Separate Wills should be planned together

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There is a growing trend of married or partnered couples to draft separate wills, as opposed to a joint will. Whilst this enshrines each party’s individual wishes, it may result in unintentional errors creeping into wills, leading to outcomes that the deceased had not intended.

According to Jeremy Woods, Senior Consultant Fiduciary Services at leading financial services company, GTC, one of the main reasons for these errors is the entrenched assumptions that influence much of our thinking about wills and estates, together with a lack of sufficient provision within the will for outcomes which differ from these naïve suppositions.

“The assumption that the younger spouse – often the woman – will die after the older one still forms the basis of many separate wills. Whilst this may seem like an insignificant issue, it may actually lead to unintended negative consequences for the surviving older spouse, as this forms the basis for the division of assets.” says Woods.

Woods illustrates these assumptions through an example of such an estate: “GTC was recently involved with the administration of two separate estates of couples, both of which had couples married out-of-community of property. In both cases the will assumed that the younger spouse – the wife – would survive the older – husband – and that all the assets would have been passed to (her) to distribute amongst the couple’s children and grandchildren at her subsequent death.”

When both the younger spouses died first, the resultant distribution of assets made no provision for the surviving spouses’ continued use of, or reliance on, the assets that the deceased parties’ estates had bequeathed to the beneficiaries (legatees).

“In the one case, the wife had bequeathed both of the couple’s properties – the residential home and a rental property – as well as an investment held in her name, to the couple’s children. If she had been the surviving spouse, this division would have made sense, but given that her older husband was still alive when she died, the home that he intended to live in for the foreseeable future was effectively given to one of his children,” he says.

The other major negative consequence for the husband stemmed from the rental income earned from the couple’s second property.

“Upon the wife’s passing, she effectively gave her share of the rental property to the couple’s daughter, prejudicing her living husband who had actually planned for this income to supplement his retirement. Instead, the child was entitled to the income.”

In the other real-life example, the deceased wife bequeathed the couple’s car and house to their son, while their daughter was entitled to receive the residential home’s furniture and contents, as well as the deceased’s jewellery.

“Again, these provisions negatively affected the surviving spouse, who intended to live in the residential home – along with its contents and furniture – for the foreseeable future, as well as to continue using the couple’s vehicle.”

Woods explains the consequences of these bequests: “In both of these scenarios, the surviving husbands had to buy back their residential properties and other items from their children in order to continue using or relying on them, essentially paying twice for assets they had already purchased. This could not have been the intention of the deceased when the separate wills were drawn up.”

A second common error that Woods has experienced when winding up estates, is the practice of bequeathing physical assets and articles, instead of portions of an estate.

“It is still fairly common for people to think about the combined value of their legacy – or their entire estate – and divide the individual assets among the beneficiaries in a way they believe is fair. However, at the time when parties are drawing up their individual and separate wills, they often do not take into account that the value of these items may change considerably over time and end up in an unfair division.”

He explains through the aforementioned examples: “In both these cases, the value of the properties, being the nominated asset, had increased substantially since the deceased spouse had drawn up the will, while the value of monetary accounts and home contents – which may have been roughly equal to the properties’ value at the time of drafting of the will – had depreciated over time.”

This resulted in unhappiness among the children who were the named beneficiaries of the deceased’s estate; they inherited substantially different values in the end, when their mother’s intention was to divide assets equally and fairly.

“We believe that bequeathing percentages, instead of specific articles, would ensure a much fairer and more equal division among beneficiaries and heirs,” says Woods.

Finally, he urges couples and partners to consider the cost of winding up an estate, as this is often a major cause of unhappiness among beneficiaries and can result in lengthy delays, preventing an estate from being wound up.

“In both the real-life examples referred to, the money in the deceased’s bank accounts was not sufficient – and nor was there any other provision made – to cover the cost of winding up the estate which included the costs for transferring properties from the deceased’s name to the named beneficiaries; capital gains tax; provision for clearance on rates, taxes and utilities; income tax returns and executors’ fees. No beneficiary wants to give up a portion of their inheritance to cover these costs, rather making these costs for the surviving spouse, who is already in a disadvantaged position due to the division of assets,” explains Woods.

While there are simple steps and precautions that can be taken to ensure these errors do not occur in separately drafted wills, every household and estate differs, and there is no one-size-fits-all approach that works for every family.

“Drafting a will is a very personal process and we acknowledge that it is not always easy to decide on the division of one’s estate. Enlisting the expertise of an appropriately experienced financial planner is a prerequisite to gaining the necessary advice and to ensure that there is ‘line of sight’ of each other’s wills, even when drafting separate contracts for each individual’s estate,” he concludes.

For more information, contact GTC Fiduciary Services on (010) 597-6875.