Scroll for more

undischarged bankrupt wills lawyer estate law queensland

Using your Will to help a bankrupt friend or relative

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.

Share to your network

The information provided in this article is for general information and educative purposes in summary form on legal topics which is current at the time it is published. The content does not constitute legal advice or recommendations and should not be relied upon as such. Whilst every care has been taken in the preparation of this article, Wills, Estates and Probate Lawyers (WEP Lawyers) cannot accept responsibility for any errors, including those caused by negligence, in the material. We make no representations, statements or warranties about the accuracy or completeness of the information and you should not rely on it. You are advised to make your own independent inquiries regarding the accuracy of any information provided on this website. WEP Lawyers does not guarantee, and accepts no legal responsibility whatsoever arising from or in connection to the accuracy, reliability, currency, correctness or completeness of any material contained in this article. Links to third party websites or articles does not constitute any endorsement or approval of those sites or the owners of those sites. Nothing in this article should be construed as granting any licence or right for you to use that content. You should consult the third party’s terms and conditions of use in relation to any third-party content. WEP Lawyers disclaims all responsibility and all liability (including liability for negligence) for all expenses, losses, damages and costs you might incur as a result of the information being inaccurate or incomplete in any way. Appropriate legal advice should always be obtained in actual situations.

Subscribe to our Newsletter

Subscribe to our newsletter to get updates on everything Wills, Estates and Probate.

Written by—

Chloe Kopilovic

Call 07 3035 4077 to speak with our team now