Family Provision
Part 2
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• Notional estate
• Estrangement
• Review of Family Provision
• Discussion questions
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Notional Estate
• Introduced with Family Provision Act 1982;
• Now part 3.3 Succession Act 2006.
• Anti avoidance provision (limits on the extent to which inter vivos gifts
or contract to increase liabilities can defeat claims)
• Court can make orders to give effect to Family Provision order where
• Property has been distributed from the Estate; or
• There is a relevant property transaction
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Notional Estate Requirements
1. Has a relevant property transaction occurred?
2. Did the transaction take place before, on or after the death of the
deceased?
3. Should a notional estate order be made?
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Has a relevant property transaction occurred?
1. The deceased person does, directly or indirectly, or does not do, any
act
2. That results in property being
(a) held by another person; or
(b) subject to a trust; and
3. Full valuable consideration is not given.
[S 75 Succession Act 2006]
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Time limits for notional estate order
4. A notional estate order can be made when: (s80 SA):
(a) transaction took effect within 3 years prior to DOD with the
intention (subjective) of the deceased of denying or limiting provision
for the applicant;
(b) transaction took effect within 1 year prior to DOD or
(c) transaction took effect on the person’s death
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Should a notional estate order be made? (1)
5. Family Provision order made (s 78 SA) or costs order but not costs order only in
favour of applicant [s78(2)];
6. The Court is satisfied that there is disadvantage per s 83 SA.
7. Estate must be insufficient – s 88 SA
8. One of the following applies:
•
S80(3)(a) - it is property held by or on trust for a person who (or by an object of a
trust which) received property by virtue of a relevant property transaction;
whether or not the property was the subject of the relevant property transaction;
•
S81 - there was a subsequent relevant property transaction if special
circumstances warrant the making of the order;
•
S82(2)(a) - Property is held by the executor/administrator; or
•
S82(2)(b) – In the case of distributed estate; can make order against
beneficiary’s assets or assets of the object of a trust [s82(2)(b)]
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Should a notional estate order be made? (2)
9. S 87 SA – Court must consider (a) importance of not interfering with reasonable
expectations in relation to property; (b) the substantial justice and merits involved;
(c) any other circumstances
10. S 89(1) SA – Court must have regard to:
(a) the nature and value of any property the subject of a relevant
property transaction, distributed estate and property held by the
executor/administrator;
(b) the nature and value of any consideration;
(c) changes in value of property the subject of the RPT or the
consideration in the time since the transaction entered into or the
distribution made;
(d) whether property of the same nature could have been used to obtain
income in that time
(e) any other relevant matter
11. S 89(2)(3) SA – no order more than to the extent necessary
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When did the transaction occur?
•
s77(1) When the property becomes held by another person or subject to a
trust.
•
s77(2) – s 76(2)(a)(c) or (d) transactions, immediately before death or upon
the person ceasing to be able to exercise the power.
•
s77(3) – s76(2)(b) or (e) - immediately before death or on the occurrence
of the other event referred to in those paragraphs
•
s77(4) – contract for less than full valuable consideration – on the entry into
the contract
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Power of deceased person relevant
•
Fairbrother v Fairbrother [2013] NSWSC 461 – Windeyer AJ – receipt of
proceeds of a life insurance policy not a relevant property transaction.
•
In order for there to be a relevant property transaction there must be an
express power or implied power or authority for the deceased to bring
about the transaction.
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S 83 SA – Disadvantage necessary
The Court must be satisfied that:
•
(a) as a result of the relevant property transaction the estate of the
deceased; or to a person entitled to apply for an order; was disadvantaged
•
(b) the RPT involved the exercise of a right, discretion, power of
appointment, that, if not exercised, could have resulted in a benefit to the
estate or a person entitled to apply for an order;
•
(c) the RPT involved the exercise of a right, discretion, power of
appointment, that, if exercised, could have resulted in a benefit to the
estate or a person entitled to apply for an order; or
•
(d) the RPT involved the omission to exercise a right, discretion or power of
appointment that could have been exercised to give a benefit to the estate
or a person entitled to apply for an order.
