Don’t die without a will
Over the last couple of weeks, we here at PocketSmith have been looking into death and money. We learned about what happens to your debt when you die; the importance of a will; digital wills; and how much it costs when you die.
Our research raised a whole range of new questions, and we wanted to find some answers. We sat down with Helen O’Leary* at Goldman Legal, a small boutique law firm based in Queenstown, New Zealand. Two hours later we had a much better understanding of why wills are so incredibly important.
Leaving money and assets behind is like leaving children behind — you want both to be going to the best possible home. This is where your will comes in! The Law varies between countries, so please get advice for where you live.
Why is it important to have a will?
A will is about the people you leave behind. You don’t want your legacy to be a total nightmare for family to sort through, and you want your assets going to the right people.
When you die, your Trustee submits your will to the High Court for grant of probate. The Trustee is authorised by the Court to carry out the will administration.
What happens if I die without a will?
You have died ‘intestate’. When this happens, the Court appoints someone to distribute your estate.
If this happens due to the resulting role of the Court, legal fees could easily reach between $5000-$10,000 which are paid from your estate — straight out of the gate! This is made up of Court filing fees, lawyer’s fees, and extensive professional fees to one of the public Trustee companies to carry out the work of distributing your estate! A straight-forward will costs between $200 — $500; a drop in the bucket compared to if you die without one.
What if I don’t actually own much?
Court approval is not necessary for amounts under $15,000 (money in bank accounts, shares, life insurance, government stock). Money can be transferred to a partner or family members without the need of applying to the Court.
Could I spread my money into other accounts at different banks to take advantage of the small estate rules?
You could try to rearrange your finances before you die so long as there was no more than $15,000 per bank. But in practice, this would be pretty tricky to pull-off.
How do I make a will?
See a lawyer! Of course I’d say that. People get frustrated with lawyer’s fees and feel it’s a rip-off. But I would say, lawyers have your back. The correct use of words in wills is essential. A lawyer can ensure your will is airtight and meets your intention. The move these days is for wills to use Plain English and be laid out clear and simple. There will be less movement for other interpretations and ideally less chance for somebody to contest your will. We see all kinds of situations and help to avoid unintentional wording and future disputes.
At our firm, we provide a simple 2-page questionnaire for people to fill out. It jogs people’s thinking about what needs to be included or considered. We can also meet in one appointment and largely work out what the will should contain. We then liaise by email or in person until you’re happy with the content. You’ll need two independent witnesses to sign it, and these witnesses need to be present at the same time in the same room.
Be up front about your affairs. The more honest you are, the better the advice. All dealings with lawyers are confidential, and client/lawyer privilege protects you. Do keep in mind, when your will is lodged with the Court (that is after you have died), it is part of public record. It is conceivable your will could end up being read by all manner of people, so you probably don’t want to air your dirty laundry in the will! A lawyer can help you with these sensitive types of situations and recommend what is appropriate to be written into a will.
So who should I choose to be a witness for my will?
Anyone can be a witness, apart from people who will benefit from your will, and the Trustee shouldn’t witness the will. Witnesses acknowledge and formalise your will and vouch you knew what you were doing. Staff at our firm regularly witness people’s wills.
What happens if my death was sudden but I still had time to write a will without witnesses on my phone or on paper — can it be used?
A typical annoying lawyer answer is coming… it depends! The Court would need to determine whether the document met your intention considering your state of mind, the circumstances surrounding your death, and what might have been happening with your relationships. There have been cases where the Court has considered an unconventional ‘will’ to meet the validity requirements.
How old do you have to be to make a will?
You can be any age to make a will but the witnesses must be 18 or older.
OK right, so what should be in my will exactly?
First, you will need to appoint a Trustee to carry out or ‘execute’ your will. Next, you outline how your body is dealt with or funeral wishes. You would cover guardianship of any young children. After the ‘housekeeping’ comes the bit everyone is interested in; you list any particular gifts (say a car, house, boat, investments, cash in the bank, KiwiSaver, insurances) you want to go to certain people or organisations. Anything and everything left over after this is used to pay debt and taxes. What’s left then is known as the ‘residue’ of the estate, kind of like a pool of money. This is what is then distributed to the people who you want to share finally in your estate.
