ADT v LRT  QSC 169
A recent Supreme Court case outlines the importance of careful and up-to-date estate planning.
Since the introduction of the amendments to the Succession Act 1981 (Qld) (the Act) in 2006, s21 of the Act has been successfully applied in the creation of wills that speak to circumstances that would cause a testator to seek a will in the proposed terms..[i]
However, in ADT v LRT[ii] s21 of the Act was applied for the purpose of changing a testator’s will to include a testamentary discretionary trust at a time when a prospective beneficiary of the will was a party to Family Court property proceedings.
The applicant was unsuccessful at first instance, however the Queensland Court of Appeal allowed the applicant’s appeal and published reasons on 28 November 2014.
Section 21 of the Act permits the court, on application, to make an order authorising:
- a will to be made or altered, in the terms stated by the court, on behalf of a person without testamentary capacity; or
- a will or part of a will to be revoked on behalf of a person without testamentary capacity.[iii]
An applicant may only apply for a s21 order to be made with the court’s leave.[iv] The applicant must provide information set out in s23 of the Act unless the court directs otherwise.[v] Furthermore, the court may only make the order if the person in relation to whom the order is sought lacks testamentary capacity, the person is alive when the order is made and the court has approved the proposed testamentary document.[vi]
The court must be satisfied on five matters before it may grant leave to make a s21 order.[vii] Relevantly, the court must be satisfied as outlined in s24 of the Act that:
- the applicant for leave is an appropriate person to make the application;
- adequate steps have been taken to allow representation of all persons with a proper interest in the application, including persons who have reason to expect a gift or benefit from the estate of the person in relation to whom an order under s21 is sought;
- there are reasonable grounds for believing that the person does not have testamentary capacity;
- the proposed will, alteration or revocation is or may be a will, alteration or revocation that the person would make if the person were to have testamentary capacity; and
- it is or may be appropriate for an order to be made under s21 in relation to the person.
The testator’s husband (the applicant) filed an originating application in the Supreme Court on 27 May 2014. The testator and the applicant had been married for more than 55 years.[viii] The testator appointed the applicant as her attorney under an enduring power of attorney dated 29 August 1992.[ix] The application sought an order for the testator’s will dated 21 June 1998 (the 1998 will) to be altered in terms of a draft codicil.[x]
The testator and the applicant had two children – their son, aged 50, and their daughter, 45.[xi] The testator’s son was married to the respondent.[xii] The respondent opposed both the application for leave under s22 of the Act and the orders sought by the testator’s husband pursuant to s21 of the Act.[xiii]
The issue as to whether the testator lacked the capacity to change her will was not in dispute at trial. The court found that the primary reason for the application was that there had been a change of circumstances since the testator made the 1998 will. Specifically, in May 2014 the testator’s son separated from the respondent and they decided to divorce.[xiv]
On an examination of matters specified in s24 of the Act, Flanagan J held at first instance that the only two issues the court was required to determine were whether:
- the proposed codicil is or may be a codicil that the testator would make if she were to have testamentary capacity; and
- it is or may be appropriate for an order to be made under s21 in relation to the testator.[xv]
The issues at trial
The question raised by the first issue was whether the proposed codicil was or may be an alteration to the 1998 will which the testator would make if she had testamentary capacity. The purpose of the codicil was to change the absolute gift of real property from the testator to her son, recorded in the 1998 will, to a gift to trustees of a testamentary discretionary trust that excluded the respondent as a beneficiary.
The court held that the proposed codicil may be an alteration the testator would make if she were to have testamentary capacity, at least in respect of the real property.[xvi]
However, in relation to the second issue, the court could not be satisfied that it was, or would have been, appropriate for an order under s21 of the Act to be made. The court noted that the use of the testamentary trusts “has as its purpose protecting the assets the son was to inherit from pending Family Court proceedings”.[xvii] The court was unable to determine whether any attempt to place the assets beyond the reach of the Family Court would be successful at the time of hearing the application.[xviii] The court found that the proposed codicil did not offend the policy of the law, but it may have a direct or indirect impact on the property pool available in the Family Court proceedings.[xix] However, the court refused to grant leave under s22(1) of the Act for a statutory will to be made on behalf of the testator.
