Temporary Delusions & Testamentary Capacity

Neda Bilich died in March 2007 aged 90, her husband of 53 years, Ljubomir, predeceased her by several weeks. Their only child had died in 1958 as a young child.

Neda made a Will in November 1976 (“1976 Will”) appointing the Public Trustee as the executor and trustee of her will, and leaving her estate to her sisters, Slavka (Vida) and Anka, in equal shares; if they predeceased her their share would pass to those of their children who survived Neda.

Vida and Anka predeceased Neda; Vida left no children. Anka had three children who survived Neda. They are the First, Second and Fourth Defendants.

Neda made a will dated 19 December 1990 (“1990 Will”) appointing Millie Shroy as executor and left the whole of her estate to Anka’s youngest child Rudolf. In August 2007, Millie authorised the Public Trustee to obtain probate of the 1990 Will.

The Public Trustee claims that the 1990 Will is invalid because Neda did not have testamentary capacity when she executed that will. The Public Trustee instead claims that the 1976 Will is valid and that there should be a grant of probate to the Public Trustee in respect of that will. Anka’s oldest child Marijana supports that grant of probate.

Rudolf contends that at the time of executing the 1990 Will, Neda was of sound mind, memory and understanding, therefore, the 1990 Will is valid, and that there should be a grant of probate to him or to the Public Trustee in respect of that Will; however, if the 1990 Will was not validly made, the 1976 Will was validly made and there should be a grant of probate in respect of that Will.

Marijana believes that if Neda lacked capacity for both the 1976 Will, and the 1990 Will, died intestate and there should be a grant of letters of administration to the Public Trustee; in this case her surviving nieces and nephews, would be the beneficiaries of her intestate estate, pursuant to s 14 of the Administration Act 1903 (WA).

Around August 2007, Millie Shroy, the executor of the 1990 Will, authorised the Public Trustee to apply for an order that the Public Trustee administer Neda’s estate; that application was made, and granted, in 2008.

As a result, further information came to the attention of the Public Trustee, including the existence of the 1976 Will, and that Neda had been an inpatient at Royal Perth Hospital (RPH) at the time she made the 1990 Will. Observations made by her treating doctors regarding Neda’s testamentary capacity raised concerns regarding the validity of the 1990 Will.

Following an application to the Court in 2012, the Public Trustee was granted additional powers including the power to engage counsel to provide an opinion as to whether the Public Trustee should seek administration of the 1990 Will, the 1976 Will, or on Neda’s intestacy.

When making the 1990 Will, Neda

‘displayed symptoms of acute agitation and paranoid schizophrenia or paranoia for several years prior to, including and following the date of her admission to [RPH] on 18 December 1990…, including, on a sustained basis, accusing her husband of trying to poison her and having a girlfriend‘;

following her admission to RPH she experienced ‘an acute episode of psychosis’, and ‘suffered postoperative psychosis following surgery’, and that on 27 December 1990 she was transferred to Shenton Park Rehabilitation and was ‘noted to be suffering from paraphrenia (a mental disorder characterized by an organised system of paranoid delusions with or without hallucinations and without deterioration of intellect or personality)[and was] not orientated as to day, date, month or year.’

However, some aspects of the evidence support the conclusion that Neda had testamentary capacity; the delusional disorder she was suffering from did not cause complete impairment of all psychosocial and occupational functions.

Similarly, the witnesses made no indication in the hospital notes that they held any doubt as to Mrs Bilich’s capacity to make a will at the time. However, Neda had made repeated requests to make a will, as she was anxious that it should occur prior to surgery, therefore assistance was given to make a will, in order to put her mind at ease.  One of the witnesses noted that Neda had been advised that she should have another will made by a solicitor, after her discharge from hospital; the other witness held some reservations about Neda’s testamentary capacity.

Having regard to the totality of the circumstances, the Court wasn’t satisfied that Neda had testamentary capacity at the time she made the 1990 Will; primarily due to the nature of the delusional belief she held about her husband which affected her ability to rationally comprehend that he had a very strong claim to her estate. He was her husband of 37 years, they continued to reside together, he was an invalid pensioner, and required her financial support to pay the household bills, while she owned property from which she derived an income. Yet without any explanation, the 1990 Will left her entire estate to a nephew who lived overseas.

