy a house. The Supreme Court of Queensland, led by Justice Helman, ruled that the BFA was not binding but dismissed Kozak’s claim, concluding that adequate provision had been made for him. The decision was based on Kozak’s financial position, the size and nature of Messer’s estate, and the legitimate claims of other beneficiaries. Although Kozak argued he had not read the deed or received legal advice, the Court of Appeal found he understood its effect. The court unanimously dismissed the appeal, affirming that adequate provision had been made for Kozak.

Singer v Berghouse [1994] HCA 40

• The High Court considered an appeal regarding the appellant’s claim for family provision from her deceased husband’s estate under the Family Provision Act 1982 (NSW). Singer, the widow, had been married to the deceased for 11 months before his death. His will, reflecting an ante-nuptial agreement, stipulated that property acquired before their marriage would pass to his son, while Singer would receive proceeds from post-marriage acquisitions. Despite Singer’s submissions regarding her health challenges and limited earning capacity after moving to Sydney for her husband, the court ruled against her claim, finding she had not sufficiently demonstrated a lack of adequate provision.

• It is vital to consider each client’s individual interests and needs, specifically when dealing with intergenerational wealth transfer and international assets.
• Estate planning involves updating documents post-separation, preserving assets during property settlements, and addressing contributions to the estate on death.
• Estate planning requires thorough assessment of various factors like superannuation, trust structures, businesses, taxation, and international laws.
• Drafting a BFA is a formal process with technical requirements, such as the requirement that both parties must seek independent legal advice. BFAs need regular review, especially after significant life events like the birth of a child. It is easier to address changes while the relationship is stable, rather than dealing with issues upon separation.
• The division of property in a BFA depends on how it is drafted. Property held solely by one party remains theirs upon separation. Jointly held property can be divided equally or according to each party’s contribution. The specifics of property division, such as in joint tenancy or tenants in common, should be outlined in the BFA based on the intentions and drafting.
• In New South Wales, spouses can release claims, but this is not possible in Queensland, where claims for further provision cannot be contracted out of. The court considers various factors, including contributions made by the claiming spouse to the deceased’s assets, in determining provisions. Claims in equity are also available in relation to the claiming spouse’s financial contributions.
• In Australia, there are no provisions that exclude inheritances or gifts from the property pool for division between spouses, unlike some overseas jurisdictions like the UK.
• Statements of wishes, declarations, and affidavits do play a role in estate planning as they provide insight into the testator’s intentions regarding the distribution of assets among beneficiaries. While these documents are not legally binding, they can influence the division of gifts. However, they are subject to scrutiny and can be challenged in court, especially if poorly prepared, potentially leading to successful claims for further provision.

• In the initial stages with clients, the conversation often revolves around planning for the best-case scenario. Later, it is important to help your clients prepare for all possibilities to ensure they are well-equipped for any future needs that may arise.
• Parents may consider involving their child in a BFA to protect gifts, such as having a loan agreement in place for funds given for property purchases to ensure the money returns to the parent in case of separation.
• When discussing the pool of assets that a child receives gifts or money from family, it is important to consider the contribution made by the child’s parents. While the child may receive credit for their contribution, it is unlikely to be a dollar-for-dollar return unless there is a BFA in place that specifies such arrangements.
• If an estate is not closed off properly, it may never be able to be wound up, which may be an exhausting process for beneficiaries. The duration of this process varies, some estates can even take years to finalise. It is essential to address this issue promptly to avoid prolonged delays in the estate settlement.
• Networking and staying in contact with colleagues, including financial advisors and accountants, is crucial for family and succession lawyers dealing with clients with significant asset pools.
• Subscribing to professional memberships, which often provide access to specialised educational materials, also helps in staying updated and informed in the field.

Australia is on the brink of experiencing the largest intergenerational wealth transfer in its history, which also coincides with the increasing rates of separation, divorce, and blended families, and in our episode today, we’re going to be exploring the complex interplay between family law and estate planning.

Our guests, Niki Schomberg and Chelsea Baker, are here to shed light on the evolving landscape of Binding Financial Agreements and estate claims and the strategic considerations for ensuring client wishes are carried out on separation and/or death.

Niki Schomberg is a Senior Associate in the Family and Relationship Law Group at Lander & Rogers bringing a wealth of experience in advising clients on complex family law matters, and Chelsea Baker is a senior associate in the Private Client Group, the Wills and Estates division of that group at Mullins Lawyers, specialising in estate planning, administration, and contested litigation. Both Niki and Chelsea offer unique perspectives on the integration of family and estate law, providing valuable insights for legal practitioners and individuals navigating these intricate legal landscapes.

Niki and Chelsea, thank you so much for joining me today on Hearsay.

TIP: A Binding Financial Agreement, or a BFA, is a binding agreement, as its name suggests, between parties which can govern property and spouse maintenance interests if they separate. A BFA can be made before, during, or after a marriage or de facto relationship.

For a BFA to be binding under the Family Law Act, several requirements have to be met. Each party has to receive independent legal advice on specific matters related to the BFA with a certificate of advice from their lawyer annexed to the agreement signed by the legal advisor. The agreement obviously has to be in writing and signed by both parties accompanied by a statement from each party that they did obtain independent legal advice on their rights, and the advantages and disadvantages of entering into the agreement.

Importantly, a BFA made before or during a de facto relationship, will be rendered void if the parties marry, unless the agreement is made under both the marriage and de facto provisions in the Family Law Act. When drafting Binding Financial Agreements from a family law perspective, it’s important that legal practitioners also consider the estate planning considerations too. This includes ensuring that the client’s estate plan aligns with the BFA and explaining the distinct roles and effects of the BFA, and a will or the other state planning documents. This might include clarifying when each document might come into effect, or crystallise, be activated, and discussing how BFAs might impact future family provision claims brought by either party.

