An early inheritance advancement in Australia has become an increasingly popular concept, particularly due to high cost of living in Australia. Parents, grandparents and extended family members may be more willing to help their loved ones by allowing an advance on accessing their inheritance. Although it sounds ideal and complication free, it introduces different concerns and challenges.
Some parents or grandparents are more than happy to allow an advance into a beneficiary’s inheritance, but others are sceptical and may feel pressure to make the requested arrangements or their relationship with their loved ones would suffer. This typically triggers an investigation onto emotional and financial elder abuse. Financial elder abuse that may lead to estate battles could consist of premature asset transfers by manipulation or coercion and often involve clouded judgment.
It is more prevalent that a testator/testatrix may request to alter or update their will to equalise shares for their beneficiaries, but it can have a counter effect on this motion. Instead, it may lead to estate battles and unintentional playing favourites.
Reflections on Sgro v Thompson [2017]
The process of equalising inheritance is a provision that ensures beneficiaries receive an equal overall benefit during the deceased’s lifetime. In the case of Srgo v Thompson [2017] NSW CA 326, a parent gave their youngest daughter an advancement of House A, with the intention of providing House B (the family home) to the older daughter. The will clearly directed that both children receive fair treatment and each inherit a home. The younger daughter, with current access and ownership to House A, sold the property and lost the money in poor investments. When the parents passed away, House B went to the older daughter as directed in the will which caused the younger daughter to make a claim under the Succession Act 2006 for further provision from the deceased estate.
The primary judge examined the younger daughter’s financial history, identified her poor financial record compared to her older sister, and ordered her to receive 40% of the proceeds from the family home the sister had inherited.
Consequently, the elder daughter appealed the decision in the Court of Appeal. The Court unanimously agreed to set aside the Supreme Court judgment and dismiss the claim for provision. The Court found that ‘proper maintenance’ must not be limited to ‘financial need’ only. It directed that all relevant circumstances, including financial need and prior generosity, required consideration together rather than in isolation. The Court recognised that the deceased parent had left a “fair share” to both daughters, and therefore denied the youngest any further provision.
Criteria to Advance an Inheritance
It may be difficult to ascertain whether it is the right decision to advance an inheritance for a family member or loved one. Therefore, it is important to weigh all benefits and risks in the decision-making process.
Gift or Advancement?
Assess whether this is a gift or an advancement of the Will. A gift is a voluntary, immediate and unconditional transfer of monetary sums or property in the Will. An advancement intends to be deducted from the eventual entitlement under the Will after death, like the situation in Srgo v Thompson.
Personal Benefits
Address and assess the attitude a client may have with the act of advancements. Many clients foster a helpful and positive attitude that prioritises familial bonds over own personal comfort. It is important to ask whether this will leave them with enough money and/or assets to enjoy for the remainder of their own life too. It is advised to consult with a financial planner on this matter.
Other consequences
What are the tax consequences by making this advancement? Gifts as opposed to advancements typically incur greater stamp duty and capital gains. Consider which option is most appropriate for the client’s situation and advise them of any risks or implications to be aware of.
Additionally, most clients wish to distribute their assets and affairs equally during their lifetime and avoid repercussions such as the issues in Sgro v Thompson. An advancement is more likely to achieve an equalising effect, as it deducts early distributed assets from the final Will. There is a chance this can avoid family disputes and provision claims.
Overall, an early inheritance or advancement to a Will is a relatively new concept. Rising cost-of-living pressures have driven a drastic increase in Will advancements, as many older Australians eagerly support their loved ones in times of need. However, it is important to consider the necessary criteria and consequences that can arise from an early advancement to provide the will-maker with comfort, peace, and security in their decision.
Jake McKinley notes that this article is written for the purpose of providing generalised information and not to provide specialised legal advice. If you require qualified legal advice on anything mentioned in this article, our experienced team of solicitors at Jake McKinley are here to help. Please get in touch with us on 02 9232 8033 today to make an enquiry.
Article Written by Fernanda Araujo, PLT