Any specific gifts are distributed first. It’s important to include a back-up in case that person is unable to accept due to death or other reasons. If the gift turns out to be invalid, the gift will wind up back in the residue.
If you’re gifting to a charitable trust, I would recommend outlining a back-up should that charity no longer exist when you die. You might want everything to go to Orokonui Ecosanctuary, but if it’s not around in 50 years (and you never drafted a new will), your will could say a similar charity with the same principles could have the gift. Your Trustee then has the discretion to ensure your gift or share of your estate goes to an organisation you would be happy with.
If you have assets in other countries, you may need multiple wills in respective countries.
If you have printed your will and are waiting to sign it, don’t attach the pages together using a paper clip! This is because paperclips could leave crease marks, which may suggest years later that another page had been included and is now missing. It will delay the grant of probate which will increase legal costs, diminishing your estate.
So could you ‘gift’ everything to people, and because gifts go first, debt collectors could miss out?
Maybe, but if you gifted things in order to avoid debt, it is conceivable those gifts might be ‘clawed’ back if it meant the creditors would be short-changed. Student loan balances are reduced to zero on death. A bank loan secured by a mortgage would have to be paid; the house would be sold, so that solves that one. The Trustee could potentially be liable for unpaid debt, so would be unlikely to intentionally avoid tax and other debts. The Trustee would need to be careful in assessing the level of debt and gifts in this scenario.
Gifts given under wills can be cash, but usually are more like a car or furniture or paintings — often made up of personal effects.
Who would you normally appoint as Trustee?
You want someone who is fair and impartial. Family members, close friends, or professionals such as a lawyer or accountant. You want someone who is organised, practical, trustworthy and ideally in New Zealand.
Tell your Trustee you have chosen them. There are frequently cases where people die, and Trustees have no idea they were in line for the role.
Can my Trustee refuse the job after my death?
Yes, they can, and in this instance, the Court would appoint someone for you. Again, this will incur further costs and diminish your estate. Another reason why it is a good idea to talk to the person you want to appoint!
What happens if my Trustees die at the same time as me?
The Court would have to step in and appoint a Trustee to manage the estate.
What is a “letter of wishes” and why would I need one?
It is a detailed list of your belongings to give away and can include other information that may not be appropriate in the will itself. You can mention how you would like collections to be distributed (using a complicated formula if you like!), and it may be the appropriate place to mention why you don’t want certain people to be given something from your estate. You may want to block someone specifically so rather than this being in the public sphere, the letter of wishes is a good way to more informally outline how you want things to play out.
There have been cases where family sensitive information in wills has come out in Court cases and then published in the media. A letter of wishes could protect you from having the skeletons in your closet broadcasted publicly. An example of this is Jonah Lomu’s will which was printed by media.
I want to make sure my body is donated to science, can family stop that from happening after my death?
You can only ‘request’ that your body is donated to science, as opposed to ‘directing’ or demanding that this happens. You can’t control what happens to your body for a few reasons. It may not be practical to scatter your ashes on top of Mt Everest, nor is it possible to be buried in a cemetery which is full. The circumstances and location around your death may make it impossible for your body to be used for science, or for any organs to be donated. The University of Otago accepts bodies that are then used to teach students. You need to register for this before you die and live within a particular area. Your body needs to be embalmed within 24 hours of death. You can see their full list of requirements and restrictions here.
If you want to be an organ donor, put it in your will, and tell your family. You can also note it on your driver license. Where organ donation comes as a surprise to family, due to time sensitivity your request to be a donor may pass.
Can people inherit my debt?
Any debt in your name will be paid from your estate. If there isn’t enough in your estate to cover the debt, there will be nothing left over and any other lenders would be short-changed.
However, if you share a debt with someone, like a joint credit card, then that person will likely be liable for the remaining debt.
Can someone refuse something they’re willed?
Of course! The gift would go back to the residue. If it’s something physical like a car, it would be sold for cash to go back to the pool of residue. If you refuse a gift, you would probably be asked to sign an acknowledgment so that future claims are avoided.
OK what about the house my partner and I own together with a loan secured by a mortgage?
In most cases, we find houses are owned jointly by two people when they’re in a partnership. This means the survivor of the two individuals simply goes on to keep the whole house. They take it by survivorship. If you expressly own half of a property (legally known as ‘tenants in common’), you can leave your share of the house to whoever you like.
