Avoid pitfalls of a DIY will

The growing use of DIY will kits, now more readily available online, is causing concern at a time when the relatively wealthy baby boomer generation start to pass on their assets, or what's left of them.

"We are ... seeing a rise in the work to unravel the issues with DIY wills following the increase of will kits and forms available online and through various outlets," the chief executive of the NSW Trustee & Guardian (NSWTG), Imelda Dodds, wrote in a recent newsletter.

"Unfortunately this has meant NSWTG is required to sort out wills that are ambiguous, can be misinterpreted and therefore challenged, or are not valid and able to be executed.

"We actively encourage all adults to make provision for their future ... we also say it is very important to take professional advice," Dodds says.

LEGAL ADVICE

Consumer group Choice concluded in a study two years ago that will kits could be a useful research tool but that legal advice should usually be obtained, particularly if you have small children, complex financial affairs or a complicated family situation.

One of the will kits examined could "confuse rather than clarify", the group found, while some others didn't give sufficient warning about when to seek detailed advice.

In Victoria, State Trustees recently commissioned a report, For Love or Money: Intergenerational Management of Older Victorians' Assets, which found there was growing potential for mismanagement of the transfer of wealth because of the projected growth in the numbers of older Australians, their increasing wealth and the rising number of people with dementia.

It also noted that older people might need to use their assets to finance their extended old age, and ought to put

that need ahead of meeting their children's expectations of receiving

an inheritance.

An estate-planning specialist with Equity Trustees, Stephen Hardy, says roughly half of all adult Australians don't have a valid will and even those who do often make basic mistakes that mean their wishes won't be properly carried out.

COMMON MISTAKES

Hardy says one common mistake is to appoint a friend as an executor even though they may not have the financial competence required and, being a similar age, may die before you. If your will isn't changed after their death, their executor may become your executor, he says.

Also avoid appointing anyone who may have a conflict of interest - such as a business partner or a family member if there's any chance of family discord over the estate, he says.

If you have debt against particular assets, such as a mortgage over a property, recognise the effect of this in your will and specify that all debt must be repaid before distributions are made, he says.

"For example, someone may have two investment properties of equal value and leave one each to their children.

"If one carries a mortgage, care needs to be taken that this debt isn't inherited with the property, making the inheritance unequal."

Not recognising the effect of tax, particularly capital gains tax, is another common mistake that can lead to unintended unfairness.

COSTLY CHALLENGES

"If one child receives the family home and the other a holiday home of equal value, the second child will receive less because CGT will be payable," he says.

Hardy says some people prepare a will but later write notes about new estate-planning considerations, which can then be interpreted as being a new will.

"This can result in costly challenges to the will and cause unnecessary family stress," he says.

If you decide not to leave anything to a family member, obtain professional advice about whether a statement giving your reasons should be included in the will or in an accompanying document, he says.

"It may not prevent them challenging but with proper advice a useful defence may be established. If there is a good financial reason they have been left out, such as giving them various financial gifts over the years, details in the will itself might well be helpful."

Another mistake is to leave assets that you don't actually own. This problem can occur when assets are held jointly, perhaps in a family trust, business or superannuation fund.

Finally, not being able to find the will is a fairly common occurrence, Hardy says. "Make sure the executor knows where it is and, ideally, talk through the contents so he or she knows what you intend and why."

Key points

- DIY will kits should be used only in the simplest of circumstances.

- Choose an executor carefully.

- Consider the impact of debt and tax on fairness.

- Don't bequeath assets you don't own.

- Don't hide your will.