Foundations of Unequal Inheritance and Reasons behind it

The reasons for leaving an unequal inheritance are often unique to the particular family and may arise from personal considerations or legal reasons. Understanding these considerations at the estate planning stage is important to best ensure your wishes are upheld whilst mitigating future conflict among beneficiaries.

Understanding Unequal Inheritance in Wills and Estate Planning

In NSW, a testator enjoys testamentary freedom which means they can leave their assets to whomever they choose after they die. 

The process of passing an estate on to beneficiaries is known as estate planning and can involve the use of wills, testamentary trusts, superannuation, life insurance and other processes to achieve the testator’s objectives. 

Reasons Behind Leaving Unequal Inheritances

A person may leave an unequal inheritance for various reasons.

For example, a person may choose to provide a larger share of their estate to a child who has greater need, a lower earning capacity, or who has provided greater love and care for the person during their lifetime. 

Conversely, a person may choose to leave a smaller share to a child who is already wealthy or a child from whom they are estranged.

Communicating About Unequal Inheritance

Communication if often important to minimise future disputes when it comes to unequal inheritance. 

Facilitating open discussions within the family during the person’s lifetime, with the assistance of professionals such as an estate planning lawyer, financial planner or accountant, may help reduce the risk of future disputes. Communication during estate planning may involve the testator sharing their reasons and rationale for distributing their inheritance with those affected before they finalise their Will to allow those impacted to express their concerns and for their concerns to be factored into the decision making process. Such transparency can help maintain family harmony by setting the expectations of the relevant beneficiaries and involving them in the process, to reduce the risk of future surprises, misunderstandings, and suspicions. 

Legal and Ethical Aspects

The decision to leave a person a larger inheritance because they provided a higher level of care or because they have a greater financial need, can introduce legal and ethical factors. This necessitates an understanding of both the unique family dynamics and relevant succession laws. Here, we explore the legalities, ethical considerations, and dispute resolution strategies useful for testators, heirs and executors managing unequal distributions.

Legal Framework Surrounding Unequal Inheritance

In New South Wales, a person may leave their estate to whomever they choose in whatever proportions they choose – this is known as ‘testamentary freedom’. However, the Succession Act 2006 (NSW) contains provisions which operate to safeguard the interests of potential beneficiaries who have not received adequate provision from the estate by giving the Court power to effectively alter the terms of the Will in some cases. 

Ethical Considerations in Leaving Unequal Inheritances

Choosing to leave an unequal inheritance can lead to genuine ethical dilemmas because the appearance of favouritism through uneven asset distribution which has the potential to cause hurt feelings and resentment. The decision to leave a specific portion of your assets to a person might stem from a range of reasons, such as the varied financial needs of heirs, recognition of a particular heir’s contribution to the care of the testator in their later years, or the existence of a child with a disability requiring additional support. Regardless of the reasons, such decisions should be considered in the context of the relevant law, to best ensure the deceased’s wishes will be upheld and to reduce future conflict and resentment among heirs. 

How to Contest an Unequal Inheritance

In NSW, heirs who feel they have been unfairly treated in the distribution of an estate have the right to contest the will by commencing a family provision claim under the Succession Act 2006 (NSW). To potentially obtain a larger portion of the estate, the disappointed beneficiary is required to satisfy a Court that they are (a) an eligible person and (b) that the deceased’s will did not provide adequate provision for their proper maintenance, education or advancement in life (noting additional criteria apply to claimants who are not the deceased’s spouse, de facto partner or child). 

Contesting a Will can be a complex process and requires expert legal advice.

How to Navigate the Impact of Unequal Inheritance

Unequal inheritance can create conflict within a family, and may cause the beneficiary to challenging the notions of fairness and support. When parents decide to distribute their assets unequally among heirs, it often reflects nuanced considerations such as specific financial needs, caregiving contributions, or unique life circumstances of each child. Regardless of the reasons, leaving unequal inheritances requires sensitive handling to mitigate potential conflicts and ensure that the decision aligns with the deceased person’s wishes and relevant laws.