That’s the biggest issue for us is people that expect to receive such large inheritance in the future and their circumstances changing so drastically, that is always the riskiest type of agreement for a practitioner to draft, and we’re shifting more towards those sorts of clients as opposed to Binding Financial Agreements previously, you’d probably be dealing more with your second type relationships with children from previous relationships, wealth already established, you know what the structures are like. So I’d say that is the biggest challenge I’m facing from a family law perspective.

TIP: A separation declaration is a formal written document that complies with section 90XP of the Family Law Act, and it’s a document that certifies that the parties either were married or in a de facto relationship, specifies the date of their separation from that relationship, and asserts that there’s no reasonable likelihood of reconciliation between the parties.

The separation declaration serves several important purposes. First, it helps establish the date of separation, crucial for determining things like financial settlements, eligibility for divorce, limitation periods, and additionally, it might be necessary when dividing superannuation, updating bank account details, or accessing government benefits. This document is especially consequential if the separated parties are continuing to live under the same roof, as the Family Law Act recognises the separation even if the parties still reside together and share household responsibilities like cooking, cleaning and gardening.

A separation declaration can be integrated into applications for court orders or a Binding Financial Agreement, with the latter only becoming effective after both parties sign the declaration. While only one party’s signature is required for the declaration, obtaining both signatures is. can result in a smoother process and help prevent misunderstandings later on.

A will, on the other hand, comes into force when the willmaker dies, so it’s really the timing of the documents that’s going to affect which one takes precedence. So if we’ve got two spouses and they separate, neither of them have passed away, well it’s the Binding Financial Agreement that’s the relevant document, but if we’ve got the death of one of the spouses there’s been no separation, well that’s the will is the document that you look to. Chelsea would be able to speak more upon family provision applications and the relevance of a Binding Financial Agreement to those, which is state based. So we’re Queensland practitioners, that does differ to New South Wales, but that’s the biggest thing is the actual timing.

TIP: Death benefit nominations determine how funds in a superannuation account are distributed upon the account holder’s death. These funds are typically managed by the trustee of the super fund and they’re not part of the deceased’s estate. They form what’s sometimes described in the Succession Act as the notional estate of the deceased. There are two main types of death benefit nominations, binding and non-binding. A non-binding nomination serves as a guide for the trustee but doesn’t obligate them to follow it. The trustee considers the deceased’s wishes, the entitlements of family members and the beneficiary’s circumstances before making a decision.

In contrast, a binding death benefit nomination mandates the trustee to distribute death benefits according to the deceased’s specific instructions. A binding death benefit nomination is valid for three years unless it’s a non lapsing binding death benefit nomination, which remains effective indefinitely until it’s changed or cancelled.

For a nomination to be legally binding, it has to be in writing, of course, properly signed by the deceased, dated, witnessed by a third party, so not the beneficiary of the nomination, and received by the trustee of the superfund. Additionally, only certain people are eligible to be binding death benefit nomination recipients. Only dependents, like spouses, children, or individuals in interdependent relationships, close personal or domestic relationships, for example, are eligible to receive death benefits. However, even a valid binding death benefit nomination can be contested.

In New South Wales, for example, claims for family provision under the Succession Act 2006 (NSW) can include claims on the deceased’s notional estate, including benefits assigned under a valid binding death benefit nomination, if the actual estate of the deceased lacks sufficient assets to meet the family provision claim.

So what is the impact, well let’s start with the BFA, I suppose, on the default position as regards to a joint tenancy?

TIP: So Niki’s just mentioned a case, Kozak v Matthews [2007] QCA 296. In that case, Peter Kozak, a farm labourer, was in a de facto relationship with the wealthy Jacqueline Messer and they entered into a binding financial agreement to prevent claims against each other’s estates, although I get the feeling it was Jacqueline Messer’s estate that might have needed protecting. Messer had terminal cancer and died shortly after the BFA was executed. Kozak then made a family provision claim against her estate, seeking enough funds to buy a house. At first instance, the Supreme Court of Queensland, in a decision by Justice Hellman, ruled that the BFA didn’t prevent the claim, but dismissed it anyway, concluding that adequate provision had been made for Kozak in Messer’s will. That decision was based on Kozak’s financial position, the size and nature of Messer’s estate, and the legitimate claims of other beneficiaries on the estate. Although Kozak argued that he hadn’t read the deed or received legal advice, the Court of Appeal found that he understood the effect of the BFA, and the court unanimously dismissed his appeal, affirming that adequate provision had been made for Kozak. The judgment emphasized the significance of A BFA and the need to consider the totality of the circumstances and competing claims when determining the adequacy of provision for a claimant in a family provision matter.

So Niki just mentioned another case, Singer v Berghouse [1994] HCA 40. In that case, the High Court considered an appeal of the appellant’s claim for family provision from her deceased husband’s estate under the Family Provision Act 1982 (NSW). That’s the predecessor legislation to the now enacted Succession Act 2006 (NSW). Singer, the widow, had been married to the deceased for 11 months before his death and his will, which reflected an agreement made before they were married stipulated that property acquired before their marriage would pass to his son while she would receive proceeds from their post marriage property acquisitions. Despite Singer’s health challenges and limited earning capacity after moving to Sydney for her husband, the court ruled against her, noting that she hadn’t sufficiently demonstrated a lack of adequate provision under the estate.

I qualify this by saying I’m not a New South Wales practitioner, but we have at my firm, lawyers in Sydney that regularly draft a Binding Financial Agreement alongside a separate Deed of Release that deals with contracting out of family provision claims.

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