The testator died in 2003 at the age of eighty three. He was survived by his defacto widow of fifteen (15) years Margaret Jones, and three (3) adult children of his first marriage — a daughter Margaret (aged 51), and two (2) sons Simon (aged 53) and Christopher (52).
The estate was worth approximately $1,474,967.38 at the time of trial — largish but not so huge by today’s standards”.39
The Will was subject to contested probate proceedings brought by Simon & Christopher alleging lack of testamentary capacity and undue influence. Those claims were abandoned after about a year.
The Will provided for Simon and Christopher Oswell to receive a legacy of $100,000 each, and for the Applicant to receive a life estate in that same amount. An education fund of approximately $800,000 for the benefit of the testator’s step grandson Lewis Jones was provided for, with this fund vesting on Lewis attaining the age of 25, or on his earlier death. Lewis also received the remainder interest in the gift of income to Margaret Oswell. The residue of the estate passed to the testator’s defacto widow, Margaret Jones.
The Applicant’s claim
The Applicant was fifty one (51) years of age at the time of the hearing.
She was severely disabled, having been born with cerebral palsy, and suffering other significant health problems. She was almost totally physically incapacitated, and was wholly dependent on others for care. She was of normal intelligence, and had no mental disabilities. It was held that she was likely to have less than the average (thirty year) life expectancy due to her condition.
The Applicant was in receipt of a Disability Support Pension and other government benefits, and had no other income or assets of any significance. She lived in state housing, which she would lose if her assets exceeded a low-moderate amount. Her modest living expenses exceeded her income.
Chesterman J found it easy to conclude that in a large estate a gift of the income on $100,000 to a child in the circumstances of the Applicant was clearly inadequate provision, and that was common ground between the parties at the hearing. The analysis then turned to the “second limb” set out in Singer v Berghouse,40 being the question of what provision should be made for the Applicant from the estate in all of the circumstances.
The competing claims of Margaret Jones and Lewis Jones were said to have significant importance, despite neither of those persons being financially needy, and Lewis Jones being outside of the class of persons for whom the testator had an obligation to provide. It was held that the testator had discharged his moral obligations to his widow (who had no real financial needs) by making the significant gifts to her favoured grandson. This indirect provision was seen as something that should be given effect to as far as possible.
The relevance of social security benefits
A question arose as to whether “the relief should be structured so that she (the Applicant) continues to enjoy the benefits of pension payments and ancillary benefits, or whether she should be given a lump sum, the whole or a substantial part of the estate, with the consequence that she will lose those benefits” .
Chesterman J considered some relevant New South Wales authorities on the issue of how pension entitlements should be taken into account, and concluded that “…the availability of…pensions and social benefits is a circumstance which should be regarded, and particularly in small estates it may be appropriate to leave an applicant wholly or partly dependent on them or to mould the provision made so that their availability is observed in whole or in part.”41
Despite the present estate being a large estate, there being a lack of competing claims having financial need, and against judicial warnings that it is for the testator to make proper provision rather than the State, Chesterman J concluded that the estate was not sufficiently large to make adequate provision for the Applicant without regard to the pension and other social security benefits being available.
His Honour then went on to fashion provision for the Applicant in a way that would retain her social security and related benefits by incorporating a Special Disability Trust into the testator’s Will.
Creation of a Special Disability Trust for the Applicant
A Special Disability Trust (“SDT”) is a form of discretionary trust settled in the usual way (with limitations), or created by the operation of a Will. It can only have one (1) beneficiary (other than on vesting), and that beneficiary must have a severe disability that meets certain criteria. The key difference between a SDT and other types of discretionary trusts is that the capital and income of a SDT can only be used to provide for the beneficiary’s “reasonable care and accommodation needs”. Care needs must arise as a direct result of the person’s disability. SDTs are therefore somewhat inflexible.
The key advantages of using a SDT are that assets of up to $500,000 (in addition to the home of the beneficiary) can be held by the SDT without those assets being included in the beneficiary’s means test for social security purposes. There are also gifting concessions for certain family members putting assets into a SDT.
A SDT was found to be desirable in the circumstances as, unlike any other form of testamentary discretionary trust or life estate, its assets would not deprive the Applicant of her social security and related entitlements.