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Notional Estate Examples
•
Examples given in s 76(2) SA
•
(a) power of appointment
•
(b) property held as joint tenants
•
(c) property held by another on trust where deceased had power to extinguish trust
•
(d) life insurance policy where deceased had the power to nominate beneficiary or to
surrender or otherwise deal with the property
•
(e) company, fund, scheme; property becomes held by another or subject to a trust
by reason of person’s death
•
(f) contract to dispose of property
•
Not exhaustive
•
S 79 SA – also can make order against distributed estate
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Notional estate – other matters
•
S 84 SA – A person’s rights are extinguished to the extent that they are
affected by a notional estate order.
•
S 85 SA – More than one notional estate order may be made
•
S 90 SA – additional requirements for out of time applications - the Court
must be satisfied that:
(a) The property was the subject of a relevant property transaction and
the person who holds the property holds it as a result of the property
transaction; the property is not vested in interest in any beneficiary under the
trust; or
(b) there are special circumstances that justify the making of a notional
estate order.
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Subsequent prescribed transaction example
•
Hardcastle v Perkuhn [1999] NSWSC 860
•
Under FPA s 25
•
Master Macready
•
3 days before DOD deceased transferred real estate to daughter
•
After DOD daughter sold real estate and gave the balance to her sons.
•
His Honour decided that this was a case in which s 25 FPA applied;
•
Instead declared that property of the defendant be notional estate;
•
Daughter ordered to bear own costs of application.
•
For deceased holder of notional estate see Prince v Argue [2002] NSWSC
1217
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Wade v Harding (overturned by COA in Cetojevic)
•
Estate Eileen Elizabeth Macaulay DOD 8/8/86
•
H1 – William Wade DOD 1975; Son Malcolm Blair Wade
•
H2 – Robert Samuel Dirks Macaulay DOD 28/8/86
•
Eileen’s Will gave entire estate to Robert if he survived by 30 days – he
didn’t. Only $2,000 in estate excluding jointly owned property
•
No point in there being an FP claim if there was no notional estate.
•
Court considered whether the omission in failing to sever the joint tenancy
was a “prescribed transaction.
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Wade v Harding (overturned by COA in Cetojevic)
•
The inquiry must be whether the wife’s omission to act to prevent the (right
of survivorship) coming into force with respect to the jointly held property
was one in respect of which full valuable consideration was not given; or
•
Did she receive a fair equivalent for what she would have received had she
severed the joint tenancy?
•
Court found that what was foregone in not severing the joint tenancy was
received by continuing to be a joint tenant; no absence of full valuable
consideration
•
Discussion
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Cetojevic v Cetojevic [2007] NSWCA 33
•
Horseley Park property purchased 1995; joint ownership by Nerad (DOD
Oct 2000) and parents
•
Widow sold her own unit and paid proceeds towards mortgage
•
Widow filed Caveat over HP property claiming constructive trust and Family
Provision rights (NB FP rights do not normally give rise to caveatable
interest)
•
No other substantial assets in estate.
•
Overturned Wade v Harding; prescribed transaction found and notional
estate order made.
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Other examples
•
Wardy [2014] NSWSC 473 – White J – transfer of assets to a discretionary
trust, with a corporate trustee controlled by the deceased, is a paradigm
example of a relevant property transaction.
•
Schaeffer v Schaeffer (1994) 36 NSWLR 315 – conversion of deceased’s
ordinary shares in company to preference shares;
•
General statement – Campbell JA in Belfield v Belfield [2012] NSWCA 416
– one of the purposes of the notional estate provisions is to allow orders to
be made against assets transferred into a structure over which the
deceased person retained a measure of practical control, even though they
lacked ownership
•
Zagame v Zagame [2014] NSWSA 1302 – example of Court declining to
find basis under s83 SA to interfere with transfer for nominal consideration;
but defendant conceded that orders could be made against trust.
