How to minimise the risk of legal costs in contested probate legal proceedings

This article was originally published by LexisNexis' Retirement & Estate Planning Bulletin, April 2020, pages 96 - 98.

Costs are a significant risk in any legal proceeding. Contested probate legal proceedings are no exception as was seen in the recent case of The Estate of Milan Zlatevski; Geroska v Zlatevski (No 2) [2020] NSWSC 388.

Background

The contested probate proceeding in the case stemmed from claims by the deceased’s son (the defendant) that the deceased lacked testamentary capacity, that he did not know and approve his Will, the deceased was subject to undue influence by the executor (the plaintiff) and the deceased was tricked into signing his Will by a fraudulent misrepresentation made by the executor. The defendant did not proceed with the knowledge and approval claim or the undue influence claim. The claims by the son of lack of testamentary capacity and fraudulent misrepresentation failed at the Court hearing and probate in solemn form of the deceased’s Will was granted to the executor (plaintiff). The defendant son was ordered to pay the costs of the contested probate legal proceedings (see [2020] NSWSC 250).

The second part of this case was heard by Henry J on the papers. It dealt with claims by the defendant son that the estate pay the costs of the contested probate legal proceedings, or, alternatively, that each party pay their own costs. The basis of the claims by the son was that the deceased’s conduct made it reasonable to investigate the deceased’s testamentary capacity at the time he made his Will.

Probate litigation costs law

The Court noted the law relating to costs at [7]–[8]. The general rule in any legal proceedings is that the Court has a wide discretion to award costs. The ordinary case usually results in an order that costs follow the event. If you are unsuccessful in legal proceedings, you will be ordered to pay the successful party’s costs.

Contested probate legal proceedings recognise two exceptions to the general rule that costs follow the event.

The two exceptions are:

1. When the testator, or those entitled to the testator’s residuary estate, have been the cause of the legal proceedings, the costs of the unsuccessful challenge to the will may be paid out of the estate; and

2. If after considering the circumstances, an investigation of the will was considered reasonable, the costs may be left to be borne by those who incurred them.

Decision

The judgment of Henry J is helpful in that it looks at the case law behind the contested probate legal proceedings exceptions to the general costs rule. The review and analysis was necessary because the defendant son submitted that the facts of the case fell within one of the two exceptional categories.

The Court held that the defendant failed to establish that he came within the exceptional categories. In addition to his own costs, he was ordered by the Court to pay the executor’s costs of the proceedings on an ordinary basis.

The reasons for the decision were numerous. The Court noted that the son claimed lack of knowledge and approval by the deceased and undue influence of the deceased, but that the he did not proceed with those claims at the hearing.

Further relevant considerations for the Court included, at [14], that the deceased’s life conduct did not suggest to others that he was of unsound mind, such as by acting strangely or engaging in threatening or violent behaviour.

At [15], it was noted that there was no evidence of suspicious circumstances surrounding the signing of the Will or that raised doubts about testamentary capacity.

There was a file note from the solicitor that had acted for the deceased which indicated clear instructions as to the deceased’s testamentary intentions.

The Court also noted, at [27], that there was no lay evidence or medical evidence which raised any doubt about the deceased’s cognitive capacity.

The Court held that the defendant son did not satisfy the Court that there were reasonable grounds to investigate the Will of the deceased. As a result, the defendant son suffered the adverse costs consequences.

Minimising the risk of legal costs

It is clear from this case that suspicion, or the misinterpretation of facts is not enough to justify contested probate proceedings. There needs to be evidence that shows there is doubt about the validity of the testamentary instrument which warrants an investigation.

The collection of the evidence does not need to wait until after the testator’s death. If people are concerned about a person’s behaviour and/or health, they should document their concerns by reference to the date and nature of their observations. The onset of age related illnesses and their impact on a testator should be recorded by family members and not only by health care professionals. These steps are especially important if there are issues within the testator’s family such as disharmony or estrangement.

If there are issues of concern after the testator’s death, the starting point should be to examine all the circumstances surrounding the signing of the relevant testamentary instrument by the deceased. The file note and other records of any solicitor who prepared the document should be reviewed. Obtaining medical records will be necessary as will interviewing the close family and friends of the deceased that saw the deceased regularly over a reasonable period of time. Expert medical evidence may also be required.