His Honour concluded that he was unable to limit the Trust to one of income only, and so the Applicant could potentially also receive distributions of capital. It is noteworthy that this decision was left to the discretion of the Trustees appointed to the fund, who were two (2) solicitors of the firm Biggs & Biggs, the solicitors for the Applicant, rather than a trustee institution.
A fund of $500,000 was settled on the Trust, which is the maximum amount allowable for a full means test concession to be maintained.
The provision made for the Applicant
Interestingly, the provision made for the Applicant (apart from a $10,000 legacy) was limited to a gift of income, a right of residence ($450,000 for a home to be purchased and held in trust), and (in relation to the SDT only) a mere expectancy of capital distributions. The Applicant effectively received the benefit of estate assets worth $1,030,000, the capital of those assets falling back into the estate after the Applicant’s life.
As noted above, capital distributions from the SDT can only be made for housing needs (which were otherwise provided for), and needs required because of the Applicant’s disabilities. In effect, the Applicant was left to fund her “wants” from her pension.
While it was argued the applicant was entitled to a large capital sum, given that she was relatively young, suffered no mental disability, and there was capital in the estate available to give to her it became obvious and strenuously argued by the respondent there was good reason to preserve the gifts to Margaret Jones and her grandson Lewis Jones.
The provision made was seen as addressing the Applicant’s essential care, medical and accommodation needs, without going beyond “needs” to also provide for the Applicant’s “wants”.
Chesterman J commented that “the Applicant, it appears, has chosen to litigate expensively” (her costs exceeded $220,000). She was also criticised for overstating her “needs”, and implicitly the costs involved in proving those needs were not accepted as reasonable. The hearing only lasted for two (2) days.
Notwithstanding these apparent criticisms, all parties received their costs from the estate on an indemnity basis (it appears) without the need for any costs argument. No consideration was given to capping the Applicant’s costs. The costs decision could be described as generous to all parties and left the residuary beneficiary out of pocket.
The conclusion reached by the Court was that this form of indirect competing claim could legitimately be taken into account, and in some very real respects it counted against the Applicant’s claim even though the step grandson was never financially dependent on the will maker, and in fact had well-off parents and grandmother from whom he received support – perhaps a clear statement from a Court that indirect moral claims can be given significant weight.
It is interesting to note that in 1997 the New Zealand Law Commission pointed to anomalies in the Family Provision Act 1955 stating that ‘Claims by adult children under the Family Provision Act 1955 are often made on the basis not of need but on the basis that the will-maker breached an undefined moral duty and that such a regime was indefensible because will-makers cannot determine and comply with its requirements in advance, and because it may disregard moral
imperatives of the will-maker that are not shared by whichever judge is called upon to decide the claim.42
Similarly, the Queensland Law Reform Commission, as the lead agency in the Australia-wide review of succession law, also recommended that adult children not be able to make a claim for provision, or increased provision. In clause 6 of a proposed model legislation, the eligibility for claim was to be limited to the wife or husband, a de facto partner (as defined in each jurisdiction in Australia), and non-adult children. Clause 7 additionally suggested permission of a claim by a person to whom a deceased person owed a responsibility to provide maintenance, education or advancement in life the matters that were to be taken into account,43 were listed.
But, things haven’t changed to that effect.
Step children
The usual issue in these cases is family property which has passed by joint tenancy survivorship
to the surviving step-parent. On the death of the step-parent, the question the court has
to consider is whether the step-parent gained an advantage by the survivorship which
should now be passed to the stepchild, even if an adult.
In Powell v Monteath,44 this issue was resolved by a consideration of the surrounding circumstances. The applicant stepson was in relatively necessitous circumstances and the court’s decision that he had been left without adequate maintenance and support was arrived at despite the fact that the claimant was 63 years old.
