undischarged bankrupt wills lawyer estate law queensland

Using your Will to help a bankrupt friend or relative

Published: Jul 23, 2012 | Author: Chloe Kopilovic

Did you know that if you leave money in your Will to a beneficiary who is an undischarged bankrupt, then that beneficiary’s entitlement could end up going to their creditors?

When a person declares bankruptcy, they will usually remain an undischarged bankrupt for a period of three years. If a Will maker passes away, and one of the beneficiaries is still an undischarged bankrupt, then any money the beneficiary is to receive under the Will, must be paid to the Official Trustee in Bankruptcy such as Insolvency Trustee Services Australia.

For example:

  1. Belinda has 6 months left to live and tells Alan he will receive $50,000.00 under her Will (as Alan has been struggling financially for many years and could do with a windfall).
  2. A few months before Belinda passes away, Alan declares bankruptcy, as he was unable to pay off a home loan (Alan doesn’t mention his bankruptcy to Belinda).
  3. When the time comes for the Executor of Belinda’s Estate to distribute the money under the Will, it is discovered that Alan remains an undischarged bankrupt. Any monies owing to Alan under Belinda’s Will must be paid directly to the Official Trustee in Bankruptcy.

The fallout for everyone involved is:

  1. Alan is upset that the money he is entitled to receive under Belinda’s Will is to be paid straight to the Official Trustee in Bankruptcy to pay off his creditors.
  2. Alan’s creditors are thrilled that some of Alan’s debts will be repaid.
  3. Belinda’s family are upset that Alan never told Belinda he had declared Bankruptcy. They are also upset that Belinda’s hard earned money is being used to pay off the debts of her friends (something Belinda would not have wanted).

The difficulty for a Will maker is knowing whether a proposed beneficiary is an undischarged bankrupt – as being a bankrupt is something that friends and relatives may not be willing to reveal.

It is therefore important:

  1. For a Will maker to be are aware of the financial circumstances of the proposed beneficiaries.
  2. To consider having a clause in their Will regarding bankrupt beneficiaries.
  3. To consider updating a Will if an intended beneficiary is bankrupt or declares bankruptcy.
  4. To consider updating a Will should the financial circumstances of the Will maker or beneficiary change.

Should you have any questions on this topic, or Estate law generally, please do not hesitate to contact me.

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