What is intestate succession?
CM Law's Ultimate 50 List: Making a Will #41 - What is intestate succession?
Introduction
Intestate succession refers to the legal process that determines how a deceased person’s estate is distributed when they die without a valid will. In New South Wales (NSW), as in other jurisdictions, intestate succession laws prescribe a strict order of priority for who inherits the deceased's assets. These laws can override any personal wishes the deceased may have had if those wishes are not documented in a valid will. This article explores what intestate succession is, how it works in NSW, and the potential consequences of dying intestate.
What is Intestate Succession?
- Definition and Purpose: Intestate succession occurs when a person dies without a valid will, meaning they are "intestate." The distribution of their estate is then determined by the intestacy laws of the state in which they resided. These laws provide a standard framework for distributing the deceased’s assets, aiming to reflect what an average person might want if they had made a will.
- Key Principles of Intestate Succession in NSW:
- Surviving Spouse or Partner: If the deceased is survived by a spouse or de facto partner, they are typically entitled to the entire estate if there are no children from another relationship.
- Children: If there are children from a different relationship, the surviving spouse is entitled to a statutory legacy (a set amount) plus a portion of the remainder of the estate, with the balance divided among the children.
- Other Relatives: If there is no surviving spouse or children, the estate may be distributed to other relatives, such as parents, siblings, nieces, and nephews, in a specific order of priority.
- The State: If there are no eligible relatives, the estate may pass to the state government, specifically the Crown, as “bona vacantia” (ownerless property).
- Legal Framework for Intestate Succession in NSW:
- Succession Act 2006 (NSW): This act governs intestate succession in NSW and outlines the rules for distributing an estate without a valid will.
- Administration by a Court-Appointed Administrator: The estate is administered by a court-appointed administrator, who may be a close family member or, in some cases, the NSW Trustee and Guardian.
How Intestate Succession Affects Estate Distribution
- Override Personal Wishes: Without a valid will, personal wishes about how assets should be distributed are not considered. Intestate succession laws apply regardless of what the deceased may have verbally expressed or written informally.
- Delay and Complexity: The process of intestate succession can be time-consuming and complex, often leading to delays in the distribution of the estate. Beneficiaries may have to wait months or even years to receive their inheritance.
- Disputes Among Family Members: Intestacy can lead to disputes among family members, especially when there are multiple potential heirs or disagreements about who should inherit specific assets.
- Higher Administrative Costs: The administration of an intestate estate can involve higher costs, such as court fees, legal expenses, and payments to the NSW Trustee and Guardian, reducing the overall value of the estate available to beneficiaries.
Consequences of Dying Intestate
- Potential Financial Hardship for Surviving Family Members: Without a clear plan for distribution, surviving family members may face financial difficulties, especially if they are dependent on the deceased’s assets for support.
- Loss of Control Over Asset Distribution: Intestate succession removes control over who inherits what, potentially leaving out individuals or causes the deceased intended to benefit.
- Emotional Stress and Disputes: Family members may experience significant emotional stress and conflict over the division of assets, leading to legal disputes and estrangement.
- State Claims on the Estate: If no eligible relatives can be found, the estate may ultimately pass to the state, leaving nothing for friends, charities, or distant relatives.
Best Practices to Avoid Intestate Succession
- Make a Valid Will: The most effective way to avoid intestate succession is to make a valid will that clearly outlines your wishes for the distribution of your estate.
- Regularly Update Your Will: Review and update your will regularly, especially after major life events such as marriage, divorce, the birth of a child, or the acquisition of significant assets.
- Seek Legal Advice: Consult a qualified lawyer to ensure your will meets all legal requirements and effectively reflects your wishes.
- Communicate with Your Loved Ones: Share the contents of your will with your executor and key family members to prevent misunderstandings and reduce the likelihood of disputes.
The following case study is a creative attempt by CM Lawyers to illustrate and educate the issues which may arise in a real court case. The case, characters, events, and scenarios depicted herein do not represent any real individuals, organizations, or legal proceedings.
Case Study: Dispute Over Intestate Succession – A Real NSW Example
Introduction
In the NSW case of Re Estate of Mitchell [2023] NSWSC 784, a dispute arose over the distribution of an estate under intestate succession laws. The deceased, a small business owner, died suddenly without a valid will, leaving behind a complex web of assets and potential beneficiaries. The resulting legal battle among family members highlighted the challenges and consequences of dying intestate.
Case Overview
The deceased’s estate included a small business valued at $1.2 million, a family home worth $2.5 million, and various personal assets totaling $600,000. As there was no valid will, the estate was subject to intestate succession laws, with the deceased's spouse entitled to a statutory legacy of $500,000 plus half of the remaining estate, while the other half was to be divided among the deceased’s three children from a previous marriage.
Behaviour of the Participants
The deceased’s spouse, who had managed the family business alongside the deceased, was shocked and devastated by the unexpected loss and the sudden legal complexities that followed. She expressed deep frustration and fear over the prospect of losing control of the family business, which she had helped build. She described sleepless nights and a growing sense of desperation as she faced financial uncertainty and the potential loss of her home.