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Hitchcock v Pratt [2010] NSWSC 1508
•
Brereton J judgment on hearing of two notices of motion
•
Deceased domiciled in Victoria.
•
No real estate
•
Personal estate consisted of shareholdings of companies with registered
offices in Victoria
•
No actual estate situated in NSW.
•
No notional estate provisions in Victoria.
•
Application of s 64 (jurisdiction) considered.
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Hitchcock v Pratt [2010] NSWSC 1508 (cont)
•
His Honour said that:
–
Family Provision law that purports to apply to property outside the
state of a testator who dies outside the state has no sufficient
connection with the state to be a valid exercise of statutory power.
–
But provisions can apply to:
∙
Moveable property in NSW of testators who died domiciled
elsewhere; and
∙
Immovable property elsewhere of testators who died domiciled in
NSW.
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Hitchcock v Pratt [2010] NSWSC 1508 (cont)
•
4 parcels of real estate in NSW; owned by companies with registered
offices in Victoria.
•
Judgment also considers whether deceased had sufficient power to do or
omit to do any act which might bring about a relevant property transaction.
•
Fiduciary duties that company directors have to shareholders is relevant
•
Ultimate shareholder was Pratt Family Holdings Trust.
•
Appointor was Deansworth Pty Ltd. Deceased was not a director. Shares
held on trust for other family members.
•
Trust deed gave deceased power, jointly with wife, to appoint the shares in
the company to himself.
•
Discussion - Did the deceased have sufficient power to cause a relevant
property transaction?
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Hitchcock v Pratt [2010] NSWSC 1508 (cont)
•
Discussion - Did the deceased have sufficient power to cause a relevant
property transaction?
•
Possibly – except that the trust deed provided that both the deceased and
his wife were excluded from benefitting from the Pratt Family Holdings
Trust and thus could not receive a distribution of capital or income
•
His Honour said:
•
“37 I would accept that it is at least arguable that Mr Pratt had the legal capacity to
control Pratt Group Holdings, as trustee of the Pratt Family Holdings Trust. As such,
he was, indirectly if not directly [cf Succession Act, s 75(1)], entitled to exercise the
discretions to distribute income and capital given by the trust deed to the trustee.
However, such entitlement was in respect of the income of the trust, and its capital,
which (relevantly) were the shares in Pratt Consolidated Holdings. As already
indicated, those shares are personalty, situated in Victoria. He did not have the
entitlement, through his ability to control the trustee of the trust, to appoint or dispose
of the real estate assets of the trustee’s subsidiaries.”
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Hitchcock v Pratt [2010] NSWSC 1508 (cont)
38 …However, it must be borne in mind that because Mr Pratt and Paula Hitchcock were
excluded, and Sharilea Hitchcock was not a member of any class of beneficiaries, any
such distribution could not have been in favour of any of them. It thus cannot be said that
the omission to exercise such power was one that could immediately prior to Mr Pratt’s
death have been exercised by him (or anyone else) so as to result in a benefit to his
estate, or to an eligible family provision applicant. Section 83 could not therefore be
satisfied.
39 Accordingly, in my view, the deceased had no relevant power to appoint or dispose of
any of the four New South Wales real properties in a way which would be amenable to a
designating order having regard to s 83. First, assuming he could control the trustee, any
indirect power of appointment or disposition related to assets and income of the trust,
relevantly the shares in Pratt Consolidated Holdings, and not in the real property held by
companies much lower down the pyramid. Secondly, any such power could not be
exercised in favour of himself, or of either of the plaintiffs, who were not qualified
beneficiaries. Thirdly, to the extent that with his wife he had control as a director of the
land holding companies, he was not entitled to dispose of the properties to himself or
either plaintiff save for full valuable consideration.”
