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Bernie is principal of Bernie O’Sullivan Lawyers, an independent private client law firm whose services include estate planning, business succession planning, family governance, and advising on wealth structures such as superannuation and family trusts. Bernie is author of Australia’s best-selling estate planning book “Estate and Business Succession Planning”, chair of Kaplan’s Masters of Applied Finance topic Insurance and Estate Planning and an Estplan lecturer.
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In recent times, when making a will, clients are concerned that the inheritance they pass on a child will be 'at risk' if the child subsequently divorces.
The first thing I tell them is that any risk is not limited to divorce: following recent changes to the Family Law Act any person in a de facto relationship is also potentially at risk of a property claim where the relationship is 2 years old or even less in some circumstances (such as where there is a child to the relationship).
Coming to grips with this new reality, the client inevitably asks what can be done to mitigate these risks. Some lawyers still advise clients that full protection can be given to the inheritance by placing it into a testamentary trust instead of giving it directly to the child. However, a series of recent cases makes it clear that a testamentary trust will not offer significant protection to a child where the child controls the trust.
This then, leads to advice about other structures the client can put in place to protect the inheritance. One possibility is to establish a single trust which all the children jointly manage.
Such a trust would probably be less likely to be regarded by the Family Court as property of any particular child. However, this option introduces a range of new risks, including:
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Investment risk 1: Is it likely that all children will have the time and inclination to manage the trust’s investments?
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Investment risk 2: Will the aims and risk tolerance of all children is similar enough to enable a sensible investment strategy to be devised (and adhered to)?
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Equality risk: If one child died, leaving children of their own, would the remaining children look after their deceased siblings children?
This then leads to a discussion on other strategies and the pros and cons of each. Ultimately each client will have different concerns and the attraction of any option will be influenced by the client’s particular circumstances.
What is crucial however is that any lawyer offering estate planning services must be on top of this issue and be able to take the clients through a variety of possible options to deal with a wide range of risks.
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T 1300 267 529 (1300 boslaw)
M 0488 122 902
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