Background
James, aged 63, resides in Queensland and has complex family issues. He has $3M in assets, mainly consisting of a home and an investment property with no mortgages. He also holds $1M in a Self-Managed Superannuation Fund (SMSF). He is in his second marriage with Susan and has three children: Beth and Tim from his first marriage, and Gary, aged five, from his second marriage. James desires to leave his entire estate to his youngest son, Gary, despite a strained relationship with his older children, Beth and Tim. Susan will get a five year interest in the family home and his superannuation.
Key Issues
Family Provision Claims: Under the Queensland Succession Act 1981, Beth and Tim (as children from his first marriage) are eligible to contest the Will via a Family Provision Application (FPA), claiming inadequate provision. Their estranged relationship with James does not negate their right to apply.
Second Marriage – Spouse Claim: Susan, as the surviving spouse, has a strong claim under family provision laws. Even if provided with his super and a five year license over the family property, she may seek a share of the estate for her maintenance and support.
SMSF Death Benefit Risk: Without proper binding death benefit nominations (BDBNs) or a SMSF Will, the SMSF funds may be distributed according to the trustee’s discretion, potentially to Susan or split between all children, rather than solely to Susan. There needs to be a succession plan in place in the SMSF.
Litigation Risk and Costs: Family provision disputes can result in substantial legal fees, emotional distress, and lengthy court proceedings. Queensland courts typically encourage mediation but often side with equitable distribution unless strategic structures are in place.
Risks and Predicted Costs of Litigation
Legal Costs: Family provision claims can easily cost $100,000 to $200,000 in legal fees for each party. Costs may be paid from the estate, reducing the inheritance. So here where Susan, Beth and Tim plus the Executor all need representation legal fees could reach $600,000+
Settlement Pressure: Courts favour settlement through mediation, however more often than not cases go to trial, meaning James's estate could be depleted by legal fees and settlements.
Delay: The probate process may be delayed for years due to litigation, affecting Gary’s timely benefit.
Recommended Solutions
1. Family Protection Trust (FPT) and Testamentary Trust
Establish a Testamentary Trust (TT) within the Will to hold the entire estate for Gary’s benefit. However this will only operate post any family provision claim - but it is still a necessity.
The Family Protection Trust (FPT) can own high-value assets such as the family home and investment property before death. The problem is that there is stamp duty and potential capital gains taxes on transfers to a FPT. So we could use the Protector which gifts by way of a Promissory Note the underlying wealth held by James to the FPT with the PN being cancelled and replaced by a loan for the purposes of registering security.
Advantages:
Provides asset protection from creditors, lawsuits, estranged children and ex-spouses.
Reduces estate value, lowering the risk of successful family provision claims.
Allows flexible income distribution to Gary (e.g., education, maintenance).
Control: Appoint a reliable trustee (e.g., a professional trustee or family member with LY Legal support) to manage the trust for Gary’s benefit.
2. SMSF Will
Implement a SMSF Will directing 100% of the SMSF to Susan which may be by way of a SMSF Death Benefits trust for minors.
Advantages:
Outside Estate: Not contestable under family provision laws.
Tax Efficiency: Potentially tax-free for minor dependents.
Backup Nominee: Ensure a secondary nominee if Susan predeceases James - Gary.
3. Insurance and Dispute Fund
Take out Life Insurance: Name the Family Protection Trust as the beneficiary.
Provides liquidity to cover legal disputes or support Gary.
Keeps insurance proceeds outside the estate and free from family provision claims.
4. No-Contest Clause (For Deterrence)
Include a No-Contest Clause (Forfeiture Clause) in the Will.
States that any beneficiary who contests the Will forfeits their entitlement.
Though not enforceable to the same extent in Queensland, it can psychologically deter litigation.
Potential Litigation Outcomes if No Action Is Taken
Beth and Tim could each secure $500,000 to $800,000 via a family provision claim, reducing Gary’s inheritance.
Susan could claim a spousal maintenance portion (especially if she proves dependency).
SMSF could be distributed contrary to James's wishes without a BDBN or SMSF Will - who is the Trustee?
Path to Execution
Immediate Actions:
Engage LY Legal and a SAPEPAA Adviser for comprehensive estate planning.
Draft a Family Protection Trust, the Protector and Wills with Testamentary Trust.
Implement a SMSF Will for the SMSF.
Draft a five year license for the property for Susan on James death if she is still alive.
Structural Actions:
Any sale of the properties with registered security to be repaid into the Family Protection Trust and a new property secured if desired.
Fund a life insurance policy payable to the trust.
Long-Term Protections:
Annual review of structures with a SAPEPAA-certified adviser.
Regularly update Wills and trust deeds.
Conclusion
James’s desire to protect his wealth solely for Gary and Susan can be achieved through layered asset protection strategies, effective SMSF Wills, and strategic trust structures. Without these measures, the estate faces high litigation risks and depletion from family provision claims. Engaging with LY Legal and a certified SAPEPAA adviser will ensure a robust plan aligned with Queensland laws and Grant Abbott’s wealth protection principles.
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