Often people wish to provide a home for one or more of their children or a favourite relative in their will. They might specifically give the particular house and land in their will to make sure their relative benefits.

Now a will only has effect on death so the person is free to deal with their property any way they like during their lifetime, including selling any property they give in their will. If they do sell property, then they should seek advice on updating their will as a result but they are not constrained in how they deal with their assets during their lifetime.

What happens if the person becomes infirm and someone is appointed as substituted decision maker to manage the person’s financial affairs? What if the substituted decision maker sells the property dealt with in the will? Due to some recent court decisions which have changed the way the law has been applied for a number of years, this gesture on the part of testators to leave specific property under their will can now be much more easily frustrated.

Changing life patterns

What has been happening is that people are living longer than in the past and their physical health is outlasting their mental capacity. As a result, they end up having to go into some form of care facility which usually attracts some form of expenditure by way of accommodation bond or the like. Often the only way to fund accommodation bonds and other necessities and comforts for the person is to resort to a sale of the person’s assets. Usually the person’s real estate will be the only asset which will bring in sufficient funds to meet the cost of the bond.

So a sale of the real estate takes place. By this time, however, the person is no longer mentally capable of managing her or his affairs and someone else is managing the person’s affairs. This can be a trusted relative or friend under an enduring power of attorney (EPA) or an administrator appointed by the Queensland Civil and Administrative Tribunal (QCAT). That attorney or manager is the one who makes the sale for the person.

Effect on the will

This means that the property which was specifically given under the will no longer belongs to the person who made the will. Unfortunately, the person no longer has the mental capacity to make a new will to address the changed circumstances. When the person dies, the beneficiary cannot receive the house because it is not part of the estate. The gift in the will is of no force or effect and effectively lapses (the technical legal term being that it is “adeemed”).

For a number of years the Queensland Supreme Court decision of Re Viertel aided beneficiaries in these circumstances. That case involved a sale by attorneys under an EPA in order to fund the care of the incapacitated person. Unbeknown to the attorneys, the incapacitated person had left the house to the attorneys in her will.

The judge in Re Viertel examined the previous cases in detail and found that the general proposition was that actions of the attorney will bind the person. However, he was able to find an exception on the basis that the testator did not have knowledge of the actions of the attorney and was thus prevented from changing her will. He held that the sale in those circumstances did not affect an ademption of the gift in the will. The proceeds of the sale were identifiable in the estate and the judge held the attorneys were entitled to those proceeds.

Change in the law

Until last year, Re Viertel was accepted as the law in Australia and was followed in a number of cases. However, a Court of Appeal judge in NSW in deciding a case with similar facts to Re Viertel looked at all the case law on the topic and concluded that Re Viertel was wrongly decided.

The reasoning of the NSW judge was that the case law clearly showed that actions of an attorney acting lawfully effectively bind the incapacitated person and their lack of knowledge is irrelevant. He said the Queensland judge had relied on passages of the old cases which were technically not part of the decision in the cases and therefore could not be relied on.

The NSW decision has been followed in several Queensland cases since where the judges have said they cannot now follow Re Viertel.

How this affects clients

While all this turns on highly technical legal argument, it means testators now lacking mental capacity to make a will whose last intention in their will was to leave a particular benefit now cannot do so, or a least have the opportunity to consider their will and either change it, or not, to cover the changed circumstances of their estate.

Suggested solutions

Clients should regularly review their wills and, if they wish to leave specific real estate, or indeed other property, ensure that their will is drafted in such a way to cover a potential situation like the ones described above. Our estate planning team can advise in this regard.

If it is too late and a beneficiary has lost a benefit under a will, our estate litigation team can assist with advice concerning applications for compensation out of the estate which are available under Queensland legislation.

It is hoped that the Queensland government will legislate to restore the Re Viertel exception as this was a just result in the circumstances – circumstances which have changed somewhat from the time the old cases which have now been held still to apply were decided.