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Inheritances and “problem” beneficiaries

Posted by Tim Donlan | 28 June 2019 | Estate Planning

Clients are often concerned about leaving an inheritance to a “problem” beneficiary.

Common examples of a “problem” beneficiary may include:

  • an alcoholic
  • a drug addict
  • a compulsive gambler or spendthrift
  • a bankrupt beneficiary
  • a beneficiary going through a matrimonial break up involving property settlement proceedings under the Family Law Act
  • a person suffering from a disability
  • a person subject to potential harmful influence of another
  • a member of a cult
  • a person suffering a lack of legal capacity
  • a person who receives a means tested benefit such as a Centrelink pension
  • a person whose spouse is any of the above.

There are a number of different approaches that might be taken in the circumstances.  There is no right or wrong answer.

Sometimes people choose to simply dis-inherit such beneficiaries.  That approach might often be met with an application by the beneficiary if they are an eligible claimant for further provision from the estate.

Some people take an approach of indifference and notwithstanding that beneficiary’s circumstances, treat their inheritance in the same fashion as other beneficiaries, as though such problem does not exist and leave it to that problem beneficiary to deal with the consequences.

Often Willmakers stage payments of an inheritance for example, a certain percentage of the inheritance at the age of 18 years, a further percentage of the inheritance at the age of 25 years etc.

Others put conditions upon an inheritance that need to be satisfied prior to the inheritance being paid, for example it must be used to buy a house or “a gift to X provided that he is no longer a spendthrift”.  Such provisions in a Will can be problematic and might be scrutinised by the courts.

Many clients implement protective trusts in their Wills and appoint a trustee to manage the inheritance on behalf of the problem beneficiary.

There is no one approach that fits all circumstances and often a solution involves a combination of strategies. 

If the approach of indifference to the situation is taken, there may be adverse consequences for that beneficiary, which could be avoided, and an inheritance protected.

For further information, please do not hesitate to contact us.

Tim Donlan
Principal, Donlan Lawyers (a member of Nexus Law Group)
trd@nexuslawyers.com.au

 

 

 

This publication is © Nexus Law Group and is for general guidance only. Legal advice should be sought before taking action in relation to any specific issues.

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