The Court concluded that the delusional disorder from which Neda was suffering

‘poison[ed] [her] affections [and] pervert[ed] [her] sense of right’.

Leaving substantial doubt that she was of sound mind and understanding at the time she made the 1990 Will.

Rudolph had not been able to establish that Neda had testamentary capacity when she made the 1990 Will. Consequently, the 1990 Will is invalid for want of testamentary capacity.

The Court ordered that probate should be granted on the 1976 Will as it was properly executed, and there was no evidence to displace the presumption that Neda had testamentary capacity when she made the 1976 Will.

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Reg Grundy’s Estate Dramatic Twist

Reg Grundy died in Bermuda (his place of domicile) on 6 May 2016, aged 93 years, leaving a will dated 21 January 2011 and sufficient property in NSW  to admit the Will to probate in that jurisdiction. In 2015, Reg’s wealth was estimated as being $809 million, a figure largely stemming from the $320 million sale of Grundy’s company to Pearson Television in 1995.

An earlier post discussed the April 2017 claim for family provision relief in respect of the estate, or notional estate, by Reg’s child from his first marriage; who changed her name by deed poll in 2000, from Robyn Grundy to her present name, Viola La Valette.

Reg and Viola were estranged for some time before his death; a lifetime annuity of $US250000 was provided to Viola. Joy Chambers-Grundy, Reg’s widow, executor and, having survived him by 30 days, takes “the remainder” (the residue) of his estate.

Recently Simon Russell has come forward claiming to be Reg’s son; he is seeking a family provision order from the estate. The Court was told that DNA samples from both Reg and Simon were being held at a lab. Testing will not occur until an affidavit from Joy, (which has been sent from where she lives in Bermuda) is received by the lab.

Generally speaking, a Family Provision Claim is made in a jurisdiction where the deceased lived at the date of their death, owned assets in that jurisdiction, or both.

In most Jurisdictions, legislation governs who can bring a claim against an estate. Generally, this is:

  • The deceased’s spouse, a person living in a de facto relationship with the deceased at the time of death, a person living in a close personal relationship (such as a volunteer carer) with the deceased when the deceased died;
  • The deceased’s child;
  • The deceased’s former spouse;
  • A person who was:
  • Dependent (wholly or partly) on the deceased at a particular time (this may include a former de facto spouse, parent, sibling, or step-child; and
  • A grandchild of the deceased, or a member of the household of the deceased;

and

  • believe they have been left without adequate provision for the proper maintenance, education or advancement in life.

The Court takes a number of factors into account the applicant’s financial position, relationship with the deceased, the size of the estate and the deceased’s relationship with other persons who are eligible to make a claim.

Adequate provision is unique and therefore difficult to define.

The Court considers a broad range of factors, as the definition of adequate provision is unique to each circumstance brought before the court.

Notional estate orders are orders issued by the Court which are intended to make available for family provision orders assets that are no longer part of the estate of a deceased person because they have been distributed either before or after the deceased’s death (either with or without the intention of defeating applications for family provision).

Notional estate provisions brought to the forefront the distinction of ‘estate versus notional estate’ that had been implicit in the decisions on the legislation prior to the introduction of the Family Provision Act 1982(NSW). It made explicit in the legislation that ‘estate’ and ‘notional estate’ were different. Things subject to contracts (like mutual wills) were not within the definition of ‘estate’. To bring such property within the estate required the a broader definition to include a ‘notional estate’.

Even then it requires a particular kind of transaction, an absence of relevant consideration, a defined time frame in which the transaction took effect and a range of other matters to be considered before property can be designated as notional estate and made the subject of an order for family provision under the Act.

 

 

 

Frasier, Capacity: Crane v Crane

In the third season of Frasier, Niles is retained to testify in a capacity hearing of local millionaire timber baron Harlow Safford aged 78. Following several incidents including disposing of property cheaply, hopping a freight train across the country, and showing signs of senility, Safford’s son is concerned about his capacity.