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• Notional estate
• Estrangement
• Review of Family Provision
• Discussion questions
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Palmer v Dolman [2005] NSWCA 361
•
Estate of William Lance Dolman
•
FP claims made by Mrs Dolman (ex wife) and by Fiona Dolman (daughter).
•
Marriage 1962; acquired Drummoyne property 1967; Son Gregory born 1963; Fiona
born 1971; 1984 Gregory left the house; Parties separated but continued to live in
same house; Deceased upstairs, Mrs Dolman and Fiona downstairs.
•
There was litigation which resulted in him retaining Drummoyne but being required to
pay Mrs Dolman $500,000. (Trial judge found that deceased had fraudulently
concealed assets in litigation).
•
First instance finding that Fiona had rejected her father and that she had maintained
that rejection until his death. Deceased gave a statutory declaration expressing
reasons for omitting her from his Will
•
Trial judge found that there was no suggestion of any ill treatment or improper conduct
on behalf of the deceased which affected Fiona.
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Palmer v Dolman [2005] NSWCA 361 (cont)
•
On appeal; submitted that:
•
1. Error to say that estrangement negatived inferences of need;
•
2. Error to find that estrangement attributable to Fiona
•
Evidence was that prior to the separation Fiona did not enjoy much by way of fatherly
affection; there was some evidence of fear on her part (doctor’s letter said that the
deceased had a tendency to be demanding, critical and unpredictable)
•
Evidence that deceased had a parsimonious attitude in providing financial support to
Fiona and her mother ($25 per week; left a note for Mrs Dolman “make an
appointment with social security”)
•
Understandable feelings of resentment on behalf of Fiona
•
Not mentioned in first instance judgment; finding that Court did not take these matters
into account
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Palmer v Dolman [2005] NSWCA 361 (cont)
•
NSWCOA did not find that Fiona’s behaviour was morally justified; rather that it was
not difficult to understand it;
•
Also Fiona gave evidence of some reconciliation 3 days prior to death.
•
Considered Pontifical Society for the Propagation of the Faith v Scales (1962) 107
CLR 9 where there was a 46 year estrangement and relationship was described as
“bare paternity”; considered to be an extreme case;
•
Mere estrangement not enough to disqualify plaintiff from satisfying the jurisdictional
requirement.
•
Provision of $655,000 ordered (estate valued at $4.9m)
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Gorton v Parks; Estate of Calcott (1989) 17 NSWLR 1
•
Estate of Louis Russell Freeman Calcott
•
DOD 6/6/85; Will 16/5/1985
•
Gifts – Daughter 1 – 14 Harbord Street Thirroul plus personal property located there
plus $20k
•
Daughter 2 – 16 & 18 Harbord Street Thirroul plus personal property at 18 and
remaining money
•
Estate valued at $740,000
•
Daughter 1 and son both made FP claims
•
Deceased divorced from Mary Constance Calcott; evidence was that there was
conflict and violence in the home; and that the divorce was young in the life of the
children.
•
Deceased contributed little by way of maintenance - £2 5s p/week; later £2 10s by
Court order
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Gorton v Parks; Estate of Calcott (1989) 17 NSWLR 1
•
Bryson J – “to my mind the statement that an adult son is prima facie able to maintain
and support himself is an abstract statement, and is of little importance in view of the
need for detailed examination of the facts of each case.”
•
“the idea that the moral obligations arising from paternity are diminished or do not
exist if the parent withholds acknowledgement of the obligations of the child appears
to me to be an idea from a distant age – there seem to have been large changes over
long periods in the beliefs of the community about the moral duty to children…
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Bourke v Keep [2011] NSWSC 88
• Macready AsJ at first instance awarded plaintiff legacy of $200,000
• Estate Joyce Winifred Keed DOD 29/8/09; Will 7/7/92
• Deceased had three children; Gwendoline, Graham and Marion
• Clause 3 of the Will provided that:
• “I have made no provision in this my Will for my daughter MARION
because of her complete lack of concern or contact with me and
other members of my family over a long period of time.
