KEY POINTS:
Most articles about wills concentrate on the need to make one. But if your affairs are complex, tottering off to Whitcoulls and buying a DIY will-making kit isn't enough.
Family trusts, loss attributing qualifying companies (LAQC)s, businesses and blended families are fraught with traps for the unwary. Make a mistake in drafting your will and your hard-earned assets could fall into the wrong hands on your death - business creditors, acquisitive partners or even the Inland Revenue Department.
What's more, you don't want your family emulating billionaire Howard Hughes' beneficiaries and fighting over your estate for 30 years.
It's essential when setting up a company, family trust, LAQC or other structure to write or revise your will at the same time, says Henry Stokes, the Public Trust's managing solicitor for Auckland. "When you die, all of the structures you have in place are affected."
Business partnerships can be thrown into disarray if the executor of a will isn't given powers to act on the deceased's behalf. "If the will is silent about the business, it can come to a grinding halt," says Stokes.
In the case of family trusts, if a protector isn't appointed by a will to replace you once you die, the beneficiaries may have to go to court each time they want to vary the trust deed, says Kevin Peacock, Remuera branch manager for Guardian Trust.
Many people who have trusts, but write their own wills, fail to realise that they can forgive any outstanding loans to trusts on their death.
Peacock cites the case where a husband and wife were each owed about $600,000 by a trust, after having sold it their family home. The husband died part-way through the gifting programme. Unbeknown to him, in his will he could have forgiven the remaining debt owing to him in one fell swoop. Instead, he left his personal assets, which included the trust debt, to his wife. She was then saddled with twice the debt to forgive.
Peacock says another issue can arise if you have company shares or voting rights in your own name and they pass through the will to the wrong people. "A preferred outcome may be the estate receiving a cash payment equal to the shareholding and the shares passing to the remaining business owners. This involves specialist advice and the correct structuring of life insurance policies and company buy-sell agreements."
There are many other fish hooks, adds trust lawyer and author of Success With Trusts, Ross Holmes.
Even those with simple affairs can make mistakes such as failing to include a clause not to leave money to beneficiaries while they are insolvent.
Gifts to trusts and bequests to trusts in wills escape 33 per cent tax under the Income Tax Act accruals rules only if the primary beneficiaries are close blood relatives, lifelong friends or New Zealand tax-exempt charities.
Another reason that trusts and wills may go hand-in-hand is that some people may want to set up a trust to receive their assets when they die, protecting the money from business creditors or acquisitive partners on behalf of beneficiaries.
Blended families can also be problematic and wills need to reflect that.
Stokes says blended families are typically dealt with in wills in three different ways: the surviving partner gets a life interest in the family home; the family home is left to the partner and other property to the children; or a sum of money is left to the surviving partner and the rest of the assets are divided up.
There is no such thing as an ironclad will, says Mark Maxwell, chief executive of Integrity Trust.
Claims against estates seem to be a fact of life, he says, and expensive. But many can be avoided with careful planning and good communication.
Finally, says Stokes, parents have an obligation in law to provide for their children in the will - although that doesn't mean all must be treated equally. "You have to be careful about this if you want a will to stand up [in court]."
Some tips for writing a will, from Mark Maxwell, chief executive of Integrity Trust:
* Think your intentions through, rather than cutting someone out of the will in anger.
* Discuss your will with those affected.
* Use an experienced will drafter who will know the potential pitfalls of your decision.
* Appoint an experienced executor and also consider appointing an advisory trustee who knows you well, and who can talk to your heirs on your behalf.
* Diana Clement is an Auckland-based personal finance and investment writer
