Failing to plan means planning to fail

In 2022 almost 19,000 marriages and civil unions were registered to New Zealand residents. This represents a bounce back from the (somewhat loveless) Covid-19 years, but as a trend, the number of marriages and civil unions continues to decrease. The general marriage rate in 2022 was about one fifth of its 1971 peak.

Additionally, Kiwis are continuing to get married or enter into a civil union later in life. The median age for a first marriage or civil union in 2022 was 30.1 for women and 31.1 for men. Chances are that people in their 30s are coming into a marriage with greater complexity to their affairs and families than their counterparts were in the 1970s. At the 1971 marriage peak the median ages for a first marriage were 20.3 for women and 23.0 for men.

We can then factor in the 7,593 couples who were granted a divorce in 2022, the continuing reduction in the stigma around separations and the country’s improved life expectancies, and it is obvious that repartnering and blended families will continue to be commonplace. A 2021 STEP research report found that blended families are on the rise, with 96% of respondents around the world reporting that they advise this type of family and 75% reporting that they are serving more blended families now than 10 years ago.

It is no surprise that the shape and make up of New Zealand families continues to change, keeping pace with the changes in the country’s increasingly secular, global and multicultural society.

However, the law does not necessarily keep up with these changes and there is, accordingly, an important reminder here. The more a person’s circumstances differ from what may once have been considered the “norm”, the more important it is to have appropriate estate and personal asset planning arrangements in place to effect their wishes.  

Here are four key points to keep in mind.

Revocation of wills on marriage or entry into a civil union

Generally a will is revoked on marriage or entry into a civil union, unless it was expressly made in contemplation of that marriage or civil union. The theory behind this is that a person’s affairs are changing in such a significant way that previous arrangements are unlikely to remain applicable. This can create a bit of a trap for young (or older) players.

Weddings themselves tend to require a fair amount of organisation and administrative effort, so it is unlikely that the more sombre topic of estate planning is top of mind for a happy couple. However, it is easy to update a will (either by codicil or execution of a new will), so that it is made in contemplation of a marriage or civil union, or simply re-executed soon after the celebratory event.

Conversely, there is no automatic revocation of a will on separation or divorce. A dissolution of marriage or civil union will render certain provisions in a will void (including the appointment of the ex-partner as executor and gifts to the ex-partner, unless the will shows a contrary intention) but this does not apply for informal separations short of a dissolution of marriage or civil union. Assuming not many people would like their ex-partner to inherit under their will or keep the important role of executor following the end of a relationship, it is important to make a new one as soon as possible.

Relationship property considerations

New Zealand’s relationship property legislation (the Property (Relationships) Act 1976 or ‘PRA’) was enacted in the 1970s, when it was generally assumed that a relationship involved a marriage between a man and a woman, who then went on to have and raise a couple of kids and accumulate family wealth over time. The reality for many relationships today is often quite different.

The current relationship property regime includes a presumption of equal sharing of relationship property for relationships of more than three years. For marriages and civil unions of less than three years the division of relationship property is generally determined in accordance with the contributions of each party to the relationship.

For de facto relationships of less than three years, no order can be made for the division of relationship property unless:

• there is a child of the relationship; or
• the party seeking an order has made substantial contributions to the relationship; and
• a failure to make an order would result in serious injustice.

In those circumstances, the division of relationship property is also determined in accordance with the contributions of each party.

The family home and chattels are generally always considered relationship property, despite the fact it is common today for families to move into a home that was initially the property of only one of the parties to the relationship. This can create unintended consequences on any future separation for couples and families.

The best option to avoid these situations is to enter into an agreement contracting out of the PRA. The legislation allows for couples to make their own arrangements in place of some or all of the PRA’s framework. These agreements can be entered into before a marriage or civil union (or commencement of a de facto relationship) or afterwards, but whenever they are entered into, both parties must be independently legally advised as to the consequences.

Strategically, for the wealthier party it would be better to enter into an agreement contracting out of the PRA before their partner gains rights under that Act. Doing so after that point in time effectively means the partner is being asked to give some of those rights up, which may make for a tougher negotiation. 

Although not necessarily the easiest topic to bring up when couples are considering the rest of their lives together, a well thought out contracting out agreement helps to avoid confusion and future conflict. However, an agreement does need to be kept under review to ensure that it remains fair and relevant, as the courts have the power to set an agreement aside if giving effect to it would cause serious injustice.

The Law Commission has undertaken a comprehensive review of the relationship property regime and recommended a suite of changes intended to make the rules fairer. These include changes to the classification of the family home – broadly removing the general proposition that it is automatically relationship property. Instead the home will be relationship property if it was acquired for the parties’ common use or common benefit or if it was acquired during the relationship (excluding gifts and inheritances). This is intended to rectify some of the unintended results of the current regime and better reflect the modern reality.

However, until the changes are implemented the best protection for a lot of couples will be to contract out of the regime. This can be particularly crucial for subsequent relationships or where an equal sharing of relationship property does not reflect the parties’ intentions.

Kids, cats, crypto and capacity

A quick round up of some other important considerations when assessing the appropriateness of personal asset planning arrangements:

Kids

Parents should consider whether they need to or wish to appoint a testamentary guardian in their will for any children who are under the age of eighteen. A guardian is appointed alongside the surviving parent for input into major decisions in the child’s life, in place of the deceased parent. Guardians would ordinarily have a say in matters like where a child goes to school, major health decisions, religion and residence.  Guardians are not appointed to care for the child i.e. have a day-to-day custody. That responsibility usually remains with the surviving parent and cannot be addressed in a will, although, once appointed as a guardian, that person would have a direct right to apply to court to share or gain care of the child.

