Can Beneficiaries Change a Will After Death? Deeds of Family Arrangement in Victoria

What Is a Deed of Family Arrangement?

A Deed of Family Arrangement is a written agreement between the beneficiaries of an estate (and usually the executor) which varies the way the estate would otherwise be distributed under the Will or on intestacy.

A DFA does not change the Will itself. The Will remains the legal document under which probate is granted. Instead, the deed records the beneficiaries' agreement that, having become entitled to certain interests in the estate, they will redirect or rearrange those entitlements in a different way.

For a DFA to be effective, every beneficiary whose interest is affected must consent. If a person who would otherwise receive less under the rearrangement does not agree, the original terms of the Will continue to apply to their share.

Why Would Beneficiaries Use a Deed of Family Arrangement?

Deeds of Family Arrangement are commonly used where the strict application of the Will would produce an outcome that is impractical, inconvenient or contrary to what the family considers fair. Typical examples include:

• Allocating specific assets: one beneficiary takes a particular property while another receives additional cash or shares of equivalent value.
• Equalising inheritances: adjusting shares to take into account significant gifts or financial assistance provided during the deceased's lifetime.
• Keeping an asset within the family: preserving a farm, family home or business interest in a particular branch of the family.
• Practical administration: avoiding the need to sell an indivisible asset where one beneficiary wishes to retain it.
• Resolving or pre-empting disputes: settling a foreshadowed family provision claim or addressing dissatisfaction with the Will before litigation begins.

A DFA is not a substitute for proper estate planning, but it can be a valuable tool when applied to the actual circumstances of a family after death.

What Risks Should Executors Consider?

An executor approached with a proposed Deed of Family Arrangement should take particular care before signing. The executor's role is to administer the estate in accordance with the Will, not to facilitate rearrangements that suit some beneficiaries at the expense of others.

Issues that typically require careful attention include:

• Fiduciary duties: the executor must act in the best interests of the estate as a whole and the beneficiaries collectively, and must not prefer one beneficiary over another.
• Conflicts of interest: particular caution is required where the executor is also a beneficiary whose entitlements are increased by the proposed arrangement.
• Executor-beneficiaries: where the executor is both fiduciary and beneficiary, the conflict should be acknowledged in the deed and managed by ensuring other beneficiaries have independent advice.
• Transfers to related parties: assets redirected to a beneficiary's spouse, children, company or trust require additional scrutiny and may raise duty and tax issues that would not arise on a direct transfer.
• Informed beneficiary consent: every beneficiary affected by the deed should understand what they are giving up and what they are receiving in return. A signature obtained without proper explanation is unlikely to bind the beneficiary if later challenged.
• Release and indemnity: a well-drafted DFA includes appropriate releases by the beneficiaries in favour of the executor and, where appropriate, mutual indemnities between beneficiaries to deal with any liabilities that emerge after distribution.
• Independent legal advice: the executor should generally insist that each beneficiary obtain their own legal advice before signing, both to protect the beneficiary and to reduce the risk of the deed later being set aside.

An executor who participates in a poorly considered DFA may face personal exposure if a beneficiary later argues that they were misled, pressured or insufficiently informed.

Duty and Taxation Considerations

One of the most important reasons to obtain advice before signing a Deed of Family Arrangement is the potential application of Victorian land transfer duty (stamp duty) and Commonwealth capital gains tax.

Section 42 exemptions

Under the Victorian Duties Act 2000, certain transfers of dutiable property to a beneficiary of a deceased estate may be exempt from duty under section 42, provided the transfer is made in conformity with the Will (or the rules of intestacy) and certain other requirements are satisfied.

The exemption can extend to transfers made under a Deed of Family Arrangement, but only where the arrangement falls within the parameters recognised by the State Revenue Office. Where the deed redirects property to a person who would not have taken under the Will at all, or to a related entity rather than the named beneficiary, the exemption may not apply.

"Each Asset" and "All Assets" approaches

In practice, Victorian DFAs are commonly analysed against two broad approaches:

• The "Each Asset" approach: each individual asset is treated separately, with each beneficiary either receiving their proportionate interest in that asset or surrendering it to another beneficiary. This approach is generally easier to fit within the duty exemption framework.
• The "All Assets" approach: beneficiaries treat the estate as a pool and rearrange entitlements across the whole pool, often with one beneficiary taking a particular asset in exchange for less of another. This approach offers greater flexibility but is more likely to be characterised as involving consideration moving between beneficiaries, which can affect both duty and capital gains tax outcomes.

Real property

Where the deed deals with Victorian real estate, careful structuring is required so that any transfer to a beneficiary falls within the section 42 exemption. Transfers to a beneficiary's spouse, children, company or trust will generally not be exempt and may attract duty assessed on the full value of the property.

Shares and other assets

Transfers of shares, units and similar interests can raise their own duty issues, particularly where the underlying entity is land-rich. The treatment depends on the asset and on the precise structure of the deed.

Capital gains tax

Assets passing from a deceased estate to a beneficiary are generally subject to specific CGT rules, including rollover relief in defined circumstances. A Deed of Family Arrangement may preserve those concessions, or it may inadvertently trigger a CGT event — for example, where one beneficiary effectively acquires an asset from another in exchange for value.

The above is general information only. The duty and tax consequences of a DFA depend on the particular facts and on the law and revenue office practice in force at the time. Specific legal and accounting advice should always be obtained before any deed is signed.

Should Beneficiaries Obtain Independent Advice?

In most cases, yes. Independent legal advice is particularly important where any of the following are present:

• Unequal distributions: the deed results in some beneficiaries receiving materially more or less than they would have under the Will.
• Vulnerable beneficiaries: a beneficiary is elderly, unwell, financially inexperienced or otherwise in a position where informed consent cannot safely be assumed.
• Family conflict: tensions between family members create a risk that a beneficiary may sign under pressure rather than out of genuine agreement.
• Surrender of valuable rights: the deed involves a beneficiary giving up significant entitlements, including potential family provision claims.

Where independent advice is obtained and properly documented, both the integrity of the deed and the position of the executor are significantly strengthened.

Key Takeaways

A Deed of Family Arrangement can be a useful tool for executors and beneficiaries dealing with the practical realities of an estate. It can provide flexibility, preserve important family assets and reduce the risk of future disputes.

It should not, however, be treated as a simple administrative document. A DFA can have significant legal, duty and tax consequences for the executor and every beneficiary involved.

Before any Deed of Family Arrangement is signed, executors and beneficiaries should obtain legal and, where appropriate, taxation advice to ensure the proposed arrangement achieves the intended outcome without creating unintended liabilities.

If you require advice regarding a Deed of Family Arrangement, deceased estate administration or executor's duties in Victoria, contact Parke Lawyers for assistance.