Estate Planning & Broken Promises

 

Elizabeth Cowper-Smith died in 2010, her Husband Arthur predeceased her leaving three surviving children: Gloria, Max and Nathan.

In 1992 Elizabeth and Arthur explained to their children shortly before his death that they would leave the estate to their children in equal shares to avoid any disputes. However the relationship between Gloria and her brothers became difficult, as Elizabeth grew older.

Gloria and Nathan fell out when Nathan moved back home in 2000. After visits with Gloria however, Nathan noticed that Elizabeth would become agitated and concerned that Nathan intended to take her house.

In early 2001, Nathan received two letters from Gloria stating he was no longer welcome to live with her and should move out. When he returned from an overseas trip in 2001, he found the locks changed, and broke in to retrieve his belongings. Gloria had the police escort him out.

In March 2001, Elizabeth’s Brother in law, David  (a retired lawyer) contacted a lawyer suggesting that Elizabeth’s will be changed to leave everything to Gloria. In 2002, the lawyer prepared Elizabeth’s last will, in which Elizabeth left her estate to her three children equally.

Gloria had provided initial instructions to the lawyer, and was present for much of the initial meeting. Importantly the lawyer did not confirm or clarify Elizabeth’s intentions with respect to the passing of her assets when the last will and testament was prepared and signed.

Elizabeth converted title of her home into a joint tenancy with Gloria, and created a Trust naming Gloria as trustee of the residence and her investments. The Trust provided that upon Elizabeth’s death, the residence and investments would become Gloria’s property leaving Elizabeth’s estate devoid of any significant assets.

Although Elizabeth received advice from her Brother in law, and two other lawyers she should have carefully considered that proceeding with this course of action, without any rational reason, might be found after her death not to be just and fair to her sons.

In 2005 Elizabeth’s health deteriorated; Gloria asked Max to be their mothers fulltime carer and he moved from England giving up his employment income, his cottage lease, his contacts with his children and his social life,into their mothers home in Canada, after Gloria promised that he would be able to live in Elizabeth’s home permanently and acquire Gloria’s one-third interest in the property.

Nathan discovered Gloria’s joint ownership of the Home in 2005. Gloria assured that the arrangement was to simplify the administration of the Estate and that he and Max would still each receive a one-third share. Max received a similar assurance in 2009 when he learned that Gloria’s name was on title.

Eight months after Elizabeth’s death, Gloria informed her brothers that she would put the house on the market, although Max was still living there. Gloria maintained that the residence and investments were hers absolutely and did not form part of Elizabeth’s estate.

Although Elizabeth had obtained advice from two different lawyers, as well as her brother-in-law who was a retired lawyer, the Court found the presumption of undue influence was not rebutted as neither lawyer “gave Elizabeth the type of ‘informed advice’ that is required when there is a concern about undue influence.

The trial judge found that a presumption of undue influence arose from the relationship between Elizabeth and Gloria, and that Gloria had not rebutted this presumption.

The factors considered in relation to a presumption of undue influence include:

  1. full, free, and informed thought of the donor;
  2. lack of actual or opportunity to influence;
  3. receipt or opportunity for receipt of independent legal advice; and
  4. donor knowledge and appreciation of decisions.

As to whether Gloria had rebutted the presumption, the judge focused on the legal advice to determine whether Elizabeth had “full, free, and informed thought” with respect to the transactions involving the residence and investments.

The judge held that Elizabeth’s true intentions were reflected in her 2002 will. In the result, the trial judge concluded that Gloria held the residence and investments in trust for the estate, to be divided equally among the three siblings.

David and Gloria had provided false information to the lawyer who drafted Elizabeth’s will prior to their initial meeting which was not confirmed or verified with Elizabeth. Gloria had provided initial instructions to the lawyer, and had been present for much of the initial meeting. Lastly, the lawyer did not confirm or clarify Elizabeth’s intentions with respect to the passing of her assets when the last will and testament was prepared and signed.

A resulting trust was therefore established whereby Gloria was deemed to be holding the residence and investments in trust for the estate, to be divided equally among Elizabeth and Arthur’s children.

On appeal, Gloria did not challenge the presumption of undue influence but argued that the legal advice Elizabeth received was adequate to rebut the presumption.

The Court of Appeal agreed with the trial judge’s finding with respect to undue influence and resulting trust, and referred to the following factors regarding legal advice in undue influence cases:

  1. the party benefitting from the transaction is also present at the time of advice or execution;
  2. the lawyer was engaged by or took instructions from alleged influencer;
  3. where the transfer or all of substantially all assets exists, the lawyer was aware of that fact, and discussed the financial implications of the same;
  4. the lawyer enquired as to whether the donor discussed the transaction with the other family members who would otherwise have benefited; and
  5. the lawyer discussed less risky options to achieve the same objectives.

The Court held that Elizabeth should have carefully considered proceeding with this course of action, which in the absence of any rational reasons, might be found after her death not to be just and fair to the respondents”

The Court of Appeal was split on the issue of proprietary estoppel. The majority found that because Gloria held no interest in the property at the time she made assurances to Max, proprietary estoppel could not arise. Max appealed on this issue.

The Supreme Court held that: “Equity enforces promises that the law does not” that proprietary estoppel operates to enforce Gloria’s promise; explaining that an equity arises where:

  1. A representation or assurance is made to the claimant, on the basis of which the claimant expects that he will enjoy some right or benefit over the property;
  2. The claimant relies on that expectation by doing or refraining from doing something, and his reliance is reasonable in all the circumstances; and
  3. The claimant suffers detriment as a result of his reasonable reliance, such that it would be unfair or unjust for the party responsible for the representation or assurance to go back on her word.

When the party responsible for the representation or assurance possesses an interest in the property sufficient to fulfil the claimants’ expectation, the Court found that proprietary estoppel may give effect to the equity by making the representation or assurance binding.

The Supreme Court’s decision expands the scope of proprietary estoppel in two ways:

  1. the fact that Gloria did not have an interest in the property at the time Max relied on her promise was not fatal to his claim. The equity arose not at the time Gloria received her one-third entitlement to the property but at the time the assurances were made to Max.
  2. that once the elements of proprietary estoppel are established, the Court has wide discretion to effect an appropriate remedy in the circumstances of the particular case.

The Supreme Court directed Gloria, in her capacity as trustee of the Estate, to transfer her one-third interest in the property directly to Max in circumstances where the siblings only held an interest in the residue of the estate, and not a specific interest in the property.

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