Property Settlement After Death

Property Settlement After Death
February 5, 2020 /

When one party passes away during property settlement litigation, it’s not the end of the matter. Proceedings can still continue with the estate of the deceased party becoming the litigant AND … some or all of their assets can still form part of the matrimonial property pool to be divided between the parties.

As a recent case highlights, navigating this area is not simple and if it’s not done correctly, costs orders are at stake.

The Wife commenced Family Law property settlement proceedings and a few days later, the Husband passed away. After separation the Husband had completed a new Will naming his sister as the executor and his children as beneficiaries, and changed the beneficiary of a life insurance policy to a Trust which was to be managed by the executor for the benefit of his children. After the Husband’s death, the insurance payment was made into the Trust.  The first dispute which arose was whether the insurance money formed part of the estate which could be dealt with in property settlement. Ultimately it was conceded by the estate that it did, however by this time the lawyers for the estate had paid out over $28,000 for legal advice to the executor with respect to the litigation from the insurance funds. (The estate was at that time represented by different lawyers).  The Wife brought an application with respect to the payment.

The Court refused the Wife’s application to join the estate’s former solicitors or to recover the $28,000. The Court said that this was  a legitimate expense as the executor/Trustee was well within her rights to obtain legal advice for the purposes of administering the estate, and for that advice to be paid for from the estate funds. The sum paid was around 5-6% of the money when the Wife was only applying for 80% of the money, so there was still enough to satisfy the Wife’s claim in property settlement at the time. The Court did note an “illogical” and “curious aspect of this case” that only the one payment of around $28,000 was sought to be recovered on the basis it would defeat the Wife’s claim in property settlement, however the estate had paid more legal fees after the $28,000 and yet the Wife was not claiming to recover those costs.

There were other blows for the Wife’s case. The Court also refused to order the previous solicitors (not the estate) to pay any of the Wife’s costs on an indemnity basis, there were simply no grounds for the order to be made against the lawyers themselves, let alone on the indemnity basis.

The Court also refused the Wife’s application for an order that the legal advice obtained by the executor be provided to the Wife.  Legal advice is, of course, protected by legal professional privilege – a long established right that is crucial to the fair operation of the legal system.  The Wife had claimed that the privilege had been waived (an argument based on the particular facts of the case).  The Judge did not agree that the executor had waived the privilege over that advice and the Wife’s application was described as “a fishing expedition”.

The Court did however restrain the executor from spending any more estate money, including on legal fees, as this further depletion could start to defeat the Wife’s claim in property settlement. This order was made notwithstanding the Judge’s acknowledgment that an executor is entitled to have reasonable litigation expenses paid for from those funds.  The Judge took into account that the Wife was in difficulty paying her legal fees as well and considered that a restraint would “put the parties on the same footing”.

Overall, some of the wife’s application was successful, but most of it was not. The basis of the Orders sought by the Wife was changed between filing the application and the time of the hearing, so the arguments advanced at the hearing were different from how the case, and the documents, had been prepared. Costs of the application are being dealt with separately but no doubt this will be hotly contested as to bring, and defend, applications like this would have involved significant cost for all parties involved. Of course, in light of the order not to expend any more funds, the executor is now in a difficult position.

Clearly, this was not your average family law case.  However, our experience is that links between estate issues and family law issues are quite common. We have specialised teams of lawyers both in family law and in all aspects of estate administration and litigation, and can assist with complex issues such as arose in this case.    

Call us on 5576 9999 for a free 30min consultation with one of our lawyers.  

The full case reference is Chards & Echols as Executor of the estate of Chards [2019] FCCA 2433

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‘Disgraceful and dishonourable’1

‘Disgraceful and dishonourable’1
January 31, 2020 /

Powers of attorney and elder abuse

Staunchly, I defend Queensland solicitors, and proudly I celebrate the good we achieve in our community. Sadly, this article is not about one of those occasions. 

In the past few years, our profession has done much to support our community as it suffers the insidious increase of elder abuse. Our community looks to us, the legal profession, to support and protect our vulnerable from such abuse. Equally as important, newer practitioners look to more experienced practitioners for guidance and support in this complex legal framework. What then, when it is one of our own, a lawyer 75 years of age with 53 years of legal experience, who engages in elder abuse?

In the matter of Legal Services Commissioner v Poole [2019] QCAT 381 the tribunal found Ivan Poole, a practising solicitor since 1966,2 guilty of four charges brought under the Legal Profession Act 2007 arising from his conduct involving the making of wills, powers of attorney and property transactions. The sustained charges were:

Charge 1 – Dishonest and disreputable conduct in breach of rule 5 of the Australian Solicitors Conduct Rules 2012 (ASCR)

Charge 2 – Duties concerning current clients in breach of rule 11 of the ASCR3

Charge 3 – Communication with another solicitor’s client in breach of rule 33 of the ASCR4

Charge 4 – Unfounded allegations in breach of rule 32 of the ASCR.5 

In finding Mr Poole guilty of each charge, QCAT ordered that Mr Poole be publicly reprimanded, suspended his practising certificate, prohibited him from applying for a practising certificate for five years, and ordered him to pay costs.6

So, what did Mr Poole do?

ABC7 was an 87-year-old8 man with significant property interests, whose estate was estimated to be in the region of $50 million. In 2007, ABC appointed his longstanding solicitor, Sean McMahon, as his personal and financial power of attorney.9 Later, and at the relevant time, a property deal was in train involving MDG who were seeking to be appointed managers of a property involved in the deal. Simultaneously, the relationship between ABC and Mr McMahon was under strain. Mr Ivan Poole represented MDG.

