It’s your inheritance. Here’s how to keep it.
A legacy or a gift in a will can significantly change your life, personally and financially. When a relative or friend does this, they want to show you kindness, but they usually also want the gift to benefit you personally, not other people like creditors, the Official Assignee or a de facto partner. However, unless you protect the gift, that can be the outcome. Here’s how you can protect your inheritance.
A simple solution to avoid relationship property claims
Any gift under a will is separate property, not relationship property, regardless of whether you’re married, in a civil union or a de facto relationship. This is important because if your relationship breaks down or you die, your spouse or partner can’t claim half of the gift or its proceeds. The gift is separate property and isn’t subject to equal sharing.
However, if you intermingle the gift with your shared relationship property or it’s used for the benefit of relationship property, such as mortgage repayments, it may lose its separate character and become relationship property.
The solution is simple: open a bank account in your own name to keep your inheritance separate. If you use any part of your inheritance to clear a relationship debt, such as mortgage repayments, make sure it’s recorded as a loan. If your relationship breaks down, you can call up the loan and demand repayment.
You could also set up an account in your sole name before the estate is distributed so your inheritance is kept separate from other assets, and ask the trustees to pay the inheritance into that account when the time comes.
Protecting your inheritance from creditors and the Official Assignee
Creditors can claim any assets you receive as a gift by inheritance. If you’re bankrupt when the estate is distributed, the gift passes to the Official Assignee who will use it to pay your creditors.
The solution starts when making a will. If you’re aware an intended beneficiary may have financial problems or be exposed to potential claims by creditors, you should consider altering your will to take this into account, making a provision to set up a family trust for your beneficiary and their family. This ensures your gift goes to a family trust rather than the beneficiary personally. Alternatively, you can set up a trust in your will for the benefit of your beneficiary and their family.
The important point to consider is if you’re leaving a gift to family or friends, you want them to benefit from that gift, not lose it. It’s easy for a beneficiary to lose a gift and it happens more often than it should. With careful planning and communication you can protect that gift. Talk to our will lawyers if you need further advice.