Why everyone needs a will, especially parents

Many people procrastinate when it comes to getting a will, but it's an important thing to tick off your list.

I was chatting with a friend who has recently separated from her husband and is sharing custody of their toddler son. At some point she mentioned the fact that she doesn't have a will.

She was vaguely aware it was prudent to have a will, but thought it didn't matter much because she doesn't have any assets. Yet one of the biggest reasons parents need a will actually has nothing to do with who gets their money if they die.

Parents with children under the age of 18 need to nominate a testamentary guardian. If your children are orphaned, the testamentary guardian is the person who decides who they should live with. They may look after the children themselves, or arrange for them to live with another family. 

But if you don't appoint a testamentary guardian, it becomes a matter for the family court. There may be several family members willing to take the children, who'll have to make their case to the court. Even if there is unanimous agreement, the court still needs to rubber stamp it to make it official.

In my friend's case, she has another reason to make sure she has a will. Although she has separated from her husband, they are not yet divorced, and he is legally her spouse.

That means in the event of her death, her ex would get the lot. She says she has no assets, but what she really means is she doesn't own a house or a share portfolio. She does have savings in the bank and tens of thousands in super.

I recently heard of a case where a couple separated 35 years ago but never divorced because the wife was Catholic and objected on religious grounds. He died and because he didn't have a will, she got everything. His girlfriend (not de facto) and his adult children got nothing; the kids may well inherit eventually but not until their mother dies.

My friend also needs to update her superannuation binding death benefit nominations, which would affect both her super balance and any life insurance held within super. If she previously nominated her ex as her beneficiary it's likely that would stand, even after the divorce is finalised.

Don't overlook super - some people may have no other assets but die with hundreds of thousands in super, especially since most people have a life insurance policy in super by default. The binding death benefit nomination is managed directly through your super fund rather than your will.

Now my friend may want her ex to have her money so that he can use it to help bring up their child. Or she may prefer to hive it off and save it until their son comes of age, given that his dad is a professional with a good income. Better she make a considered decision than have it happen by default.

If someone dies without a valid will it's called intestacy and this is a rough and ready guide for what happens: (Note, Australian states have separate legislation but there is reasonable uniformity between them).

If you die with a spouse and no children, the spouse gets it all. If you die with a spouse and there are children of that relationship, the spouse gets it all. If you die with a spouse and children who are not from that relationship, the spouse gets the statutory amount, which works out to about $450,000, plus half of what's left over and the children get the other half of anything left.

It can be more complicated still if you have second marriages with children both inside and outside the relationship. The rights of all of those children are completely different, and what they get under the rules of intestacy may not reflect your wishes.

There are also rules that apply if you have neither children nor spouse.

It's important to note that joint assets are not considered part of the estate at all but automatically go to the survivor.

I was chatting to a different friend the other day who said she had recently discovered that her dad, in his 60s, did not have a will. He has a spouse, who is not her mother, and the couple own both joint and separate assets. The family understanding was that his children would inherit most of the separate assets.

However, I spoke to a lawyer working in wills and probate who suggests it may not work like this at all, unless he writes a will.

Under the rules of intestacy, my friend's stepmother would automatically get anything the couple owned jointly, plus $450,000, plus half of everything else.

Another complication of dying without a will is that you don't have an executor - the person nominated in the will to carry out your wishes. Instead, there's an administrator but only people with an interest in the estate can apply to do the job.

Interestingly a new marriage cancels a will, but divorce doesn't. Divorce simply deletes the ex-spouse from the will. Depending on the way a will is written, this can have whacky consequences.

For example, if you leave a specific gift to your spouse and children and anything leftover to a charity, and then divorce, then the charity may end up getting the gift that was originally going to the spouse.

Few people enjoy thinking about death and fewer still enjoy paperwork so I understand why people procrastinate on getting a will. I'll confess that my husband and I only got around to it last year, a year after buying our house and five years after our twins were born. Taking the job as Money editor nudged me into getting it done, since I figured I should have my own house in order.

Now I'm sheepish it took so long and I encourage all my friends to tick it off the list. As I tell my kids about homework and housework, it may not be fun but it has to be done.

This article was originally published by The Age on 5 February 2017. It represents the views of the author only and does not necessarily reflect the views of AMP.

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