Always ‘read the deed’

The recent decision of Mercanti v. Mercanti [2015] WASC 297 again reinforces the mantra ‘read the deed’, which is a theme that has featured regularly in previous posts (see for example - http://blog.viewlegal.com.au/2014/03/death-benefit-nominations-read-deed.html, http://blog.viewlegal.com.au/2013/08/a-further-reminder-read-deed.html, http://blog.viewlegal.com.au/2012/07/ato-reminder-read-deed.html).

As usual, a full copy of the decision is available via the following link – http://www.austlii.edu.au/au/cases/wa/WASC/2015/297.html

Broadly the background was as follows –

1. As part of a family succession plan, two family discretionary trusts were amended by deleting the original definition of ‘appointor’ for each trust.
2. This resulted in the father being replaced by his son as appointor of the two trusts.
3. The appointor power under each trust gave the person nominated the power to unilaterally change the trustee of each trust.
4. A later family dispute saw the son purport to exercise the appointor powers under each trust deed (as amended) to replace the trustees with a company he controlled.
5. The father attempted to resist the changes, in part on the basis that the earlier deeds of variation were not in accordance with the variation power in the trust deeds and therefore invalid.

In deciding that the change of appointor was valid under one trust deed, and invalid under the other, the court highlighted the overriding importance of reading the relevant trust instrument.  In particular –

(a)    One deed had a variation power that relevantly provided the ability to ‘vary all or any of the trusts, terms and conditions’. The scope of this provision was sufficiently wide to allow the original change of appointor and therefore the son was able to use his power to change the trustee.

(b)   The power under the second deed however only provided the ability to ‘vary all or any of the trusts’.  In other words, there was no express power to amend the terms and conditions of the trust deed.

(c)    The concept of ‘trusts’ does not ordinarily, and did not here, extend to the appointor clauses, meaning the purported variation of appointor was invalid and in turn the son’s attempted change of trusteeship ineffective.

In many respects the decision here is simply the application of principles explained in detail in the case of Jenkins v Ellett [2007] QSC 154, which will be the subject of next week’s post.

Until next week.

Image credit: Anders Bachmann cc

Notional estates

Laws in each state of Australia allow a family member or certain other dependants to challenge a deceased's will.  Such a claim is generally known as ether a family provision application or a testator's family maintenance (TFM) claim.  Whether a TFM claim is successful depends upon a range of matters – regardless of the outcome however, TFMs can be costly and emotionally debilitating for all parties involved.

Historically in all Australian states, a TFM claim could only relate to property that was owned by the deceased on the date of their death, putting certain property – such as trust assets or those owned by a spouse - outside the reach of a TFM claim.

In 2005, NSW introduced 'notional estate' provisions, which essentially enable a court to treat certain property that is not legally part of a deceased estate, as being deemed to be included and thereby open to attack by a TFM.  These provisions apply to NSW domiciled persons and any property located within NSW. 

For property to be part of a notional estate, ‘a relevant property transaction’ must have occurred, which in broad terms requires a positive act or omission that results in property being owned by someone other than the deceased. The offending transaction must have taken place within certain specified times before the date of death of the will maker.

All Australian states have been considering adopting similar notional estate provisions to NSW. The only other state to announce their likely approach has been Victoria.  In October 2013, the Victorian Law Reform Commission (VLRC) released its final report on Victoria's succession laws, and recommended that the NSW notional estate provisions should not be adopted in Victoria.

In September 2019 the equivalent body in Tasmania also rejected implementation of a notional estate regime in that state, unless and until there are uniform national rules introduced

This said, even otherwise where a state’s succession laws do not include notional estate provisions, there may still be means to attack assets not otherwise forming part of a deceased’s estate, including because of poor planning or due to sham, contrived or artificial transactions.

Until next week.

Image credit: thinkpanama cc