Adequate Provision and the Colossal Estate

Previously we posted that Michael Wright left a large estate when he died. He was survived by his current wife, two earlier wives and by three adult children from an earlier marriage. Michael’s youngest child Olivia Mead was born on 3 September 1995 as the result of a brief relationship that he had with Elizabeth Anne Mead.

Michael’s son, Myles received a home unit together with a capital sum of $15million to be paid over a five-year period together with an income stream of $649,447 per annum until the final capital sum is paid.

Michael’s wife, Mary, received a capital sum $10million to be paid over a five-year period together with an income stream of $865,930 per annum until the capital sum is paid.

Michael’s Daughters Leonie and Alexandra shared the residue of the Deceased’s estate valued at about $400million.

Michael established a trust of $3 million dollars (“the Trust”) in his Will that Olivia would receive at age 30, as long as she met certain conditions. Olivia would be excluded as a beneficiary of the Trust if she has a minor conviction for drink driving, drug possession or involvement with someone who used illicit substances. Similarly Olivia could be excluded as a beneficiary if she were to convert to Buddhism, or even took a deep interest in, or was associated with persons who practiced a non-Christian faith.

It was widely reported that Olivia specified items that were considered fanciful and extravagant in response to her solicitors’ request that she specify the expenditure that she was likely to need for the rest of her life. The Western Australia Supreme Court did not draw ‘any adverse inferences against her consequent upon her answers to her solicitors’ inquiries’ and formed the view that she was ‘well-balanced’ ‘reasonably intelligent’ and ‘level-headed’.

The Court held that Michael Wright’s estate was “colossal” and may be in excess of $1 billion. In fact the other beneficiaries acknowledged that what they received under the Will is so significant that any award to Olivia will make little difference to their position. In the view of the Court an award of $25 million would not fall outside the “reasonable expectation of most members of the community.”

The Court accepted Olivia’s claim that she had been left without adequate provision for her “maintenance, support, education or advancement in life” granting her $25 million as long as she does not make any further claims on her Father’s estate. The executor of Michael’s estate appealed this decision.

Recently the Western Australia Court of Appeal stressed that the generous treatment by Michael of his other daughters and son in the Will, must not be used to determine the provision which should be made for Olivia. The Court’s discretion is not to be exercised for the purpose of making what may appear to the Court to be a fair distribution of Michael’s estate among his children and other members of his family. The measure to be applied is the adequate provision for Olivia’s proper maintenance, with regard to the circumstances of the case.

After evaluating the case including the evidence received in the appeal, and taking into account the size of Michael’s estate; the nature of the relationship between Michael and Olivia; her age and financial circumstances including her level of education, employment history and personal circumstances; the nature of the relationship between Michael and other persons with legitimate claims on the estate including their financial and other circumstances of those other persons.

The Court considered that adequate provision from Michael’s estate for Olivia’s proper maintenance requires a capital sum sufficient to purchase a reasonably substantial house and to invest the balance to provide a reasonably substantial annuity for the remainder of her life.

After consulting an actuarial report outlining the prospective costs of providing for Olivia’s maintenance the Court found that a sum of $6,142,000 would be adequate. This amount is made up of $1,500,000 to enable Olivia to purchase a reasonably substantial house in the Perth metropolitan area with the balance providing an annuity of $100,000 per annum. The Court believed that both the house and annuity indexed to wage inflation is adequate and proper for Olivia.

The $3 million which she has already received for her own use and without restriction was sufficient to enable her to purchase a reasonably substantial house in the Perth metropolitan area and to obtain a reasonable income stream from the investment of the balance.

The Court considered whether the balance of the $6,142,000, after the $3 million is brought to account, should be held upon trust for the respondent for a stipulated period.

Any gift made to Olivia by Michael’s Will is to be held in Trust until she was 30 years old. If the balance of the $6,142,000 (the Balance of the Fund) is held upon trust until Olivia is 30, it will facilitate the achievement of the object of ensuring adequate provision for her proper maintenance.

The Court ordered that the Balance of the Fund be held by an approved independent trustee upon trust to pay for the maintenance, education, advancement or benefit of Olivia with the balance and any accrued or accumulated income to be paid to her when she reaches the age of 30.