The inheritance mistake most families don't see coming
In this episode, Mark and Shani unpack how Australians are navigating volatility, adopting ETFs, managing tax considerations, and building portfolios in an increasingly complex investment environment.
The traditional approach of leaving everything to your spouse, with the expectation that your children will eventually inherit, doesn’t always reflect the reality of modern Australian families. Blended families, adult children living at home for longer, second marriages and changing financial circumstances can make dividing an estate far more complicated than many people realise.
On this episode of Investing Compass, we lean on insights from Abbey John, an estate planning lawyer at Estates Now, about the common mistakes families make when planning for the transfer of their wealth.
This episode is based on two articles which you can find below.
A right to reside can give a surviving partner and children security and a clear plan. It can also have important tax implications.
The estate planning mistakes that can leave families fighting
The solution is not always equality, but fairness.
Other estate planning insights:
Making inheritance decisions in an uncertain future.
How the typical Australian Family could save $844,350 in taxes
The value of a testamentary trust is not determined by wealth alone.
Talk to them about finances, estate planning and living arrangements.
Estate planning expert shares how to structure for tax efficiently.
Consider tax, age pension entitlements, aged care, estate planning and family dynamics.
More than 50% of wills are contested. Here’s how to increase the possibility your wishes are honoured.
A look into Power-of-Attorney and why it’s important.
Your inheritance will likely be a house. What should you do with it?
Implications of inheriting or bequeathing property.
You can find the transcript below:
Mark LaMonica: Welcome to another episode of Investing Compass. Before we begin, a quick note that the information contained in this podcast is general in nature. Just not take into consideration your personal situation, circumstances, or needs.
Shani Jayamanne: Now, I know this is Investing Compass, but we might turn the beginning into National Geographic today. Do you want to talk to us a little bit about tortoises?
LaMonica: It’s one tortoise. And the tortoise was in the New York Times, and he has an interesting story.
Jayamanne: So tell me the story.
LaMonica: His name is Jonathan. He’s 194 years old. Which means he was alive when Abraham Lincoln was alive. Which is pretty amazing. And he was given as a gift, so on St. Helena, which is off the coast of Africa, it’s still a British protectorate or overseas colony or whatever they’re calling them now. Somebody gave this tortoise to the British governor. It was probably like 80 governors ago because the tortoise is so old. And his name is Jonathan, and he has lived there for about 150 years. Which is only a small portion of his life. So you don’t think that’s interesting. And then it gets more interesting.
Jayamanne: Okay.
LaMonica: He was having a midlife crisis.
Jayamanne: How did they know that he was having a midlife crisis?
LaMonica: Because he knocked over a park bench and he disrupted a cricket game. Like I don’t know how that happened. He’s a tortoise. He doesn’t move very fast. Like, would it matter if he was on the cricket pitch?
Jayamanne: I mean, I might be jumping the gun here, but wasn’t Jonathan blind?
LaMonica: No, Jonathan’s blind now.
Jayamanne: Okay.
LaMonica: This was a while ago.
Jayamanne: So he like knowingly went on to the cricket pitch.
LaMonica: This is back in the 1980s. So when Jonathan was about 150 at the time, which is when you typically have midlife crisis. So they thought he needed a girlfriend. And they brought a tortoise. The French like ambassador gave a gift of a female tortoise named Federica. And they hit it off.
Jayamanne: So this is like Jackie Kennedy.
LaMonica: Okay. So Federica, they hit it off. They fell in love, or at least they formed a physical relationship. And then it turned out that Federica is a man, a male tortoise.
Jayamanne: Okay.
LaMonica: And so apparently it’s hard to tell. And now the tortoise’s name is Frederick. They change his name, and it turns out Jonathan is in a same-sex relationship. And unrelated, he is now blind.
Jayamanne: Well, as someone with a male dog named Priscilla, I didn’t think the name change was necessary.
LaMonica: That is true. Maybe you should write the British Council. Because you do have a lot of stuff to say about the Brits and one of their few remaining colonies.
Jayamanne: Maybe we can save that for offline. But we have an episode today.
LaMonica: We do. It’s not about tortoises.
Jayamanne: Well, we’re leaning on the insights of Abbey John, an estate planning lawyer at Estates Now. And I had a chat to her about some of the mistakes that she sees because traditional estate planning just isn’t cutting it anymore, and we haven’t changed the way that we manage estates.
LaMonica: And what Shani is referring to is yeah, the changing nature of households. So Uniting’s 2024 Families Report found that although the majority of children live in two parent households or solo parent families, 12% of children live in step or blended families. 6% live in multi-generational families, and 1% live in families made of other kin. The 2026 household income and labor dynamics report by the Melbourne Institute provides longitudinal data on the lives of Australian residents.
Jayamanne: People might know it as a HILDA survey. I think that’s what it’s called by most people.
