Wills & Estates Law Update: family provision, estate administration & land tax

Family provision - is a benefit under a discretionary trust adequate provision?

This issue was examined by Master Macready in Stansfield-v-National Australia Trustees Limited, Cory & Ors-v- National Australia Trustees [2004] NSWSC 1107. One aspect of the case was a family provision claim by the three sons of the deceased to remove a discretionary testamentary trust so they could have access to the capital. The deceased also left a document in which he gave his reasons for making the provisions for his sons in the manner he did.

Master Macready found that the three sons had been left without adequate provision after having regard to the terms of the trust and facts such as the change in personnel of the trustee company and that some of the reasons put forward by the deceased for the terms of his Will were no longer applicable. He expressed the view that in this case relying on a totally discretionary trust really gave no certainty and his conclusion that the sons had been left without adequate provision was also based on the reasons expressed by Justice Young in Gregory-v-Hudson (No.2).

In Gregory-v-Hudson (No.2) Justice Young reviewed authorities put forward in submissions that showed that a provision in a Will that trustees might pay additional moneys out of the estate for the benefit of the applicant is not a proper provision. One of those authorities was Professor Dickey's book on Family Provision after Death (LBC Sydney 1992) which says:-

"There is some authority for the proposition that where a person is in need for provision that the quantum of provision made for him or her from a deceased's estate is wholly dependent upon the discretion of trustees, this provision is not adequate. In all probability, however, this is not an inflexible rule. In all probability the question of whether provision of this kind is adequate depends upon the particular facts and circumstances of the case."

Justice Young further commented:-

"I consider, with respect, that Professor Dickey's comment is close to the mark. Ordinarily, a benefit provided under a discretionary trust is a fairly illusory benefit because it can be terminated without reason and there is little likelihood of the discretionary beneficiary being able to force the trustee to pay her a benefit. ....even if there is a memorandum of wishes, there is no obligation on the trustee to take that into account. Furthermore, even though the trustees say that they intend to follow the wishes, they are not bound to do so, and indeed, circumstances may change in such a way that they feel it is not proper to continue to follow the memoranda of wishes and carry out the spirit of what the deceased intended.....The trustees may change, the investments of the trustees might fail, there may be serious problems with the other beneficiaries, or new trustees may be appointed who take a set against the widow and reduce her benefits."

Careful planning needs to be undertaken when providing benefits for eligible persons to ensure the benefits are real (or perceived as real) and not illusory. Any statement of reasons explaining the provisions in a Will needs to be regularly reviewed to ensure the reasons are accurate. The case also illustrates the limit to which a testator can control from the grave the provision to be obtained from his or her estate where the beneficiary seeks the more immediate receipt of the benefit.

Delay complicates simple estate administration

The following matter which was referred to Bartier Perry demonstrates what can happen if executors delay and are not diligent in the performance of their duties.

Background

Our firm was recently asked to sort out an estate comprising of realty and one bank account which had remained unadministered for 60 years. The deceased appointed his wife to be his sole executor and trustee. He gave his whole estate to his wife on trust for each of his children upon them attaining the age of 21 years with his wife having the right to income during that time. The property was to be sold when the eldest child reached 21 years of age and the sale proceeds were to be divided equally between the children upon each of them attaining 21 years of age.

The wife transferred the title of the realty into her name as executor but died before the property was sold and the estate administration was finalised. By virtue of the wife's Will, she appointed her son to be her sole executor and trustee.

So what went wrong?

The son became incapable of managing his own affairs and nothing further had been done to finalise the estate administration for 60 years.

The following are just some of the implications which now have to be considered in managing this matter:

• Undue delay and unnecessary legal expense.
• Some beneficiaries have since died. Investigative work is now required to determine who is legally entitled to the deceased's beneficiaries' shares of the estate.
• Important legal documents such as the original certificate of title and grants of probate have been misplaced. Extensive searches for these documents were conducted and applications required to replace the documents.
• A beneficiary has resided in the property rent free for over 50 years but has paid the council and water rates expenses on behalf of the estate. The accounting exercise to adjust the entitlements of the various parties will be complex, time consuming and expensive.
• There will need to be an application to the Supreme Court for a special grant to authorise one of the family members to sort out the estate administration. The application will be complicated by the need for consents, overcoming family members who will not or are unable to consent and resolving arguments between family members about the funding of the Court application.

As shown above even a simple estate administration can become complicated and expensive if delays occur in handling the estate.

Land Tax 2005

As noted in the August 2004 Bartier Bulletin, the State Revenue Legislation Amendment Act introduces changes to land tax assessment from the 2005 land tax year, with the removal of the land tax threshold and the introduction of a progressive tax scale.

The removal of the land tax threshold will result in a substantial increase in the number of people paying land tax. The Office of State Revenue has indicated that to the end of November 2004 it has 40,000 new taxpayers registered.

Indicative land tax lodgement dates for 2005 are as follows:-

• 28 February for individuals; and
• 31 March for parties lodging through agents.

It is important for people to review their operations to ascertain if the changes impose land tax obligations and liabilities for the 2005 land tax year.