Estate Plan Strategies to Handle Unequal Inheritance

When planning an estate with unequal inheritance, employing strategic measures can mitigate potential conflicts and ensure that your wishes are carried out faithfully. Here are suggested approaches to consider:

Seeking Professional Guidance

• Consulting Estate Planning Experts: Navigating the nuances of unequal inheritance often requires the expertise of estate planning lawyers who can offer tailored advice, draft precise documents, and suggest strategies that align with your estate planning goals. 
• Tax Planning Considerations: Unequal inheritance can have varied tax implications for beneficiaries. Collaborating with a tax professional ensures that your estate plan is optimised for tax efficiency, potentially saving your heirs from tax consequences.

Professionally Prepared Documents

• Professionally prepared Will: Some people prepare their own Wills using Post Office Will packs or inexpensive online services. These solutions are often inappropriate or incomplete and generally increase the risk of a will dispute. Instead, we recommend engaging an experienced will and estate lawyer to prepare your estate plan. This will best ensure the estate plan is fit for purpose and the documents are clear and unambiguous.
• Supporting Testamentary Statement: In some circumstances where an inheritance is unequal, it may be beneficial to prepare a signed statement or affidavit setting out the reasons and rationale for the unequal distribution, offering comfort and understanding to heirs. These statements and affidavits can also often be used by an executor to defend a claim brought by a disappointed beneficiary.

Open Communication

• Involving the beneficiaries in the process: Facilitating open discussions within the family while the person is still alive, before documents are finalised, may help mitigate future misunderstandings and claims. Open communication may involve the testator sharing their reasons and rationale for distributing their inheritance before they finalise their Will to involve the heirs in the inheritance decisions. Such transparency can help maintain family harmony by setting each beneficiary’s expectations and involving them in the process, to reduce the risk of future misunderstandings or suspicions. 

Implementing Trust Structures for Controlled Distribution

• Trusts: Trusts are versatile tools that can address various family dynamics, such as providing for a child with a disability or managing a minor’s inheritance until they reach a responsible age. Trusts can stipulate conditions under which beneficiaries receive their inheritance, best ensuring that assets are protected from wastage.
• Special Disability Trusts for Specific Needs: Trusts can be established to provide for a child with a disability.
• Testamentary Trusts for Adult Children: For adult children, especially where there’s a concern about financial responsibility or external influences (i.e. future divorce), testamentary trusts offer a way to provide financial support while protecting and preserving the inheritance from external claimants and wastage. 

Regular Review and Updates to Estate Documents

• Adapting to Life Changes: An estate plan does not have to be forever. Indeed, we recommend a person reviews their estate plan every 3 years or earlier if there has been a significant life event such as the birth of a child, marriage, divorce or other material change in circumstances. This will best ensure that your estate plan remains relevant and reflective of your current wishes.
• Incorporating Powers of Attorney, Enduring Guardianship Forms and Advance Health Care Directives: Beyond asset distribution, a comprehensive estate plan includes documents which can protect and preserve your assets and your own well-being in your later years – such as a powers of attorney, enduring guardianship form, and advance health care directive to ensure your affairs will be dealt with in your best interests if you become incapacitated, ensuring that your estate and health care decisions are in trusted hands.

By implementing these strategies, you can create an estate plan that thoughtfully addresses the distribution of your assets, respects your wishes, and mitigates against the potential for disputes among your heirs.

Resolving Inheritance Disputes Over Unequal Shares

Where a beneficiary is disappointed they may attempt to seek recourse by either challenging the validity of the Will or contesting the fairness of the Will. 

