Clients often joke about ‘SKI’ – spending the kid’s inheritance. We find that many clients talk of another ‘SKI’ wish – to save (or protect) the kid’s inheritance. Many clients have fears that whatever wealth they leave their beneficiaries may be lost in a property dispute following a divorce or relationship breakdown where the former ‘in-law’ becomes an ‘outlaw’.
The Family Court certainly has extensive powers in relation to the adjustment of property between parties to a failed marriage or relationship. An example of such a case is Rigby v Kingston (No 4) which was decided in 2021. In that case the deceased (Mr Kingston) made provision in his Will for his daughter and his two sons. In clause 6 of the Will the deceased set out his view as to who should not benefit from his estate. The clause is set out below.
6. I DECLARE that in making this my Will it is my desire that the benefit of my estate should pass to my children and/or grandchildren and that it is my express desire that no entitlement should accrue to any present or future spouse of my children or grandchildren particularly if such entitlement were to disadvantage my children or grandchildren or the continuity of any of the businesses which are conducted by the group of companies controlled by me.
The daughter’s ex-husband made an application to the Family Court for a property settlement. The ex-husband argued that the value of his ex-wife’s interest in the estate and its related entities (the Kingston Group) was up to $100,000,000 (one hundred million dollars). The ex-wife disputed that figure, but conceded that her interest in the Kingston Group would be valued at about $50,000,000 (fifty million dollars). Regardless of what figure was accurate, it would be fair to say that it was a very large amount!
Following the Court hearing, the Judge decided that it was not just and equitable to make an order in relation to the Kingston Group. In other words, the ex-husband received no benefit from the Kingston Group assets.
Whilst clause 6 of the Will clearly set out the Willmaker’s intentions, that clause, alone, did not result in success for the ex-wife. There were a number of other steps taken by the Willmaker in his estate planning which culminated in his intentions being upheld.
It is generally thought that the best way to protect an inheritance is to quarantine the inheritance within a testamentary trust, that is a trust created by a will. The testamentary trust acts to keep the inherited assets separated from the couple’s relationship assets. However, a court exercising power under the Family Law Act 1975 has extensive powers, and there have been cases decided where a Court has included assets within a testamentary trust as either property of the parties, or at least a financial resource of the beneficiary, which justifies the other spouse receiving more of the relationship assets. Whilst the use of testamentary trusts is a great starting point, there are other strategies that can be put in place which will strengthen the protection of the inheritance from claims arising from failed relationships.
As always, it is best to speak to your personal advisers when looking at trusts and wills.
This article was first published in Personal Wealth Adviser, Issue 6.