How would you feel if part of a deceased family member’s estate were to be applied to satisfy creditors of a bankrupt beneficiary family member? Would a Will maker really want the Trustee in Bankruptcy to receive a bequest under their Will? Unfortunately, it happens, writes partner DEAN FRITH.
If your spouse, parent or child is a beneficiary under your Will, life insurance policy or superannuation policy and they are bankrupt or at risk of becoming bankrupt, then your Will bequest, superannuation death benefits and/or insurance could end up in the hands of your bankrupt beneficiary’s Trustee in Bankruptcy and creditors. For this reason, estate planning documents should be carefully considered to avoid such a result.
We see many people choosing bankruptcy as a way out of their debts. But do they realise the consequences when unexpectedly, at any time in the three years of the bankruptcy, they become entitled under a Will, superannuation policy or insurance policy? Regrettably, some bankrupts don’t disclose their bankruptcy to family members and irresponsibly avoid this real issue.
Even in circumstances where, for example, an entitlement to a superannuation fund may not be substantial, it is possible that the entitlement to the superannuation fund may also entitle the person to receive significant death benefits, as most superannuation policies provide additional related death coverage (usually worth between $50,000 and $250,000). It would be regrettable if those significant benefits were required by law to be paid to the Trustee in Bankruptcy and creditors of that beneficiary because the beneficiary had been made bankrupt.
Careful consideration of the circumstances of family members, proper legal understanding of the issues and correctly drafted documents can avoid circumstances which would cause part of an estate to be applied to the creditors of a beneficiary who has been made bankrupt.
