New Zealand's inheritance laws are set to change. Photo / 123rf
A new inheritance law, based on an extensive review by the Law Commission, could upset some adult Kiwis in the future. Jane Phare reports.
Kiwis who have fallen out with a parent and are cut out of their inheritance may not be able to contest the will under wide-ranging recommendations that will form a new Inheritance (Claims Against Estate) Act.
But some step-children may be able to claim against a step-parent's estate; and the courts could have greater ability to recover the deceased's assets if they fall outside the estate, for example in trusts.
The recommendations are among 140 in a report by the Law Commission, which was charged by the Government with reviewing New Zealand's outdated inheritance laws. The review of the out-of-date and out-of-touch laws was long overdue, with many of the statutes now more than 70 years old. Among issues they fail to take into account is complex blended families as a result of re-partnering.
The commission has spent two years on the review after completing its report on the outdated Property (Relationships) Act 1976 in 2019. Since then that report has effectively been on the backburner after the Government asked the commission to examine the inheritance laws, so both laws can be considered concurrently.
One of the most divisive inheritance issues is whether or not an adult child should be able to contest a parent's will if he or she has been cut out. The issue drew markedly opposing views during the consultation process, leading the commission to suggest two very different options.
One is that only children under the age of 25, or those who are disabled, would be eligible to claim. The other is that children and grandchildren of all ages should be eligible to claim if the deceased has unjustly failed to provide for them if they are in financial need; or has failed to recognise the child or grandchild.
John-Luke Day, a principal legal and policy adviser for the commission, said it was important for the law to reflect society's attitudes and values, but opinions were so strongly divided on the issue the commission could not propose a single reform recommendation as it normally tried to do.
Dr Rhonda Powell, a Christchurch barrister specialising in trusts, estates and relationship property, strongly disagrees with the under 25 cut-off. She's firmly in favour of "forced heirship" - children's right to inherit from their parents - as opposed to testamentary freedom, which is law in the UK and New Zealand and recognises an individual's right to dispose of their assets however they wish.
She argues that it is people in their late 20s and 30s who are likely to be struggling financially - possibly paying off debt from their education, trying to buy a house, supporting young children and pursuing a career.
"That's the age where you need money. It seems so arbitrary to cut it at 25."
Powell would like to see more "moral recognition" of the parent/child relationship. Installing an age cut-off made it difficult for a child who had been inexplicably cut out of a will to contest the decision.
"And that's just so common. People make really outrageous decisions," she said. "Someone takes umbrage about something and there's a falling-out over what could be a relatively minor thing. But it becomes a big sticking point in the family relationship."
However it's likely to be a while before the over-25s need worry. Indications are that both the new inheritance act and the proposed Relationship Property Act are some time away from becoming law. The Herald asked Justice Minister Kris Faafoi for a timeline for the two reviews to become law. A spokesperson for his office said that given the scale of the Law Commission's reviews - 140 recommendations for both the inheritance and relationship property acts - it would be "a significant undertaking and likely take a period of years".
Day said trying to reconcile the competing interests of parties in the case of a surviving partner and children from a previous relationship, or relationships, was another "tricky" question. Many cases already came before the courts under the existing statutes.
The commission has recommended that if a person dies without a will, the estate will go to the surviving partner if there are children from that relationship. But if there are also children from a previous relationship, the estate will be divided - half to the surviving spouse, and half divided between children from previous relationships.
Another issue is where property does not form part of the estate because the existing statutes do not give the court power to access that property. Apart from assets in trusts, one of the most common examples is a joint tenancy property. The co-ownership means that when one partner dies, their share in the property automatically transfers to the surviving partner, known as "the survivorship rule".
That leaves children from a former relationship unable to access a share of the family home. The commission has recommended that courts be given greater powers to access property that falls outside the estate in those cases.
Other recommendations include:
• introducing effective dispute resolution both in and out of court, including measures to encourage the disclosure of relevant information
• continuing surviving partners' rights to a division of relationship property when their partner dies but revising the rules so that instead of forfeiting the gifts under the will, the value of these gifts are taken into account in a 'top-up' approach
• revising the rules for how estates should be distributed when a person dies without a valid will. Currently the surviving partner receives a fixed sum of $155,000 and a proportion of the estate, often leaving little else for family members. The commission has recommended that the estate should be divided in fixed proportions rather than set amounts
• widening the definition of children eligible for family provision awards, including step-children who have been cared or provided for by the deceased, and those in whāngai relationships
The commission's report also focused on tikanga Māori, recommending that state succession law should weave new law that reflected tikanga Māori and other values shared by New Zealanders (a "third law").
It recommended that tikanga Māori should continue to govern succession to taonga, rather than it be controlled by the new act, and the role of state law should be limited to facilitating the resolution of disputes in accordance with tikanga Māori, based on evidence from kaumātua.
Powell said there would be those who would not agree with the inclusion of tikanga Māori, insisting there should be one rule for everybody, but she was very much in favour of the move.
"It should have happened a long time ago. It's better late than never."
The commission has also recommended that the law be clarified to allow people to legally enter settlement agreements outside the court. Settling a dispute privately was already common practice but possibly not legally binding.
Day said the inheritance laws had been ripe for reform.
"This is social law, family law. Family relationships are at play and when disputes drag on and become embittered they can really destroy family relationships."
The commission felt it was important that people should be able to resolve their disputes as simply, quickly and cheaply as possible, and without having to go through an adversarial court process, he said.
It was difficult for the commission to come up with rules that would be fair in different scenarios and that were not too prescriptive.
"That's the old chestnut. You have hard and fast rules which kind of create a rough justice where everyone knows where they stand, versus allowing the court more discretion to intervene when it's considered unfair."
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