Frasier is set in Seattle Washington; under Washington State Law in order to be found to be lacking capacity a person (referred to as the principal) must be informed that a request has been made; be examined personally by at least one mental health professional or health care provider prior to making that determination (who must be a psychiatrist, physician assistant working with a supervising psychiatrist, psychologist, or a psychiatric advanced registered nurse practitioner)and may request that the determination be made by a Court.

When making a determination the Court shall, at a minimum, be informed by the testimony of one mental health professional familiar with the principal and shall, except for good cause, give the principal an opportunity to appear before the Court prior to making its determination.

Niles believing Safford to be lucid for periods of time has agreed to speak as an expert witness for the son as to Safford’s mental capacity; as the case has a high profile it is to be broadcast on Court TV.

The following day Safford’s lawyer visits Frasier at work, asking him to meet Safford and appear on his behalf. Although Frasier is initially happy to accept Niles’ diagnosis, he accepts an invitation to meet Stafford; discovering that Safford’s mansion has a giant model railway in the grounds and a fireman’s pole in the living room. Frasier finds Safford, (who calls him Sparky) charming, coherent and stable, explaining that he sold a property cheaply in order to help out a young couple; Illegally riding a freight train across the country to indulge his sense of adventure.

Frasier feels Niles has made a misdiagnosis; however, his attempts to convince him to change his testimony outrages Niles, exacerbating their sibling rivalry; as Frasier believes that Niles desire to appear on Court TV is an attempt to garner some of the fame that Frasier has established as a radio psychiatrist and that this desire is clouding his professional opinion.

In Court Safford’s behaviour becomes increasingly erratic. As Frasier is appearing pro bono Safford expresses his wish to donate a sum equal to his fee to charity; this leads to an outburst that disrupts proceedings. Safford then puts on a railway engineers cap and believing that he is a locomotive engineer announcing the stops his train will be making; this behaviour leads to the dismissal of the application.

 

Trusts; what are they?

A trust is an arrangement where a person (“the trustee”) holds property or assets for the benefit of others (“the beneficiaries”).

Unlike a company, a trust is not a separate legal entity, although it is treated as a separate entity when it comes to registering for tax. That means the trustee is liable for any of the trust’s debts, which is why many people choose to have a company as trustee.

Trusts can be set up by deed during a person’s lifetime, or by Will to take effect after the person’s death. Trusts established by Will are known as testamentary trusts.

What’s the benefit of a trust?

To separate the beneficiary from control over an asset (the trustee), where the beneficiary is under age or suffers from a disability that affects their capacity to make decisions

To provide greater flexibility in tax planning

To protect assets from financial claims made against the beneficiary, and

To use as a business entity either for investing (for example, to purchase real estate or a share portfolio) or for trading.

What are the elements of a trust?

The settlor: The settlor is the person responsible for setting up the trust and naming the beneficiaries, the trustee and if there is one, the appointor. For tax reasons, the settlor should not be a beneficiary under the trust.

The trustee: The trustee (or trustees) administers the trust. The trustee owes a duty directly to the beneficiaries and must always act in their best interests. All transactions for the trust are carried out by and in the name of the trustee.

The beneficiary or beneficiaries: The beneficiaries are the people or companies for whose benefit the trust is created and administered. Beneficiaries can be either primary beneficiaries (who are named in the trust deed) or general beneficiaries (who often are not named individually); usually existing or future children, grandchildren and relatives of the primary beneficiaries.

The trust deed: The trust deed (or, in the case of a testamentary trust, the will) is the formal document setting out how the trust will run and what the trustee is allowed to do.

The appointor: Many, but not all, trusts also have an appointor who has the power to appoint and remove the trustee.

What kinds of trusts are there?

The two main types of trusts which are used in business and by individuals:

Discretionary trust:

A discretionary trust or family trust is the most common form used by families. The beneficiaries of the trust have no defined entitlement to the income or the assets of the trust.

Each year, the trustee decides which beneficiaries are entitled to receive the income and how much they should get.

Fixed or unit trust:

Unlike a discretionary trust, the beneficiaries of a fixed trust have a defined entitlement under the trust, similar to a shareholder in a company.

