Read the deed … another one (bites the dust)**

Today’s post considers the above-mentioned topic in a ‘vidcast’.

As usual, an edited transcript of the presentation for those that cannot (or choose not) to view it is below.

The following case study falls under the mantra ‘Read the Deed’.

Here, the factual scenario centred on a standard family trust.

However, when I say ‘standard’, I should put an asterisk. This is because we thought it was standard and the accountants that had sent the job in to us had been operating for about 10 years on the basis that it was a ‘standard’ family trust.

Under the trust deed, there was a principal (often also referred to as an appointor). In other words, there was a person who had the right to hire and fire the trustee.

As is well understood, in some trust instruments where there is a principal or an appointor, there is then under the power to vary a requirement that that principal or appointor consent to any purported variation before the trustee is permitted to proceed with the proposed variation.

Here, arguably, re-enforcing the assumption that the deed did seem to be a standard family trust, pursuant to the variation power, the principal was not required to consent to any variation.

Importantly, there was a variation that had been done about 12 years ago, which was two years before the current accountant became involved. Under the variation, there was the nomination of a bucket company. In other words, the nomination of a corporate beneficiary to help cap the tax rate at 30 cents – a standard strategy.

As part of a review and updating of the trust deed, we, in conjunction with the accountant, actually sat down and read the entire trust instrument.

What we discovered was that the second to last clause in the deed, buried with the general powers (for example, powers about the power to lend, the power to invest), was a clause that had a nebulous title of ‘Further Provision’.

The Further Provision clause was said to apply in relation to any exercise of the power to vary that resulted in the nomination of a new beneficiary.

The clause mandated that the trustee must obtain the principal’s consent before relying on the variation power.

The relevant deed of variation however did not have the principal’s consent. There was therefore 12 years of distributions to the bucket company, and every single one of those was void for the failure to comply with the trust instrument.

The only real solution, with the aid of hindsight, is to ensure in the future, always - read the deed, read the deed, read the deed, read the deed.

As always thanks to the Television Education Network for the video content here.

** for the trainspotters, the title here is riffed from the Queen song ‘Another one bites the dust’.

Can(‘t) explain Family Constitutions?**

Today’s post considers the above-mentioned topic in a ‘vidcast’.

As usual, an edited transcript of the presentation for those that cannot (or choose not) to view it is below.

In relation to the classic form of family constitution, there is no legal enforceability of the terms of the document.

One clear advantage of this is that there are therefore definitely no transaction cost issues with entering into a family constitution.

This is because the document is simply a memorandum of understanding, a statement of intent, a handshake agreement, a best wishes or best endeavours arrangement, but nothing else.

In other words, there is no change in legal ownership of any assets.

Thus, there is no stamp duty triggered.

Similarly, there is no tax event triggered.

It is simply a non-binding arrangement that doesn’t actually have any other legal impact.

Some families therefore rightly ask – “Why is there any need for approaches such as umbrella trusts, trust splitting, trust cloning, and related ideas? Let’s just keep it simple with a family constitution. We may not even get any professional involved in drafting it up because we can download one off the Internet. Let’s just make it up as we go along, and really, as long as the communication levels are there, we don’t need anything else.”

This said, our experience is that for many families, even when they are confident that the informal approach will succeed, they have a mantra of ‘in times of peace, prepare for war’.

In other words, if the family is robust enough to be able to have the critical discussions and get a non-binding family constitution in place, that’s the exact type of family that should build on the positive platform, go to the next level, and get legally binding arrangements in place as well.

As always thanks to the Television Education Network for the video content here.

** for the trainspotters, the title here is riffed from the Who song ‘Can’t explain’.

Assessing the validity of a will: the (key factors) to have on your list**

Recent posts have considered some of the key issues in relation to assessing testamentary capacity.

One case often referred to due to its detailed explanation of the key factors the courts take into account when assessing the validity of a will is Bailey v Bailey (1924) 34 CLR 558. As usual if you would like a copy of the case please contact me.

