Statutory substitution is a complex way of saying that where a parent has made a will giving a gift to a child, and that child has died before the parent, that there are laws that can operate to save that gift from failing.
The relevant sections of law are complex and will operate depending upon the wording in the will, any survivorship periods and the unique circumstances of the matter.
What happens when an original beneficiary dies leaving surviving children?
Section 41 of the Succession Act (NSW) 2006 states that where a testator makes a disposition (a gift) to their children (original beneficiary) under a will, and one or more pre-deceases the testator but is survived by their own children, the share that the original beneficiary would have received will instead be given, in equal parts, to their surviving children (the grandchildren of the deceased). This is a simple example of statutory substitution which in effect substitutes the grandchildren as beneficiaries for the deceased’s child. This can assist ensure that gifts to children who have not survived to receive an interest in their parent’s estate can still have their share pass to their own children.
Statutory substitution will not take effect if a contrary intention appears in the Will. Usually, a Will needs to be drafted with specific wording to exclude the operation of any statutory survivorship provisions.
What assets and gifts can it apply to?
Statutory substitution only applies to assets that fall within the deceased estate asset pool. Property held with another person as joint tenants is subject to the right of survivorship and does not automatically form part of the estate to which substitution could apply. Similarly, assets held in trusts like superannuation are not often subject to statutory substitution provisions.
Alice makes a Will when she is 80 years of age leaving the whole of her estate to her 2 children, Bob and Martha. Bob and Martha are each alive when Alice makes her will. Sadly, Martha dies when Alice is 85 years of age. Martha had 2 children of her own, Lucian and Salvador. Alice still wants her estate to be divided equally between Bob’s side of the family and Martha’s side of the family.
Alice dies aged 90 years not having updated her Will. Luckily, Alice had made her Will with a solicitor whom had advised her about statutory survivorship and statutory substitution. Despite Martha having died before Alice, and there being no mention of Lucian and Salvador in Alice’s Will, Alice’s estate is still able to be distributed half to Bob, and the other half to Martha’s children, Lucian and Salvador. The reason this is possible is because the Will was drafted carefully to take account of various contingencies and because of the application of the statutory substitution rules.
Drafting of Wills
It is important your Will clearly states your testamentary intentions. Leaving wording and gifts open to interpretation can lead to the estate incurring additional legal costs or testamentary intentions not being able to be carried out. This is an issue which often arises in “Do It Yourself Will Kits” whereby vague or conflicting language can leave the estate unable to be administered correctly.
It is important to instruct an experienced solicitor to ensure your testamentary wishes are adequately protected and recorded.
Get in touch with us
If you would like assistance preparing your Will, or you would like to discuss any concerns you may have regarding Will & Estate matters, do not hesitate to contact Turner Freeman Lawyers on 13 43 63 or via our online enquiry form.
This blog was co-writtten with graduate lawyer, Tenille Rossi.