• Estate consisted of home at Hurstville (occupied by Gwendoline and
Graham for their whole lives) valued at $600,000 and cash after
payment of estimated costs of $20,000
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Bourke v Keep [2011] NSWSC 88 (cont)
• Evidence was that after she left the home in 1971 at the age of 20 to
marry Robert (who was enlisted in the army to be posted to
Singapore), Marion saw the deceased on 5 occasions; none went
well; Marion attempted reconciliation on the deceased’s deathbed.
• Marion had 4 children; separated from Robert in 2002/3; by property
settlement she received $120,000. Her son Christopher suffered
from a disability, did not work and received the DSP.
• Marion did not work from 1972 to 2007. Thereafter she had a part
time job with the Department of Education, earning $12 p/h for 18
hours p/w. She also received some medical benefits. Marion had
multiple medical problems.
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Bourke v Keep [2011] NSWSC 88 (cont)
• Marion was 59 y/o. She owned a 2004 Ford Territory (est $16,500),
super ($380), shares ($2,929) and furniture (est $10,000). She had
income of $1,648 p/m and was required to pay rent of $195 p/w.
• Gwendoline was 62, single with no dependents. She was morbidly
obese and had other medical conditions. She contributed to the
deceased’s estate by paying $1k for half the cost of construction of
the garage of the Hurstville property; $4k for half the cost of
aluminium cladding; $1.2k for the cost of the front verandah. She
had savings of $61k. She received DSP of $1,413 p/m
• Graham was 55, single with no dependents. He had a 1992 Holden
station wagon (est $4k), super ($8,000), Mastercard debt ($3k) and
he received a Newstart allowance of $918 p/m
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Bourke v Keep [2011] NSWSC 88 (cont)
• His Honour cited with approval an unreported judgment of Young J
Walker v Walker, 1996:
• “the important matter is not fault but whether in all the circumstances
it would be expected by the community that the testator would have
to make a greater benefaction than she in fact did to constitute
proper or adequate provision for the plaintiff”.
• At [80] his Honour referred to Bergin CJ in Eq in Ford v Simes [2007]
NSWCA 357
• His Honour’s assessment of the facts is at paragraph [81]
• Note no evidence regarding the cost of finding replacement
accommodation for Gwendoline and Graham
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Keep v Bourke [2012] NSWCA 64
• The Defendants appealed.
• Macfarlan JA found that estrangement was relevant – would have
reduced provision from $200,000 to $100,000.
• Barrett JA rejected submission that jurisdictional test not satisfied.
• At [34] His Honour summarised the objective facts regarding the
material and financial circumstances of each party.
• At [39] His Honour assesses the cause of the estrangement.
• His Honour found that the primary judge addressed all relevant
matters.
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Keep v Bourke [2012] NSWCA 64
• Barrett JA (cont)
• At [49] his Honour noted that the primary judge correctly found that
Marion was not blameless in the matter of estrangement, and that
her conduct meant that her claim on the deceased’s bounty was
reduced.
• [50] However, his Honour found that the primary judge did not give
effect to that finding in the order that was made.
• Order that legacy be reduced from $200,000 to $175,000 and that
Marion pay the costs of the appeal.
• Tobias AJA agreed with Barrett JA
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Andrew v Andrew
Andrew v Andrew [2011] NSWSC 115 Hallen J
•
Estate Rita Melba Andrew - Claim by daughter.
•
Will provided 40% of home at Chifley to the executor son.
• $10,000 pecuniary legacy to the Plaintiff.
• Residue to be divided between Defendant, Jennifer, Lisa and Tracey
(ie other children).
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Andrew v Andrew [2011] NSWSC 115 (cont)
• Net distributable estate $800k.
• Reasons given in Will.
