Can the beneficiaries amend the terms of a deceased's Will with a Deed of Family Arrangement?
What is a Deed of Family Arrangement?
A Deed of Family Arrangement changes the distribution of assets under a Will or under the Administration Act 1903 (WA) after the death of the person who died without a Will. More particularly, a deed is used to either vary the rights and interests of one or more of the beneficiaries under a deceased's Will, or if the deceased died intestate, to vary the rights and interests of one or more beneficiaries under the Administration Act 1903. The document is a deed which is executed by all the parties to the deed and each party's signature is witnessed.
The preparation of Deeds of Family Arrangement is a complex task. If you need legal advice about the preparation of a deed or advice about the legal consequences of signing a deed, you can contact us using the below web form.
What possible problems can arise from a Deed of Family Arrangement?
A Deed of Family Arrangement must be carefully prepared. The possible problems with a poorly drafted deed are:
Common examples when a Deed of Family Arrangement is used
Some common examples where a Deed of Family Arrangement may be used by the beneficiaries of a Will or beneficiaries under the Administration Act 1903 include:
a beneficiary disclaiming their right to an inheritance under a Will or under the Administration Act 1903;
the beneficiaries agreeing to include a child or grandchild who did not receive an inheritance under a deceased's Will;
a beneficiary will lose a right to a pension if they receive their full entitlement from the Estate;
the beneficiaries determine that there are tax reasons for varying the rights and interests of the beneficiaries;
to take into account changed family circumstances;
where there is doubt about the interpretation of a deceased's Will;
where the beneficiaries wish to create an estate proceeds trust;
where a deceased attempted to make a Will, or change their Will, but the document is not recognised under the Wills Act 1970, the beneficiaries may elect to honour the wishes of the deceased; and
the beneficiaries may use a Deed of Family Arrangement to settle legal proceedings which, for example, challenge the validity of the deceased's Will or where a person has commenced a family provision (inheritance) claim.
A Deed of Family Arrangement is a quicker and more cost effective resolution of a dispute between the beneficiaries than legal proceedings.
If the parties are unable to agree on the terms of a Deed of Family Arrangement, a beneficiary can make an application for the terms of the deceased's Will to be rectified or for all or part of the Will to be invalidated.
Does the Deed change the Will?
No. A Deed of Family Arrangement only has the effect of changing the financial consequences of a Will for the beneficiaries. The Will is not amended by the Deed.
Can the Deed rectify a Will?
No. If a Will needs to be rectified, an application is made to the Supreme Court. The Court will determine if the Will can be rectified.
Does the WA Supreme Court need to approve the terms of the Deed of Family Arrangement?
Generally, the WA Supreme Court is not required to approve the terms of a Deed of Family Arrangement. However, where there are children involved, or a person does not have mental capacity, there are circumstances where the Court will need to make orders.
Can a Deed of Family Arrangement be used if the person died without a valid Will?
Yes. The distribution of the deceased's estate under the Administration Act 1903 can be varied by a deed of family arrangement.
Who has to agree to the Deed of Family Arrangement?
Every person who is a beneficiary under a deceased's Will or a beneficiary under the Administration Act 1903 should agree to the terms of a proposed Deed of Family Arrangement so that each beneficiary is bound by the Deed.
What issues need to be considered?
Each person's Will and assets in their deceased estate are different so a Deed of Family Arrangement has no particular fixed form. Depending upon the circumstances, the parties to a Deed of Family Arrangement will need to consider, amongst other things:
What are the assets and liabilities of the deceased's estate and how will the deceased estate be divided?
Does the division of the estate depend upon the sale of any property or the value of that property?
Do any parties wish to transfer a portion of land to one beneficiary?
Is there a risk that a person will challenge the validity of the deceased's Will?
Is there a risk that a person will commence a family provision (inheritance) claim under the Family Provision Act 1972 (WA)?
If the estate is bankrupt, are there any creditors why may apply to appoint a trustee in bankruptcy to the deceased estate?
Do any of the parties need to obtain independent legal advice?
Whether there are any Capital Gains Tax (CGT) and duty (formally stamp duty) implications in WA.
What distributions can be changed?
Any beneficiary's entitlement to an estate can be changed by using a Deed. Special issues arise for children and people who do not have mental capacity.
