Tuesday, March 15, 2022

Avoiding deep water** - duties owed to beneficiaries

It is well accepted that professionals, particularly lawyers, owe a duty to their client to ensure their objectives are met.

In the estate planning context, this duty has in a number of situations extended to claims by disgruntled beneficiaries.

The case of Calvert v Badenach [2015] TASFC 8 is a specific example.

Broadly the background was as follows:
  1. The willmaker made a will leaving 100% of his estate to a named beneficiary, whom he also owned 2 properties with as tenants in common. Previous posts have explored the difference between owning property as joint tenants and tenants in common.
  2. The willmaker's daughter challenged the will after his death and was successful in her claim, meaning the nominated beneficiary had his entitlements reduced and also incurred legal expenses.
  3. The nominated beneficiary sued the willmaker's lawyer for negligence.
The court held that the lawyer was negligent and owed the nominated beneficiary a duty. The reasons for this included:
  1. the law firm had acted in the purchase and registration of the two properties as tenants in common and an earlier will that provided for the daughter.
  2. the lawyer should have investigated the situation of the daughter given that she was within a category of people that could potentially claim against the estate and advise accordingly. This advice should have included how to minimise the risks of a claim against the estate.
  3. specifically here, the lawyer should have explained the consequences of not owning the properties as joint tenants (which would have seen them pass automatically to the surviving owner, instead of 50% of each property falling into the estate and subjected to the successful challenge).
  4. importantly, strategies in relation to protecting against challenges against an estate would also need to factor in the 'notional estate' rules which are applicable for willmakers domiciled in NSW or with assets in NSW. Again, an earlier post explains the notional estate provisions.
While ultimately following appeal to the High Court in this case (namely, Badenach v Calvert [2016] HCA 18) much of the above decision was overturned, the fact that the matter went to the High Court is a warning in itself.

Furthermore, there were a range of competing views of judges at leach level of the process, including in the High Court.

It seems clear that this area will remain litigious, despite the High Court confirming that:
  1. a lawyer’s duty is one to be protective of the client and their interests alone;
  2. a lawyer will not be answerable in damages to a third party for a failure to advise the client on the consequences of a possible FPA.
  3. a lawyer has no duty to a third party for failing to advise a client on strategies to avoid potential FPAs. The position in relation to adjacent areas however, such as failing to ensure a joint tenancy is severed to achieve a client's objectives, were not confirmed.
As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, the title today is riffed from the Paul Kelly song ‘Deeper water’.

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