• Plaintiff had no assets apart from super ($4k). She was looking for
work. Shared care of foster child. Sought altruistic goals rather than
material gain. Centrelink Newstart allowance. Plaintiff's son Nicholas
was 20 and was not dependent on her. Plaintiff resided in her friend's
flat.
• Estrangement and some disentitling conduct; lack of contact over
long periods (no evidence about cause) and general put downs.
• In considering the totality of the relationship his Honour determined
that additional provision was not appropriate.
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Andrew v Andrew [2011] NSWSC 115 (cont)
“[141] I have set out the provision made for the Plaintiff in the deceased's Will. Judged by quantum and
looked at through the prism of her financial and material circumstances, adequate provision for her
proper maintenance or advancement in life was not made by the Will of the deceased, or by the
operation of the intestacy rules, in relation to the estate of the deceased, or both.
[142] Whilst an additional lump sum, by way of advancement in life, in other circumstances, would be
appropriate, that is not all that I am required to consider at the first stage. The totality of the relationship
of the Plaintiff and the deceased, the age and capacities of the other beneficiaries, and the claim of
each on the bounty of the deceased, are very relevant factors in determining the answer at the first
stage.
[143] Those considerations lead me to find that there was no failure, on the part of the deceased, to
make adequate provision for the Plaintiff. Accordingly, the Plaintiff fails at the jurisdictional stage. That
finding concludes the matter and must lead to the dismissal of the Plaintiff's proceedings.
[144] However, even if I were wrong in coming to that conclusion, the same considerations, which I
summarise below, would, at the second stage, produce the result that, as a matter of discretion, I would
not be satisfied that a family provision order ought to be made.”
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Andrew v Andrew [2012] NSWCA 308
• Plaintiff appealed.
• Successful – in lieu of provision of $10,000, Plaintiff to receive
$60,000, drawn unequally from provision made for others.
• Defendant to pay Plaintiff's costs including of appeal.
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Andrew v Andrew [2012] NSWCA 308 (cont)
• Allsop P (on estrangement) “Given the fact of estrangement and
not hostility, it is not to be supposed that if the testator had known
and appreciated all the circumstances of the appellant, including the
detail of the appellant's lack of means, her responsibilities to a young
foster child and her inability to see her own adult son through lack of
funds, that she would have closed her bounty to her daughter."
• Barrett JA dismissed the appeal.
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Andrew v Andrew [2012] NSWCA 308 (cont)
Basten JA (on estrangement)
Estrangement does not describe conduct, but the condition which
results from the attitudes or conduct of one or both parties. It is a term
sometimes applied to the natural process of separation of child from
parent, which often takes place in adolescence but which may continue
into adult life sometimes without resolution of the underlying tension. At
least when kept within reasonable bounds, the negative consequences
of such a process should arguably be ignored or at least not given
disproportionate significance when assessing the expectation that a
parent will provide for a child whose condition in life is financially
advantageous when compared with other claimants on the testator's
conscience.
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• Notional estate
• Estrangement
• Review of Family Provision
• Discussion questions
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Review of Family Provision
• Focus on the legislation
• Eligibility
• Has inadequate provision been made?
• S 60(2) SA factors
• What provision should be made?
• Is notional estate an issue?
• Practice Note SC Eq 7
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• Notional estate
• Estrangement
• Review of Family Provision
• Discussion questions
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Discussion points
If a solicitor is given instructions to draft a Will and the testator expressly
states that he or she wishes to disinherit (or simply does not wish to
benefit) a person who would have an expectation to inherit:
1. Should the solicitor give advice about:
(a) the existence of Family Provision legislation?
(b) how the Court would determine a claim?
(c) what in the solicitor’s opinion the Court might award a
prospective plaintiff?
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Discussion points (cont)
2. Is a testator better off making a gift to the person whom they wish to
exclude?
3. If the testator with the benefit of advice does not wish to make a gift
for the person, is there anything else which could be done?
4. What can a testator do to avoid the notional estate legislation?
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