Estate planning doesn’t always go as smoothly as intended. Sometimes, after a loved one passes away, the terms of their Will (or the rules of intestacy if the deceased left no valid Will) don’t reflect the family’s wishes or circumstances. In these situations, a Deed of Family Arrangement can be a practical solution to help families move forward without the stress and cost of legal proceedings.
What is a Deed of Family Arrangement?
A Deed of Family Arrangement is a legal agreement that allows beneficiaries of an estate to change the way the estate assets are distributed. Instead of following the strict terms of the Will (or the rules of intestacy if there is no will) the beneficiaries can agree to a different division of assets that better suits their needs.
A Deed of Family Arrangement is binding, provided all parties with an interest in the estate consent to it, and it can help preserve family relationships by avoiding litigation.
When is a Deed of Family Arrangement Appropriate?
There are many scenarios where a Deed of Family Arrangement might be appropriate.
To Avoid a Family Provision Claim
If one or more family members feel they’ve been unfairly left out or inadequately provided for in a Will, they may consider challenging the estate. A Deed of Family Arrangement allows beneficiaries to negotiate a settlement upfront, often saving time, money, delay and emotional strain associated with Court proceedings.
Correcting Mistakes or Oversights in a Will
Sometimes a Will may not reflect the deceased's true intentions due to errors or outdated instructions; this is especially likely if the deceased has not reviewed their estate planning for some time. A Deed of Family Arrangement provides a way to correct this without Court proceedings.
Balancing Fairness Among Beneficiaries
Situations can arise where the strict legal distribution of the terms of the deceased’s Will doesn’t feel fair. For example, one child may have received significantly more financial support during the parents’ lifetimes than their siblings, or certain assets may hold sentimental value for specific family members. A Deed of Family Arrangement allows families to redistribute assets in a way that feels equitable to them.
Tax benefits
For some, it may be beneficial to rearrange the distribution of the estate assets through a Deed of Family Arrangement to optimise tax concessions amongst the beneficiaries, including Capital Gains Tax rollover relief. Accounting advice must be obtained in this regard.
Simplify the Asset Distribution
Commonly, a Will will provide for the deceased’s assets to be divided equally amongst their children; while this creates a fair distribution, it can sometimes be impractical. For example, in this situation, the deceased’s home would likely be transferred to all of the children in equal shares. This can create problems if one beneficiary seeks to retain the home, while the others wish for it to be sold. A Deed of Family Arrangement can help restructure the estate in a way that makes administration simpler and more practical for the beneficiaries (i.e party A retains the house and makes a cash payment to the other beneficiaries).
A Deed of Family Arrangement can be a powerful tool to resolve disputes, correct oversights, and achieve fairer outcomes between beneficiaries, provided there is agreement amongst the beneficiaries; it is typically a more flexible, cost-effective, and amicable manner of resolving disputes amongst beneficiaries.
This is not to say that litigation can be avoided in all situations. Where there is no agreement, often litigation will be the only option available to progress a dispute.
Further, where there are beneficiaries under the age of 18 years, or a beneficiary lacks legal capacity, the Deed of Family Arrangement would likely need to be approved by the Court; this is simply a safety mechanism to ensure vulnerable beneficiaries are not taken advantage of.
If your family is facing issues with a Will or an estate, seeking timely advice from an experienced estate planning lawyer can help determine whether A Deed of Family Arrangement is suitable for your circumstances.
Contact Robinson + McGuinness to arrange an appointment on (02) 6225 7040, by email on info@rmfamilylaw.com.au or get started now online with one of our experienced lawyers.