Tara (00:50):
Thank you for tuning into another episode of the Art of Estate Planning podcast. It's Tara here, and today I want to chat to you about Codicils.
(01:02):
So yeah, who's still doing codicils? I want to talk to them. Are they actually a lot riskier than we think? And I wanted to just have a little bit of a general discussion about them as a practise tool in our estate planning toolkit and share some of the thoughts that I had because come up a few times. It often comes up in our TT precedents club and yeah, are they a relic of the past or actually a very powerful estate planning tool estate? The case that I'm going to make, I'll get to the end and spoil the ending for you, but I think they are kind of risky and probably should just be left for a narrow set of circumstances when they will work. So if anyone is listening to this and going, well, what is a codicil? So in the context of wills, they're a testamentary instrument that is like a variation or addendum to the will.
(02:07):
So you use it to change the original will. So you might go in this codicil, I delete clause two and put in this following clause two, or I change all references to person A and replace every reference to their name with this other person's name. You can use it to delete clauses, add in clauses, vary the codicil. It's kind of like a deed of variation that you akin to that in the concept of like a trust type world. So you use them for wills as a way to change them, update them, refresh them. Now they have historically been very popular, especially in the era before word processing was so ubiquitous where the will was handwritten or typed out on a typewriter and it was a lot of work to make a new will and change the will. I think I'd like to make the case in this age where it's so easy to just pull up the old version of the will or even generate a new will that we don't really need them as much as has historically been the case.
(03:26):
So the concerns that I have with codicils firstly, so let's put us in the scenario where a client has come to you. Let's say they made their will six years ago and they've come to you and they just want to make a few changes, maybe update the guardians and their backup executor is no longer close to them, something like that. So you could change it with a codicil or you could generate a new will for them. So my concern with doing the codicil in that scenario is firstly you're not then reviewing the whole terms of the will to see if there's other updates that are needed as a result of the change. So yes, you've got to make the change the clients have asked, but have there actually been either legal changes or changes in best practise since that document was made and you are not giving the client the best, most latest shiniest boilerplates and standard provisions.
(04:41):
You might also be overlooking some issues. In the last six years, we've had a complete transformation in terms of how trusts need to deal with foreign persons when they own residential property. Digital assets are a much more common asset class, whether we're talking about cryptocurrency or even just accessing devices and assets. There's a whole lot that we do now that is different to what we did six years ago and by just doing a codicil, you are not giving them 2025, which is when I'm recording this best practise. So that's one consideration. Another concern with the codicil is obviously the more pieces of paper that we have floating around pertaining to the estate plan, the more likely for it to be overlooked or misplaced. Now obviously if you are involved, I'm sure you have really great protocols in place to make sure all the estate planning documents stay together, but especially if it's a short one or two page codicil, it's very easy for that to be overlooked or just neglected to be identified and everyone thinks they're working on the latest version of the will and then down the track this codicil is identified and it changes the guardians or the executives or something substantial.
(06:14):
So I think that creates a bit of risk having the two documents. I also have concerns about the practicality of it in two ways. Firstly, especially I think when it comes to things like testamentary trust, but even just longer simple wills. Sometimes people make the case that if you have an elderly test data, so they made their will and then time has marched on and they're a bit older now and that it's easier for them to just make the codicil instead of making their will again because we don't want to go through all those pages of documents. But even when that client is signing their test data, they still have to have knowledge and approval of the complete terms of the will. And I think that extends to the original will plus the codicil, not just the codicil, because usually when you see these codicil, you need to understand the original will for the codicil to make sense and to have context, you need to understand the entire estate planning strategy that's documented by the original will.
(07:29):
The codicil on its own makes no sense without reference to the original will. So are you actually making it harder for this test data to understand and have full knowledge and approval because we're asking them to sort of refer to two documents and amend their reading of the original document by reference to a second document. It's actually more of a challenging task than it is to just read a new will from start to finish again. So even though we think we're making it easier, and look, I'll admit just talking in broad brush strokes and then getting a elderly test aid to sign a one pager codicil does on its face seem a lot easier. But I think that we may be taking a shortcut that is jeopardising the protection of the knowledge and approval presumption, which can be concerning. I also think it makes it a bit harder for executors when they're administering the estate to understand the full terms of the will and especially if any of those terms are in a testamentary trust and vary the testamentary trust as well in terms of the ongoing terms that they are subject to and that apply towards the inheritance.
(08:47):
They've always got to read these two separate documents together, which I do find quite challenging versus if we had one current document that had out just the complete terms in a single place. Other considerations when it comes to, for instance, inadvertent consequences. So the New South Wales land tax foreign person surcharge actually has a exemption or a grandfathering for wills that were made by 31 December 2020. So we do have a podcast episode number 15 about one of the most overlooked issues drafting testamentary trust wheels and it's about FIRB and New South Wales, or well at least New South Wales, but all states foreign person surcharge, land tax and stamp duty exemptions. So go and have a look at that if you want to dive deeper into what I'm talking about. But basically, wills made by 31 December 2020 don't have to exclude foreign persons as beneficiaries in New South Wales.