A beneficiary could give up some of their entitlement, or all of their entitlement. For example, a beneficiary could give up their right to receive a house and instead receive additional money. There is no legal limitation on the arrangements which the beneficiaries can agree to under the Deed of Family Arrangement.
Do I need independent legal advice about a Deed of Family Arrangement?
If you are considering signing a deed of family arrangement, you will need to ensure that you understand the legal and financial consequences of signing the deed because the terms of the deed will be binding on the parties. The consequences could include; giving up a right to a greater share in the deceased estate, losing a right to commence a family provision (inheritance) claim in the future or there may be tax or duty consequences for you. It is therefore advisable to obtain independent legal advice before signing a deed of family arrangement.
What are the benefits and risks of signing a Deed of Family Arrangement?
Once a Deed of Family Arrangement has been signed by all of the parties, the Deed will take effect, unless a future date has been agreed. For most people, the signing of the Deed results in
a beneficial outcome for them, which may be because they obtain a greater inheritance, the dispute is resolved more quickly or the dispute was causing them stress in their personal life.
There are also risks to signing a Deed of Family Arrangement. One significant risk is that once the Deed is binding, your legal rights will be affected. For example, you may have agreed not to commence a family provision (inheritance) claim against the deceased estate, you may agree not to commence legal proceedings against the executor of the estate or you may have agreed not to seek details of the income and expenses of the deceased estate. If you are unsure whether your legal rights may be affected by signing a Deed of Family Arrangement, you should obtain legal advice.
Do I have to sign a Deed of Family Arrangement?
Generally, parties may negotiate and ultimately not reach a final Deed of Family Arrangement for signing. There may be circumstances where a party has promised to execute a deed based on previously agreed terms. Each situation will be different, so it's best to obtain advice about whether you or another person may be bound to execute a deed.
Are there any tax implications arising from a Deed of Family Arrangement?
There can be both Capital Gains Tax and duty (formally stamp duty) implications in WA when a Deed of Family Arrangement is used. The Australian Taxation Office (ATO) has issued TR 2006/14
which considers the tax implications of deeds of family arrangement. You will also need to take into account any time limits imposed under the law which restrict how long after the death of a person a Deed of Family Arrangement can be made.
In relation to Capital Gains Tax, it will be important to consider whether a beneficiary will be entitled to be exempt from CGT because a property given to them under the Deed of Family Arrangement becomes their main residence.
A transfer of land is a dutiable transaction under the Duties Act 2008 and accordingly, a change to the effect of the deceased's Will or the distribution under the Administration Act 1903 will need to be assessed for duty.
Care should also be exercised in relation to the disclaimer of an interest under a will or under the Administration Act 1903 because a disclaimer made too late may still have duty implications.
If the tax law is unclear about how it will apply to your circumstances, you can apply for a private ruling from the ATO.
If you are unsure about any tax or duty implications arising from signing a deed of family arrangement, give us a call.
Sample clauses of a Deed of Family Arrangement
There is no template for a Deed of Family Arrangement since every deed has significant differences. This is because of the individual circumstances of each beneficiary. There are some common approaches to resolving certain issues such as a beneficiary giving up an entitlement or which beneficiary will pay any stamp duty. Below are some common sample clauses.
For a beneficiary (John Smith) who does not want to receive a benefit from the estate of Jane Smith
John Smith surrenders all of his interests and rights to the residue of the estate of Jane Smith.
For a beneficiary (John Smith) who does not want to receive a specific property from the estate
John Smith surrenders all of his interest and right to the property located at 1 Willow Street, Willowwoods in the State of Western Australia.
For the beneficiaries who wants to change the benefits received from the estate of Jane Smith
The beneficiaries have agreed to vary the terms of the Will of Jane Smith dated 1 July 1984 to provide each beneficiary with an equal share as tenants in common of the residue of the estate.
For the estate of Jane Smith to pay any stamp duty
Any duty payable by a beneficiary will be paid by the estate of Jane Smith.
A party must not start court proceedings about a dispute arising out of this deed unless it first complies with this clause, except: (a) where a party seeks urgent injunctive relief; or (b) where the dispute relates to compliance with this clause.
This Deed shall be governed by and construed in accordance with the laws of the State of Western Australia and the parties submit to the jurisdiction of the courts of that State.