The trustee does not have any discretion as to how they distribute the trust’s capital and income.

A fixed or unit trust is often used for joint venture arrangements – for example, two families want to own an asset together.

Other Types of Trusts:

There are many different kinds of trust including superannuation funds, charitable trusts and special disability trusts.

How long does a trust last?

In NSW, a private trust can last for up to 80 years. The trust deed will set out how long it should last (known as the ‘vesting date’) – often based on a specific event happening, such as someone dying or reaching a certain age.

“[t]he common-law rule prohibiting a grant of an estate unless the interest must vest, if at all, no later than 21 years (plus a period of gestation to cover a posthumous birth) after the death of some person alive when the interest was created”

What happens on the vesting date?

When a trusts vests the beneficiaries become absolutely entitled to all of its assets and income. The trustee must distribute all assets and income to them in line with the trust deed. A trust deed will usually have a set of rules the trustee must follow when doing this.

Does a trust pay tax?

A trust has its own tax file number and is required to lodge tax returns annually. However, the trust generally is not subject to tax if all its annual income is distributed to beneficiaries, who pay the tax based on their marginal rate of tax.

 

 

 

 

Testamentary Capacity – Legal v Medical

Marija Jakopovic died in September 2015 at the age of 82. She married Josip, and they had two children, Branka and Boris. The family migrated to Australia in January 1965. Branka married and had one child, Anita Drivas.

In June 1998 Marija made a Will appointing Branka as executrix and leaving her estate to Branka and Boris in equal shares. If either Branka or Boris predeceased Marija but leaving children, then those children would take the share that their parent would have received had he or she survived the deceased.

In May 2007 Marija made a new Will with similar provisions regarding her grandchildren but altered the share leaving Branka sixty per cent and Boris forty per cent of her estate; appointing Branka executrix but, in the event of her refusal or inability to act, her granddaughter Anita was to act as executrix.  At this time Marija also executed a power of attorney in favour of Branka and appointed her enduring guardian, with Anita as alternative enduring guardian.

In June 2007 Marija approached her solicitor and revoked the power of attorney in favour of Branka and executed a general power of attorney in favour of Boris. In September 2007, Marija appointed Boris as her enduring guardian and had her solicitor prepare a Will appointing Boris as her executor, and in the event of his being unable or unwilling to act, named her solicitor Michael Taylor, executor. If he was unable to act, the partners of Michael’s firm of solicitors were to be executors.

The Will left the whole of the deceased’s estate to be divided equally between Branka and Boris. It provided that should Boris predecease the Marija, leaving children surviving him, then those children would take their father’s share, but it contained no comparable provision in favour of Branka’s children.

Michael Taylor followed his usual practice when he prepared the Will in September 2007. He interviewed Marija alone and his file notes made no reference to any concern that she lacked the capacity to make a Will.

In June 2011, Branka died suddenly. Marija died in September 2015. In February 2016 Boris obtained probate of the September 2007 Will.

Anita challenged the September 2007 Will on the basis that Marija lacked testamentary capacity. If the September 2007 Will was found to be invalid, Marija’s last will would become her May 2007 Will. Boris cross-claimed, contending that if the September 2007 Will is ruled invalid the May 2007 Will would also be invalid for want of testamentary capacity.

Thus, if the Court found that Marija lacked testamentary capacity when making the May and September 2007 Wills, her estate will be dealt with in accordance with the 1998 Will; as a result of the death of the named executrix, Branka, it would be necessary for an administrator to be appointed. There are competing applications by Anita and Boris for appointment as administrator.

Additionally, Anita sought an account of Boris’s dealings under the June 2007 power of attorney. Boris argued against the making of any such order.

As posted before the modern test of capacity to exercise testamentary power  is set out in the following passage from Banks v Goodfellow ((1870) LR 5 QB 549 at 565):

It is essential to the exercise of such a power that a testator shall understand the nature of the act and its effects; shall understand the extent of the property of which he is disposing; shall be able to comprehend and appreciate the claims to which he ought to give effect; and, with a view to the latter object, that no disorder of the mind shall poison his affections, pervert his sense of right, or prevent the exercise of his natural faculties – that no insane delusion shall influence his will in disposing of his property and bring about a disposal of it which, if the mind had been sound, would not have been made.

