MONEY | Changing laws, 'will substitutes' and what it means for your shared assets

DETAILS: Financial guru Noel Whittaker says it's important to have a will, but to understand that certain assets may still fall outside its terms. Picture: Shutterstock
DETAILS: Financial guru Noel Whittaker says it's important to have a will, but to understand that certain assets may still fall outside its terms. Picture: Shutterstock

It's important to have an updated and valid will, but many people don't understand that certain assets fall outside the will. These include money in superannuation, insurance bonds, and assets held as joint tenants.

Joint tenancies are known in law as "will substitutes", inasmuch as they take the place of a will and even have precedence over the will. If an asset (such as a house) is held in joint tenancy the entire asset passes to the survivor on death of the other joint tenant irrespective of what the will states.

This happens even if the deceased dies intestate, in which case the balance of the estate is divided in terms of the laws of intestacy. If assets are held as tenants in common the part owned by the deceased may be transferred in terms of their will.

The major challenge in this area is that the law is continually changing, the outcome may well depend on which state you live in, and most people's circumstances are fluid. Relationships change, people may die or become incapacitated, and some assets may be sold and other ones acquired. To make it more confusing, some assets form part of the estate and some don't.

Obviously, one of the major issues you may have to face is uncertainty. For example, historically it was recognised that when one of the joint owners of an asset held in joint names died, the asset automatically passed to the surviving owner irrespective of the terms of the will.

Yet, in 2020, in a leading case in New South Wales, the New South Wales Court of Appeal handed down judgement of Cowap v Cowap in such a manner as the deceased's will was effectively ignored. Geoffrey Cowap died in December 2015, and was survived by his wife Barbara of 57 years.

At the time of his death they had five children between them, and she had several children from a previous marriage including Nicholas who was adopted by Geoffrey. The couples only significant asset was the family home worth $1.35 million. As it was held in joint names it automatically passed to the widow on Geoffrey's death.

The estate was virtually worthless as the house had passed automatically to Barbara. However, Nicholas had suffered a series of heart attacks in May 2016 that left him with permanent brain injuries that prevented him from working and from being self-sufficient.

He sued the estate in order to get a share of the value of the house, even though it was not part of the estate. The primary judge's decision, after weighing each party's needs against one another, ruled that even though Geoffrey and Barbara had been joint tenants the law in New South Wales permitted the court to claw back the property and call it part of Geoffrey's 'notional estate'.

The Court of Appeal agreed with the primary judge.

The court ordered the house be sold, and $600,000 of the proceeds be awarded to Nicholas on the grounds of his need.

At the time of the appeal judgement Nicholas was 64 and Barbara was 91. A legal friend tells me that these changes to were introduced to address what the lawmakers in NSW saw as a festering issue in estates in that state - put succinctly - inheritance avoidance particularly arising out of blended families, as in your readers case.

The classic concerning scenario was where a rich partner, during their life, transferred assets to their poorer second partner thereby reducing their assets and, as a consequence, their estate and giving a disincentive for any child to challenge their Will.

They also saw this law as a way of enshrining the age old moral obligation for parents to provide for their children in their wills unless there was a very good reason not to do so.

  • Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance.

Noel answers your money questions

Question: A couple of years ago when I retired my accountant said I would no longer need to do an annual tax return. I recently got a letter from the ATO advising that I had failed to lodge a tax return for the last two years and I needed to do so. I contacted my accountant who advised that the ATO had changed the lodgement requirement and now retirees need to do annual tax returns. Can you please advise if this is correct?

Answer: Julia Hartman of Bantacs suggest you simply advise the ATO that returns are no longer required and that should be the end of it. She tells me that with the new portal there has been a mass generation of please explains. It probably happened because your Accountant did not put "final" on your last tax return

Question: I was reading your answer to a recent query where a couple put their names the title deed of a property being bought by their daughter, and found themselves liable for capital gains tax when the property was transferred to her. You mentioned "There are other ways you could have helped out, without putting your name on the title,..". Could you please elaborate what the other ways are. Do you mean gifting as a loan and then forgiving the loan in the future so that the loan is not considered as assets for pension benefits in the future?

Answer: As you say, you could make the children a gift, and the money would cease to exist for Centrelink purposes after five years. Alternatively, the lending could be arranged so that you could be the guarantor for the loan instead of becoming a co-owner. As I said at the time it's a very bad strategy to help your children by putting your name on the title deed as this could well incur unnecessary capital gains tax in the future.

Question: My husband was receiving the Aged pension, but as I have just turned 66 we no longer qualify for it. We were advised by Centrelink to apply for both the Health Card Card (LIC) and the Commonwealth Seniors Health Card (CSHC). We qualified for both cards and now hold them. However, we are at a bit of a loss to understand why we need both cards when they seem to offer the same benefits. Could you please explain the need for both cards; ie the different benefits.

Answer: A departmental spokesperson tells me that the Australian Government provides both a Low Income Health Care Card (LIC) and a Commonwealth Seniors Health Card (CSHC). Both give holders access to the same health concessions, including concessional Pharmaceutical Benefits Scheme prescription costs and access to a lower threshold of the Extended Medicare Safety Net. This means that you only need to hold one of these cards in order to access these benefits.

However, people may choose to apply for both cards because they are also used by state, territory and local governments, and some private enterprises, to provide cardholders with other discounts on things like utilities, council rates and public transport. State, territory and local governments, or private enterprises, determine what concessions they will offer to card holders and the benefits may differ between cards. The Commonwealth Government has no jurisdiction over the provision of these concessions.