Can A Parent Spend A Child’s Inheritance in Australia?

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March 7, 2024

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A parent’s ability to spend a child’s inheritance is contingent upon the conditions governing their access to and control over it.

Trustees or guardians typically manage inheritance for minors (children under 18) until the child reaches the age of majority or an age specified in the will or trust document.

Here are some key considerations:

Trustees and Legal Obligations: If the inheritance is placed in a trust, the trustees have a legal obligation to manage the trust assets in the best interests of the beneficiaries, according to the terms of the trust. They cannot legally spend the child’s inheritance for their benefit.
Guardianship and Conservatorship: If a parent is appointed guardian or conservator of their child’s property, they must manage the inheritance prudently and for the child’s benefit. They must keep these assets separate from their own and can use them only for the child’s care, education, and welfare, as allowed by law.
Legal Penalties for Misuse: Misusing a child’s inheritance can lead to legal consequences, including being required to repay the misused funds, removal as trustee or guardian, and possible criminal charges.
Specific Provisions in Wills or Trusts: The terms set out in a will or trust document can specify how the inheritance will be managed and used. These terms must be followed by the person managing the inheritance.
Court Approval: In some cases, a parent may need court approval to use the child’s inheritance for large or unusual expenses in the child’s interest.
Financial Management and Reporting: Often, parents or guardians managing a child’s inheritance must keep detailed records and may need to provide periodic reports to the court or another overseeing body.

The laws governing inheritance and managing a minor’s assets can vary by state in Australia, so parents or guardians need to understand their legal responsibilities and limitations.

If you’re in a situation where this is a concern, consulting with a legal professional specialising in estate planning or family law in your specific state or territory is advisable.

Also read: Beneficiary Dies Before Receiving Inheritance Australia

Can A Child Contest How Their Inheritance Was Spent In Australia?

Yes, in some circumstances, a child can contest how their inheritance was spent in Australia. Here’s a breakdown of the key points and situations to consider:

Family Provision Claims

A Family Provision Claim is how a child can contest inheritance distribution. This type of claim is permitted if the child believes they didn’t receive “adequate provision” for their proper maintenance and support from their parent’s estate.
Each Australian state or territory has legislation governing family provision claims (e.g., Succession Act of 1981 in QLD).

Factors Considered by the Court

When assessing a Family Provision Claim, courts consider:

The size and nature of the deceased’s estate.
The financial needs and resources of the child making the claim.
The relationship between the child and the deceased.
Any obligations the deceased had towards other people.
Any contributions the child made to the deceased or their estate.

Potential Outcomes

If a Family Provision Claim is successful, the court may:

Order a lump sum payment to the child from the estate.
Redistribute assets from the estate in the child’s favor.
Impose a trust in assets that benefit the child.

Who is Eligible?

Biological or adopted children of the deceased generally have an automatic right to make a claim.
Other categories of people may also be eligible, such as step-children, grandchildren, or others who were financially dependent on the deceased.

Also read: Leaving Money to Grandchildren in a Will

What Are The Responsibilities Of A Parent Managing A Child’s Inheritance?

A parent managing a child’s inheritance has significant responsibilities to uphold. Here’s a breakdown of the key areas:

1. Fiduciary Duty

Parents have a fiduciary duty to act in the best interests of their children. This means putting the child’s needs and financial well-being ahead of the parent’s own interests.
Decisions about the inheritance must be made with prudence, care, and loyalty to the child.

2. Following Legal Requirements

Depending on how the inheritance is structured (e.g., trust, direct bequest), there will be specific legal requirements to follow.
Parents might need to file tax returns, obtain court approval for certain transactions, or adhere to the terms outlined in a will or trust document.

3. Investment and Management

Safeguarding the inheritance: Parents should invest the assets responsibly, aiming to preserve and potentially grow the value of the inheritance over time.
Diversification: Spreading assets across different investment types to manage risk is an important consideration.
Seeking professional help: Consider working with a financial advisor to create an investment plan aligned with the child’s age and long-term goals.

4. Record Keeping and Transparency

Maintain detailed records: Keep accurate records of all income, expenses, investments, and decisions related to the inheritance.
Clarity for the child: Provide regular updates and transparency to the child (age-appropriately) about how the inheritance is managed.

5. Distributing the Inheritance

Adhering to any instructions: If there’s a will or trust, follow the terms carefully relating to when and how the inheritance is distributed to the child.
Age and maturity: Consider the child’s age and financial maturity when releasing funds or making a discretionary trust.
Guidance: Provide guidance and financial education to help the child manage their inheritance responsibly. This may include teaching them about investing, budgeting, and the long-term implications of financial decisions.

6. Potential Issues & Considerations

Guardianship: If the child is a minor, the parent will likely be appointed their legal guardian, with even greater responsibilities.
Protecting from exploitation: Be aware of the risk of others trying to exploit a young person with a sizeable inheritance.

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What Happens If A Parent Mismanages A Child’s Inheritance?

If a parent mismanages a child’s inheritance in Australia, several legal consequences and remedies can be pursued to protect the child’s interests and restore any misused assets.

The actions taken depend on the nature of the mismanagement, the evidence available, and the laws of the state or territory where the issue arises.

Here’s an overview of what can happen:

Investigation and Legal Action: If there’s suspicion or evidence of mismanagement, the first step is often an investigation into how the inheritance has been handled. This can lead to legal action against the parent or guardian responsible for the mismanagement.
Court Intervention: Courts have the authority to intervene in mismanagement of a minor’s inheritance. This can include ordering audits of the inheritance accounts, reviewing financial records, and hearing evidence regarding the management of the funds.
Removal of the Trustee or Guardian: If a parent, acting as a trustee or guardian, is found to have mismanaged the inheritance, the court can remove them from their position. The court may appoint a new trustee or guardian to manage the inheritance properly.
Repayment and Compensation: The parent may be ordered to repay the misused funds into the child’s inheritance. In some cases, the court may also award additional compensation for any losses or damages that resulted from the mismanagement.
Fiduciary Duties and Breach of Trust: Parents or guardians managing a child’s inheritance have fiduciary duties, meaning they must act in the child’s best interest and manage the inheritance prudently. Breaching these duties can lead to legal consequences, including financial liability for losses incurred.
Criminal Charges: In extreme cases, if the mismanagement involves theft, fraud, or other criminal activities, the responsible parent could face criminal charges, leading to further legal proceedings and penalties.
Protective Measures: Courts can implement protective measures to prevent further mismanagement. This might include setting up structured trusts, requiring periodic accounting, and imposing restrictions on how the inheritance can be used.