Why are high-value estate plans more likely to be successfully contested?

According to the Productivity Commission, an estimated $3.5 trillion is set to change hands in Australia by 2050, with 70 per cent of the combined wealth of Baby Boomers expected to be passed on as inheritance.

With such a significant amount set to change hands, KeyInvest chief executive Craig Brooke said the complex nature of family dynamics and estate planning means there is potential for “enormous” problems to arise.

“The simple fact is that estate planning is not straightforward. Families are complex, with 25 per cent of marriages involving at least one person who has been married previously. The divorce rate is estimated at 44 per cent, with the median duration of marriage at divorce being 13 years and the median age at divorce being 45 years,” Brooke said.

“To further complicate matters, the number of divorces for those aged over 50 are increasing.”

Brooke explained that complex family dynamics are also leading to an increase in will disputes, with challenges on estates over $3 million guaranteed to succeed to some degree.

“Data from the law firm Solomon Hollett shows that 74 per cent of estate challenges succeed to some degree. When breaking down that figure, the success rate is 83 per cent when it’s claims by partners and ex-partners, 76 per cent when it’s claims by children and 73 per cent when it’s the extended family,” he said.

“Further figures that highlight the conflict that estate planning causes is that 100 per cent of challenged estates over $3 million succeed to some degree, a figure that drops to an estimated 88 per cent when estates are valued between $1 million and $3 million, and a 60 per cent success rate for estates valued at less than $600,000.”

Brooke suggested that investment bonds could be the key to solving estate disputes as they are afforded additional legal protections, hindering those who would challenge the will.

“In most cases, they bypass the estate and are protected from will and estate disputes. In addition, there are no restrictions on the number of beneficiaries, or the type of relationship, individuals, trusts, companies or charities can be nominated and there is no requirement for probate,” he said.

“Additionally, it’s important to remember that it’s tax-free on death, whether it goes to an estate or directly to beneficiaries, regardless of the relationship connection.”

According to Brooke, there are a number of factors currently contributing to uncertainty regarding estate planning, such as the proposed tax on the earning of super balances over $3 million, which is expected to impact around 80,000 people, a number that is expected to grow significantly in the coming years.

In addition to this, he said Baby Boomers’ desire to financially support their children by covering education costs and help them “gain a foothold in the property market” as well as growing philanthropy, have also been contributing factors.

In conjunction with this, research published by AMP in June found that Australians over 65 are looking for ways to financially support their children, with four in five believing that their children face similar or harder financial challenges than they did growing up, at least partly due to the rising cost of housing In Australia.