NSW Trustee and Guardian v Bensley [2012] NSWSC 655

In June 2012, the New South Wales Supreme Court was asked to consider whether a bequest of a house in a will, which had been sold prior to the deceased’s death, should still be received by the beneficiary.

The deceased bequeathed her Hornsby residence to her niece, and after making that bequest, gave the rest and residue of her estate to her niece and niece’s children.

In 1998 the deceased had granted a power of attorney to the Public Trustee and after being diagnosed with severe dementia in 2010, the Public Trustee sold her Hornsby residence and received the cash proceeds. A portion of the cash proceeds were used to purchase supported accommodation for the deceased. The proceeds of sale were however, readily traceable.

The question for the Supreme Court was whether the gift of the Hornsby property to the niece failed because the deceased did not own that property at her death, or whether the niece inherited the traceable proceeds of the sale of that property?

It was held by the Supreme Court that the proceeds of the sale of the Hornsby property amounted to a change of substance in the asset. Therefore, at the date of the deceased’s death the Hornsby property was no longer an asset of the estate and the cash proceeds of sale were distributed amongst the niece and her children.

Comment – The principle of ademption confirmed by the court requires careful consideration by an attorney when dealing with the property of an incapacitated person. In the absence of a dishonest dealing, the deceased is bound by the acts of her attorney even though the deceased may have had no intention of carrying out the specific act that the attorney has carried out. If the attorney had not been the Public Trustee, but rather the niece, as the specific beneficiary of the Hornsby property, a conflict of duty may have arisen in the niece’s mind as to whether to sell the Hornsby property to buy the supported accommodation. Therefore, in considering circumstances of incapacity, it may be prudent to appoint separate people as attorneys and executors, particularly if specific gifts of property are made to the attorney under a will.