How He Could Have Kept His Inheritance For His Own Kids
Ern and Nancy Sutton were an energetic and healthy older couple who were killed in 2012 driving home one evening, when a truck lost its load onto their car. Both 83, Ern and Nancy died in the accident.
Their wills seemed simple initially: their estate was to be divided equally between their three adult children. Nothing unusual or unfair about that – it’s common for parents to leave an equal share to each of their children. Ern and Nancy made their will with the Public Trustee.
One of their children, Warren Sutton, was a businessman and property developer whose personal finances experienced a roller coaster of success and failure. Between 1998 and 2001, he teetered on the edge of bankruptcy due to the personal guarantees he’d given on secured lending and trade debts. During this time, he says he discussed with his father the possibility that his share of the inheritance ought to pass onto his own children, rather than him.
When Warren Sutton declared bankruptcy in 2010, he believed that he and his father had reached an understanding that his share of the inheritance would go to his own children, Ern’s grandchildren.
However the will showed no such change. Although Ern had made some minor changes to the will in 2001 and 2003, they only reflected a change in the standard wording. The siblings challenged the will on the grounds that the Public Trustee employee had not made the changes to the will that had been instructed by Ern prior to his death.
The judge didn’t agree, saying: “It cannot be known, but I do not accept it can be inferred that he raised the point and the will drafters somehow misheard it or misunderstood it. It is not a point that is difficult to explain, especially for someone who has apparently had specific family discussions about it.”
As a result, the portion of the estate that had been left to Warren Sutton will now be used to discharge his debts, and his children will not receive the benefit of their grandparents’ estate.
The loss of Warren Sutton’s share of the estate could have been easily avoided, through the use of a testamentary discretionary trust. A testamentary discretionary trust is a type of trust created under a will and comes into existence only upon the administration of the deceased estate. The trust owns the assets, rather than passing into the name of the bankrupt person. As a result, creditors cannot make a claim on the assets to discharge debts.
In this case, the assets could have been held in the trust for the benefit of the grandchildren rather than being lost.
A testamentary discretionary trust must be established prior to death. Once the will-maker has died, even if his intention was to change his will, it is too late as demonstrated by the above case. The court has also shown a reluctance to order a statutory will in the case of diminished mental capacity to change a will to stave off creditors in the event of bankruptcy.
A specialist in Succession Law (wills and estates) will be able to go through many of these what-if scenarios with you so that your assets are protected from bankruptcy among your heirs, and other life events such as divorce or a lawsuit. It is important to consider these issues while you are alive and have mental capacity.
If you have not considered your estate planning needs, please contact us today for a FREE, 10-minute phone consultation.