In 2013, ABC suffered a heart attack, was admitted to hospital by his attorney, Mr McMahon, at which time ABC was diagnosed as having also suffered a stroke and diagnosed with dementia.10

Despite Mr McMahon writing to Mr Poole “on 16 April 2013 advising him of ABC’s medical condition including capacity issues” and advising that “ABC was his client and direct[ing] him to cease dealing with ABC directly”,11 on 17 April 2013 Mr Poole and MDG removed ABC from the hospital without the knowledge or permission of the hospital staff and his attorney, Mr McMahon.12 

That same day, Mr Poole had ABC sign a costs agreement in favour of Mr Poole. Mr Poole then shepherded ABC into the offices of “Mr Field of Aylward Game Lawyers seeking to revoke the Power of Attorney”.13 Mr Poole was unsuccessful in that attempt. However, the next day Mr Poole “arranged for ABC to attend at the offices of Mr Hughes of Small Meyer Hughes where ABC revoked the Power of Attorney and made certain changes to his will including appointing [Mr Poole] as an executor”.14

Mr McMahon filed an application and obtained orders that the revocation of attorney was invalid and that ABC lacked capacity.15 Immediately thereafter, the Legal Services Commission (LSC) corresponded on at least two occasions with Mr Poole confirming the court’s order as to ABC’s lack of capacity.16

In the meantime, Mr Poole became aware that ABC’s will did not leave him a bequest. Undeterred by the court’s finding as to lack of capacity, the correspondence from the LSC and correspondence from Mr McMahon, Mr Poole arranged for another solicitor, this time one known to him, to consult with ABC over the phone while ABC was in hospital. 

Mr Poole, did not disclose any of the history of the matter to the solicitor, and directed the solicitor not to ask ABC any questions. A will was ultimately made in which Mr Poole, MDG and a certain doctor were to each receive a 16% share of the $50 million dollar estate – about $24 million.17 During this time, Mr Poole wrote to ABC and made certain allegations against Mr McMahon.

In paragraphs 64 to 84 the tribunal discusses the law and its application to the agreed facts. Justice Daubney properly found “these were serious incidents of misconduct. The public interest and the interests of the profession require that it be clearly understood that practitioners who engage in disgraceful and dishonourable conduct, as occurred here, will be subject to serious sanctions.”18

In his 2014 paper, ‘Current Issues In Probate Law Administration: Life, Death, Form, Function And History’, Justice Geoff Lindsay forecast that “[c]ulturally, death has become more of a process, and less of an event, than it once was”.19 He observed that, while the “expression ‘elder law’ genuflects in the direction necessary”,20 there is a greater “need to redefine the whole subject area”,21 and that “[a]s a process, with different dimensions for ‘person’ and ‘property’, death requires different but interrelated approaches to management before and after the event of ‘physical death’.22

“The legal process of passing property from one generation (or, more broadly, from one person) to the next may commence during a period of incapacity before the arrival of physical death.”23 “[W]ithin the limits of the protective jurisdiction, the interests of an incapable person’s family might be taken into account in the deployment of an enduring power of attorney or during the course of protected estate management,”24 fundamentally changing the character of probate litigation.25

Practitioners in the field of succession law may increasingly find themselves thrust unwittingly into the process of the abuse, or indeed aid in the abuse. Poole’s decision amplifies the importance of proper enquiry and fulsome understanding of our responsibilities. 

On 30 March this year, the amendments to the Powers of Attorney Act will commence, and with that there will be new capacity guidelines made under the Guardianship and Administration Act 2000. Once published, practitioners will be well served in making them a familiar and staple resource.

Christine Smyth is a former President of Queensland Law Society, a QLS Accredited Specialist (succession law) – Qld, QLS Senior Counsellor and Consultant at Robbins Watson Solicitors. She is an executive committee member of the Law Council Australia – Legal Practice Section, Court Appointed Estate Account Assessor, and member of the QLS Specialist Accreditation Board, Proctor Editorial Committee, QLS Succession Law  Committee and STEP.

Notes
1 Legal Services Commissioner v Poole [2019] QCAT
381 per Daubney J at [90].
2 At [8].
3 At [41].
4 At [50].
5 At [57].
6 At [94].
7 “The narrative has, however, been anonymised to
prevent identification of certain affected parties, there
having previously been a non-publication order made
in this proceeding and a further non-publication order
made in the course of the present hearing.” Per
Daubney J at [4].
8 At [28].
9 At [11].
10 At [16].
11 At[50].
12 At [16]-[18.]
13 At [30].
14 At [19].
15 At [19]-[22].
16 At [33]-[34].
17 At [35]-[40].
18 At [90].
19 At [49].
20 At [45].
21 At [46].
22 At [50].
23 At [51].
24 Ibid.
25 At [53].

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Get it done right the first time

Get it done right the first time
January 13, 2020 /

Prenuptial Agreement and lawyers fees

Financial Agreements, including prenups, are really important documents because they often deal with hundreds of thousands of dollars in assets, superannuation and debt. It will finally determine a wife, Husband or de facto partners claim for a large amount of money.

So it’s absolutely crucial that they are done properly.  If not, then a Court can set them aside and this means that your Agreement is not worth the paper it’s written on.