The Court was satisfied that the Marija knew that she was making a will and knew what the effect of doing so would be. Marija’s estate was simple; it consisted essentially of the family home. Marija knew she had a home, and where it was; operated her bank account and paid her bills without any assistance. There was nothing in the evidence to suggest that the deceased was unaware of the nature and extent of her property.

Therefore the Court relied on the third element of the Banks v Goodfellow test.

Medical opinions submitted to the Court stated Marija was unlikely to have been able to appreciate the merits of the claims on her estate. Importantly although she was likely to be able to appreciate their merits of Branka and Boris’s claim, but not those of her grandchildren.

The Court accepted the evidence of Michael Taylor, an experienced solicitor who detected no difficulties with Marija’s testamentary capacity when he prepared her Will stating

 That, in itself, is valuable evidence which favours a finding upholding the will: 

Similarly, the Court accepted that Marija must have taken the May 2007 will to Mr Taylor when she visited him in September of that year and requested to change the Will so that Boris’ children would take his share if he predeceased her but that Anita was not to receive Branka’s share if Branka pre-deceased her.

Anita’s challenge to the Will failed, and both Anita’s claim and as a consequence Boris’ cross-claim were dismissed.

 

 

 

Drafting a Will is Serious Business

Daryl Hely died on 10 December 2016 with an estate valued at over $25 million. Daryl’s final Will (“the Will”) was executed 8 days prior to his death; probate was granted in May 2017.

Lawyers did not draft the Will; however, Daryl had instructed lawyers to prepare a Will in late 2014 and parts of the Will were based on that draft (‘the Draft”).

In early 2015 Daryl had a discussion with his daughter Carrie regarding the draft instructing her

 ‘I want to simplify it, so I’ve crossed out some bits that I don’t want in my will anymore.’

Daryl then handed his daughter Carrie (who provided administrative assistance to him at the time of preparation of the Will) the draft and asked her to type a new will using the draft as a template and to delete clauses that he had put a line through.

The executors of the estate sought answers to various questions regarding the construction of the will; alternatively, the executors make application for rectification of the Will pursuant to s 31 of the Wills Act 1997.

Beneficiaries of the testamentary trusts created by the will

Clause 9.7A of the draft set out the beneficiaries of each of the seven testamentary trusts. Although Daryl struck out many of the clauses no handwritten amendments were made to cl 9.7A(a) to (g). In her written submissions, Carrie stated that this was due to her oversight; as a result, the Will does not give effect to Daryl’s instructions to Carrie, nor carry out Daryl’s intentions.

In order for the Will to reflect Darryl’s instructions, it is necessary that the will be rectified by specifying the primary trustee of each of the testamentary trusts as follows:

  1. Damian
  2. Shelley
  3. Andrew
  4. Christopher
  5. Carrie
  6. Danielle
  7. Angeline.

The Beneficiaries of each Trust are reflected as follows:

(a) for the Daryl Hely Will Trust No. 1:

(i) Damian’s children, and in relation to this Trust only, those people are called the Group 1 Beneficiaries;

(ii) Damian, and in relation to this Trust only, this person is called the Group 2 Beneficiary;

(iii) Damian’s grandchildren, and in relation to this Trust only, these people are called the Group 3 Beneficiaries;

(iv) Damian’s great-grandchildren, and in relation to this Trust only, these people are called the Group 4 Beneficiaries; and

(v) the cousins, aunts and uncles of the Group 1 Beneficiaries, and the children and grandchildren of the cousins of the Group 1 Beneficiaries, and in relation to this Trust only these people are called the Group 5 Beneficiaries;

Gifts to grandchildren

Similarly Clause 4.1 of the Will deals with gifts to the Grandchildren; however, there are two significant differences from the draft Will,

a) the amount of the bequest has been increased from $15,000 to $25,000.

b) the vesting age has been reduced from 21 years to 18 years.

