One of the greatest concerns for parents, when it comes time to make a Will, is to ensure that their infant children are properly looked after in the event of an untimely death. Below are some of the most frequently asked questions and the answers on the topic:
- Where will the children live? The Will should nominate a guardian and it will be with this person(s) that the children live.
- Who will look after the money for the children until they attain their qualification age? The person or persons named as Executor(s) (there can be up to four) will have the responsibility of managing the money on behalf of the children until they attain either the age stipulated in the Will (for example 21) or if no age is stipulated, 18. If the named Executor(s) is/are unable or unwilling to act then they can formally relinquish the role in favour of any named backup Executor in the Will, or if none is nominated, to the Public Trustee of Queensland or any private person appointed via Supreme Court Order.
- Are there any rules in place to make sure the Executors manage the money responsibly? Yes, the Will can specify investments or general types of investments which are either authorised or prohibited. Beyond this, the Trusts Act authorises any form of investment provided the Executor exercises a level of care diligence and skill to a level consistent with that which a prudent person of business would exercise in the managing of the affairs of other persons. If the Executor however is a professional funds manager then the level of care is elevated to the professional standard of care such a person would have in advising his or her clients. Otherwise the Executor must at least once a year review the performance of the investments and should obtain advice from an accredited financial planner although this is not mandatory.
- Can the Executor use any of the money for the day to day financial upkeep pending their attaining the qualification age? Yes. Both standard drafting in Wills and provisions of the Trusts Act authorise the Executors to provide monies out for the children’s advancement, preferment or education which extends from paying a HECS bill down to a pack of corn flakes if the outlay is needed in the reasonable opinion of the Executor.
- Can the estate money be used to assist the Guardians with buying or renting a bigger house? Yes. However, if a home is to be purchased the proportion of the estate monies used must be recorded as proportional ownership of the property on trust for the children. If a home is to be rented, the Guardians would need to show a compelling case to demonstrate the practical and financial impossibility of housing and/or otherwise providing for the children without recourse to estate monies.
- Who makes the decisions for the children’s day to day welfare which are not financial? The Will should appoint a person or persons to act as Guardian for the children. The Guardian does not need to be the same person as the Executor who has the responsibility for management of the money.
- What happens if the persons appointed as Guardian or Executor are considered by others to be unfit for the role? The Supreme Court has the power to remove an Executor and appoint an alternate private person or the Public Trustee. The criteria for removal are not spelt out in the legislation. However, failure to comply with the statutory duties set out in the Queensland Succession Act seems to have been taken as sufficient grounds for dismissal. Challenges to the appointment of a Guardian are made to the Australian Family Court. The Family Law Act contains a number of specific criteria to guide a Judge in such a dispute however, the overriding principle is a determination of what would be in the best interests of the children.
- What is the Executor’s obligations in regards to risky/imprudent investments made by the deceased which are still in place at the time of death? The law states that an Executor is not liable for losses to the Estate incurred from retaining such investments. A prudent Executor though should ideally take appropriate financial advice about the pros and cons of selling out of the investment with a view to investing the money elsewhere.
- Can the Executor or Guardian borrow money from the Estate? No, however, if there are expenses which are genuinely and solely relating to the children then the estate money should be paid out to those expenses (ie. not lent to the Executor or Guardian to pay on behalf of the beneficiary). Temporarily or permanently borrowing money from the estate for other purposes is a complete breach of the Executor’s or Guardian’s duties to not act in a conflict of interest situation and would be grounds for removal from the position.
- What is the extent of liability of an Executor for losses from improper investments? If the Executor lends money to a third party on security (example – a mortgage over a property) which ultimately fails, the Executor is protected so long as the loan did not exceed two thirds of the value of the security as assessed by an independent appropriately qualified person (example – a registered valuer) at the time. The Executor is similarly protected from failed investments of other types provided the Executor took advice on the investment from an appropriately qualified Financial Planner before the investment and reviewed those investments annually. Also in either case, the gains on any other investment made under the Executor’s stewardship can be offset against any of the losses incurred on other investments. Beyond these protections the Executor is liable to make good the loss.
- Can the Guardian move into the children’s family home? Yes, and in those circumstances typically the Guardians do not pay rent to the estate for their personal occupancy of the home, but technically the market rental value for the property should be ascertained and the Guardians should pay to the estate a proportion commensurate with their occupancy – for example, if they are two of four occupants in the home, they should pay half.
- Can you name a backup Executor or Guardian in case your first choice is unable or unwilling to act? Yes. The parent’s Will can specify a successive line (ie: first, second, third choices) with the stipulation that persons lower down the line are to act only if the persons named immediately above them become unable or unwilling to act. If the appointed person chooses to retire from the job and the Will does not stipulate a replacement, then there is still power under the Trusts Act for that person to choose their own successor and pass the job onto them so long as it is either two individual private persons or a professional trustee corporation. There is also power for the trustee rather than retiring to employ an agent like a financial institution or trustee corporation to do the work on their behalf.
- Are there any caps on the amount of capital that can be provided out to the children for their support during their infancy? Yes. The total amount that can be paid out for the maintenance and assistance of the children cannot exceed $2,000.00 or one half of the capital allocated to that beneficiary (whichever is the greater) anything more requires court authorisation.
- Does any home used to house the children have to be sold when they reach a qualification age? No. Once the beneficiaries become entitled to receive their assets, they can agree to retain the asset as either their personal residence or an investment and can have the property transferred directly into their names for this purpose. There is no stamp duty or capital gains tax payable upon the transfer however, the property will thereafter be subject to tax if it is held for investment.
- Is the Guardian’s need for estate money to assist with living costs relevant in a contest with other persons seeking the guardianship role? Questions of a guardian’s financial capacity or incapacity to appropriately care for the children from their own monies would be relevant but hardly determinative of which person(s) should be chosen. Factors such as a prospective guardian’s level of emotional insight, child focus and affinity with the children and (previously) their parents have always held much greater sway over the outcome of a guardianship dispute than how much money one candidate may have over the other.
The information in this article is merely a guide and is not a full explanation of the law. This firm cannot take responsibility for any action readers take based on this information. When making decisions that could affect your legal rights, please contact us for professional advice.