Who should care: Persons wishing to see the benefits of a testamentary trust argued in Court
The Case: Francis v Martin [2024] VSC 340
Link to case: https://jade.io/article/1080558
Case Summary:
Issue: The primary issue in this case is whether the plaintiff was entitled to a family provision order that would allow her entitlements under her late father’s will to vest absolutely in her, despite already having substantial assets.
Rule: Under the Administration and Probate Act 1958 (Vic), a family provision order can be made if the court is satisfied that the deceased had a moral duty to provide for the applicant’s proper maintenance and support, and that the distribution of the estate fails to make adequate provision for this.
Application: The court found that the plaintiff, despite her health issues, had substantial assets from previous inheritances and failed to fully disclose her financial position. The court determined that the will did not fail to make adequate provision for her, as she was already well-provided for.
Conclusion: The court granted summary judgment in favor of the executors, concluding that the plaintiff's claim had no real prospects of success. The court held that the will’s provisions were adequate for her maintenance and support, given her existing substantial assets.
Extra Tidbits:
It should be noted the case is a Victorian case whose laws slightly differ from Queensland succession law.
Further, although the case related to whether the daughter (being the plaintiff) should be entitled to a family provision order, this claim only arose because the daughter received her inheritance via a 'will trust' (a discretionary trust established under the Will, also known as a testamentary trust).
The case noted the key reason for such a trust was to protect the inheritance from the daughter's bankruptcy at the time.
There were further comments that noted other persons were potential beneficiaries of the 'will trust' for asset protection reasons.
In addition, consideration was also had as to whether there was any 'letter of wishes' or 'instructions...left by the deceased concerning the administration of the will trust'. These are often important non-binding documents that should be completed to assist any persons who may find themselves managing money for other persons.
Another reason for the dispute arose due to the daughter's actions that delayed any prior inheritance being paid out to the daughter (arising from the daughter's mother's estate). As a result of such actions, the Court noted that the fact the daughter did not receive such inheritance did not entitle her to dissolving the will trust. It was noted at paragraph 63 "I accept that Louise does not appear to have received income from the assets of Dorothy’s estate, or the Darling Street trusts, at least not in recent years. However, the uncontested evidence is that Louise’s situation in that regard is largely one of her own making. If I am wrong about that, and instead there has been some maladministration or other wrongdoing on Nicholas’ part, then this proceeding is not the vehicle to address these issues. Put simply, Louise’s failure to collect her considerable inheritance from Dorothy’s estate in a timely manner cannot be a basis for finding, as I must in order to conclude that Louise’s claims in this proceeding have any real prospects of success, that the deceased had failed to make adequate provision for her in the will."
Finally, the daughter did not provide evidence as to her assets and liabilities or income and expenditure which would have enabled persons to determine whether she was adequately provided for.
Regardless, however, the Court noted at paragraph 62: "However, what I do not accept is that Louise is not capable of meeting those needs from the resources currently available to her, even excluding the funds which must have been paid to her by Pitcher Partners in 2020. She owns a valuable property, being the Albert Park property, outright, and has a half share of an extremely valuable property, being the South Yarra property. Either or both of these properties could be sold to fund the purchase of alternative properties, or to fund improvements at either or both of them, or to create a fund to generate a regular income from investments, or all of the above. Alternatively, there is no reason in principle why funds from the will trust could not be made available for these purposes or any of them. There is, after all, more than enough money in the will trust to do so."
The Court also noted that:
" However, while the deceased’s intentions are important, the primary question in this proceeding is whether he adequately discharged his moral duty to make adequate provision for Louise, having regard of course to the resources available to her to support herself." - paragraph 72.
"the primary rationale for the establishment of the will trust, being Louise’s status as a bankrupt, had fallen away some months earlier . However, that of itself did not impose a moral duty upon the deceased (or those advising him) to take steps to remove cl 7 of the will. More accurately, the change in Louise’s circumstances did not mean that the provision made for her by the establishment of the will trust did not amount to adequate provision for her proper maintenance and support." - paragraph 71
"In order to regularise her affairs and improve her financial position, what Louise needs to do is to retain qualified accountants, solicitors, and/or financial advisors to meaningfully engage with the executors and Nicholas regarding the appropriate deployment of her assets and other entitlements from the Darling Street trusts, the JKF trust, and the will trust to best meet her needs for secure and appropriate accommodation and a secure and sufficiently generous income stream, including, if considered necessary and/or appropriate, making available funds for the renovations and repair of one or both of the South Yarra property and the Albert Park property, or the purchase of a suitable alternative property. What she does not need is further provision from the deceased’s estate." - paragraph 80
Takeaway:
Although testamentary trusts offer various benefits to a beneficiary under a Will, they do not prevent a 'Will challenge' in the event of a disgruntled beneficiary.
The case, however, highlights key considerations for persons to ensure they are best able to maximise the benefits of a testamentary trust. The quote at paragraph 80 of the case says it best, as to what the beneficiary could have done to better use her time and money rather than seek a 'Will challenge'.