(10:01):
And I think there's a case that if you make a codicil to a will that is currently under that exemption, that you are losing the benefit of that grandfathering exemption and you're refreshing it and you will then have to deal with foreign persons. So if you're doing that and losing the exemption, you may as well just produce and generate a new will in your practise management software that proactively comprehensively deals with the foreign person issue deals with digital assets, has the most up-to-date best practise drafting clauses in there instead of this perceived shortcut that I think delivers a substandard outcome.
(10:54):
Now, when is it a good idea to do a codicil look? Maybe if, gosh, I'm actually a bit stuck to be honest. Maybe if the will is very new, it's a good will, you didn't draught it and they've come to you to make a small change and you don't have the benefit of the word version of the will on your system and it's a slightly different one.
(12:23):
I don't know why they wouldn't go back to the original lawyer and you are assuming a lot of risk by accepting the terms of that original will and then the codicil. If you had drafted the will and it's only a year old or something, I don't know why you wouldn't either just generate a new will or just go into your system and update that original will and get them to sign the new will. I think sometimes this ties into our signing preference, so people in our TT precedents club will know that I am an advocate of not signing on every single page. Oh my gosh. I don't know if if I just sent a shiver down your spine, but I think if your will binding method is robust enough so that it's clear that pages haven't been tampered with. So if you do, for instance, my A three booklet will binding method or some other method where it's really nearly impossible for the will to be tampered with, then I don't think you need to sign on every single page and in which case, it's no biggie to get the new will updated and they just sign again on that last page with the witnesses.
(13:43):
I can see how if you are still signing it on every single page that you then think it's easier to do a codicil instead of a 30 page cemetery trust will, again, I'd almost get you to maybe this is a juncture to just sit down and evaluate your choice to keep doing that because there's nowhere in any of the succession legislation that states the will has to be signed on every single page. It is a practise that has developed to rebut any argument that the will has been tampered with and pages have been substituted. But again, if your will binding technique is such that you don't have to worry about that and there can be no possibility of pages being substituted and tampered with, then you don't need the extra safety net of making the client sign on every single page. And I used to get frustrated when I did get clients to sign on every single page.
(14:44):
If you missed a page, then it just created this huge drama of having to go back and get it fixed. So signing on the last page means you focus all your attention on that one page, you make sure it's right, nothing gets overlooked, and you can give all your attention to the execution and attestation requirements on that single page. So I'm getting a little bit off track, but I hope you know what I mean. So it's really just a little bit of food for thought. I think in terms of do codicil still have a place? Look, I think so. They're great to have as a tool in our toolkit. I think they might be overused or over relied upon. I would really caution you to think about do you really need to do a codicil when you're thinking of doing one or are you actually creating a bit of risk for your firm that can be easily overcome?
(15:43):
I think people think codicil are cheaper to do, and in theory it sounds right because there's less pages. But to really do a good codicil, you should be doing an annual review at least, and reevaluating all of the decisions and the strategies in the estate plan. And if you've heard this podcast before, you'll hear me say, I don't think the value that you bring and that your pricing should reflect is in the word processing of the will. That the value that you have in your pricing is in the strategy. Adopting a comprehensive strategy, understanding all the moving parts. We've recently done some episodes on BD, bns and super and how complex that is. Understanding the family dynamic, the guidance and strategy around the testamentary trusts. And even if you're doing a codicil, you still need to either review or check in on all of that strategy.
(16:49):
So people charging a hundred bucks for a codicil without doing all of that strategy work. I think you're setting yourself up for risk exposure because how are you to say that the estate plan is still appropriate without doing all of that work and you are liable for the estate plan, in my opinion, and the outcomes of that estate plan that it's appropriate, not just the single piece of paper that is the codicil. So look, I'd love to have a conversation about this. That's just my thoughts that have been slowly percolating away and evolving whenever it comes up. If you have a different opinion or you've thought deeply about this, I'd love to hear from you. I think today's a little bit of a shorter episode, but that's all right. We've got some free time. Go and do something nice for yourself or sit there and think about what you are doing in your firm when it comes to codicils and binding.
(17:50):
And if you do want to open up the debate, the Art of Estate Planning Facebook group is the perfect place to do it. I'd love to hear from you. I love a robust discussion. If you don't agree with me or you think I've overlooked something really important, I would really welcome hearing that because I think these conversations make us better practitioners and help us keep pushing the limit on what is the gold standard of practise in estate planning. So yeah, I'd love to hear. Thank you so much for tuning in and I can't wait to see you next week.
