May be impossible to make a watertight Will in NSW
A son sues his mother for part of his father’s estate even though there’s no money in the estate. Why?
Earlier this year, the NSW Court of Appeal handed down the judgment of Cowap v Cowap in which the deceased’s will was effectively ignored, as was his other estate planning, in order that his son could benefit to the detriment of the deceased’s wife.
Unsurprisingly, cases of this nature tend to raise a few eyebrows amongst Estate Planners.
Geoffrey Cowap passed away in December 2015, survived by his wife of 57 years, Barbara Cowap. At the time of Geoffrey’s death, he and Barbara had five children; Barbara also had several children from a previous marriage including Nicholas Cowap. Nicholas was adopted by Geoffrey. At the time of the appeal judgment, Barbara was 91 years old.
Geoffrey’s estate was of little value. Yet Nicholas sued. Why.
Geoffrey and Barbara owned a house worth about $1.35m. Because they owned the house as ‘joint tenants’ it did not form part of Geoffrey’s estate.
(When persons own assets together they can do so as ‘joint tenants’ or ‘tenants in common’. For ‘joint tenants’ when one of them dies the property passes automatically to the other. It does not form part of the deceased’s estate because of the automatic transfer. Tenants in common, on the other hand, reserve the right to gift their half share to other persons and so the half share remains part of the deceased’s estate.)
So although Geoffrey’s other assets were few and of little value Nicholas still sued the estate in order to get a share of the value of the house, even though it was not part of the estate. How does that work?
At the time of Geoffrey’s death, Nicholas was in good health. In May 2016, Nicholas suffered a series of heart attacks that left him with permanent brain injuries that prevented him from working and from being self-sufficient. Nicholas’ incapacity means that he requires specialised, accessible housing. At the time of the appeal judgment, Nicholas was 64 years old.
The court exercised its power pursuant to s.59 of the Succession Act 2006 (NSW) and made a family provision order out of Geoffrey’s estate awarding Nicholas $600k.
Geoffrey’s estate did not have anywhere near this amount, so Kunc J held that the house (and half of the share portfolio (approx. $100k)) be designated as part of the estate, and that these assets be liquidated to pay Nicholas’ provision. In short, the house was to be sold and $500k of the sale price was to be awarded to Nicholas.
The primary judge’s decision was informed by weighing each party’s needs against one another.
Importantly, he ruled that even though Geoffrey and Barbara had owned the house as joint tenants and that on Geoffrey’s death the house had therefore automatically transferred to Barbara, the law permits the court to claw back the property and call it part of Geoffrey’s ‘notional estate’.
The Court of Appeal agreed with the primary judge.
NSW has the most extensive ‘notional estate’ provisions of any Australian State or Territory. This means that it is never possible to say that an eligible person’s claim against the estate will be rejected.
It also seems that it is never possible to say that any property held as a joint tenant will not be ruled to be part of the notional estate of the deceased and used to pay out a claim against the estate, even though it did not form part of the deceased’s primary estate.
Much to the chagrin of Estate Planners, the current legislation in NSW means that it may be impossible to draft a will that is airtight against both contemporary claims and claims arising from subsequent events. The needs of an estate’s beneficiaries can change and may do so up to the time that estate’s assets are distributed, thereby inviting a claim.
It may be that the only way to avoid the NSW notional estate provisions is to move to another State.
Interested in estate planning? See more details on Townsends Law’s services at https://www.townsendslaw.com.au/advice-guides/estate-planning
For further information, please call Townsends Business & Corporate Lawyers on (02) 8296 6222 or email info@townsendslaw.com.au