Another (brick in the wall)** - or statutory will case (as the case may be)

Recent posts have looked at various aspects of the statutory (or court ordered) will regime.

Doughan v Straguszi [2013] QSC 295 provides another example of how the courts approach these provisions.

In summary:

1. A will maker had lost capacity leaving a will that did not deal with a number of assets and indeed was inaccurate in relation to one of the main assets, being the family farm.
2. The will maker’s son was involved in litigation that had some prospect of ultimately resulting in his bankruptcy.
3. The proposed court ordered will created testamentary trusts, primarily to benefit the will maker’s daughter and grandchildren.

In approving the will, despite the clear financial difficulties of the son, the court confirmed the following factors, were critical:

1. There was significant evidence to show the longstanding connection of the family with the farming property.
2. There was no doubt, based on the evidence, that the will maker wanted the property to stay in her family line for future generations.
3. There was no evidence to suggest that the use of the testamentary trusts to benefit the daughter and grandchildren was a mechanism to simply shelter the wealth for the ultimate benefit of the son, once his financial difficulties had been resolved. This was an important distinction compared to other cases where applications for a statutory will incorporating testamentary trusts were rejected on the basis that they were simply designed to provide de facto control of wealth to a beneficiary who is otherwise facing bankruptcy.
4. In other words, here, the intention was not to defeat the son’s creditors, rather it was to ensure that the substantive assets of the family were held in an appropriate structure for the benefit of future generations.
5. The fact that there were also errors and unnecessary complications with the pre-existing will was also seen as important.
6. Ultimately, the court was in no doubt that the will being proposed was precisely what the will maker would have done had she still had the capacity to do so.

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 Pink Floyd song 'Another brick in the wall'.

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Easy** - Court criteria for statutory wills

Last week’s post provided a summary of the key evidentiary issues in relation to any application for a court ordered will.

Even if each of the issues flagged last week can be adequately addressed, the court still retains complete discretion as to whether it will approve an application.

The key issues that a court must be satisfied about before allowing a statutory will to be created are as follows:

1. anyone who may have a potential interest in the estate must have the opportunity to address the court;
2. the person applying for the court ordered will must be deemed by the court to be the most appropriate person; and
3. the court must be satisfied that it is appropriate in all the circumstances to approve the will. This invariably means that the court must be satisfied that the proposed will is reflective of what the will maker would have made if they had the required capacity.

In the context of the above, the decision in the (arguably aptly named) case of Wills v NSW Trustee [2022] NSWSC 1098 is relevant.

The main asset in this case was a property at North Bondi, valued at more than $7M. The sole owner had lost capacity and had no relatives and no will; meaning on death her estate would pass to the State Government under the intestacy rules.

A neighbour at North Bondi (named Wills) brought an application for a statutory or court ordered will for the entire estate to pass to Wills, which was rejected with the court confirming:

1. There was evidence to support the sole owner had a preparedness to die intestate even if that meant that 'the Government' took the benefit of her estate.
2. Furthermore, there was insufficient evidence to support a conclusion that the proposed statutory will was one that was reasonably likely to have been made, if the sole owner were to have had capacity (see GAU v GAV [2016] 1 Qd R 1 and Re K’s Statutory Will (2017) 96 NSWLR 69).
3. An informal will (a concept explored in other View posts) produced by Wills (that gave the entire estate to her) did not assist the court in the application for a statutory will, particularly given that it was prepared and signed in circumstances sufficiently 'suspicious' to require proof that the sole owner 'knew and approved' the contents of it. A point reinforced by the fact that Wills was the sole owner's guardian and provided care and assistance and therefore owed fiduciary duties.
4. Ultimately, Wills' application for a court ordered will was not in any material way for the benefit, and in the interests, of the sole owner. Rather it was an attempt to legitimise the informal will; with the veracity of that document held by the court to be best tested following the death of the sole owner, assuming a court application was then made for the informal will to be admitted to probate.

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 Hunters and Collectors song 'Easy'.

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Dear Judge: Do you see what I see** - how to get a statutory will

In some circumstances, a person who does not have testamentary capacity can have a court make a will for them.

Before embarking on a court application, there are a number of issues that need to be addressed including:

1. confirmation that the will maker lacks the required capacity;
2. a complete summary of the reasons for the application, together with details of all wealth of the will maker;
3. a comprehensive draft of the intended court ordered will;
4. details of any previous estate planning exercises the will maker was involved in, together with evidence about their intentions historically and what their probable intentions would be currently (but for the fact that they lack capacity); and
5. all details of the wider factual matrix, including whether there is any realistic prospect that someone may look to challenge the deceased estate.

Assuming all of the above issues can be addressed, the court will only approve an application in relatively limited circumstances.

Next week’s post will list out the exact steps the court applies in this regard.

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 Hunters and Collectors song 'Do you see what I see?'.

