Family Go To Great Lengths To Try And Protect Inheritance

A recent Court case has highlighted and reinforced the reasons why parents might wish to consider establishing testamentary trusts within their Wills.

Key takeaways

• The case highlights why parents may consider using testamentary trusts in their Wills.
• The application sought to alter an existing Will because the Will-maker no longer had testamentary capacity.
• The proposed change was to place valuable properties into a testamentary trust rather than gifting them outright to the son.
• The purpose of the trust structure was to reduce the risk of the inherited properties being treated as matrimonial property in Family Court proceedings.
• The Court of Appeal ultimately allowed the Will to be amended so the properties could be placed into a testamentary trust.

The facts of the case were that Mrs GM, who was 81 years old, had suffered from Alzheimers since 2000 and was placed in full-time care in 2002. In 2011 she suffered a severe stroke which rendered her in a vegetative state.

Her husband, to whom she was still married, managed her affairs via an Enduring Power of Attorney.

Mrs GM had two children, a son (GK) and a daughter. The son was married.

Mrs GM made a Will on 21 June 1998 some four months after GK was married. In that Will she left certain properties to her son GK and those properties were, as of 2014, worth approximately $5 million.

The son GK and his wife whom he married in 1998 separated in May 2014.

Mrs GM’s husband brought an Application to the Supreme Court to alter the terms of her existing Will.

The Application was brought under Section 21 of the Succession Act 1991 which allows the Supreme Court to make Orders authorising a Will to be made or altered on behalf of the person who does not have testamentary capacity.

The Application was opposed by the ex-wife of the son GK.

Effectively the Application was to alter the Will in such a way that the properties were not gifted directly to GK but were placed in a testamentary trust of which the beneficiaries were to be GK and the grandchildren and great-grandchildren of Mrs GM.

The reason for the Application was the concern that if Mrs GM died (and the evidence at the trial was that her life expectancy was only a matter of months) the properties would, under her 1998 Will, pass to GK and, if that were to occur, those properties would form part of the matrimonial property of her son GK and his ex-wife and be subject to division between the son GK and his ex-wife as part of Family Law proceedings which would ensure as a result of the breakdown of that marriage.

By placing the properties in a testamentary trust would result in the properties not being owned by GK and as such they would not form part of the matrimonial property which could be the subject of Family Court Orders but would however be treated as a financial resource.

The evidence before the Court was that the matrimonial pool without the properties was approximately $1.1 million but with the addition of the properties the matrimonial pool could be worth approximately $6 million.

It was accepted by Mrs GM’s husband that the purpose of the Application was to take the properties out of the reach of the Family Court.

The Court found that that proposal did not offend “the policy of the law” as it was not seeking to defeat creditors or avoid the operation of the Bankruptcy Act 1966 (Cth). 

The Court found it was intended however to impact pending Family Court proceedings. 

At first instance in the Supreme Court the Judge found that in all of the circumstances and particularly given that the purpose of the amendment was to impact upon the Family Court proceedings, it was not appropriate for an Order to be made under Section 21 of the Succession Act 1991 and the Application was refused.

Mrs GM’s husband appealed the matter to the Queensland Court of Appeal. The Court of Appeal found the Supreme Court Judge had placed too much emphasis on what he had found to be the purpose behind the Application, namely to achieve an advantage for GK in the Family Court proceedings.

The Court of Appeal concentrated on how Mrs GM would exercise her testamentary powers over her own property in the circumstances that existed.

Primacy seemed to be given to the competing interest that GK and his ex-wife have between themselves in the Family Court proceedings and not the likely wishes of Mrs GM and to the steps she herself might have taken had she had testamentary capacity to do so. 

As a result the Court of Appeal found that it was appropriate for an order to be made amending Mrs GM’s previous Will and allowing for the properties to be placed into a testamentary trust.

We Can Help With Your Will

Davoren Associates can assist you in relation to preparing Wills that incorporate Testamentary Trusts. If you have any queries in relation to the use of Testamentary Trusts please do not hesitate to contact us.

Frequently Asked Questions

Why were testamentary trusts considered in this case?

Because the family wanted to protect valuable inherited properties from passing outright to the son and potentially becoming exposed in Family Court proceedings.

Why was the Court asked to alter the Will?

Because the Will-maker no longer had testamentary capacity, and section 21 of the Succession Act allowed the Court to authorise a Will to be made or altered on that person’s behalf.

What was the proposed amendment to the Will?

The properties were to be placed into a testamentary trust for the benefit of the son and the grandchildren and great-grandchildren, rather than being gifted directly to the son.

Why did the trust structure matter in the family law context?

Because property held in the testamentary trust would not be owned directly by the son and therefore would not form part of the matrimonial property pool in the same way.