The key factors listed are as follows:

1. The onus of proving that an instrument is the last will of the will maker is with the party propounding it.
2. The court must determine the validity of the will on the balance of the whole of the evidence.
3. The proponent can discharge the onus by establishing a ‘prima facie’ case.
4. A prima facie case is one which, having regard to the circumstances established by the proponent’s testimony, satisfies the Court that the will is the last will of a free and capable will maker.
5. It is the capacity of the will maker’s mind, not body, that is relevant.
6. The quantum of evidence sufficient to establish validity of a will always depends on the circumstances of each case. Relevant factors may include:
1. the simplicity or complexity of the will, its rational or irrational provisions and its exclusion or non-exclusion of beneficiaries;
2. the exclusion of persons naturally having a claim upon the will maker’s estate;
3. extreme age or, sickness of the will maker; and
4. existence of any person having motive and opportunity and exercising undue influence, then taking a substantial benefit under the will.
7. Once the proponent establishes a prima facie case of sound mind, memory and understanding with reference to the particular will, then the onus of proof switches to the party challenging the will.
8. To displace a prima facie case of capacity and due signing, mere proof of serious illness is not sufficient; there must be clear evidence that undue influence was in fact exercised, or that the illness of the will maker so affected their mental faculties as to make them unable to validly dispose of their property.
9. The opinion of witnesses to the signing of the will as to the testamentary capacity of the will maker is usually of little weight on the direct issue, as the court must decide based on the facts, not opinions.
10. Where instructions for a will are given some time before its signing, it is the capacity as at the date of giving the instructions that is most relevant.

** for the trainspotters, the title here is riffed from the Hall & Oates song ‘Your kiss is on my list’.

And another (new) perspective** on assessing testamentary capacity

Recent posts have considered some of the key issues in relation to assessing testamentary capacity.

Another case that provides an informative perspective on the key issues is Carr v Homersham [2018] NSWCA 65. As usual if you would like a copy of the case please contact me.

The decision confirms that there is a presumption of mental competence that arises in relation to any will that is rational on its face and is duly executed.

The presumption is only displaced by circumstances which raise a doubt as to the existence of the deceased's testamentary capacity at the time the will was signed.

Relevantly, the existence of an 'insane delusion' under which the deceased laboured does not of itself preclude a finding of testamentary capacity if the delusion had no effect upon the will. Helpfully, the case confirms the key factors that are relevant in this regard as follows:

1. It is insufficient to demonstrate the absence of testamentary capacity to prove that the deceased acted on a material mistaken belief in making their will.
2. Instead, for a mistaken belief to rise to the level of a 'delusion' which affects the validity of the will, there must at least be a high degree of irrationality in the belief.
3. Ordinarily, evidence will be required that there has been an attempt to reason the deceased out of the belief, such that the deceased's adherence to it suggests that the deceased has a mental disorder or deficiency precluding the deceased from comprehending and appreciating 'the claims to which they ought to give effect'.
4. Generally, the circumstances must be such that it can be inferred that the deceased was wedded to a mistaken belief, irrespective of its truth. If that is not the case, the belief is likely to be no more than a mistaken view, the holding of which cannot be inferred to reflect on the deceased's mental competence.

Applying the above principles to the factual matrix of the case it was held:

1. A mere mistaken belief is not sufficient to invalidate a will. Instead, there must be an element of irrationality such that an inference can be drawn that the deceased has adhered to the belief regardless of evidence demonstrating its falsity.
2. If the mistaken belief is one that the Court can infer the deceased could have been reasoned out of by the presentation of evidence of its falsity, its origin in a mental deficiency will not be able to be inferred.
3. The fact that the deceased suffered from dementia, was not inconsistent with her retaining testamentary capacity at the relevant time. While it was clear that the deceased's memory difficulties were at least in part reflective of that disorder, there was no evidence indicating that the existence dementia impacted on the deceased's mistaken belief that was in issue in the case. 

