26/09/2012

A recent court decision ordered the Executor of an estate to pay the deceased's daughters out of the Executor's personal estate, namely his superannuation.  The case has sent shivers down the spine of all those who have agreed to act as the Executor of an estate.

In Charnock v Handley [2011] NSWSC 1408 the deceased in his Will left his estate to his friend Robert Handley, but made no provision for his two adult daughters. 
 
Probate was granted and the whole $78,949 of the estate was distributed to Handley. Of this money, Handley paid $16,122 in funeral and memorial costs leaving a net value of $62, 827.

The deceased's daughters made a family provision claim on the estate naming Handley as the Defendant. There was no dispute that the daughters were eligible persons to make this claim.

As Handley did not produce any bank records or receipts, the Court did not accept his explanation that he had spent or given all his inheritance money away to charities, and said that "more is required than simply making that assertion".

In the proceedings Handley also disclosed that amongst other assets, he had an amount of $135,000 in a Navigator Personal Retirement Fund, but "he did not disclose to the Court the source of moneys or how long he had held those moneys".

Some of the matters raised in the proceedings were:

• the conduct of the daughters regarding the care and maintenance of the deceased during his life;
• a written "statement" made by the deceased shortly before his death describing the relationship with his daughters in negative terms and stating that he had maintained limited contact with them since the breakdown of his marriage with their mother;
• an earlier Will made in September 2003 where the deceased provided a pecuniary legacy of $10 to each of his daughters in the hope that they will buy a lottery ticket and enjoy the winnings in his memory; and
• the conduct of Handley after he learnt of the daughters' claims.

The Court found that the deceased's "statement" did not accurately describe the relationship between him and his daughters and that the daughters' conduct did not disentitle them to a provision out of the estate.

The Court also held that Handley's conduct was unconscionable, in that he misled the daughters about the value of the estate.

Section 63(5) of the Succession Act 2006 (NSW) states that the court may make an order in relation to property that is not part of the deceased person's estate or that has been distributed, if it is designated as part of the deceased's so-called "notional estate".

Consequently, the Court held that the deceased was not obliged to make provision for Handley because he was a friend of the deceased. Instead, it found in the daughter's favour because the deceased did not make adequate provision for their proper maintenance and advancement in life.

Because of the broad reach of the notional estate provisions, the Court ordered that $22,415 of the $135,000 held by Handley in his Navigator Personal Retirement Fund be designated as part of the deceased's "notional estate" to be paid to the daughters.  In other words, Handley as Executor was paying the daughters out of his own superannuation money.  How the Court expected him to get access to that money while it was still in the super fund was not discussed.

The case illustrates the power of the Court to make orders affecting interests in superannuation funds under NSW notional estate provisions. It also has lessons for the conduct of executors and beneficiaries after the death of the deceased.

For reference, similar notional estate legislation does not appear in the relevant legislation of other States, although discussions are continuing (albeit very slowly) among the States' Attorneys General about the prospect of further unifying the Australian law including the notional estate provisions.

If you have any questions in relation to this article, please contact TOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.