Law Talks Episode: Skipping a generation – how grandparents can leave an inheritance to grandchildren without challenges from their children

Robyn: Good morning and welcome to Law Talks here on 4CRB. And today we are joined by Attwood Marshall Lawyers Legal Practice Director Jeff Garrett. Thanks for being here, Jeff.

Jeff: Good morning, Robyn. Thank you.

Robyn: Well, as we know Jeff, writing a will is one of the most personal decisions we make in life and it often brings up moral and ethical questions about how to distribute what we’ve worked so hard for.

Ultimately, though, we believe we should have the freedom to leave your assets to whomever you choose when the time comes. After all, no two families are the same and there’s often more complexity beneath the surface than meets the eye. Not all families are happy families, and today we’re exploring an interesting scenario: what should you consider if you’re a grandparent who wants to leave your estate directly to your grandchildren, bypassing your children?

It’s a decision that some families grapple with, and we’ll dive into how to approach it. Jeff, is this something you see very often with clients?

Jeff: Yes Robyn, we do. And, it’s becoming more and more prevalent in modern society, especially with adult children and you know, once they get on with their lives, the grandparents, especially if they’re doing well themselves or sometimes if they’re not, they’re had checkered lifestyles or whatever, then the grandparents look to the grandchildren and think, well, I really want to provide for them, it should end up with them, but I’m not sure how my own children are going to look after themselves or look after our inheritance so that our grandchildren do see the benefit of that down the track.

So, there’s plenty of situations there around how that could cause the grandparents to think ‘I’m going to bypass the children and go straight to the grandchildren’.

Robyn: So, what are some of the strategies that someone could put in place to ensure their children do not benefit from their estate, but the grandchildren do?

Jeff: Yeah, well the most common way to do that is by using a testamentary trust. And a testamentary trust is just a trust that is in a will and the way it works is that the trust is created in the will for the benefit of the grandchildren. The grandparents leave their assets to the grandchildren via the trust. They appoint trustees for the trust who usually are the same as the executors of the will, but not always. But the trustees pretty much have the job of looking after the assets or the money that’s been left to the grandchildren. And their role depends on the age of the grandchildren and whether the grandchildren have any input into what’s happening there.

But if they’re adult grandchildren, they can sometimes be the trustee themselves. Not always a great idea when you’re creating a trust, you want someone in there who’s responsible and is going to look after the grandkids properly, and this is in cases where perhaps the adult children can’t be trusted to do that. So, they can’t, they’re ruled out. If the grandkids are too young, or perhaps too inexperienced to look after the trust themselves, you might look at an independent trustee, or an independent co-trustee with another family member, such as a lawyer, accountant, etcetera.

But the whole thrust of this is to bypass the adult children and create the trust for the benefit of the grandchildren.

Robyn: So, it sounds like the ideal strategy, but can an adult child contest the will that leaves them out but benefits their children, or the grandchildren of the deceased?

Jeff: Yes, they can. There’re strategies you can use around that.

So, one way is to, depending on the size of the estate and what assets the grandparents have, they can make instead of giving everything to their children and just relying on their adult children to pass that on to the grandchildren, they can make some form of provision for them in the will.

And as long as that’s adequate provision then the prospect of a claim is lessened by that.

In terms of what is adequate provision, or what you need to do to leave to them to reduce the risk of a claim being made, that depends on each individual circumstances of the families and children concerned.

But there is the prospect of a claim and you need to deal with that. However, um the courts have recognised that when the benefit of the trust for the grandchildren, it also benefits the adult children in the sense that paying for them or paying their expenses etcetera, is taken out of their hands through the trust.

Robyn: So, they benefit indirectly, yeah.

Jeff: That’s right. And a lot of it depends on the circumstances of the adult children and why the grandparents are bypassing them to go to the grandkids.

It usually revolves around the adult children be irresponsible, or perhaps having some form of addiction, whether it be, you know, drugs, gambling, they might bankrupt or unable to look after their financial affairs.

So, and that’s why the grandparents are looking to stabilise the environment for the grandchildren, and sometimes that means, you know, the trust, purchasing a home for them to live in.

Robyn: Hmm.

Jeff: There’s all sorts of different permutations to the type of trust that you set up and how it runs, um, and you know, you would also take into account the provision or the benefit that the adult children obtain through the setting up of the testamentary trust.

Robyn: Yeah, it’s really interesting and gets you thinking about some of the hard decisions people must need to make when creating a will and setting out their estate plan. Jeff, what are some key takeaways you can leave our listeners with who may be thinking they need more than a simple will to ensure their wishes are upheld?

Jeff: Yeah. The first thing is in my view there’s no such thing as a simple will, Robyn. I think that everyone needs to have a proper will. I’m a big fan of testamentary trust Wills and to me they are like an insurance policy for whoever you’re leaving your hard-earned assets and money to, you just don’t know what’s going to happen when you die. It’s not if you die, it’s when you die, remember.

Robyn: Yeah.

Jeff: And you don’t know when that’s going to be, and you don’t know what situation your beneficiaries are going to be in when that happens. So, and it could happen in 10 years. You just don’t know.

Everyone thinks, Ohh you know, my adult children are, let’s say you’ve got three children. Ohh, my adult children are fine. They’re married. They’ve got stable jobs. They’re OK. There’s nothing that’s going to happen to them. That can end overnight with the end of relationships with, you know, businesses going sour and, sometimes through no fault of your own you get dragged down and become bankrupt.

You know people can have you know, midlife crises or whatever it is and do some silly things. So, all of that stability can go out the door overnight and you just don’t know what circumstances your beneficiaries are going to find themselves in.

So, I always think that a testamentary trust is a great way to ensure that your assets are going to be protected and get to who you want them to. Because if you know the classic example, whether it’s a divorce, bankruptcy, you could see all of your assets that you’ve left to your child, or children, go to the government or to a trustee in bankruptcy, and if you’ve got a testamentary trust will, it stops all of that. It keeps that wealth within the family so that they can get the benefit of that after their divorce or after their bankruptcy or whatever it is.

So, in my view, it’s one of the best ways to ensure that your hard-earned assets and wealth are protected within your family and that they go to who you want them to.

Robyn: Yeah. And Jeff, I think I know the answer to this, but your advice on anyone considering a DIY will kit or an online?

Jeff: Yeah, look, we are yet to see a valid do it yourself will that’s been done and the costs of rectifying them, tens of thousands of dollars, sometimes more. So, you know it really gets me that, for the sake of, you know people pay insurance for their cars, for their house, and yet they baulk at paying, you know, a few hundred dollars to go and get their will done by an experienced estate planning lawyer, and they’ve got most people’s assets and well over a million dollars these days. It’s just crazy to me that people wouldn’t spend the time and the money to have those things protected properly.

Robyn: Yeah, we say it time and time again on this program, always get the advice of an experienced lawyer. Great advice as usual, Jeff, thank you for your time today and Merry Christmas to you and your wonderful team at Attwood Marshall Lawyers who give us great advice and insight every Friday morning to our listeners here on 4CRB.

Jeff: Thank you, Robyn. Thanks for having us along for the ride in the year. It’s been great to do it and Merry Christmas to all concerned, and to your listeners.

Robyn: Thanks Jeff. And just a reminder that we will be continuing our law talks program each Friday throughout the Christmas and New Year period. You’ve been listening to law talks here on 4CRB, which you can hear every Friday morning from 9 o’clock.