This happened in a case recently before the Family Court about a prenuptial agreement. The parties separated and the Wife sought spousal maintenance from the Husband. The Husband sought to rely upon the prenuptial agreement that said no spousal maintenance should be paid.  The part of the Agreement dealing with spousal maintenance was not properly drafted in accordance with s90E of the Family Law Act, the Court set aside the Agreement and ordered the Husband to pay $500 per week to the wife and various other expenses (for any geeks out there see Guild & Stasiuk [2019] FamCA 167).

Be confident that your Agreement was done right the first time by retaining an experienced, specialist family lawyer. It’s well worth it for both of you.  

For assistance regarding Binding Financial Agreements, contact our experienced family law team on 5576 9999.

Should you wish to download a copy of this article please click HERE.

More experiments in the family courts – another pilot programme for property settlement announced

More experiments in the family courts – another pilot programme for property settlement announced
December 15, 2019 /

Lawyers and separating couples who have property settlement applications before the Court in Brisbane may have already met Registrar Turnbull and the Discrete Property List pilot programme.

Well there is another trial programme being piloted in Brisbane for property matters.

Separated couples whose property pool is less than $500,000 are being diverted to the government’s new Small Claims Property Pilot.  Why? This programme ‘aims to ensure families do not exhaust their limited assets on legal expenses’. It is also another attempt to streamline the Court’s procedures, reduce caseload and thus reduce delay and expense for people seeking access to the Courts for property settlement.  

The Small Claims Property Pilot will commence in January 2020 in Brisbane, Parramatta, Adelaide and Melbourne. The Pilot will run for 2 years.

For assistance in navigating property settlement matter, contact our experienced family law team on 5576 9999

https://www.attorneygeneral.gov.au/media/media-releases/pilot-program-save-time-and-money-separating-couples-29-november-2019

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What’s in a word? Family law orders – words really do make a difference

What’s in a word? Family law orders – words really do make a difference
December 11, 2019 /

A recent case highlights how careful you have to be when preparing Court Orders

In a de facto property settlement, the Order for division of the property included a requirement for the de facto wife to pay the de facto husband a fixed sum of money, and if she could not make the payment within 60 days then a house was to be sold and the fixed sum paid from the sale proceeds, with interest. The effect of the Order as a whole was that the net property pool was divided 70% / 30% between them. 

The payment could not be made so the de facto wife sold the property and paid the fixed sum (with interest) in accordance with the Order.

The issue that arose was the house sold for a higher amount. At trial the value for the house was given as $725,000 (and the 70% / 30% split calculated on that basis) but the house then sold for $920,000. The Orders meant this increase was kept by the de facto wife.

The De facto Husband brought an application on the basis that the De facto Wife had defaulted and caused the sale of the house and by doing so she received more than 70% of the pool contemplated in the Orders. He sought Orders to remedy this.

The Court did not accept this or make any other Orders as;

  1. there was no default because the payment was made in accordance with the Order as it was written; and
  2. the Order did not say that he should receive a payment being a percentage of the total net property pool. The Order said he should be paid a fixed sum, the result of which was a 70% / 30% at the time. The effect is that any change in the value of the property would “lie where it fell”, meaning the one party would have to bear the result in any change in value, whether higher or lower.

Crafting property Orders are not simple. There are traps and pitfalls.  Call 5576 9999 to speak to an experienced family lawyer who can assist you to navigate this complex area. 

http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FCCA/2019/1880.html

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De factos – the I do’s and I don’ts

De factos – the I do’s and I don’ts
November 28, 2019 /

Love and marriage go together like a horse and carriage…1

It seems for many Australians the crooner’s chorus is not a melody which resonates, because, as of 2016, some 1,751,424 Australians had chosen to be in a de facto relationship. Nationally, that equates to just over 10% of our population, but in Queensland it is as high as 12%.2

Perhaps it was for that reason the Queensland State Parliament saw fit to amend the Succession Act 1981 (Qld) in 2017,3 inserting a new section 15B which provides for the effect of the end of a de facto relationship on a will. In short, the ending of a testator’s de facto relationship now revokes: 

– a disposition to the testator’s former de facto partner made by a will in existence when the relationship ends

– an appointment, made by will, of theformer de facto partner as an executor, trustee, advisory trustee or guardian

– any grant, made by will, of a power of appointment exercisable by, or in favour of, the testator’s former de facto.

The amendments alter a longstanding difference between the effect of the end of a marriage on a will and the end of a de facto relationship on a will. While some might consider the amendments have harmonised and equalised the circumstances, they may in fact create more problems than they solve. 

This is because no other state or territory has an equivalent provision. This provision only exists in Queensland. That will likely create a conflict of laws issue on their death, if the testator executes a will in any jurisdiction and then moves interstate and the de facto relationship ends. At the very least it creates a risk management issue for both estate planning lawyers and family lawyers, not just in Queensland but Australia-wide.

It is also important to note that this Queensland provision only impacts the will on the ending of a de facto relationship. Entry into a de facto relationship does not impact on the will. A further anomaly is that entry into and ending of a marriage impacts a Queensland enduring power of attorney, however there is no corresponding amendment to s15B Succession Act 1981 made to the Powers of Attorney Act 1998, nor within the recent amendments to that Act passed in April this year. 

A further conundrum is that, while we are legislatively prohibited from having more than one marriage at a time, there is no prohibition on having multiple de facto relationships, or being married and in a de facto relationship simultaneously. 