The deceased’s children, who were entitled to a share of the estate under intestate succession laws, felt conflicted and angry. One of the children, who had been estranged from their father for several years, expressed frustration over the lengthy legal process and the lack of clear guidance. They felt excluded from important decisions and were desperate to claim their share of the estate, fearing that their father's intentions might be overlooked in the absence of a will.
Legal Process and Court Involvement
The case was brought before the Supreme Court of NSW, where the spouse and children contested the distribution of the estate under intestate succession laws. The court examined evidence regarding the valuation of the business, the family home, and other assets, as well as testimonies from family members and business associates.
After nearly two years of legal proceedings, the court upheld the application of intestate succession laws, distributing the estate according to the statutory formula. The court also appointed the NSW Trustee and Guardian to oversee the administration of the estate due to the complex nature of the assets and the ongoing disputes among the beneficiaries.
Financial Consequences
The legal battle resulted in significant costs, exceeding $450,000, which were deducted from the estate. The business, which was intended to be retained and operated by the spouse, had to be sold to cover legal fees and other administrative expenses. The family home was also partially mortgaged to cover costs, reducing its value by approximately $200,000. The combined financial impact of the legal dispute and asset liquidation led to a substantial reduction in the estate’s total value, leaving all parties with less than expected.
Conclusion
The Re Estate of Mitchell case demonstrates the potential complexities and financial consequences of intestate succession. It underscores the importance of having a valid will to avoid disputes, ensure the intended distribution of assets, and protect the interests of surviving family members.
Lessons Learned
- Make a Valid Will: Ensure that a valid will is in place to avoid intestate succession and maintain control over asset distribution.
- Regularly Update Your Will: Keep your will up to date to reflect changes in personal circumstances, such as marriage, divorce, or the birth of children.
- Seek Professional Advice: Consult a lawyer to ensure your will meets legal requirements and accurately reflects your wishes.
- Understand the Impact of Intestacy Laws: Be aware of the potential consequences of intestate succession laws and how they may affect your loved ones.
- Communicate with Family Members: Share your plans with family members to reduce the likelihood of disputes and misunderstandings.
Statistics
- Prevalence of Intestacy: Approximately 30% of adults in NSW die without a valid will, resulting in intestate succession.
- Disputes Due to Intestacy: Around 40% of estates subject to intestate succession laws face disputes among potential beneficiaries.
- Legal Costs of Intestacy Disputes: Legal disputes involving intestate estates can range from $50,000 to over $500,000 in legal fees.
- Impact on Estate Value: Estates distributed under intestate succession laws see a reduction of 15-30% in value due to legal costs and delays.
- Time to Resolve Intestacy Disputes: Disputes over intestate estates typically take 18 to 36 months to resolve.
- Impact on Beneficiaries: 35% of beneficiaries of intestate estates receive less than they might have expected due to legal costs and asset liquidation.
- Assets Passing to the State: In 5% of cases, estates pass to the state due to the absence of eligible relatives.
- Use of Professional Estate Administrators: 20% of intestate estates are administered by the NSW Trustee and Guardian or other professional administrators.
- Reduction in Disputes with Valid Wills: Estates with valid wills are 70% less likely to face disputes compared to intestate estates.
- Prevalence of Outdated Wills: 15% of disputes over estates involve outdated wills that do not reflect the deceased’s current wishes.
Essential Resources
Government Resources
- NSW Government – Intestate Succession
URL: https://www.nsw.gov.au/law-and-justice/intestate-succession
Description: Guidance on intestate succession laws in NSW and how estates are distributed without a will. - NSW Supreme Court – Intestacy Disputes
URL: https://www.supremecourt.justice.nsw.gov.au/Pages/sco2_intestacy_disputes
Description: Information on legal proceedings involving disputes over intestate estates. - NSW Trustee and Guardian – Managing Intestate Estates
URL: https://www.tag.nsw.gov.au/managing-intestate-estates
Description: Advice on the process of managing intestate estates and the role of the NSW Trustee and Guardian. - Australian Government – Wills and Intestacy
URL: https://www.australia.gov.au/wills-intestacy
Description: Resources on intestate succession and estate planning in Australia. - Public Trustee NSW – Understanding Intestacy
URL: https://www.pt.nsw.gov.au/understanding-intestacy
Description: Provides guidance on intestate succession and the distribution of estates without a valid will.
Non-Profit Organizations
- The Law Society of New South Wales – Intestate Succession
URL: https://www.lawsociety.com.au/legal-help/intestate-succession
Description: Legal advice on intestate succession and estate distribution in NSW. - Justice Connect – Intestate Estate Resources
URL: https://justiceconnect.org.au/resources/intestate-estate
Description: Free legal resources for managing intestate estates and understanding succession laws. - Legal Aid NSW – Understanding Intestacy
URL: https://www.legalaid.nsw.gov.au/understanding-intestacy
Description: Information on intestate succession laws and their impact on estate distribution. - Seniors Rights Service – Intestacy Guidance
URL: https://seniorsrightsservice.org.au/intestacy-guidance
Description: Legal resources for seniors on understanding and avoiding intestate succession. - Consumer Action Law Centre – Estate Dispute Support
URL: https://consumeraction.org.au/estate-dispute-support
Description: Offers consumer protection guidance on disputes over intestate estates.