In Freeman v Jacques,45 the applicants were seven stepchildren, aged between 53 and 61, seeking provision from their deceased stepmother’s estate. The children had never been in a familial relationship with the deceased, and had already benefited from their father’s estate. The testatrix’s estate of $1 million was left to a friend and carer of 30 years. At first instance, only two of the seven stepchildren had been awarded provision, on the basis of their necessitous circumstances. This was upheld unanimously on appeal.46
Keane JA said:
‘The appellants’ contention is that the learned trial judge erroneously applied a test of ‘extreme need’ in order to determine the jurisdictional issue… In my respectful opinion, the appellants’ contention in this regard seeks to put an impermissible gloss on the reasons of the learned primary judge. Her Honour was plainly not applying a test of ‘extreme need’ in relation to the determination of the jurisdictional issue. Rather, her Honour was making the point that necessitous circumstances would be necessary to give rise to a moral claim on the bounty of a stepmother, who has had no familial relationship at all with the claimant, where the claimant has already received a distribution from the estate of his or her natural parent, and where the estate of the stepmother substantially reflects her contribution to the joint wealth of herself and her deceased husband…’
Charities
When claims by adult children are being discussed in these circumstances, something needs to said about the competing claims of charities. Chesterman J (as he was then) in a paper entitled “Does morality have a place in applications for family provision brought pursuant to S 41 of the Succession Act 1981?” said this:
“It has seemed to me on occasions that the authority of In Re Sinnot has not been given proper recognition in cases where the competing claims are those of an adult child and a charity. It appears that there is an implicit assumption that the charity had no moral claim on the testator who correspondingly had no moral duty to benefit it. The contest is regarded as one between a claimant who prima facie had a moral claim on the testator, and a beneficiary who did not.”
In that paper, His Honour took the opportunity to give his personal views on claims under s 41 by adult children who are not in necessitous circumstances where the estate, or much of it, had been left to charity. He suggested that if cases were determined in accordance with established,
orthodox, legal principle testamentary gifts to charities would not be disturbed on an application by an adult child who cannot demonstrate some special need or special moral claim.
The suggestion was that attitudes have changed, or are changing, and that the courts ought to consider that there are or may well be moral duties on testators to benefit charities because of the
importance of charities to the social fabric of our community. He also suggested that testators who are responsible citizens could not be ignorant of the importance of charities and their value to society and that it cannot be said that there is no moral duty to provide them with financial support. The natural (or moral) tendency to advance children by testamentary but a testator’s desire to discharge this moral duty should not be ignored or denigrated by an unquestioning assumption that ‘family comes first’. In his view it may, or may not, depending upon the testator’s assessment of where his or her duty lies.
In conclusion
You could be forgiven for thinking I would analyse vast numbers of cases on competing claims between adult children as applicants and other beneficiaries. To do so would cause a postponement of Christmas. The simple fact is that each case will depend on its own facts. I have chosen a few because they are interesting and show the nuances which sometimes take them out of the ordinary.
Although we have seen an increase in the number of applications by spouses other than those legally married, widowers and adult children, including stepchildren it is simply a reflection of changes in standards, the attitude of the community and an increasing number of second and subsequent marriages, or relationships that result in cohabitation on a genuine domestic basis.
It is fair to say, also, I think, that it is significant that there have been increases in longevity, and wealth, within the community at large. Fewer cases are going to trial because of requirements for compliance with the practice direction requiring alternative dispute resolution. Despite all of this, it would appear that the basic principles are fairly well settled. We have seen though that they are applied in differing ways by what can perhaps be described as the varying attitudes or evaluative and sometimes subjective exercise of discretion of our judiciary.
What remains clear is that the arrangement of one’s affairs with the intention of avoiding such claims should be done with considerable care, with the willingness of the courts to uphold the operation of the statutes never far from the advisor’s mind.
Doug Murphy S.C.
Footnotes
38. [2007] QSC 384
39. as described by Chesterman J at [51].
40. Singer v Berghouse (1994) 181 CLR 201 at 208
41. Whitmont v Lloyd (Supreme Court of NSW Unreported 31/7/995) per Bryson J at 16, cited with approval in King v Foster (NSWCA Unreported CA 40372/95)
42. Report 39: Succession Law: A Succession (Adjustment)Act: modernising the law on sharing property on death (August 1997)
43. These matters are modelled on the current Victorian legislation, the Administration and Probate Act 1958 (Vic), section 91(4) (e)-(p)
44. [2006] QSC 24
45. [2005] QCA 423
46. [2005] QCA 423
47. at paragraphs [27] and [28
Copyright
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Disclaimer
This seminar paper is intended only to provide a summary of the subject matter covered. It does not purport to be comprehensive or to render legal advice. Readers should not act on the basis of any matter contained in this seminar paper without first obtaining their own professional advice.