So that we can properly advise our clients, we and they need to understand what a de facto relationship is for the purposes of succession law and when does it end? This is important because currently Australia has no less than 33 different legislative definitions of de facto status.4 

For the purposes of Queensland succession law, the answer lies in the combination of the definition of ‘spouse’ under S5AA of the Succession Act 1981, which then refers to section 32DA of the Acts Interpretation Act 1954 (the AIA). However, neither the Succession Act 1981 (Qld) nor any other provides guidance on when a de facto relationship ends. For that, we are left looking to the common law and there we are faced with a wide array of approaches and outcomes.

Most recently, in In the Matter of the estate of Benjamin John Gleeson, deceased [2019] VSC 589, the court found that the onus is on the propounder to positively demonstrate that the defining characteristics of a de facto relationship are in existence, with the court taking a cautious approach to the evidence, because the deceased party is not able to give evidence.5 

In attempting to demonstrate the ending of a de facto relationship, in Dow v Hoskins [2003] VSC 206 the court considered it must take into account the human reality and not apply a narrow and pedantic view of living together in the circumstances. There the court considered that the propounder must demonstrate the shared intentions of the parties to continue their relationship, despite the existence of extenuating difficulties.

In Estate Hawkins; Huxtable v Hawkins [2018] NSWSC 174 Justice Lindsay determined that whether there was or was not a de facto relationship was a question of how the parties conducted their relationship.

In that context the family law decision of Cadman & Hallett [2014] FamCAFC 142 evidences just how complicated that can be. The matter involved a gay couple in a non-exclusive relationship for 19 years. They were not always residing together. One party left Australia to study overseas and did not return full time but did return from time to time. Despite living in different countries and not having a sexual relationship, the determination as to whether the relationship had come to an end came down to a question of whether communication of  the end of the relationship had occurred. The  court looked at a number of things, including ongoing financial contributions and when one of the parties made changes to his will. 

Levers v Superannuation Complaints Tribunal [2016] FCA 936 involved an application for judicial review of a trustee’s determination to pay 100% of super to the de facto husband. Mrs Levers, the mother of the deceased, was the legal personal representative of her deceased daughter’s estate, Ms Redfearn. She died tragically on 22 April 2011, as a consequence of an attempted suicide on 20 April 2011. Mr Hattingh, the third respondent, contended he was living with Ms Redfearn at the time in a relationship. He lodged a complaint in relation to the trustee’s decision with the Superannuation Complaints Tribunal, the first respondent. The tribunal set aside the trustee’s determination and determined that 100% of the death benefit should be paid to Mr Hattingh.

There was evidence as to the history of domestic violence between the couple. Relevantly, Mr Hattingh was imprisoned for a period for breach of a domestic violence order. Central to this was the interaction between the couple after Mr Hattingh was released from jail. Mrs Levers asserted that the cause of the testator’s suicide was because Mr Hattingh had ended the relationship. However, it was found there was no evidence supporting that. Further, the existence of domestic violence in a relationship was not considered a relevant factor in determining whether the relationship existed.

So, what practical steps can practitioners take to address these complexities? 

– When discussing de facto status with the client, identify for them what it means in succession law terms.

– Conflict of laws – advise the client that if they change their domicile, then they should review the situation with a succession lawyer in that state or territory. 

– Be aware that clients can have more than one spouse, and multiple de factos, and raise that with them.

– Recommend the client seeks legal advice if they are concerned about whether they have ended the de facto relationship.

Christine Smyth is a former President of Queensland Law Society, a QLS Accredited Specialist (succession
law) – Qld, QLS Senior Counsellor and Consultant at Robbins Watson Solicitors. She is an executive 
committee member of the Law Council Australia – Legal Practice Section, Court Appointed Estate Account Assessor, and member of the QLS Specialist Accreditation Board, Proctor Editorial Committee, 
QLS Succession Law Committee and STEP.

Notes
1 Love and Marriage, Frank Sinatra, 1955.
2 2016 Census – Australian Bureau of Statistics.
3 See the Court and Civil Legislation Amendment Bill 2017passed on 5 June 2017. cabinet.qld.gov.au/
documents/2017/Mar/CandCBill/Attachments/Bill.PDF.
4 For list of the various pieces of legislation defining ‘de facto’ see the writer’s Proctor column, August 2015,
discussing de facto matter of Spence v Burton QCA 104.
5 At [31].

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Important Issues to Consider When Buying a Business

Important Issues to Consider When Buying a Business
November 10, 2019 /

If you are planning on buying a business, whether it be a small coffee shop or a multi-million dollar construction business, there are a number of important factors that you need to take into consideration.

Some of the main issues to consider are:-

  1. Buying entity/structure

Before you sign a contract, you need to get good advice as to the proper structure for your business and the correct buying entity.

For instance, it would often be beneficial for you to establish a discretionary trust with a corporate trustee to buy the business.  This structure can have the benefit of asset protection for you as well as having tax benefits.

If the business is heavily reliant upon certain Intellectual Property (“IP”), such as a trademark or patent, you may want to establish a further separate entity which would own that asset so that it is protected from the other assets of the business. 

  1. Due diligence

It is of course always prudent to carry out extensive due diligence enquiries of the business.  Due diligence can cover a vast array of issues and you should seek the assistance of your solicitor and accountant or financial adviser in relation to the various due diligence enquiries which may be necessary.

Common due diligence investigations are:-

  • Business name – you need to ensure that any name that you are acquiring with the business is properly registered and owned by the party selling the business.
  • IP – again, you need to ensure that any IP is owned by the party selling the business and that you will be taking ownership of the IP upon settlement.
  • Figures – you will of course want to ensure that any figures provided to you by the seller are accurate and you should have your accountant and financial adviser carefully scrutinise these.
  • Regulatory requirements – it is crucial that you ensure that you will have all of the necessary licenses, permits and qualifications to enable you to lawfully operate the business.
  1. Lease

A major part of buying a business is dealing with the lease for the premises from which the business operates.  You will need to determine whether you will be taking an assignment of the existing lease or negotiating a new lease with the landlord.  In either case, you will need to obtain the agreement of the landlord and ensure that you are satisfied with the terms of the lease.

