The high cost of dying intestate

Summary: What happens if you die without a will? Eureka Report checks out the intestacy laws across the nation after the recent sweeping law changes in Victoria.

Key take-out: Victoria's intestacy laws now make it far more favourable for surviving partners than surviving children. It's important to leave behind a valid will to ensure you leave things favourably for all your loved ones.

A high percentage of Australians are dying without wills, effectively handing over control of the distribution of their assets to government authorities.

Research by Eureka Report has found that about 50 per cent of people are dying intestate (without a will), resulting in their assets being distributed according to set formulas that, in some cases, will exclude immediate family members as beneficiaries.

In fact, law changes have just come into effect in Victoria that grant all estate distribution rights to the surviving spouse, potentially cutting out any children from past marriages depending on what the estate is worth.

But what can complicate things even further is when assets are spread across multiple jurisdictions. Intestacy laws vary across Australia, and the laws often aren't as simple as they first appear. Things get even messier when second families, interstate holiday homes and affairs are thrown into the equation.

Across most Australian legislations, the highest priority is given to the spouse, or a spouse and children. In situations where there is no partner or children, the estate is typically distributed down the line to parents, siblings, grandparents, nephews and nieces, aunts and uncles, and first cousins.

Essentially though, without a will, an individual has no control over how their assets are distributed.

If you don't have a will, here's how the laws work across different jurisdictions.

VICTORIA

The sweeping nature of new laws that came into effect in Victoria earlier this month is a stark reminder of the importance of clarifying your wishes in a will.

Primarily, its new Act gives a leg-up to partners of the deceased. The new laws apply to individuals who die without a will after November 1, 2017.

If a person passes away and leaves only a partner, the surviving partner is entitled to the entire estate. Even if they leave behind a partner and children of that relationship, only the partner is entitled to the assets.

It's a significant change from the previous law where the partner was entitled to personal items, the first $100,000 of the estate, and then one-third of the balance of the estate, with the remainder going to the children of the deceased.

In a worst-case scenario, the deceased may have dependent children from a former relationship, have been living with a new partner for a couple of years, and that partner keeps the entire estate from the children who may be in need.

However, the new Act helps in situations where, for example, the surviving partner has a mortgage over a jointly-owned property that's their primary and only residence. Previously, there were instances of partners struggling to cover the repayments with their share of the estate.

Other amendments have taken place around ‘statutory legacy' – and this is where children from former relationships may come into the periphery. Differences in family structures, that weren't so prevalent half a century ago, are somewhat reflected in the new Act.

Now, if the deceased leaves behind an existing partner along with children from a different relationship, the partner is entitled to the whole of the estate, but only if it's worth less than the partner's statutory legacy. That's currently set at $451,909 and is based on CPI.

An estate of more than $451,909 calls for distributions among the partner and the children in discussion. In this case, the partner would receive the personal chattels of the deceased, the statutory legacy amount, and 50 per cent of the remaining balance thereafter. The children from the prior relationship receive equal shares of the other 50 per cent.

ACT, SOUTH AUSTRALIA & QUEENSLAND

Despite being broken up geographically, the Australian Capital Territory and the states of South Australia and Queensland follow a similar pattern when it comes to intestacy laws.

If a person passes away without a will and leaves behind a partner and no children, their partner will receive the entire estate. But, when a person dies intestate and leaves behind their partner and children, the partner receives the first $150,000 of the estate.

For all intents and purposes, the laws were designed so the partner could afford the family home, but prices have clearly changed since then.

If the surviving partner had only one child with the deceased, the partner receives half of the rest of the estate after the first $150,000. If there is more than one child, the surviving partner receives $150,000 plus one-third of the rest of the estate.

Justifying the corresponding Queensland Act in the 1990s, the Queensland Law Reform Commission noted “relatively ungenerous provisions” and a previous law that seemed to overlook “that a significant majority of surviving spouses are women, who have traditionally been discriminated against in succession law”.

While this is well and good, the law as it exists now can pose difficulties for partners who inherit the family home together with their children, putting up another potential barrier in property decisions.   

NSW & TASMANIA

Although they're separated by the Bass Strait and a state, New South Wales and Tasmania are friends in intestacy law.  

If a person passes away in these states and leaves behind a partner without children, their partner will receive the entire estate. Likewise, when a person dies and leaves behind their partner and a child of their existing relationship, the partner would again receive the entire estate.

However, if the deceased has children from a former marriage or relationship, these offspring become part of the distribution.

In these instances, the current partner of the deceased would receive $350,000, the deceased's chattels (personal belongings), and 50 per cent of the remainder of the estate thereafter. The child from the previous partnership would receive the other half of the estate, or if there is more than one child, the children would then receive equal shares of the half.

NORTHERN TERRITORY & WESTERN AUSTRALIA

At least with intestacy law, the Northern Territory and Western Australia appear worlds apart from the rest of Australia.

In stark difference from the other states and territories, their laws provide that a surviving spouse is automatically entitled to the entire estate only if the deceased has no surviving parents or siblings.

In these jurisdictions, if the intestate is survived by a parent or sibling, the spouse is only entitled to the whole of the intestate's estate if its value is below a prescribed amount. That's $75,000 in Western Australia and slightly higher in the Northern Territory. They do, however, automatically receive the deceased's personal items in any case.

Last words

Across the nation, intestacy law is largely stuck in the last century, back when families were mostly nuclear and house prices were in the few hundreds of thousands at most.

Since 2008, jurisdictions have been updating their intestacy Acts to redefine ‘de facto' relationships, and same-sex partners may also fall under this definition. There's also a greater awareness around the existence of a 'second spouse'. Partners in affairs may, therefore, be entitled to part of the estate, but their recognition by law does still vary widely across the nation. 

The differences between the states make everything a little messy. Take an intestate person who dies at their primary residence in NSW alongside their partner of a few years, but they have a holiday home in Queensland, and children from a former marriage. That sounds like quite the family squabble at best, and a legal nightmare at worst.

Property that can be moved, such as cars and pets, is generally governed by the default laws of the place where the deceased lived. On the other hand, immovable property, like land and houses, is generally governed by the default laws of where the items are located.

That's generally speaking.

A will can automatically distribute properties which are held under tenants-in-common titles, assets owned by the deceased personally (e.g. bank accounts, cars), or anything where the estate is specifically mentioned as the beneficiary.

But a simple will alone won't work for all, especially those with assets held jointly, in superannuation, and with money in a family trust. These can't instantly pass through a will upon death. Eureka Report covered binding and non-binding death benefit nominations a couple of months back.

It's evidently important to seek advice from a qualified legal professional or financial planner before the day comes. But a will clearly paves a better way.