Appointing a guardian may be particularly relevant for parents who have split from their child’s other parent, or who are concerned to ensure that their views continue to be taken into account in their child’s life. Alternately, parents may wish to appoint a guardian effective only on the death of both parents, leaving the surviving parent to get on with things until that point.

Cats

A 2020 survey by Companion Animals NZ found that New Zealand is home to more than 4.35 million companion animals (animals who share their living environment and a relationship with humans – broadly, pets). The survey found NZ to have the second highest proportion of households with companion animals in the world, second only to the United States. Cats are the most popular option, with 41% of households sharing their home with at least one cat.

Pets should be an important consideration in estate planning. If not specifically dealt with, pets are generally included in the definition of a person’s “personal chattels” and would pass as a part of their residuary estate. In reality, executors will usually take a pragmatic approach as to who is willing and able to care for the animal going forward.  

A person cannot leave money to a pet under their will, but they do have the option to leave money to a trusted person nominated to look after them.

Crypto

People should also give some thought to their digital assets and what they would like to happen to these in the event of their death. Digital assets is a hugely broad (and ever changing) category, encompassing information or content that is created and stored digitally; everything from photos to Bitcoin, email accounts to loyalty points, and social media accounts to NFTs.

Often digital assets are stored behind passwords or biometric recognition barriers, and multi-factor identification may be a pre-requisite to accessing the material. The value of these assets can be purely sentimental or hugely significant. Generally these newer asset classes may not necessarily be well understood or addressed in traditional personal asset planning arrangements.

Some digital assets (like cryptocurrency) can be bequeathed through a person’s will, but there will be certain practicalities to be worked through regarding how to identify, access and transfer those assets. The transfer of cryptocurrency generally requires knowledge of the wallet where it is kept and of the deceased’s private key. Custodial wallets can be used to manage custody of these private keys, or new third party self-custody services can provide another option. Regardless, some forethought needs to be given to the issue to ensure that a person’s cryptocurrency legacy is not lost on their death.

Other digital assets (like social media and email accounts) cannot necessarily be transferred through a person’s will, but individual processes may be able to be put in place during a person’s lifetime to provide access to these, or guidance about what should happen to them, on death.

Apple has a ‘Legacy Contact’ feature, allowing people to nominate someone to have access to certain data in their Apple account following their death. The social media companies all tend to have different policies in place as to how accounts are dealt with when someone dies. While it may be possible to work with technology providers to access or deal with a deceased’s accounts, this is likely to be a time consuming and potentially frustrating process if not addressed (or at least anticipated) during a person’s lifetime.

Depending on the nature of a person’s digital assets, it may be worthwhile appointing a “digital executor” who can be granted access to accounts on a person’s death to deal with them as instructed. This is assuming such third party access is lawful, and careful attention should be paid to all applicable terms of service in this regard.

Finally, given the increased risks of fraud in online settings, it is imperative that any person or process trusted with details regarding digital assets and account information has been thoroughly vetted before any arrangements are made.

Capacity

It is also worth sparing a thought for what happens when a person loses capacity.  Enduring powers of attorney (‘EPAs’) are helpful documents which enable someone to appoint an attorney to take care of their personal care or financial affairs if they become mentally capable. There are two types:

• a personal care and welfare EPA appoints an attorney to deal with decisions about health, welfare or personal care; and
• a property EPA appoints an attorney to deal with personal property (real estate, financial assets, chattels etc). The property attorney is responsible for things like paying bills and managing bank accounts.

The documents are flexible and contain numerous options allowing people to cater the terms of an appointment to their particular needs and circumstances. A property EPA can also come into effect while a person still has capacity, which can be helpful in some scenarios. Being appointed as an attorney is an important fiduciary role, subject to strict duties and responsibilities.

EPAs are relatively cheap to put in place and well understood by institutions who regularly deal with attorneys (like rest homes and banks). Signing EPAs well before they may need to be relied on saves family members the hassle of having to apply to the Family Court to appoint a property manager or welfare guardian after a loved one has lost capacity.

A desire to keep it simple?

When it all starts to look a little complicated people may ask “Is this all necessary?” A person may be happy to share all relationship property equally with their partner and take the view that once they die or lose capacity, none of this is really their problem.

If a person dies without a will, the intestacy rules will govern the distribution of their estate. Let’s say, hypothetically, a person (Charles) dies without a will. He leaves behind a spouse (let’s call her Camilla) and two children (let’s call them William and Harry). Under New Zealand’s intestacy rules:

• Camilla receives Charles’ personal effects (like furnishings, homewares, headpieces etc), $155,000 with interest from the date of death and a third of anything left.
• William and Harry receive the remaining two thirds, divided equally between them.

This outcome may be entirely appropriate. Or it may not be. Again, the further the intestacy outcome is from a person’s preferences, the more important it is for them to put a will in place to ensure their wishes are given effect to.

It is also worth noting that generally, estate administration is easier, cheaper and less stressful for a person’s loved ones when they leave a will. When a person dies without a will there can be significant cost and effort associated with dealing with the estate, for example, establishing there is no will, deciding who should administer the estate and who should inherit. Ordinarily it is preferable to make matters as simple as possible for family and friends left behind.

As a final comment, undertaking a personal asset planning exercise badly, or on the cheap, is also likely to do more harm than good. A poorly thought out will is more vulnerable to challenge and can create unnecessary stress and cost for a person’s family. There is no point eating a pie to figure out who owns it… but this can easily be the outcome if significant legal fees and court costs are required to interpret or give effect to a deceased’s wishes.

The main take home point? Everyone should take a moment to consider what personal asset planning arrangements they have in place and how well these address their needs and wishes. Most situations can be catered for, provided some forethought is given to what a person wishes to achieve.

Should you have any questions about personal asset planning arrangements, please feel free to reach out to the specialist team at Dentons Kensington Swan.