Trusts, divorce, stepkids: Controversial recommendations in inheritance law shakeup

Upcoming law changes will impact what happens to our property when we die. Photo / Getty Images

Inheritance law is set for a major shakeup after 140 recommendations by the Law Commission.

Should the recommendations make their way into the new simplified law, this could leave some who hope to inherit family wealth with a bitter taste.

NZ Herald senior writer Jane Phare tells the Front Page podcast that these changes were 70 years in the making.

"The reason they had to do such a major overhaul is that inheritance laws are based on old statutes, like the Family Protection Act of 1955, the Relationships Act of 1976 and the Administration Act of 1969," explains Phare.

The thinking behind the change is to simplify the law to give litigators a single piece of legislation as their main reference point.

"The new law will be called the Inheritance Claims Against Estates Act or the Inheritance Act for short," says Phare, explaining that it will likely take years for the law to finally come into effect.

Despite the long gestation period, the recommendations have already sparked controversy about how the new law could affect different claims.

Delinquent kids beware

Under the recommended changes, Kiwis who have fallen out with a parent and are cut out of their inheritance, will not be able to contest the decision.

"Under the new law, if you're over 25, you will not be able to contest the will. If Mum or Dad leave it all to the SPCA or your brothers and sisters, well, that's tough."

Legal opinions about this law have been divided.

"One side felt it's your money, so you can do whatever you like with it. While the other side felt there should be an element of enforced heirship, which means you have a moral responsibility to look after your family."

The Law Commission came up with two recommendations to reflect those conflicting concerns. This means that children and grandchildren under the age of 25 should be able to claim if they can prove they need the money for a reasonable standard of living. The fate of those over 25 will, however, be dictated by what the will says.

Stepchildren recognised

Another change recommended is that stepchildren should be given the power to make a claim.

"They don't say how much, so it's a little open-ended, but they do allow for the possibility," says Phare.

This could open the door to a whole new category of litigation between biological children and stepchildren all looking to assert their rights to inheritance.

"One of the reasons to bring these statutes under one law was to make it easy, accessible and clear. But in areas like this, where biological children become angry and defensive against stepchildren, it does open it up for more court action and hostility within the family unit."

Phare explains that a major motivation behind these changes is that the dynamic of the modern New Zealand family is far removed from what it was seven decades ago.

"Back when the inheritance laws were written, there was Mum, Dad and the two kids. That's not a reflection of modern-day society, where re-partnering is much more common and there's often one or more sets of children from previous relationships. That needs to be taken into account."

Hidden trusts

Trusts, long used by wealthier individuals to protect their assets, also look set to feel the impact of the recommendations from the Law Commission.

"Under the current law, if a property falls outside the estate, nobody can touch it," says Phare. "The Law Commission wants the court to have greater power to access trusts."

Phare says that if there is clear evidence that someone intended to use a trust to hide their assets to stop someone from inheriting, then there could be grounds for a claim under the new law.

"There has to be intent and you [have] to prove that intent to the court, so it is a reasonably complex area," she says.

Separated but still bound

Raising further concern is the Law Commission's recommendation when it comes to separated couples.

"In the event of separation, if one of the partners dies, the surviving partner can claim up to two years after the date that they separated," says Phare.

"They can make a claim against the estate, and the court can make that longer. If they presented a strong enough case, they could make that up to five years since separation."

Phare says although the law might seem controversial, it does serve a practical purpose.

"You can't get divorced legally until you've been separated for two years. And often, property settlement takes longer than two years, so it could be to protect people who are still waiting to get their share of the matrimonial property."

• The Front Page is a daily news podcast from the New Zealand Herald, available to listen to every weekday from 5am.

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