However the by prescribing a vesting age of 21 years, the Will does not give effect to Daryl’s instructions to amend the draft to provide for a vesting age of gifts to grandchildren to be 18 rather than 21 years of age. Therefore the Court ordered that the will be rectified to reflect Darryl’s wishes.

Termination Date – Winding up the Will Trust

In order to give effect to Daryl’s intentions to make provision for the beneficiaries for the purposes of the application of the termination or winding up of the Trust, it is also necessary to amend the Will by adding the section of the draft which Carrie failed to incorporate into the Will.

If the Will had been completed by a Lawyer it would have most likely reflected Darryl’s intentions and wouldn’t have required the legal costs involved with seeking the order for rectification in the Victorian Supreme Court.

 

Intestacy, Burial & FaceBook Status make for Strange Bedfellows

Some people may think that intestacy rules would be suitable in directing your estate (particularly if you wish your spouse and children to inherit) however you have no control over who controls your assets, as it must be divided in specifically fixed proportions depending upon the family, or domestic relationship between you and your family members.

If a person dies intestate your family would apply to the Court to appoint an administrator who arranges the funeral, collects assets, pay any debts and taxes that the estate owes then distribute any funds remaining.

As an intestate estate will be distributed according to legislation the administrator is usually the next of kin. Courts have a broad discretion to appoint an administrator, in most cases whoever has the largest share in the estate is considered the most suitable.

Melissa Dunn died intestate early this month following a short illness. A dispute arose between burial or cremation of her body. Nikola Dragarski, the father of one of Melissa’s children, favoured a burial and sought a declaration that he was Melissa’s next of kin; her mother Sharon wished to cremate and disputed this claim.

In intestacy it is usual for control of the disposal of a body to be decided by ranking the next of kin as follows: spouse (including a de facto partner), child, parent and sibling.

The sole question for determination is whether Nikola was the de facto partner of Melissa at the time of her death. The Court would consider that a couple is in a de facto relationship by examining the circumstances in which they lived their lives.

Nikola & Melissa began their relationship in about 2003; they started to live together in about 2010. Their child, Bianca, was born in 2011. In March 2016 they separated. In August she moved out and commenced to live in her own house at Dapto.

Following their separation, Nikola spent time with Melissa and visited her at Dapto. Indeed, Nikola submitted to the Court that he ‘considered’ that they had resumed their relationship. As Melissa had moved back in with Nikola in March or April of 2018

However when Melissa was admitted to Hospital the client registration form recorded that the person for notification was  Melissa’s mother, Sharon; importantly in January 2019 Melissa requested, and Centrelink authorised Sharon to act on her behalf in relation to the benefits to which she was entitled.

Similarly, Melissa was an active member of an online dating website; did not share a bank account or online banking log-on details with Nikola and provided Sharon’s address in her contact details. Melissa received single parenting payments from Centrelink. Final orders for parenting arrangements had been made in the Federal Circuit Court of Australia in May 2017 in relation to the division of responsibility between Nikola and Melissa for their daughter.

By January 2019 Melissa was aware that her condition was terminal; on 9 January 2019 she posted the following message on Facebook

‘I am still at his house we still not together though. Kids are great’.

The following day Melissa messaged Nikola’s sister

“Yes I am staying with Nicky. We have worked a lot of things out. We are happy where we are at the moment. He has been great”.

Melissa’s Facebook profile at the time of her death recorded her status was ‘single’; her Facebook friends included Nikola’s mother but not Nikola.

The Court held that Nikola and Melissa’s relationship had been extremely troubled and although Nikola wanted to resume it; Melissa was less certain. Melissa was admitted to hospital with a serious illness and as a compassionate person, Nikola had gone out of his way to be kind to her.

Similarly the Court sought to glean information from the competing accounts provided by the parties to form the opinion that based on the balance of probabilities a statement of Melissa’s sister Erin that Melissa had moved into Nikola’s home as he had not complied with the parenting order allowing Melissa to have 50% of the time with Bianca was decisive; Melissa insisted that they never restarted their relationship and slept in separate rooms.

The Court dismissed Nikola’s application.