  1. Employees

Of course, the most important part of any business is the staff. You will need to determine which staff you wish to retain, and enter into appropriate agreements with them.

The issue of who pays accrued entitlements of the staff needs to be dealt with in the contract.  Generally, an adjustment is made in the buyer’s favour for a portion of accrued leave and long service leave entitlements. 

  1. Stock

Stock is a crucial component of some businesses, and not so important in other service-based businesses.  In any event, the contract will need to stipulate whether or not stock is included in the purchase price. If not, a maximum figure you will be required to pay in addition for stock should be included in the contract.  A stock-take would then need to be carried out prior to settlement. 

  1. Restraint

In buying the business, you will of course want to ensure that you are protected against the seller opening a similar competing business nearby, or going to work for a competitor.  It is therefore crucial that you include appropriate restraints on the seller in the contract. 

Restraints must be reasonable and carefully drafted, or they will be found to be unenforceable by a court. 

  1. GST

Generally with a business, you will be buying the business as a going concern, and therefore, GST will not be payable in addition to the purchase price.  You will of course need to meet the requirements of the “going concern” provisions in the GST legislation and in particular, your buying entity will need to be registered for GST.  There will be some cases where the purchase doesn’t qualify as a going concern, and accordingly it is important to get good advice in this regard. 

  1. Earnouts

In some businesses, you will want to ensure that the seller stays in the business for a period of time after settlement to ensure continuity and also to ensure that the purchase price is justified.  In these cases, you can require that the seller remain in the business for a fixed period of time and that a portion of the purchase price will be contingent upon certain sales or profits being achieved.

Every business is different and presents its own challenges. If you are going to pour your heart and soul as well as a substantial amount of money into a business, you need to give yourself every chance of succeeding. This means doing your homework before you buy!

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Super powers and personal representative problems

Super powers and personal representative problems
October 31, 2019 /

What is the extent of a personal representative’s duty to call on superannuation proceeds?

Given the analysis of this question undertaken in McIntosh v McIntosh [2014] QSC 99 (McIntosh) and Brine v Carter [2015] SASC 205 (Brine), practitioners would be forgiven for thinking the permutations around that duty were settled.

However, thanks to two recent Western Australian decisions – Denise Hilda Burgess as administrator of the estate of Brian Michael Burgess v Burgess [2018] WASC 279 (Burgess) and Gonciarz v Bienias [2019] WASC 104 (Gonciarz) – the courts have considered a number of nuanced circumstances that broaden and deepen our understanding of the extent of the duty.

In McIntosh and Brine, the conduct of the personal representatives was less than optimal. Both behaved in a covert and misleading manner to advance their own interests. But what of a personal representative who honestly, but mistakenly, makes a competing application, who then takes all steps to rectify the mistake, and who is transparent and open to the parties and the court as to the circumstances?

Burgess was one such circumstance. The court opened its judgement with an experience most of us have with clients.

“The facts underlying the present application are relatively commonplace, but the problem they present is legally complex.”1

A de facto couple with two young children was struck down when the husband and father died without a will. While at the time of his death he was in stable fixed employment, prior to that he was a fly-in, fly-out worker who had accumulated four different superannuation policies with benefits, including death benefits attaching on his death.2

There was about a year between his date of death and his de facto becoming appointed as administrator of his estate.3 Prior to her appointment, she made application for the proceeds of two funds to be paid to her in her personal capacity. One superannuation fund paid the proceeds to her prior to her appointment as administrator. However, the second fund paid it to her six months after her appointment.4 The third superannuation fund paid modest proceeds to the estate.5 The fourth fund had not made a determination at the time of the hearing.

So, the application presented “an issue concerning the likely conflict of interest”6 between her position as an administrator of the estate in which she owed fiduciary duties to the estate and that of her position and entitlements as one of three beneficiaries of the estate.

Underlying the application was the manner in which an intestate estate is distributed on death. This is relevant in the context that intestacy entitlements differ from state to state, as do the eligible persons.7

In this case, the intestate estate was distributed between the widow and her two infant children for which she had the responsibility of care.

The primary question before the court was whether the widow was required to account for the funds that she had received after the grant, and whether she was able to receive the funds being held in abeyance in the fourth fund. In seeking those answers, she sought for the court to distinguish McIntosh on the facts, or for it not to be followed.8

In considering the matters, the court was at pains to observe that there was not “the slightest suggestion of any misdealing conduct or misappropriation of any of the superannuation payment funds received by Mrs Burgess”.9 In respect of the facts of this matter, the court lamented that “hard cases make bad law”.10

The court went through how the widow had dealt with funds she received, with a significant portion being put towards a home for herself and her children,11 and the creation of an apparent estate’s proceeds trust for her children.12

Mrs Burgess sought to rely on s75 Trustee Act 1962 (WA), a provision that empowers the court to excuse the actions of a trustee when those actions are honest, reasonable and ought fairly to be excused. This provision is mirrored in other states.13

After carefully considering the submission and the applicable passages from McIntosh, the court focused on the duty. It found:

