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 copy 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 a judgement in such a manner as the deceased’s will was effectively ignored. The husband died in December 2015, and was survived by his wife of 57 years. At their marriage the wife was a widow with one child, a son, whom her new husband adopted. At the time of his death they had six children- the adopted son and five children born during the marriage. The couple’s 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 her husband’s death.
The estate was virtually worthless as the house had passed automatically to the surviving spouse. However, the adopted son 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 the parents had been joint tenants the law in New South Wales permitted the court to claw back the property and call it part of the husband’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 the son on the grounds of his need. At the time of the appeal judgement the son was 64 and his mother was 91.
So now, in New South Wales at least, we don’t just have an “estate” – we can have a “notional estate”. As one lawyer friend opined “there is now no such thing as a watertight will.”
Despite the foregoing, it is still vital to have a valid and updated will. It should be reviewed at least once a year, and kept in a safe place where it can be readily be found by family members at a time of need. Life is a dynamic process, and people’s situations change continually. A valid will doesn’t cost – it saves.