Understanding Deeds of Family Arrangement: A Tool for Flexible Estate Distribution
what you need to know about deeds of family arrangement
Sometimes things don’t work out as we thought or intended. Such as when an estate is distributed either by Will or according to the Administration Act. Some people may feel entitled to a claim or feel they have a greater claim than what is being received. Typically this would only be resolved in lengthy and costly litigations in the High Court which will also drain the Estate of it’s assets.
However, there is another way. If those entitled to make a claim or beneficiaries under a will are able to come to a consensus to distribute the estate differently than statute or the Will they may enter into a Deed of Family Arrangement (”DOFA”).
A DOFA is essentially a legal contract between entitled person or beneficiaries in which they collective agree on how to distribute the beneficiaries decide instead of the will-maker or the law.
Examples of where a DOFA can be used?
1. John Doe is widowed and has 2 children at the time of drafting his Will. John Doe leaves everything to his 2 children, specifically named in his Will, Richard and Sally. Prior to John’s death he subsequently entered into a de facto partnership, with Jennifer and had another child, Bob, without updating his Will.
When John dies his assets according to the Will all go to Richard and Sally. Normally Bob and Jennifer would have to dispute the Will in court in order to make a claim. If Richard, Sally, Bob and Jennifer all get along and agree on how things should or ought to be split amongst them.
Instead of going through lengthy court proceedings, they can enter into a DOFA, a more cost effective solution as the beneficiaries need to agree, have an agreement drafted then be independently advised on it. This is not only beneficial financially but can also preserve family harmony as it is more collaborative relative to the combative nature of court proceedings.
2. Jane Doe and John Doe are de facto partners and own property as tenants in common or in their sole names. Neither Jane nor John have wills and they do not have children together or otherwise. Jane dies and it is usually assumed John will inherit her share but according to the laws of intestacy John will only have claim to the first $155,000, and the remaining 2/3rds of the estate and the remaining 1/3rd goes to Jane’s parents.
Assume Jane’s parents do not want to inherit anything and are happy for John to receive the whole lot as the sole beneficiary. Similar to our earlier example instead of making a claim in court John and Jane’s parents can enter into a DOFA and agree that John is to inherit everything.
Essentially a DOFA allows for more flexible while locking in agreed terms amongst all parties involved, putting the control back in the hands of the family instead of feeling powerless at the hands of the law and the Court.
Others Risks and Considerations
However, DOFA’s are not perfectly solutions and still require specific situations in order to work.
· Parties involved need unanimous consent – This is essentially a contract that all parties involved are agreeing to be locked into. If just one party disagrees then a DOFA cannot be executed.
· If Minors are involved a court application is still required – in some situations the beneficiaries or those entitled to make a claim may still be minors (under the age of 18) and in such cases will require a court appointed guardian to represent them.
· A DOFA is not bulletproof – A DOFA is not immune to a claim under the Family Protection Act or Relationship Property Act, however a well-drafted DOFA can limit or discharge the parties of the right to claim. Always obtain professional legal advice.
· Finality – A DOFA is often full and final. Make sure what you are taking under the DOFA aligns with your understanding. Highlighting the importance of getting independent legal advice.
A DOFA, although simpler and more cost effective than compared to litigation. It is important to have a well structured Will in place to save your family the trouble and allowing them to grieve without further complications
For further updates and information please keep an eye out on our website in the coming year or feel free to contact us.