In conversation with The Age, Nicholas Parker and Gary Yan discuss whether you can really rule from the grave.

Dominic Powell, Money Editor at The Age, writes: 

Early last year on business podcast Trading Secrets, fashion designer Rebecca Minkoff disclosed that she had inserted a “floozy clause” in her trust. This clause states if her husband decides to move on “with some new hot young thing” after she dies, or they divorce, all her assets are immediately passed on to her kids.

With $3.5 trillion in intergenerational wealth to be passed on by 2050, its little wonder people are looking for ways to protect it.

What you can do about it 

So if you want to “rule from the grave”, how can you do it? And do these sorts of “floozy clauses” really hold water?

 

Via your will:

There are a number of ways you can control the flow of your inheritance through your will, says Nicholas Parker, senior associate at Coote Family Lawyers. Simply leaving your money directly to your children and not to their spouse is one way, Parker says, along with setting up a discretionary trust where your partner and children are beneficiaries, but any future partners are not. When it comes to the family home, Parker says he commonly sees wills which include a “right of residence” for a living spouse. “[This] allows them to continue to live in the family home for their lifetime while the legal title to the property is held by the executor,” he says. “For wills that give the spouse a right of occupation in the family home, it is quite common for that right to occupy the property to terminate upon that spouse remarrying or entering into a de facto relationship.”

Via a prenup: 

For those who want to head off any issues before marriage, you might be out of luck. Gary Yan, partner and family law specialist at Coote, clarifies that prenups can only dictate what happens on a couple’s separation, not death. Death is not considered a separating event, which is why having a will to make your wishes clear is important. Yan says that any clause that attempts to limit or control what a separated spouse does with their share of any property settlement they receive under a prenup would not be enforceable.  Similarly, any clause in a pre-nup that makes a settlement following separation contingent on the other party not re-partnering within a certain period would also not be enforceable.

Do these clauses hold up in court?

Inheritance disputes are commonplace, and a punitive clause that attempts to cut out certain parties would be ripe for a challenge. Parker says when it comes to wills, courts generally look at whether the will adequately provides for those the deceased is obligated to provide for. Will-makers can therefore dole out their estate as they wish, including the provision of a “floozy clause” or similar, as long as they make the adequate provisions. “Often, the courts will find that adequate provision for a spouse requires giving a spouse absolute ownership of a property as well as a nest egg. A life interest or mere right of occupation is not adequate provision,” he says. In the case of prenups, Yan says there is still a risk that even if an agreement includes a clause allowing invalid parts to be removed, a court could strike down the entire agreement under contract law, potentially leaving pre-relationship or inherited assets unprotected.

 

Read the full article in The Age here. 

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