** for the trainspotters, the title here is riffed from the Panic at the Disco song ‘New Perspective’.

Assessing Testamentary Capacity: A further (+ deeper)** lesson

Last week’s post considered some of the key issues in relation to assessing testamentary capacity.

A case that provides an interesting further insight into the issues that should be considered is Roche v Roche & Anor [2017] SASC 8. As usual if you would like a copy of the case please contact me.

Relevantly, the decision confirms that, as with many other 19th century common law principles governing the legal effect of mental illness, the statements in Banks v Goodfellow (see the links in last week’s post that provide a summary of this case) no longer fully reflect modern medical knowledge.

That is, it is now recognised that there are a broad range of cognitive, emotional and mental dysfunctions, the effects of which are difficult to identify precisely or delineate from the exercise of ones ‘natural faculties’ and the reasoning capacity of a ‘sound’ mind.

What this means in a practical sense is that the rules as to assessing testamentary capacity must recognise and allow for the natural decline in cognitive functioning and mental state due to old age.

While the rules in the Banks decision therefore still provide a useful starting point, the courts also acknowledge that many wills are made by people of advanced years.

In these situations, slowness, illness, feebleness and eccentricity will sometimes be apparent. However, the presence of these factors is not ordinarily sufficient, if proved, to disentitle a will maker of the right to dispose of their property by will.

** for the trainspotters, a classic song from The Church album ‘Further, Deeper’, namely ‘Miami’.

Case Study: Assessing** Testamentary Capacity

Earlier posts have examined the 12 general rules that should be used when assessing the testamentary capacity of a will maker, as usual, please let me know if you would like access to this content.

The decision of Ruskey-Fleming v Cook [2013] QSC 142 provides an interesting further example of the issues that should be considered and as usual if you would like a copy of the case please contact me.

The case involved an application to court by Ms Ruskey-Fleming (the will maker's daughter) to confirm the validity of the deceased’s 2007 will. The deceased’s son claimed that his father did not have testamentary capacity to execute the 2007 will and that an earlier document, made in 2000, should be treated as the last will.

Importantly, the 2007 will made greater provision for the daughter compared to the 2000 will.

The court reaffirmed the test outlined in Banks v Goodfellow (1870) LR 5 QB 549 as the starting point for assessing testamentary capacity. It was also confirmed that this test needs to be adapted to reflect modern life, particularly in relation to how financial affairs are now managed.

It was held that a will maker does not need to know the details and value of every single asset they own in order to prove that they have testamentary capacity, particularly where share portfolios are involved. What is important is that the will maker is aware generally of their assets and value.

The court found that the testator did not have testamentary capacity in relation to the 2007 will as he:

1. suffered from confusion and disorientation over a lengthy period of time which was evident from medical records and MMSE test results;
2. could not correctly answer the solicitor’s questions in relation to the number and identity of his children and grandchildren;
3. was not aware if he had previously executed an enduring power of attorney;
4. was not able to provide the solicitor with details about his assets and their value; and
5. could not provide a reason for why he was changing his will – which would favour the daughter over the son.

** for the trainspotters, the title here is riffed from the No Doubt song ‘Artificial Sweetener’.

Cloudbusting** - Incapacity and invalid wills – a 101 reminder

Last week, we had to look at a relatively interesting question concerning a series of wills that had been made by someone who died recently.

Due to evidence on the death certificate, the validity of the most recently will has been called into question because of a lack of capacity (namely, long term dementia).

There are a number of things that may happen from here, however in very broad terms, if the most recent will is held to be invalid, then the will made immediately before the most recent will is the one likely to be submitted to probate.

If that immediately preceding will is also shown to be invalid because of a lack of capacity, then the court is required to keep going back through previously made wills until they find one that does not fail on the basis of the incapacity issues.

The above approach assumes of course that the previous wills can be accessed, and the court can ultimately satisfy itself that a valid will was made at a time when capacity was not in doubt.

If the court is unable to satisfy itself, the default position is that the intestacy rules apply.

** for the trainspotters, the title here is riffed from the Kate Bush song ‘Cloudbusting’