Gifts in contemplation of death - prudent estate planning can avoid risk and expense

Gifts in contemplation of death – donatio mortis causa – can result in significant risk for the donor, the intended recipient of the gift and the legal personal representative of the donor’s estate.  The risk is whether the gift will be held to be a valid legal gift. 

There will also be significant risk and expense associated with Court proceedings if the legal personal representative of the donor’s estate is forced by estate beneficiaries to defend any claim that a valid legal gift was made.  The issue and problems are exemplified in the recent NSW Supreme Court case of Hobbes v NSW Trustee & Guardian [2014] NSWSC 570.

Facts

George Gibson died on 9 January 2011 and did not leave a Will.  He became friends with the plaintiff Ms Hobbes in the 11 months prior to his death.  Ms Hobbes looked after the deceased after he had undergone a laryngectomy as a result of throat cancer.  Ms Hobbes claimed that prior to his death, Mr Gibson, by his actions and comments, made the following gifts to her which became effective on his death:

• the proceeds of a St George Bank account of about $148,762.94 – Mr Gibson gave her his passbook for that account;
• the proceeds of a St George Bank term deposit of $100,000.00 – Mr Gibson gave her a card containing details and terms and conditions of a fixed investment term account; and
• a Dulwich Hill home unit – Mr Gibson gave her the keys to the unit and a local council rate notice.

The legal issue was whether each gift was a valid gift made in contemplation of death.

Legal Principles

The Court referred to prior cases such as Public Trustee v Bussell (1993) 30 NSWLR 111 which set out the principles relevant to the legal doctrine known as donationes mortis causae.  In order for a gift to be donatio mortis causa, the following three essential elements must be satisfied:

1.  A contemplation of the donor’s death in the near future.

2.  Delivery of the essential indicia of title to the asset with the intention to part with ownership of the asset.

3.  The gift must be conditional on the death of the donor, but is revocable until that event occurs.

Court’s Decision

In considering whether the gifts of the proceeds of the passbook account and the term deposit were valid, the Court focussed on whether the second element for a donatio mortis causa (delivery of the essential indicia of title) was satisfied.  A number of English and Australian cases were reviewed.

Applying the relevant case authorities, it was held that delivery of the bank passbook meant that all the essential elements for a valid donatio mortis causa had been satisfied and Ms Hobbes was entitled to the passbook account proceeds and accumulated interest.

The position of the term deposit was more difficult.  However, Justice White inferred that the card relating to the deposit was created contemporaneously with the deposit.  If it were necessary for Mr Gibson to sue to recover the term deposit (debt), the production of the card would prove the fact of the deposit.  Therefore, the card was the indicium of title.  The essential elements for a valid donatio mortis causa had been satisfied and Ms Hobbes was held to be entitled to the term deposit proceeds and accumulated interest.

The Court held that the delivery of the keys and a council rate notice relating to the Dulwich Hill home unit was not delivery of the essential indicia of title.  Therefore, there was not a valid gift of the Dulwich Hill unit to Ms Hobbes.

Interestingly, and while not relevant to the decision in this case, Justice White noted that the doctrine of donatio mortis causa to date did not extend to land in Australia in circumstances where the certificate of title is handed over without an executed transfer, unlike the position in England.  Justice White indicated that if, as a single judge, he had to decide whether donatio mortis causa applied to land in Australia, he would be bound by case law authority to say no.  Justice White also indicated that the decision as to whether Australia should follow the English case law and hold that donatio mortis causa applied to land should be left to the NSW Court of Appeal.

Conclusion

Gifts in contemplation of death can result in significant risk and expense for the estate of the donor, the intended recipient of the gift and the legal personal representative of the donor’s estate.  Reminding people of the importance of proactive and prudent estate planning prior to death becoming imminent may overcome the risk and costs associated with legal proceedings to determine whether gifts, in contemplation of death, are legally valid gifts.

This publication is intended as a source of information only.  No reader should act on any matter without first obtaining professional advice. 

Author: Gerard Basha