The applicant appealed the decision of the Supreme Court and the appeal was heard on 17 October 2014. The appeal was upheld and the Court of Appeal’s reasons were published on 28 November 2014 in GAU v GAV.[xx]
The grounds of appeal were broadly directed towards challenging his Honour’s findings with respect to the decision on the second issue.[xxi] The appellant submitted that in considering whether he was satisfied that it was appropriate for an order to be made, his Honour “had regard only to the purpose that he had found was behind the application”.[xxii] The purpose being that if the codicil was implemented, it would be to the testator’s son’s advantage in Family Court proceedings.[xxiii]
The applicant submitted that there was compelling evidence the codicil was one the testator would have made if she had testamentary capacity. The applicant also criticised the failure of his Honour to explain whether, or how, he balanced the factor he mentioned (that the proposed codicil did not offend the policy of the law) against the purpose that he had found.[xxiv]
The Court of Appeal said the criticisms were valid ones, and in particular there was a failure by the learned primary judge to have regard to the likelihood that the testator would have carried out her wishes if she had testamentary capacity to do so. The court found that the learned primary judge gave primacy to the competing interests of the testator’s son and the respondent as between themselves in the Family Court proceedings.[xxv]
The Court of Appeal ultimately held that the finding by the learned primary judge on the s24(e) matter was “legally flawed” and allowed the appeal and set aside the decision to refuse leave.[xxvi]
In respect of the s21 application, the Court of Appeal made an order in favour of the applicant.[xxvii] The costs of the appeal were ordered to be assessed on an indemnity basis and paid out of the assets of the testator.[xxviii]
The impact of the codicil
The outcome of the appeal and implementation of the proposed codicil resulted in the testator’s properties, valued between $4 million and $5 million, forming part of a testamentary discretionary trust in favour of the testator’s family members, including her son and his children, and excluding the respondent. Importantly, neither the testator’s son nor his children were granted control of the testamentary discretionary trust. This is in sharp contrast to the position under the 1998 will whereby the properties were intended to pass absolutely to the testator’s son upon the testator’s death.
As the testator was alive at the date of the hearing, the properties which the testator’s son was due to eventually inherit under the 1998 will would constitute a financial resource or expectancy[KM1] of the testator’s son in his property settlement proceedings. However, the properties would not constitute part of the property pool available for the property settlement between the testator’s son and the respondent. As noted in ADT v LRT, the Family Court may have regard to the testator’s son’s expectancy under the 1998 will for the purposes of assessing what constitutes a just and equitable division of the martial property.[xxix]
The weighting that the Family Court would likely give to the testator’s son’s financial resource or expectancy under the 1998 will would be much greater than the weighting it would give to his financial resource or expectancy under the proposed codicil.[xxx] The importance of creating a will containing a testamentary discretionary trust in Family Court proceedings was emphasised by Flanagan J in ADT v LRT: “… there is a fundamental difference between assets which form part of the matrimonial pool and thus can be the subject of a property adjustment pursuant to s79 of the Family Law Act 1974 (Cth), and, financial resources which sit outside of the pool and cannot themselves be divided”.[xxxi]
The importance of the decision for practitioners
The use of s21 of the Act as applied in ADT v LRT advances the prospect of a testator’s will being altered, notwithstanding the subsequent effect the change may have on property adjustment proceedings in the Family Court.
This case has particular relevance for family lawyers. Prior to this, it was taken as an almost a fait accompli that a family law client, who was a prospective beneficiary of an estate in relation to an incapacitated testator, would receive the benefit of that estate in accordance with the testator’s will. Irrespective of acts taken on behalf of the testator to make application, as in ADT v LRT, the prospective beneficiary’s position in the above mentioned scenario is now, at best, less certain.
It will be interesting to follow how the Family Court considers the issue in due course. Practitioners faced with the above circumstances should advise clients of the developments in the law and the possibility that careful estate planning could alter the outcome of Family Court property proceedings.
Published in Proctor July 2015 – Vol.35 No.6.