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G & J

Messy Estate Management

Several years ago, a prominent Auckland Financial Adviser was rightfully criticised in court for his handling of a $1.4M estate. The will stipulated that the deceased’s wife (who was his second wife) should have a life income interest in the estate, and that the children of the man receive the balance of the estate upon the second wife’s death.

In this case, the adviser was an Executor, Trustee and the financial adviser for the estate. The second wife was also an Executor and Trustee.

There is nothing quite like the angst amongst beneficiaries when there is a second marriage involved, especially when the second wife is younger than the mother of the beneficiaries. It is only natural for the deceased’s children to want their share of the estate early, rather than having to wait possibly decades, until the deceased’s second wife dies so that the estate can be finalised.

Such arrangements in a deceased’s will are also commonly used where the deceased had remarried and wants to provide a life income for his or her partner, and the capital for children from the first marriage.

Determining the income for an estate is not without its difficulties. If the estate had solely been invested in interest bearing investments, the income proportion is pretty straight forward. Case law has established that the estate should be managed on a prudent basis with diversified investments, as there is a need to preserve the spending power of the capital, i.e. to protect the real capital value from being eroded by inflation.

The real trigger for the beneficiaries (excluding the second wife) in the case mentioned in our first paragraph, was a lack of communication with them. The adult children had repeatedly asked the adviser for updates about the trust. He referred them to the second wife, and she referred them back to the adviser. The capital beneficiaries, in this case the children of the deceased, had an interest in how the capital of the estate was invested. But in this case one of the beneficiaries, being the second wife, did have the information as she was also a trustee.

The trustees could quite easily have met with the beneficiaries and provided them with the information. When the case came to court, it was revealed that there had been an unauthorised capital payment of $52,000 made to the second wife. It was no wonder that the trustees were not wanting to make it simple to find out what was happening with the estate’s management.

Disclaimer

Steven Barton (FSP 32663) and Susan Pascoe Barton (FSP 32382) are Certified Financial Planners and Authorised Financial Advisers.  Their initial disclosure statements are available free of charge by contacting them on (07) 3060080 or they can be downloaded from www.pascoebarton.co.nz. This column is general in nature and should not be regarded as personalised investment advice.