LaMonica: Sorry for being an immigrant. The HILDA Survey. So the survey has been following the same 7,862 households since 2001. Mapping their lives to understand what changes happen over time. One widely covered finding in the 2026 release was that half of adults aged 18 to 29 are still living at home and relying on their parents to provide a roof over their heads. And that is a big increase because it was 29% in 2001.
Jayamanne: So we’re living in an age where children remain dependent on their parents for far longer and more people are living in non-traditional families. And that means that you might need a different approach for asset transfer and inheritance because it can significantly impact the lives of multiple individuals and the family unit overall. And it’s pretty easy to see how complexity can increase when there’s children from previous relationships, a new spouse, children of different ages and assets acquired at different stages of life.
LaMonica: Right. So what this does is with all these different competing interests, that traditional formula of everything goes to my spouse and then everything will go to my children, can cause a lot of issues in these different and evolving households. So you add in also the emotional complexity that’s often involved with the family home. And then you have superannuation benefits and investments, and there’s just a lot of stuff that you need to take into account.
Jayamanne: So today we’re going to go through some of the tips that Abbey had and some of the common scenarios she sees that families should look out for. So the first mistake that she sees is that people just assume the family will just work everything out. She often sees people assume that they can leave everything to their new spouse and trust that spouse to look after the children. And she says that death can expose competing interests that weren’t obvious when everyone was alive.
LaMonica: And it could be some simple examples. So the surviving spouse might need the family home and enough money to live comfortably, and the kids may just want the inheritance. And those aren’t necessarily opposing objectives, but they can become competing claims over the same assets. So it might just mean that there’s no inheritance that goes to the kids. The second mistake is doing nothing. So not updating an estate plan and having a will that was written during a previous marriage or before you had children.
Jayamanne: And usually that means that the document doesn’t reflect the family that’s sitting around the table today. And it could be a will that leaves everything to a previous spouse. It could also be a will that might leave everything to the current spouse on the assumption that the spouse will eventually pass on all the money to the children. And that assumption can be risky. The surviving spouse may change their will, they might remarry or their financial circumstances may change. Or ultimately, they just might have different views about how the estate should be eventually divided. And the children from the first relationship can end up waiting indefinitely for their inheritance or receive nothing.
LaMonica: And I think Abbey told you that the most common reasons that wills are contested is because of that. So families that are in those positions. And so a common situation is that partner one, who held most of the assets may have died. The assets are transferred to partner two, and then partner one’s children from a previous relationship are excluded upon partners two’s death, the rest of the assets are just transferred to partner two’s children.
Jayamanne: And having an up-to-date and comprehensive will may lower the chances of contests, which are very expensive and can drastically reduce the size of the estate. So let’s move on to the family home, the big one, and this is where we see competing interests become obvious.
LaMonica: If the property is jointly owned, it may pass automatically to that surviving joint owner. If the property is solely owned by the deceased, there is no automatic transfer simply because they both live there. The will has to actually stipulate what’s going to happen with the family home. And this creates a difficult question. It is more important for the surviving spouse to stay in the home, or is it more important for the children to receive that property as part of their inheritance?
Jayamanne: And Abbey says that the answer doesn’t necessarily have to be one or the other. A will can provide a spouse with something called a right to reside in the property for a period of time while ultimately passing the property to other beneficiaries. And that might give the surviving spouse the security of knowing that they won’t suddenly have to move while preserving an eventual inheritance for the children.
LaMonica: And this is probably something that Jonathan and Frederick…
Jayamanne: Need to discuss.
LaMonica: Should think about because I don’t know how long a tortoise lives, but 194 years.
Jayamanne: Don’t they just carry their homes on their back?
LaMonica: Yes, that is true. I was thinking about that for a second, but that is very funny, Shani. Let’s talk about a right to reside if you do not carry your home on your back. This could be more important. And a main residence, so we’ll describe what this actually is. So a main residence secures a CGT exemption and the ATO, and we’ve talked about this before, the ATO allows a two-year grace period from the date of death to actually sell the home and keep that exemption. If the asset is not disposed of within two years of death, it loses that CGT exemption. And that can reduce an estate by hundreds of thousands of dollars.
Jayamanne: And this isn’t an uncommon situation. Any complications or confusions about what to do with a property can delay a sale. And houses can be complicated. If there’s conflicts about what to do with the property in the first place, so whether to keep it or whether to sell it. Mortgages don’t stop just because of the death of a family member. And beneficiaries might be in really different financial circumstances, meaning some might be able to afford the mortgage while others cannot. All of these variables can add delays to the disposal of a family home and disqualify the CGT exemption.
LaMonica: And that’s in a more traditional setting. But as we’ve been talking about on this podcast, there is this additional layer of complexity if there’s a blended family. So imagine a couple who may have been together for 15 years. One partner is two adult children from a previous marriage. The other partner has no children. The home is owned solely by the first partner. When they die, their children expect to eventually inherit the property, but the surviving partner still lives there. So they may have spent years building a life in that home and may have no desire or the financial ability to move.