Will Disputes: Grounds and Process

• Validity of the Will: Challenging a will typically involves casting doubt over the validity of the Will due to a lack of testamentary capacity, undue influence, or the Will not accurately reflecting the deceased’s wishes.
• Fairness of the Will: Legislation exists in most States which allows specific individuals to claim against an estate if they believe they have not been adequately provided for. This is aimed at ensuring testators adequately provide for those whom the public may expect them to provide for, such as a spouse, de facto partner, child or other dependents, depending on the circumstances. 

The Role of Mediation in Will Disputes

If a matter proceeds to Court, the parties may be ordered to participate in mediation to attempt to resolve the dispute. During this process, the parties will meet with an independent mediator who will try and help the parties reach agreement. Mediation promotes open dialogue with a view to resolving the dispute.

Court Challenges

If negotiations and mediation do not result in agreement, heirs may be able to seek a remedy from the Court. 

For those considering this path, it’s crucial to consult with expert estate lawyers. These professionals can assess the merits of a case, discuss potential outcomes, and navigate the complexities of the court process and relevant laws. This guidance is invaluable in making informed decisions about whether to challenge or contest a will as a course of action for resolving inheritance disputes over unequal shares.

Financial Management and Equity

As set out above, unequal inheritance can arise for a variety of reasons, from recognising the differing financial needs of each heir to rewarding specific contributions to family or the deceased’s care. Without careful planning, this approach can foster conflict among heirs and complicate the management of the deceased person’s assets.

Financial Implications of Unequal Inheritance for Heirs

Unequal inheritance introduces a range of financial implications for heirs, particularly regarding tax responsibilities and wealth management. Heirs receiving a larger share or significant assets might face potential tax implications, necessitating expert tax advice to navigate these efficiently. On the other hand, heirs receiving less may struggle with feelings of unfair treatment or financial instability. Wealth management strategies may be necessary in ensuring that all heirs, regardless of the size of their inheritance, can benefit optimally from their received assets.

Creating an Equitable Estate Plan Despite Unequal Shares

Achieving equity in an estate plan with unequal shares requires a nuanced approach that considers the individual circumstances and needs of each heir. Strategies might include:

• Detailed Documentation: Clearly documenting the reasons for unequal distribution in related estate documents (such as an affidavit) can help explain the decision and mitigate future  misunderstandings.
• Use of Trusts: Establishing trusts can offer a way to manage larger assets or provide ongoing financial support to certain heirs, such as a child with a disability or one who has contributed significantly to the care of the deceased.
• Tax Planning: Consulting with a tax professional can ensure that the estate and its beneficiaries navigate the potential tax implications of unequal inheritance efficiently, potentially saving significant amounts in taxes.
• Dynamic Wealth Management: Engaging in dynamic wealth management ensures that heirs receiving larger shares manage these assets wisely, while those with smaller shares or specific financial needs are supported appropriately.
• Fairness Through Other Means: For parents who decide to leave unequal shares among their children, finding ways to balance the scales through other means—such as making gifts prior to death or the gifting of personal items of sentimental value – can contribute to family harmony.

In implementing these strategies, it’s essential to consult an estate planning attorney who can offer tailored advice and ensure that your estate plan best achieves your objectives while complying with relevant laws. This careful planning can help reduce conflict among family members and best ensure that the distribution of assets according to your wishes.

Consult Empower Wills and Estate Lawyers Today for Tailored Estate Planning Solutions

If you are looking to provide an unequal inheritance whilst best ensuring your wishes are upheld and your legacy is protected, contact Empower Wills and Estate Lawyers. Our team is dedicated to providing you with expert legal advice and support in relation to your estate plan. Don’t wait to secure your future and the well-being of your loved ones, contact us now on [email protected] or 1300 414 844 for a confidential and obligation-free initial consultation. 

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Disclaimer: the information in this article relates to NSW law as at the date it was written and is general information only. It does not constitute legal advice and should not be relied upon as legal advice. It may contain information or links to sources which are no longer current. If you have a question or legal issue, we recommend you contact a lawyer and obtain legal advice that takes into account your specific facts, circumstances, needs and objectives.