A common concern of parents looking to update their Wills, or to make their first Wills, is that their children and grandchildren will lose part of their inheritance to a partner.  This concern is not surprising; in 1971, 0.455% of New Zealanders were getting married while 0.051% were getting divorced.  By 2023, the number of New Zealanders getting married had fallen to 0.089% while 0.076% were getting divorced.

Below is the default position regarding inheritance and relationship property under New Zealand law and measures we see people taking to protect their loved one’s inheritances.

Inheritance and Relationship Property

The default position under New Zealand law is that an inheritance is the separate property of a party to a relationship.  This means that it does not fall into the pool of relationship property which is to be divided once a marriage, civil union, or de facto relationship ends.

However, if an inheritance is intermingled with relationship property it is likely to become relationship property.  For example, if money from your estate is placed into a joint account shared by your child and their partner, that money becomes relationship property.  

Non-monetary gifts will also be considered separate property by default but can become relationship property if used for the benefit of the relationship.  For example:

1. A property you leave your daughter could become relationship property because she and her partner use it as a family home or bach;
2. A car left to your grandson could become relationship property because his partner uses it to drive to and from work; or
3. A painting you leave to your nephew could become relationship property because he hangs it in the family home.

Even if your loved ones receive their inheritances while they are single, this does not mean those inheritances are necessarily safe from later relationship property claims.  Furthermore, if your child has children from a previous relationship, a relationship property claim from a new partner upon your child’s death may substantially reduce your grandchildren’s inheritances.

The default position takes some control out of a Will-maker’s hands and requires their loved ones to be prudent about the management of their inheritance, potentially needing to take legal advice of their own.  Naturally, this position leaves many Will-makers without peace of mind.

Contracting Out

One of the most certain ways to ensure your loved ones’ inheritances will not be diminished by relationship property claims is for them to enter into agreements with their partners contracting out of the Property (Relationships) Act 1976.

Such agreements, often referred to as ‘pre-nups’, will set out what is to be deemed separate property and what is to be deemed relationship property.  Inherited items, especially heirlooms and items from grandparents, are commonly agreed to remain separate property in such agreements.

The key weakness with this is that having others enter into contracting out agreements is largely outside a Will-maker’s power.  Some of your beneficiaries may not even be in relationships prior to receiving their inheritance.  Others may have been in a relationship for a long time prior to you passing away and may not want to raise contracting out agreements with their partners of many years.

Trusts

Family trusts can also offer protection for your loved ones’ inheritances.  

A trust could be set up with your children and grandchildren as beneficiaries but not their partners.  Money can be left to your trust either during your lifetime or in your Will.  The trustees can then, in accordance with the trust deed, make distributions to the beneficiaries as and when necessary.

Care should be taken to ensure that the trustees you appoint, and whoever you leave the power of appointment/removal of trustees to in your Will, are going to consider potential relationship property claims against the beneficiaries when handling the trust’s funds.

If your trust’s deed provides for variation or resettlement, trustees who might widen the pool of beneficiaries to include partners or spouses should be avoided.

One downside is that the administrative burden and related costs for operating family trusts has risen in the past five years.  If your estate is modest and your concerns about your loved ones’ current or future partners are minor, operating a trust may not be necessary.  

There are also circumstances in which trust assets can become subject to relationship property claims (see our related article here).

The best options for protecting your loved ones’ inheritances are likely to depend on what your estate contains and the circumstances of your intended beneficiaries.  We recommend speaking with a legal professional about your situation before committing to any single approach.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.

 

Please note that Rainey Collins is not contracted to provide Legal Aid, other than in the Treaty of Waitangi area.  We therefore are unable to take on any Civil or Family Legal Aid work. If you require Legal Aid in those areas, you can search the list of Legal Aid lawyers on the Ministry of Justice website.