“The nature of an administrator’s fiduciary position is such that it requires the fiduciary’s undivided loyalty in pursuing exclusively the interests of beneficiary parties – to the exclusion of all other rival interests. The rigor of the fidelity required of trustees and those who discharge equivalent positions by courts of equity over centuries has never diminished. Across time, celebrated prior cases such as Keech v Sandford (1726) Sel Cas 61; 25 ER 223 and Boardman v Phipps [1966] UKHL 2; [ 1967] 2 AC 46 provide merely two of many examples of situations where what on the face of it might otherwise be regarded as a harsh result taken against the actions of a trustee, was necessary to preserve the integrity of the office of trustee…14

“In an age of increasing moral ambivalence in western society the rigor of a court of equity must endure. It will not be shaken as regards what is a sacred obligation of total and uncompromised fidelity required of a trustee. Here, that required the administrator not just to disclose the existence of the (rival) estate interest when claiming the superannuation moneys in her own right from the fund trustee. It required more. It required her to apply as administrator of the estate for it to receive the funds in any exercise of the fund trustee’s discretion.”15

Martin J went on to affirm that “…the approach of Atkinson J taken in McIntosh cannot be faulted as a matter of law. I would respectfully apply it here, even though the underlying facts are different. The interest of a deceased estate require a ‘champion’ who cannot be seen (even if they are not) to be acting halfheartedly, or with an eye to achieving outcomes other than an outcome that thoroughly advances the interests of the estate – to the exclusion of other claimants.”16 And on that basis the court refused her application and would not excuse her breach;17 and so ordered that she account, although the accounting was structured as a trust in the house for the children with offsets against the funds already placed into trust for them.

So, if the duty of a personal representative to the estate is one of “sacred obligation of total and uncompromised fidelity”18 and a court will not excuse the breach, is there another means open to disentangle what might otherwise be an innocently ignorant breach?

Gonciarz involved those elements.

It was a matter that came before the courts within about six months of the decision of Burgess, with the relevant events occurring before and crossing the decision. The deceased died intestate, on 4 August 2017, survived by his wife, brother and mother. His wife was appointed administrator of his estate on 18 December 2017.

His wife had two children from a prior relationship. Under West Australian intestacy laws, the deceased’s wife, brother and mother shared equally in his modest estate, the net value of which was $140,000.19 He, however, had a superannuation fund with a death benefit of $541,412.20. There was no binding nomination.

Prior to marrying the administrator, however, the deceased had made a non-binding nomination in favour of his brother. Prior to her appointment as administrator, the deceased’s wife completed a claim form calling for the superannuation to be paid to her. In completing the form, she did not identify any other claimant.

After she was appointed administrator, the fund sought for the details of the deceased’s stepchildren and brother to be provided. The wife’s solicitor complied with the request. The trustee subsequently determined to distribute the entire proceeds to the wife. However, the deceased’s brother objected to that decision.

Crucially, the brother asserted that he did not believe the deceased and the testator were living together at the date of the deceased’s death.20 The wife then commenced a claim for further provision from the estate, naming herself in her capacity as the administrator of the estate.

The brother and mother of the deceased then started a campaign of complaining about the administration of the estate. It escalated to the point that they lodged an application for her to file and serve accounts along with a plan of distribution.21 They then raised the issue of her claim for the superannuation fund, referring her to the decision of Burgess pressing the issue of conflict. As a result of becoming aware of the decision, the administrator promptly wrote to the superannuation trustees seeking for them to “disregard”22 all her previous claims on the funds. The trustee subsequently determined to pay the proceeds to the estate.

However, in advising of the decision the trustee revealed that the deceased’s brother asserted that the deceased and the administrator were not in a de facto relationship at the time of his death and that this was a factor in their determination.23

This allegation distressed the administrator and she sought for the brother and mother to consent to her resignation as administrator in order that she be free to respond to the allegation made to the superannuation trustee. They declined, resulting in the administrator applying to the court to resign as administrator.24 Relevantly, the administrator was suffering from depression and under medical care for the depression from within months of her husband’s death through to February 2019.25

The court considered its powers to revoke the grant,26 while considering, referring to and affirming the decisions of McIntosh and Burgess. The court considered the fact that she was making a claim for further provision in the estate, the acrimony between the parties, and how that would likely affect the matter moving forward.

Observing that the overarching principle in personal representatives acting in an estate is always contingent on the due administration of the estate, the court affirmed that “the death benefit is not an asset of the estate. Rather, it is a benefit that may vest in the estate, if, and only if, the Trustee exercises its discretion to pay the benefit to the estate and not wholly to the plaintiff.”27

The court found that the administrator was in a conflict of interest with the estate, that it was in her own interest to challenge the trustee’s decision, and that compelling her to administer the estate when she no longer wished to do so was not for the benefit of the estate. It would be “inimical to the due and proper administration of the estate and to the interests of the parties beneficially entitled to it. If the plaintiff was compelled against her wishes to continue with the administration I fear that is inevitable the level of disputation experienced in the past will be perpetuated.”28

So, what do the cases tell us?

1. A personal representative, be they an administrator or executor has the same fiduciary duty of “sacred obligation of
total and uncompromised fidelity”29 to the estate to the exclusion of all others.

