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Equalisation Clauses In Wills

Many testators express a wish to divide his or her estate equally among their children. Typically, the testator’s intent is to ensure that the division is fair and there is less likelihood of conflict over the distribution of assets. If the equal distribution is the testator’s intent, then he or she may need to consider not only the property that will form the deceased estate, but also other assets that the testator already gave to their chosen beneficiaries. One way to account for both types of assets is to insert an equalisation clause into a will, allowing the appointed executor the power to amend entitlements to even up bequests. This article explains the role of equalisation clauses in wills with reference to recent case law.

What are Equalisation Clauses in wills?

An equalisation clause ensures that any assets that were previously distributed to the beneficiaries are accounted for in the distribution of the estate. The typical types of assets that are subject to an equalisation clause include family trusts or companies, superannuation and life insurance payouts, and gifts given during the testator’s lifetime.

Superannuation, Life Insurance and equalisation clauses in wills

Many people are unaware that superannuation and life insurance accounts are not typically included in a deceased estate. Rather, the rules of the fund or a binding death benefit nomination determine who receives the benefit. An equalisation clause can be inserted in a will to account for the distribution of these assets. For instance, if a death benefit is paid directly to one of the children of the deceased, then an equalisation clause can take account of this and reduce the portion of other assets that this child receives from the will.

Gifts Given During The Testator’s Lifetime

A testator may choose to include a Hotchpot clause in their will to ensure that the distribution of the estate is truly equal. Such a clause is designed to reduce the distribution to a beneficiary in the amount of any “advance” on inheritance given during the testator’s lifetime. A testator should carefully consider how these advances should be considered. For instance, if a property was gifted decades ago and has appreciated in value, the testator should choose whether the value of the advance should be for the amount of the original gift or the current market value of the asset.

Should A Testator Include An Equalisation Clause in their will?

A testator should think carefully before inserting an equalisation clause in their will, as it may not be the right way to achieve their intentions. For instance, on occasion, a testator will include an equalisation clause to safeguard against one of their children contesting the provisions of the will. However, this strategy may not be effective. A child can contest their parent’s will if it does not provide them with sufficient financial support to meet their needs. The court may see an equalisation clause as evidence of a lack of specific attention to the support needs of each beneficiary.

An equalisation clause also does not account for any contribution that a child has made towards the overall value of the deceased estate. For example, if a testator has several children and leaves an equalisation clause in their will, this may be unfair if one of the children contributed significantly to the creation of the testator’s assets (for instance, by working in a family business).

Case Study

The Supreme Court of Victoria examined the issue of calculating valuations for an equalisation clause recently in the case of Craven, Ian Kenneth v Bradley, William Alfred (in his capacity as executor of the estate of Craven, Phyllis Margaret) [2021]. In this case, the testator left a large estate that included several real properties. The will left two of the deceased’s properties to only two of the testator’s children, but it also included an equalisation clause. The clause required the executor of the estate to make adjustments to the distribution of the estate so that each of the children received the same overall inheritance.

Unfortunately, the will did not specify how the executor should determine the value of these properties. As a result, the plaintiff, in this case, was forced to petition the court to make a decision because the provision introduced uncertainty into the administration of the estate.  The court ultimately ordered that a registered, independent valuer should determine the value of the property from the date of the testator’s death. This case illustrates how important it is to carefully draft equalisation clauses, as these provisions should clarify rather than create uncertainty as to the testator’s intentions.

If you have any questions about equalisation clauses in a will, the experienced solicitors at Armstrong Legal are here to help. The contested wills team can assist you if you need to negotiate with an executor over equalisation or escalate a dispute in a court action. Please get in touch by calling 1300 038 223 for assistance with this specific legal action or any other legal matter.

Dr Nicola Bowes

This article was written by Dr Nicola Bowes

Dr Nicola Bowes holds a Bachelor of Arts with first class honours from the University of Tasmania, a Bachelor of Laws with first class honours from the Queensland University of Technology, and a PhD from The University of Queensland. After a decade working in higher education, Nicola joined Armstrong Legal in 2020.

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