Jayamanne: And leaving the house to the partner doesn’t resolve the problem as the children may have to wait until their stepparent dies before receiving their inheritance. By then the surviving partner obviously might have done all of the things that we talked about, which is change their will, remarry. So a right to reside is an arrangement that can be used to provide a surviving spouse with safety and security while preserving that inheritance.
LaMonica: And this is actually written into the will so that that person does have a right to live in the property for a specified period of time. That might be two years, five years, or depending upon the circumstances, that person’s entire lifetime. At the end of that agreed upon period, the property can pass to the other beneficiaries under the will. So that can preserve the CGT exemption until after the right to reside ceases. But it is important to get those exact terms correct, which is why it’s helpful to have a lawyer.
Jayamanne: All right, so let’s move on to super. It can complicate things further because it doesn’t operate like a bank account or an investment portfolio that automatically falls into the estate.
LaMonica: A binding death benefit nomination can direct a super death benefit to eligible beneficiaries, meaning the money can potentially be paid directly rather than passing through the estate. Now, this is in most states, with the exception of New South Wales, so something important to remember.
Jayamanne: Abbey says super is frequently overlooked when people put together their estate plans. This can be particularly important for blended families because super can form part of the overall strategy for dividing assets. So for example, a person might structure their estate so that their spouse receives their superannuation at a beneficial tax rate whilst children receive other assets such as property, cash or shares from the estate.
LaMonica: There is an important caveat for Australians living in New South Wales, as I mentioned. Though New South Wales has a notional estate regime that can, in certain circumstances, bring property outside the estate into consideration when a family provision claim is made. So that’s super.
Jayamanne: Yes. And Abbey says that while a binding nomination can be an important estate planning tool, it shouldn’t be treated as an absolute shield against a potential family provision claim in every situation. The rules are complex, particularly across different states, so professional advice is important here.
LaMonica: And ultimately the best advice Abbey can give is that an estate plan doesn’t have to be equal. It has to be fair. You don’t have to give everyone the same amount. You need to look at the needs of the people involved. So she says to form an opinion after asking questions like how long has the couple been together, how old are the children, and are they financially dependent? Is someone already receiving financial assistance? Does one beneficiary need a particular asset? All good questions to ask.
Jayamanne: So basically it’s a who needs what. And that might mean a long-term spouse receives a larger share than an adult child who is financially independent, but it could also mean carving out specific amounts or assets for children. For example, if one child has lived in a property for 15 years, that property might be more appropriate for them than simply selling everything and dividing the cash equally.
LaMonica: Yeah, so we’re not looking at mathematical equality here. It’s more coming up with a plan that reflects the circumstances of your family. We’ve also spoken about testamentary trusts before. She says they can be useful where there is enough money involved. A beneficiary has a particular need for protection, or there are other taxation considerations.
Jayamanne: So rather than simply leaving assets outright to beneficiaries, a will can provide for assets to be held in a trust and distributed according to the terms of that trust. This doesn’t make sense for every family, but there is value in the trust when the circumstances are complex and an estate size does warrant it.
LaMonica: And importantly, a estate plan is not set and forget. Circumstances change, and not just in terms of spousal relationships. Couple may have been together for five years when their will was written. Ten years later, the relationship is obviously longer. Children may be grown up at that point. The family home may have changed and the balance of assets may be completely different.
Jayamanne: Yeah, exactly, Mark. And a will written shortly after a second marriage might look very different to one that is twenty years into a relationship. So Abbey says to start with a list, and that is write down what you own, then work out what your spouse owns, consider the property, investments, cash, superannuation, and other significant assets, and think about the people who matter. So who would need financial support if you died? Who relies on you? Where would your spouse live? What would your children receive? And what would you want to happen to the family home? And importantly, do your current will and super nominations actually reflect those wishes? And Abbey recommends checking binding death benefit nominations as part of this process.
LaMonica: Lastly, there is an uncomfortable reality with estate planning. You won’t be around to talk about what your intentions are when the estate plan is actually being looked at and debated. So if a family dispute occurs after your death, your wishes are the ones being debated. You can’t step in, you can’t explain what you meant. That’s why a conversation, while difficult, but a conversation about estate planning is something you should do while you’re alive and isn’t simply about who gets what. It’s around explaining the reasoning behind it so everyone understands why you believe that this is fair. So that’s our episode for today. Thank you everyone for listening. We really appreciate it.
(Disclaimer: Any advice in this podcast is general advice or regulated financial advice under New Zealand law prepared by Morningstar Australasia proprietary limited and/or Morningstar Research Limited without reference to your financial objectives, situations, or needs. You should consider the advice in light of these matters and any relevant product disclosure statement before making any decision to invest. To obtain advice for your own situation, contact the financial advisor.)
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