I’m updating my testamentary planning.
Marriage Civil Union or De Facto Relationship
I was married about 10 years ago so I want to clearly express my intention to leave my worldly estate to my wonderful partner to enjoy and do with as he/she pleases after I’ve gone! Well, actually, he/she might be trustee of part of it for our children.
UK situated property
If I give all of my share of it to him/her including real property situated in the UK, there will be nil UK IHT on my death due to the spouse exemption applicable to married couples and partners in civil unions. Transfers of value such as lifetime and testamentary gifts between UK domiciled spouses including gifts of property held for them are exempt, IHTA, s 18.
The Transferable Nil Rate Band (TNRB) was introduced by the Finance Act 2008 (UK) & IHTA84/ s 8A-C. The TNRB permits a transfer of any unused nil rate band to the surviving spouse/civil partner’s estate. I can gift to him/her my up to the UK IHT nil rate band (NRB) (£325,000).
If I give our home to him/her on trust for our children or grandchildren the threshold can increase to £500,000. This could take a home-owning married couple’s effective NRB to £1 million. A claim to TNRB can only be made after an individual has died.
The extra NRB will apply only where the main residence (or the proceeds from its disposal) is passed to direct descendants. It is tapered for estates worth over GBP2 million.
Jointly Owned Property
Property owned jointly as joint tenants (rather than as tenants in common) will generally pass automatically to the surviving joint registered owner on death.
UK Land Transfer form TR1, in use from 1 April 1998, provides a box for the transferees to declare whether they are to hold the property on trust for themselves as joint tenants, or on trust for themselves as tenants in common in equal shares, or on some other trusts which are inserted on the form. It need not be completed unless restrictions are to be registered on the title.
The value of the deceased’s share is generally half of the net equity but the peculiarities of joint tenancy are that each joint tenant holds the whole property, not an aliquot share of it, that is, although the joint tenants are plural the law treats them as one owner. If one dies, nothing passes to his personal representatives and the property continues to be held by the survivors as before (jus accrescendi praefertur ultimae voluntati). See E Coke Institutes of the Laws of England (17th edn, 1817) p 185b; and the Administration of Estates Act 1925 (UK), s 3(4) which provides regarding real property;
The interest of a deceased person under a joint tenancy where another tenant survives the deceased is an interest ceasing on his death.
Wills Act Revocation
Any will I made before my marriage or civil union would normally have been invalidated by my subsequent marriage or civil union, s 16 Wills Act 2007 (NZ). This rule applies unless the prior will is “expressed” to be in contemplation of a then forthcoming marriage or civil union to a particular person but a will is not “invalidated” by a de facto relationship.
When a de facto relationship is entered into, generally under the Property (Relationships) Act 1976 (PRA) after three years, the de facto spouse will acquire a right to claim a 50% interest in “relationship property” including the matrimonial home but a prior will is not invalidated.
Why Make a will?
There are several good reasons for making a will. First, it is often said that it simplifies ones estate administration after death but what does that mean?
A person may have received something from someone during their life. If a partner, relative or friend put assets or investments into another’s hands and they retained “legal title” to the asset, then in general while they were alive, they would be deemed to hold the asset for the other person or in the shares that represent their financial or other contributions to the property.
If you don’t specifically provide for that asset to be held on trust or sold and distributed to them, then they would have a claim against your deceased estate. Your next of kin may not know enough about the prior gift or contribution to resolve it without an unpleasant and possibly expensive argument.
This situation might apply for example if one sibling assists another to buy a house by providing cash for the deposit. If the house is registered in the name of the sibling who was helped and then the sibling who provided the cash (donor) died, the family of the donor might be entitled to claim the deposit plus interest or the share of the asset value representing the deposit.
The rules of Intestacy
The rules of intestacy provide how an estate will be distributed under s 77 of the Administration Act 1969 (NZ) in certain circumstances for example when a husband, wife, civil union partner, de facto partner and children (issue) are left the following rule applies:
- a husband, wife, civil union partner, or surviving de facto partner takes the Personal chattels absolutely, subject to any hire purchase agreement,
- Residue of the estate: this stands charged with the payment to the husband, wife, civil union partner, or surviving de facto partner of $155,000 (Administration (Prescribed Amounts) Regulations 2009), plus interest
- anything that remains of the residue is held in trust as follows:
- a third for the husband, wife, civil union partner, or surviving de facto partner absolutely;
- and two-thirds on the statutory trusts for the issue of the intestate
This scheme of distribution may prove to be inconvenient and insufficient for the surviving spouse, civil or de facto partner. There is nothing for grandchildren or the family of any deceased children or partner in the event that they predecease the intestate.
The Administration Act 1969 (NZ) s 77 sets out the rights to benefit in different scenarios. For example, if there are “no issue and no parents”, (issue being children of the deceased), the residue of the estate is held on trust for the husband, wife, civil union partner, or surviving de facto partner absolutely. In this circumstance, if a de facto spouse claims a grant of administration, he/she must make a PRA s 61 option B election, not to benefit under the PRA but to benefit under the Administration and may take upto 100% of the residue.
Other claims on an estate
Property (Relationships) Act 1976 (NZ)
If the deceased leaves a will which a de facto spouse is not satisfied with, then the de facto spouse must enter into an option A election but may only claim upto 50% of relationship property under the PRA. A de facto spouse may have a claim against a deceased estate under the Property (Relationships) Act 1976. After the death of a common law spouse, provided the relationship lasted the required length and was a relationship was of a couple in the nature of a marriage, the surviving spouse will have a claim normally to 50% of the deceased’s interest in the property. The survivor’s claim will not automatically provide for the right to continue to live in the property and this will normally need to be provided for in the will to require the other beneficiaries to wait for their share.
The Family Protection Act 1955 (NZ)
If you have a dependent heir and they consider that they are owed a moral duty to be provided for then the rules of intestacy might not be sufficient to achieve that. The Family Protection Act 1955 allows certain close relatives to claim an entitlement.
Law Reform (Testamentary Promises) Act 1949 (NZ)
The Law Reform (Testamentary Promises) Act 1949 enables a promise made to someone during your life to be enforced. The act enables a promise to make a will or not to revoke a term of will to be enforced.
The Law Commission 2021 Review of Succession Law
The New Zealand Law Commission has published a proposal to reform New Zealand succession rules and has put their proposals out for consultation.
Part one proposes that there “should be a single, comprehensive new Act that governs claims against estates”.
Part Two addresses the entitlements to and claims against estates. The Commission’s proposals for reform include the following:
- A surviving partner should continue to have the right to the same property from the estate that they would get if the couple had separated rather than the deceased partner dying. The surviving partner should be able to choose to divide the couple’s relationship property or to take only what is provided to them under the deceased’s will or in an intestacy.
- Certain family members should be able to claim from a deceased relative’s estate to meet their needs if they are not properly provided for in the deceased’s will or in an intestacy.
- People who have contributed significant benefits to the deceased or their estate but received no compensation should be able to make a claim against the estate under the proposed new Act.
- The rules that apply to the distribution of intestate estates should be reformed to better reflect the way most intestate people in contemporary Aotearoa New Zealand would want their estate distributed when they die. Where there is a partner but no descendants, the partner should get the whole estate, with the parents no longer entitled to a share. If there is no partner, the descendants should continue to share the estate. Where there is a surviving partner and descendants, the Law Commission has identified three options for how the estate should be shared, and asks whether this should be affected by whether the surviving partner was also the parent of the deceased’s children.
- Succession of taonga could be governed by tikanga Māori and not general succession law.
- The Law Commission ask how tikanga Māori and other shared values might be reflected in new law applicable to all New Zealanders.