Tuesday, November 7, 2023

What is so special ** about 'vested' interests?

View Legal blog - What is so special ** about 'vested' interests? by Matthew Burgess

Following on from last week's post, a related issue often comes up in the context of how wills are crafted.

In particular, wills often provide that a gift to a beneficiary is subject to the person not having already 'died or dying before attaining a vested interest'.

The decision in Serwin v Dolso [2020] NSWSC 370 explores this phrase in some detail.

In the case the relevant beneficiary survived the willmaker by 30 days (as required under the various state based succession laws) and long enough to receive the distribution of some personal items, but not long enough to receive a physical distribution of the gift anticipated by the will. This was because at the time of the beneficiary's death most aspects of the administration process remained incomplete (for example there were outstanding debts, assets yet to be collected and tax affairs unresolved).

The court confirmed that the words ''attaining a vested interest'' could have one of 3 meanings, namely:
  1. that they are tautologous and mean the same as 'if the beneficiary dies before, or does not survive the willmaker';
  2. that they mean 'vested in possession'; or
  3. that they mean 'before the estate is fully administered and available to be distributed'.
While confirming that the exact provisions of a will are also critical, here the 'vested interest' phrase was held to mean “before the estate is fully administered and available to be distributed”.

In other words, the addition of the words 'vested interest' meant that merely surviving the willmaker was insufficient.

That is, a reference in a will to attaining a vested interest will usually be held to mean something more than merely surviving the willmaker, even if the period of survivorship exceeds 30 days (see Arnott v Kiss [2014] NSWSC 1385 and Kinloch v Manzione [2022] ACTSC 76, a case where CGT Event K3 was also likely triggered, given the relevant beneficiaries appeared to be non-residents for Australian tax purposes).

Furthermore, it was confirmed that, similar to the situation of a beneficiary under a discretionary trust, a residuary beneficiary under a will has no equitable interest in the assets of a deceased estate.

Rather, the only right which a residuary beneficiary has is to compel the due administration of the deceased estate by the executor. The trust created by every will (regardless of whether testamentary trusts are created) is to preserve the assets, to deal properly with them, and to apply them, in the due course of administration, for the benefit of those interested.

Relevantly, the Tax Office adopts a similar approach, and generally only allows a maximum of 3 years for the administration of an estate to remain in place (during which time the concessional excepted trust income provisions can apply).

As explained in other View posts however, we are aware of situations where the Tax Office only allow a maximum of 12 months to administer an estate.

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 Garbage song 'Special'.

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