Tuesday, October 24, 2023

Just because there's knocking** for a testamentary trust statutory will doesn't mean the court will answer

View Legal blog - Just because there's knocking** for a testamentary trust statutory will doesn't mean the court will answer by Matthew Burgess

Last week’s post considered a leading statutory (or court ordered) will case that approved a will incorporating testamentary trusts.

The decision in a further case in this area, namely Re RD [2021] QSC 65, highlights however that much will turn on the exact factual matrix as to whether a proposed testamentary trust will is approved by a court.

Relevantly in this case the court had to decide between 2 radically different draft wills submitted, one with 5 testamentary trusts, and the other with none (and all gifts passing directly into the names of the intended beneficiaries). Relevantly, the percentage allocations between each main beneficiary were identical under both 2 wills.

The lawyer proposing the testamentary trust will argued that “a properly advised person in possession of a substantial trust fund, would be concerned to ensure that the substantial inheritance they leave be held in a protected testamentary trust structure for the protection of their chosen beneficiaries”, which would include “asset protection from third parties such as other spouses, or from other sources, whether during the beneficiary’s lifetime, or after their death, if they have already inherited”.

In contrast the lawyer proposing the simple will provided the following context which the court accepted:
  1. The main beneficiaries under the wills all argued that they did not believe the incapacitated person would want to have 'tied up' the wealth in a testamentary trust with no fixed entitlement.
  2. As the proposed testamentary trusts were wholly discretionary, any benefit that would flow to the intended beneficiaries would be “merely an expectation or hope” (see Bowers v Bowers [2020] NSWSC 109).
  3. The potential beneficiaries of the testamentary trusts were much broader than the immediate family – which was contrary to the comments of the lawyer proposing the testamentary trust will that there was a need to ensure that people who were effectively strangers to the incapacitated person, and who had not contributed in any way to his well-being, should not benefit.
  4. Although there may have been some asset protection benefits, the testamentary trust will involved:
    1. unnecessary complexity in its administration over the lifetime of the beneficiaries;
    2. significant costs being incurred by the estate over the lifetime of the trusts, by reason of the fees incurred by the executor and trustee (Perpetual Trustees), in its management of the trusts over a prolonged period of time;
    3. uncertainty as to what the beneficiaries might receive from the estate, given the discretionary nature of the trusts, such that they might not receive any more than some proposed specific pecuniary gifts; and
    4. uncertainty as to whether there would be sufficient funds in the estate on death to give effect to the proposed specific pecuniary gifts.
  5. Therefore, the complexity, additional cost and uncertainty as to what the beneficiaries might receive under the testamentary trust will proposed outweighed any potential asset protection benefits.
  6. The draft testamentary trust will also contained a number of anomalies which would have required amendments by the court.
The court ultimately confirmed:
  1. The central issue for the court’s determination in statutory will cases is what will would the incapacitated person probably have made, if they had capacity.
  2. The cases where testamentary trust wills have been approved, such as the one mentioned in last week's post (Doughan v Straguszi [2013] QSC 295) were distinguishable both because of the facts involved, and because in each case the approval of a will incorporating testamentary trusts was supported by the likely beneficiaries.
  3. It was likely that the incapacitated person here would have (if they had capacity) taken into account and given considerable weight to the views expressed by his mother and his father (who both opposed a testamentary trust will).
  4. It was therefore unlikely that a reasonable person with capacity, would favour a convoluted will under which five testamentary trusts are imposed on his favoured beneficiaries, as opposed to a straightforward, simple will, benefiting those family members directly.
Separately, the court also confirmed that the execution of a non-lapsing binding death benefit nomination (BDBN) was an act in relation to a financial matter within the meaning of section 33(2) of the Guardianship and Administration Act 2000 (Qld) (see another case explored in previous posts, namely Re SB; Ex parte AC [2020] QSC 139). The incapacitated person's administrator (effectively his enduring attorney) was therefore able to sign the BDBN on his behalf.

The signing of such a BDBN was critical because the bulk of the incapacitated person's assets were held via superannuation and therefore to achieve the estate planning objectives 100% of his superannuation death benefits needed to be paid to his legal personal representative (to then be dealt with in accordance with the statutory will).

As usual, please contact me if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Rolling Stones song ‘Can't you hear me knocking?'.

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