Interpreters in Court Proceedings

Australia is a culturally diverse nation. This is recognised by the NSW Supreme Court which has issued Practice Note SC Gen 21 in relation to the use of interpreters in civil proceedings.

The Practice Note commenced on 4 March 2020. It applies to all civil proceedings started after 4 March 2020.

The Court can also direct that the Practice Note applies (in whole or in part) to existing proceedings commenced before 4 March 2020.

In order to fully understand the application of the Practice Note, one also needs to read and be familiar with:

• Uniform Civil Procedure Rules 2005 (NSW) Pt 31 Div 3 dealing with the giving of evidence in civil Court proceedings that is interpreted or translated into English.

• The Australian National Standards for Working with Interpreters in Courts and Tribunals (Standards). A copy of the Standards can be downloaded from the website of the Judicial Council on Cultural Diversity.

• The work of the National Accreditation Authority for Translators and Interpreters (Recognised Agency) and such other organisations approved by the Chief Justice of the Court for the purposes of UCPR Pt 31 Div 3.

The Practice Note and the Court rules recognise the importance of effective communication between interpreters, the legal profession and judicial officers and staff.

Income Tax Affairs of the Deceased

It is a great relief to lawyers when a person has undertaken prudent estate planning, with professional advice and assistance, and left their affairs in order at the date of their death.

It makes it easier for lawyers to advise executors or administrators (known as the legal personal representative and referred to as LPR) about their legal duties and obligations in a more cost-effective way.

Unfortunately, too often a deceased person leaves their affairs in disarray at the date of their death. This may stem from the person being too secretive, unwell for a significant period prior to death or, as in most cases, was simply unprepared for death.

When a deceased person’s affairs are in disarray at the date of their death, it makes it more difficult for the LPR to carry out their legal duties and obligations. The LPR effectively stands in the shoes of the deceased person and they assume the rights, burdens and obligations of the deceased person after death. This includes ascertaining and dealing with all debts including taxation liabilities.

When a deceased person’s affairs are in disarray at the date of their death, in the past resorting to useful information about that person’s taxation affairs was severely restricted by taxpayer confidentiality and privacy concerns. For example, a copy of the deceased’s most recent income tax return could not be obtained as a starting point to determine the deceased’s assets at the date of their death where there was no documentary trail or the trail was inadequate.

On 13 January 2020, the Tax Commissioner registered a legislative instrument CRP 2020/1. The instrument is named the Taxation Administration (Remedial Power — Disclosure of Protected Information by Taxation Officers) Determination 2020.

The legislative instrument modifies the operation of s 355-25 of Schedule 1 of the Taxation Administration Act 1953 (Cth) to allow a taxation officer to disclose protected information to the registered tax agent or BAS agent, or the lawyer of an LPR of a deceased estate.

When the legislative instrument commences operation, it is hoped that it will facilitate necessary information becoming readily available and reduce the time needed by an LPR to finalise the affairs of a deceased person and their estate.

The commencement date of this legislative instrument is difficult to determine with certainty because of complex commencement provisions and limited available parliamentary sitting days. It appears the earliest date the legislative instrument can take effect is 13 May 2020.

Revenue NSW Ruling DUT046—Deceased Estate Exemptions/ Concessions

This Ruling was issued on and is effective from 12 February 2020.

The Ruling relates to s 63 of the Duties Act 1997 (NSW). Section 63 provides for concessional duty (formerly stamp duty) on the transfer of dutiable assets (property) from an executor/ administrator of a deceased estate to a beneficiary.

The most common situations that are encountered in the administration of a deceased estate are usefully reviewed in the Ruling.

The duty assessed under s 63 of the Act is looked at in the following cases:

• A transfer of dutiable assets (property) in accordance with the terms of a Will or pursuant to intestacy law.

• A transfer of dutiable assets (property) that are subject to a trust for sale in a Will.

• An appropriation of dutiable assets (property) in or towards satisfaction of the entitlement of a beneficiary under a Will or pursuant to intestacy law.

The Ruling also briefly comments on the type of documents and situations that could arise in the administration of a deceased estate by an executor/ administrator and the possible duty implications. Common documents and concepts looked at are transmission applications, declarations of trust, family provision Court orders, vesting of assets (property), power of appropriation, agreements for the sale or transfer of deceased estate assets, options to purchase and testamentary trusts.

Author: Gerard Basha