A Deed of Family Arrangement is a document used in the administration of an estate to change the way assets are distributed between beneficiaries. As a result, an estate could be divided in a way which is different to the terms of the Will or where there is no Will, different to the rules of intestacy.
When is a Deed of Family Arrangement needed?
There are certain situations where a Deed may be used.
Beneficiaries wish to change the terms of the Will
In some situations the terms of a Will may need to be changed to suit the circumstances of the beneficiaries or, to include further beneficiaries.
An example of this could be where a willmaker has provided that his or her estate is to be divided between his children Fred Smith and Sally Smith however, since making the Will has had another child. In this instance, Fred and Sally may wish to enter into a Deed of Family Arrangement to change the terms of the Will so that the estate is divided between the three children.
Beneficiaries want to change the rules of intestacy
If a deceased dies without a Will, they have died intestate and their estate is divided in accordance with the rules of intestacy. In Victoria, these are provided under Part 1A of the Administration and Probate Act 1958.
In some circumstances, those entitled to benefit from the estate under the Act may wish to override these rules and change the distribution of the estate.
For example, under the Act, where a deceased leaves a partner and children to that partner, the partner is entitled to the whole estate and the children receive nothing. In this situation, the partner can use a Deed of Family Arrangement to override the rules of intestacy so that the estate can be divided between themselves and their children.
To settle a challenge to a Will
Where there is a challenge to a Will, known as a family provision claim, if the parties have been able to settle the dispute without the need for court proceedings, a Deed of Family Arrangement can be used to change the terms of the Will accordingly.
Things to consider
When looking to enter into a Deed of Family Arrangement, there are a few things you need to consider:
- A Deed of Family Arrangement cannot be used to reduce or diminish the entitlement of someone entitled to benefit under the Will or rules of intestacy who is either under the age of 18 years or, someone without mental capacity
- There may be capital gains tax (CGT) implications and these should be explored thoroughly before entering into a Deed;
- There could also be stamp duty implications and again, these need to be explored before entering into a Deed; and
- A Deed of Family Arrangement can provide protections for an executor or administrator from future claims on the estate.
What is to be included?
For a Deed of Family Arrangement to be valid it need to be signed by and include the consent of all beneficiaries (over 18 years of age) entitled under the Will or rules of intestacy and also be signed by the executor or administrator of the estate.
How can Nevett Ford help?
If you are an executor, administrator, beneficiary or a potential beneficiary to an estate and are considering entering into a Deed of Family Arrangement, our Wills and Estate Team can provide you with legal advice on your rights and how those rights could be affected under the Deed and also advice regarding potential tax implications. For more information please contact us on 03 9614 7111 or email at melbourne@nevettford.com.au.