2. A conflict will arise when a personal representative seeks to raise a claim on the superannuation for themselves after
they have been appointed, or receive the funds after they have been appointed.30

3. Timing is relevant to the duty being engaged, that is a decision or payment by the trustee made after the appointment will place the personal representative in conflict.31

4. In respect of an executor, the conflict can be authorised by the testator, however, it requires evidence that the deceased was fully informed of the circumstances.32

5. When the executor is not authorised by the testator, then as to whether the conflict is excused will be a matter of whether there was consent of the beneficiaries. Crucial to this aspect is a factor of causation.33

6. When in conflict a personal representative must account to the estate, however the mechanism of that accounting can
involve considerations of how the personal representative has dealt with the funds received at the time of the application.34

7. A personal representative who finds themselves in conflict may be able to extricate from that conflict by applying to the court to have the grant revoked. Whether it will be revoked is contingent on the status of the administration of the estate and the conduct of the parties.35

Christine Smyth is a former President of Queensland Law Society, a QLS Accredited Specialist (succession law) – Qld, and Consultant at Robbins Watson Solicitors. She is an executive committee member of the Law Council Australia – Legal Practice Section, Court Appointed Estate Account Assessor, and member of the QLS Specialist Accreditation Board,
Proctor Editorial Committee, QLS Succession Law Committee and STEP.

Notes
1 Burgess at [1].
2 At [2]-[3].
3 At [3].
4 At [8]-[9].
5 At [9].
6 At [13].
7 In Western Australia the entitlements of a de facto spouse will depend on the number of years the parties were in a de facto relationship. The precondition of the number of years changes and increases from two to five if the deceased was also
legally married at the time; if so it will then depend on the status of that marriage during that time frame. And it will also alter when there are children. See s15 Administration Act 1903 (WA).
8 At [11].
9 At [24].
10 Per Martin J at [16].
11 At [24].
12 For a discussion on estate proceeds trusts, see the writer’s co-authored article published by the Australian Tax Institute Journal, ‘Successful Succession: Estate proceeds trusts: benefits for families’, by Christine Smyth and Katerina Peiros, Taxation in Australia Vol.51(4).
13 See s76 Trusts Act 1973 (Qld); s85 Trustee Act 1925 (NSW); s67 Trustee Act 1958 (Vic.); s56 Trustee Act 1936 (SA); s50 Trustee Act 1898 (Tas.); s85 Trustee Act 1925 (ACT).
14 At [83].
15 At [84].
16 At [85].
17 At [86].
18 Ibid.
19 Gonciarz at [5].
20 At [8]-[13].
21 At [14].
22 At [22].
23 At [25]-[27].
24 At [27]-[29].
25 At [30].
26 At [31]-[38].
27 At [38]-[43].
28 At [40].
29 Burgess at [84].
30 McIntosh, Burgess.
31 Burgess.
32 Brine.
33 Brine.
34 Burgess.
35 Gonciarz.

It’s back to the future

It’s back to the future
September 30, 2019 /

Uncertainty returns to binding death benefit nominations. 

About this time last year, succession lawyers breathed a collective legal sigh of relief.

Why? Because her Honour Bowskill J, through the decision of Re Naruamon Pty Ltd [2018] QSC 185, gave us a judicial Alka-Seltzer, easing our legal indigestion over the question of whether a power of attorney could, or could not, make a binding death benefit nomination (BDBN) in a superannuation fund.

Succinctly, the answer was yes. We finally had certainty! Bowskill J determined that a BDBN was a financial matter within the meaning of the Powers of Attorney Act 1998 (Qld).1  Accordingly, if the fund deed permitted it and there were no other prohibiting factors, such as a conflict of interest, it could be done. 

Key to this conclusion was her Honour’s determination that the making of a BDBN in a superannuation fund, “is not a testamentary act and so is not captured, by analogy, by the restriction against delegating to an attorney the making of a will”.2  This principle has since been relied on in the decisions of: MZY v RYI [2019] QSC 89; Hartman v Nicotra (unreported BS 11925 of 2017, Mullins J, 19 December 2017); and Schafferius v Piper (unreported BS 12145 of 2016, Boddice J, 8 December 2016).

All was well in succession law land until Western Australia weighed in on the debate through the recent decision of SM [2019] WASAT 22.3  4  There, District Court Judge T Sharp, sitting as Deputy President of the State Administrative Tribunal, made a contrary determination that “(t)he making of a BDBN where the represented person has a beneficial interest in the funds the subject of the BDBN is a testamentary act or disposition”.5  And so it seems, the best of all minds can differ on fundamental things.

SM involved an application by a trustee for an order that they, as the administrators of the represented person’s estate, be authorised to execute a BDBN on their behalf. The five issues for the court’s determination were:

Could the tribunal confer on an administrator a power to make or confirm a BDBN?
Could an administrator with plenary powers make a BDBN for a represented person?
Could a represented person subject to an administration order make a BDBN themselves?
Is a BDBN a ‘testamentary disposition’ and thus a plenary administrator prohibited by s71(2a) of the Guardianship and Administration Act 1990 (WA) from making a BDBN?
If the tribunal had power to grant the additional function to an administrator, was it in SM’s best interests that the tribunal grant that function to the applicant?

The bulk of the judgment considered the tribunal’s powers under the Guardianship and Administration Act 1990 (WA). It should be noted that a number of the relevant provisions differ from the Guardianship and Administration Act 2000 (Qld), particularly the purpose of an administration order.6  That discussion is beyond the scope of this article.

For this article, what is critical, is Sharp J’s analysis around the question of whether a BDBN was a testamentary disposition. In reaching his conclusion that it is, Sharp J considered, at length, Bowskill J’s judgment, with particular focus on the two decisions on which her Honour relied to reach her conclusion about the testamentary 
nature of a BDBN: Re Application by Police Association of South Australia [2008] SASC 299; (2008) 102 SASR 
215, [75] (Re Police); and McFadden v Public Trustee for Victoria (1981) 1 NSWLR 15, 29–32 (McFadden).

