VIC Inheritance and bankruptcy

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Clay Jones

Member
29 August 2019
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I wanted to know if it is an offence for a bankrupt to replace themselves in a Will, with their children?

Six months prior to my mother-in-law passing away, the Will was changed to remove the bankrupt, my sister in-law, as executor and beneficiary, and have her two daughters put in in her place. Is this legal?
 

Rob Legat - SBPL

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16 February 2017
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1. You can't replace yourself in someone else's will. The person whose will it is has to do that.
2. It makes perfect sense to do what you mother-in-law has done. Otherwise, if she passed away while your sister-in-law was bankrupt, the dividend goes to the bankruptcy trustee.
3. A bankrupt can be an executor of an estate, but it's generally not the best idea if there is an alternative.
4. It was your mother-in-law's estate, she can do with it whatever she wanted.
 
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Perp

Well-Known Member
30 June 2015
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As a succession lawyer, I agree with Rob. Not only is what she did legal, it's advisable.
 

Clay Jones

Member
29 August 2019
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But wouldn’t the trustee look at that knowing it’s pretty obvious the bankrupt did it to avoid her responsibilities? Mum in-law was nearly ninety when the Will was changed and wasn’t aware daughter was bankrupt. Seems a bit deceptive to me. You seem to think it’s super clever of the bankrupt, avoiding their debts. She’s set to inherit nearly $170k, or the grad daughters will lol
 

Perp

Well-Known Member
30 June 2015
42
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149
But wouldn’t the trustee look at that knowing it’s pretty obvious the bankrupt did it to avoid her responsibilities?
The onus of proof would be on the bankruptcy trustee to prove that the mother-in-law acted to defeat the daughter's creditors. I'm not sure that's ever been able to be proved.
Clay Jones said:
Mum in-law was nearly ninety when the Will was changed and wasn’t aware daughter was bankrupt.
If mother-in-law wasn't aware the daughter was bankrupt, then clearly she wasn't acting to try and defeat creditors, and that makes it even more above board.

If you're suggesting that she didn't have capacity to make a will, you could challenge the will on that basis, but you'd need evidence.
Clay Jones said:
Seems a bit deceptive to me. You seem to think it’s super clever of the bankrupt, avoiding their debts. She’s set to inherit nearly $170k, or the grad daughters will lol
No, it's called "asset protection". The mother has no obligation to direct her assets to cover her daughter's debts - they're debts of the daughter. Many parents leave gifts to their adult children intending for those assets to ultimately pass to their grandchildren. It's perfectly reasonable for the mother to not want those assets to be forgone by her grandchildren because of their mother's financial issues, and thus to bypass her.