DYING INTESTATE REMOVES ANY POWER YOU THOUGHT YOU HAD ABOUT YOUR ASSETS
We regularly meet with clients who for one reason or another do not have valid wills in place. There may be several reasons for this, complacency, unknowing, feeling uneasy about making estate planning decisions or an inability to decide who gets what.
The ramifications of dying intestate, that is without a will, can be significant.
Where a person dies intestate, section 14 of the Administration Act 1903 (WA) sets out the formula for dividing the deceased’s estate among their surviving family members. That’s right. You don’t have any say.
The result can be that estate assets may be distributed in a way that the deceased person did not intend, but if there is no clear direction then there must be methodology to enable the winding up of an estate.
This potential problem was brought into sharp focus when we were assisting a client who had found themselves in this exact situation.
WHAT HAPPENS WHEN YOU DIE INTESTATE? A REAL CASE STUDY.
Maria is 44 years old, her husband David passed away in July at age 60, his last employer was the Australian Federal Police and he was a member of the Public Service Super Scheme.
David retired a short while before his death, at this point he was able to take his superannuation in three ways, a pension, a part pension and lump sum or as a full lump sum. David had indicated that his preference was to take the lump sum, however he had not actioned this. In addition, David did not have a valid will in place.
A short period before his death there were efforts made to try and put one in place, however due to his failing mental capacity this was not able to be achieved. During this process David continued to confirm with several people that his estate should go to his surviving wife.
Upon David’s death, the intestacy rules for Western Australia were used to determine how his estate was to be distributed.
David left a surviving spouse, no children but four other siblings.
There had been no contact with his siblings for a considerable period of time, Maria had not met any of them and none of them attended the funeral, however under the intestacy formula they were entitled to receive a part of the estate.
Maria could have had three options:
1. Receive 67% of the pension that David was entitled too.
2. Receive a part pension and a $227,000 lump sum
3. Receive a $448,000 lump sum
Maria’s preference would have been to receive the lump sum, this would have enabled her to pay off their mortgage that she was unable to service on just her salary. She would then have some money to put towards her eventual retirement.
THE RAMIFICATIONS OF DYING INTESTATE
However, under the Administration Act formula, the following occurred:
$37,000 was paid in taxes, Maria received the first $75,000 of the balance, and 50% of the remainder.
Meanwhile David’s surviving siblings whom she had never met, and didn’t even attend her husbands funeral, received the balance.
This reduced Maria’s lump sum to $235,000, not enough to fully pay off the mortgage and leaving nothing behind to invest in her future.
Maria is devastated by this outcome, it is not what David wanted and she can’t understand how the siblings are entitled to any part of the estate.
If David had in place a valid will, the outcome would have been much different, given his circumstances the will wouldn’t have been complex and wouldn’t cost much to put in place.
We would implore anyone who does not have a will to seek out the services of a lawyer to sort this out. It will ensure that there is a easy to follow path to winding up an estate and more importantly ensure that the assets within the estate go to the right people. Click here to find out more about Estate Planning.