Referring to Re Police, Sharp J observed that “The member had no equitable interest in the death benefit paid to the Police Association prior to death”.7  With respect to McFadden, Sharp J noted that that Holland J’s rejection of the nomination in question there, as not constituting a testamentary act, arose out of “the exercise of a contractual right not a testamentary power. Any dispositive effect that the nomination may have derives from the contract and the exercise of contractual rights inter vivos and not from the death of the contributor.”8

He then went on to rely on Bird v Perpetual Executors and Trustees Association of Australia Ltd,9  noting: “[T]he High Court distinguished a testamentary document from a binding agreement as: A document made to depend upon the event of death for its vigour and effect and as necessary to consummate it is a testamentary document. But a document is not testamentary if it takes effect immediately upon its execution through the enjoyment of the benefits conferred thereby be postponed until after the donor’s death.”

Sharp J concluded that “[t]he purpose of a BDBN is solely to enable transmission on a person’s death of their superannuation benefit”.10

Accordingly, “the making a BDBN is not for the purpose of carrying out his or her purpose as an administrator, namely the conservation of the estate of a person under an administration order for his or her own advantage and benefit. On this basis the Tribunal does not have power to grant the additional function to a limited or plenary administrator.”11  Having reached this conclusion, Sharp J noted that it was not necessary to determine the issue of the testamentary nature of a BDBN12  but he did so anyway, because he considered it was important.

He found:

97.  The distinguishing factors that the authorities have relied upon to determine if a nomination in a document is or is not a testamentary act or disposition is whether there is a legal entitlement to the object of the nomination and whether the nomination is binding when it is made.

98.  The ‘friendly society cases’ and the ‘nominee insurance policy cases’ support the proposition that a BDBN is a testamentary disposition. In these cases, where a BDBN is made in respect of funds in which the superannuation member has a beneficial interest up to the time of death, and is not made further to a contractual right, the nomination of a beneficiary to receive the funds on the member’s death is considered to be a testamentary 
disposition. 

99.  The Tribunal finds that the authorities support a finding that a BDBN is a testamentary disposition where the member of a pension/superannuation fund has a present equitable entitlement to the money in the pension/ superannuation fund and the BDBN was not made further to a contractual right. (emphasis added).

100. SM has a beneficial interest in the money from the Fund being paid into the Superannuation Fund.

101. The BDBN can be changed at any time up until SM’s death, subject to her capacity, and does not take effect until the death of SM.

102.Therefore it follows SM has proprietary rights and powers over the subject property during her lifetime which amounts to a beneficial interest in the property until her death.

103.Any BDBN she is able to make does not take effect until her death.

104.For the above reasons the Tribunal finds that the proposed BDBN is a testamentary disposition. (emphasis added.)

So where does this leave us? Only the ratio decidendi of a judgment binds a lower court; views in dissent on tangential matters are but mere obiter.13

Here we have a lower court in another jurisdiction concluding in obiter, that a BDBN is testamentary in nature. Nevertheless, Sharp J did undertake a detailed analysis of the law to reach his entirely opposite 
conclusion. In doing so he threw shade over the certainty of Bowskill J’s finding. Some might be forgiven for thinking this is ‘judicial activism’ at work, taking us back to the future?

Christine Smyth is a former President of Queensland Law Society, a QLS Accredited Specialist (succession law) – Qld, and Consultant at Robbins Watson Solicitors. She is an executive committee member of the Law Council Australia – Legal Practice Section, Court Appointed Estate Account Assessor, and member of the QLS Specialist Accreditation Board, Proctor Editorial Committee, QLS Succession Law Committee and STEP.

Notes
1   At [59].
2   At [71].
3   My thanks to Andrew Smyth, Managing Partner at Robbins Watson for bringing this judgment to my attention.
4   Note this decision was delivered a week after MZY v RYI [2019] QSC 89 was delivered
5   At[108] (4).
6   See s6 Guardianship And Administration Act 2000 (Qld): “This Act seeks to strike an appropriate balance between— (a) the right of an adult with impaired capacity to the greatest possible degree of autonomy in decision-making; and (b) the adult’s right to adequate and appropriate support for decision-making.”
7   At [72].
8   At [80] citing Jollan J in McFadden.
9   At [86] citing Stake J at 144–145.
10 At [90].
11 At [92] cf s6 Guardianship and Administration Act 2000 (Qld).
12 At [93].
13 International Academy Of Comparative Law Conference, Utrecht, The Netherlands 17 July 2006 Precedent – Report On Australia The Hon Justice Michael Kirby AC CMG citing Garcia v National Australia Bank Ltd (1998) 194 CLR 395, per Kirby J at 417; Federation Insurance Ltd v Wasson (1987) 163 CLR 303, per Mason CJ, Wilson, Dawson and Toohey JJ at 314. 

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Why see a Solicitor for your Will?

Why see a Solicitor for your Will?
September 5, 2019 /

Hot off the press is the matter of Drivas v Jakopovic [2019] NSWCA 218 which has reaffirmed the principle that the weight given to a solicitors evidence about testamentary capacity is both valuable and significant. Quoting Young J in Re Cooks Estate “[a]n experienced solicitor or solicitor’s secretary gets used to dealing with people making wills and are usually attuned to the red lights that flash when a person who is of suspect capacity comes across their paths [sic].”
So, if you want to discuss making your Will with us, call our office today on (07) 5576 9999.