Issue 30, Autumn 2020, Trust eSpeaking

Succession law in New Zealand

Law Commission to review conflicting inheritance laws

 In late 2019 the Law Commission reported back to the government on its review of the Property (Relationships) Act 1976 (PRA). Discussion on Part 8 of the PRA that deals with the division of relationship property on the death of a spouse or partner was specifically excluded from the scope of that review. Acknowledging the issues that could arise by not addressing the division of property when a spouse/partner dies, in December last year the government asked the Law Commission to review the law of succession – that is, the law that governs who inherits a person’s property when they die. A particular focus of the Law Commission’s succession project will be the conflict between two statutes – the PRA and the Family Protection Act 1955 (FPA).

Property (Relationships) Act 1976

The PRA provides that when a spouse or partner dies, the surviving spouse/partner must choose ‘Option A’ or ‘Option B’.

Option A requires the survivor to apply to the Family Court for a division of the relationship property which means:

  • All the property that the deceased spouse owned is presumed to be relationship property, and the onus is on the executor to prove that property is not relationship property, and
  • Unless a contrary intention is expressed in the will (or a court orders otherwise), the survivor forfeits any benefit they would have received under the will or on an intestacy (that is, when there is no will).

In Option B, the surviving spouse or partner receives what they have been given under the will or what they are entitled to if there is an intestacy.

An example of how both options could work is below.

Jack and Jill had been in a relationship for 10 years when Jack died. They did not have a pre-nuptial/contracting out agreement. The family home, worth $750,000, was owned by Jack, and he and Jill had joint savings of $150,000. Jill also owned a rental property in her sole name (her previous home) worth $500,000. In his will, Jack left Jill a life interest in the family home, with the home going to his children after Jill dies.

If Jill elects Option A, she must file proceedings in the Family Court for a division of relationship property. If successful, she could receive half the value of the family home and half the money in the bank account. She runs the risk, however, that the increase in value of her rental property could be found to be relationship property, and she would also have to move out of the family home.

If Jill elects Option B, she may keep her rental property, all the cash, and she can keep living in the family home. 

Family Protection Act 1955

The FPA allows spouses and children who have not been adequately provided for in their late spouse or parents’ wills to make a claim on their estates. (We have an article on page 4 on the recent Carson case where disinherited children claimed under the FPA.)

Conflict between the PRA and the FPA

A conflict that commonly arises is when a parent in a second or subsequent relationship leaves their entire estate to their surviving spouse or partner, and nothing to their children from previous relationships. There is currently no ability for financially independent stepchildren to make a claim against a step-parent’s estate; this means they must either reach agreement with their step-parent, or they must file a claim under the FPA against their deceased parent’s estate.

Another problem is that the surviving spouse or partner is commonly appointed as the executor of the estate and, worse, the couple’s property is often held jointly, meaning its ownership passes by survivorship to the surviving spouse.

The effect of this is that there is often no estate against which to claim, and so the children must first ask the executor to apply for a division of relationship property.

This could be even messier where, as is common, the surviving spouse is also the executor. He or she may be reluctant to make that application and, therefore, a preliminary application must be made to replace them as executor. The three-stage process therefore involves applications:

  1. To replace the executor
  2. For the classification and division of relationship property, and then
  3. For a share of their parent’s portion of the relationship property.

All of this makes for very expensive litigation for families. We hope that the Law Commission reviews both the ability of stepchildren to apply for provision from their step-parent’s estate, and ways in which the process may be simplified to make it more accessible and cost-effective.

Enduring Powers of Attorney                                 

In previous articles in Trust eSpeaking, we have explained why it is important to have an enduring power of attorney (EPA) and the problems that can be created if you do not have one when the need arises. You should have two EPAs – one for property, and the other for personal care and welfare. In your EPA, you should also take care to name appropriate people as your attorneys. Ideally you should name two people to manage your property, which also includes your finances and investments.

Property EPA

If your property EPA only names one person to act for you there can be risks. Naming two people who act together (known as your ‘attorneys’)[1] should mean there are some checks and balances. A property attorney’s job is to look after your money and property, not to benefit personally from an involvement in your affairs. Unfortunately, some attorneys forget this and need someone to remind them.

An example of the problems that can arise from naming a single attorney is the 2015 Vernoncase[2]. A son, who was the sole attorney named in his father’s EPA, made personal use of most of his father’s money. When his father died, there was nothing left for other members of the family to inherit. The court decided the son had misused his authority as the sole attorney and ordered him to repay the money he had used for his own benefit – but only after long and expensive court proceedings.

Too many cooks?

Naming two attorneys in your property EPA can provide some important safeguards. Naming more than two can be problematic – too many cooks perhaps?! Sometimes it is tempting to avoid family rivalries by naming all of your children as attorneys; this can be impractical. Usually the attorneys must all act unanimously and having more than two attorneys can be very difficult if they do not work well together or some of them live some distance away. Often it is a case of two is company but three is a crowd. 

Must attorneys’ decisions be unanimous?

Your EPA can state whether the attorneys must all act unanimously or the EPA can allow any one of the attorneys to act alone. The legal terms are ‘joint’ attorneys and ‘several’ attorneys. The law allows two or more people to be appointed as attorneys (either jointly or severally). Acting ‘severally’ means each attorney can take action without involving the other attorney/s.

Allowing any one of the attorneys to make decisions alone can also be risky. The attorneys may impede each other or act at cross-purposes. Except in rare circumstances, it is usually best to require the attorneys to act together (jointly).

To make that workable, there really should be two, or at most three, attorneys.

[1] An ‘attorney’ appointed by an EPA does not need to be a lawyer. An attorney is a person who can speak for you and act on your behalf.

[2] Public Trust v Vernon [2015] NZHC 1928; Vernon v Public Trust [2016] NZCA 388.

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