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Who should be appointed as an executor - Better the Devil you know(?)**

Previous posts have considered some of the key questions to ask in any estate planning situation - the following View articles also set out some of the key issues to be aware of:

https://viewlegal.zendesk.com/hc/en-au/articles/360036531992-What-is-an-executor-

https://viewlegal.zendesk.com/hc/en-au/articles/360036532092-Testamentary-trusts-overview

Generally it is critical to ensure the choice of executor is very carefully considered.

At a threshold level, an executor should be someone the willmaker trusts implicitly.

Other key attributes to consider can include:

1. Financial literacy and acumen;
2. Emotional strength;
3. Likely ability to perform the role in the worst of circumstances;
4. Age and health;
5. Previous experience;
6. Knowledge of and strength of relationship with beneficiaries;
7. Knowledge of and strength of relationship with other executors;
8. Residency;
9. Expectations in relation to payment;
10. Overall willingness to act.

The executor of the will is also known as the trustee. While the trustee of the testamentary trust is often the same as the executor, it can however be someone different.

Generally there can be up to 4 executors appointed at any one time. Particularly if only one executor is appointed initially, having at least one back up is generally advisable.

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 Kylie Minogue song 'Better the devil you know'.

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When is the right time** to get structuring of business assets right?

Last week, we had a client wanting to revisit their business structure, and in particular, the decision to run all aspects of the business via the one legal entity (in this instance a company).

The particular issue of focus was in relation to the risks that attach to certain items of plant and equipment that, in a worst case scenario, could cause serious injury (or death) to employees.

The same items of plant and equipment were owned by the entity that held the goodwill of the business as well as other real property assets.

While there were a myriad of issues that needed to be addressed, at a basic level, we explored the movement of the items of plant out of the existing company into a 'standalone' special purpose vehicle (‘SPV’) that would house the plant and equipment. The SPV would then lease the plant and equipment back to the operating entity - and thereby comply with the rules of ‘domino theory’ (as explored in previous View posts).

The work involved in achieving this part of the restructure was not significant and given that in the circumstances it could be done without any tax or stamp duty consequences, the customer saw it as a sensible step to implement immediately.

While the exact stamp duty and tax outcomes will depend on the circumstances, it is worth keeping this style of SPV solution in mind as an example that there can be relatively simple restructure ideas implemented without significant time delays or cost investment.

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 Hoodoo Gurus song 'The Right Time'.

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Amending testamentary trusts: a non-zero possibility**?

The ability to amend a testamentary trust after its establishment (and in particular following the death of the will maker) is an area of some contention. Often specialist advisers argue that changing any terms of a will after death is a breach of the rule against delegation of will making powers.

One aspect of the issue that is however very clear is that unless there is a power to vary included in the terms of a testamentary trust, the only way in which to change its terms is by way of a court application.

In all Australian states, there is legislation that empowers the court to vary the terms of a trust. One example of a case in this regard is Robert Thomas Grant as trustee of the Grant Family Testamentary Trust [2013] NSWSC 1603

In this case, a testamentary trust had been setup by the trustee’s late father.

Some years after its establishment, the trustee wanted to obtain finance to make improvements to one of the real properties owned via the trust.

Financiers refused to lend any funds on the basis that the powers of the trustee set out under the testamentary trust did not include a raft of provisions normally expected to be seen in a trust instrument, including the power to lend, the power to open and operate accounts with financial institutions, the power to delegate, the power to borrow and a right of indemnity.

Using a discretion granted to the court in New South Wales to vary a trust instrument where it deems it ‘expedient for the management of the trust’, all the deficiencies identified by financiers were remedied by the court approved variation.

Interestingly, part of the application included a specific power to allow the trustee to unilaterally make future amendments to the terms of the trust. While other cases have refused to include such a power, here the court was comfortable to allow it, on the basis that any amendment would require the consent of all potential beneficiaries. This prohibition was seen as ensuring that the trustee could not do anything to alter the ‘substratum’ of the trust.

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 At the drive in song 'Non-zero possibility’.

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Excepted trust income and ‘bare’** trusts

A previous post has considered various aspects of the statement that ‘every will contains a testamentary trust’.

One example of where basic or 'bare' testamentary trusts exists includes where a gift is given to a beneficiary who does not have legal capacity (for example, because they are under the age of 18).

This was the factual matrix in the Tax Office private ruling mentioned in last week’s post, namely 1011602878465.

In particular –

1. The beneficiary had received gifts of money which were invested on their behalf by their parent.
2. The money had been sourced from several places, including money left to the beneficiary from a deceased estate.
3. The money was held in trust by the parent in a bank savings account named '[Parent's name] in trust for [child's name]'.
4. Under the terms of the relevant will, the child received a certain amount, which was to be paid to their parent or guardian to be held for the benefit of the child if the child was under 18.

It was held that the proportion of the interest income earned that would be 'excepted trust income' would be determined with reference to how much of the original amount invested into the bank account was sourced from the deceased estate, as compared to the amount gift from non-estate sources.

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 Cure song 'Bare’.

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