It is possible that a house owned 50/50 like this could end up being owned by the surviving partner, and the deceased partner’s two sisters (each owning a 25% share) due to the residue clause in the will. What if the deceased didn’t foresee that situation and wanted the partner to have the house? Would they all live in the house as flatmates? Would the house be sold? The loan liability would still be there, so whoever receives the house would have to look hard at their financial situation to decide whether they can afford to pay the loan.
Can the partner make a claim to change this?
In New Zealand, we have the Property (Relationships) Act. Simply put, if you’ve been living with someone for three years, the presumption is your shared property is owned 50/50. The Act also creates what is known as the ‘Two Options.’ A surviving partner can take ‘Option A’ which is what has been given under their deceased partner’s will, or ‘Option B,’ which would be to take 50/50 of the estate. What the surviving partner ends up with could be wildly different depending on the option chosen.
If you don’t want your relationship property divided 50/50, there are other options, such as an agreement where you contract out of the Act’s 50/50 presumption. We call these Contracting Out Agreements. Each party must have the agreement explained to them by a different lawyer to rule out duress and unfairness and to minimise future disputes.
In the instance of leaving stuff to my children, is that straight-forward?
When you specify what your children get, be very clear. Do they receive equal shares? If they die does their share return to the residue increasing the share of the others, or does it ‘gift-over’ to their children (your grandchildren)? You can even leave things to pets! Think about the people left to care for your pet and funds to assist them. Keeping in mind, your pets may predecease you, so then what happens to the gift?
Can guardians refuse to take my children? And what happens in that situation?
Yes, and if so, the Family Court would appoint someone.
How do wills work for blended families?
A will may not work how you want it to. A couple who have children with other partners may each have a will that mirrors one another where they have agreed to leave everything to the other, with the intention the surviving partner would then divide everything in their will evenly between all of the children. There have been cases where years later the surviving partner has left the estate to their children, leaving the deceased’s children high and dry. A trust may be more appropriate.
Ok, and so what’s a digital will?
It’s not an official will, but a list of all your digital assets. You would include your usernames/email addresses to help your Trustee retrieve any online assets and to deactivate accounts.
We recently bought a house from a deceased estate. A couple of weeks after moving in we had a knock at the door late at night. It was a young woman who had booked our home on Airbnb for a few nights, all paid up, and she even had a confirmation email! As you can imagine it was pretty awkward for both of us. Sure enough, we looked online, and our house was listed. We had to contact Airbnb through a forum and ask the public Trustee to have the listing removed. What a debacle!
In what circumstances can my will be challenged?
Your will could be challenged if:
- It was not witnessed correctly, or invalid in other ways;
- You didn’t have sufficient mental capacity at the time the will was made;
- Where a family member makes a case about a moral duty the will maker failed to provide;
- There is a Relationship Property claim; or,
- If someone raises a claim there was a promise made to provide something on death.
What if I get an inheritance, is there anything I can do to protect it?
If your relationship ends you want to have your assets protected. The Court will look at whether the relationship ‘tainted’ the property, for example, if money was deposited into a joint account, then the other person in the relationship could claim 50% of that money. Or, say you buy a car with inheritance money that you both use, the car would then be ‘relationship property.’ Ensure any cash goes into a bank account in your name only. If you move into a house you inherit and your partner comes along too, they could potentially be eligible for half of the house when you die. If this isn’t what you want, there are ways to plan for this. Keep your assets separate if you want them to stay that way.
Is there a death tax in New Zealand? Does it cost to die?
We don’t have an estate or tax on death in New Zealand, but funeral costs can be fairly hefty. The cost of your death will be determined by the level of dispute your will (or no will) creates! Rule of thumb — keep it simple and clear, and communicate your wishes and intentions in advance. Oh, and have a lawyer advise you!
*Helen is a trained lawyer at Goldman Legal, a small boutique firm based in Queenstown, New Zealand. She routinely works on all manner of legal issues, including wills and assisting clients with their estate planning. Helen is currently on maternity leave from work, and isn’t currently practicing — so she is unable to call herself a lawyer until she is back working with a practicing certificate! Another one of those legal quirks! See here: https://www.lawsociety.org.nz/for-lawyers/joining-the-legal-profession/admitted-but-no-practising-certificate