With an aging population living longer, extra care and costs of care particularly of parents may be needed especially if parents’ are no longer able to self-manage their well being and finances. On the other hand children may not be aware of their parents’ financial circumstances and not have access to their finances and assets on behalf of their parents or want their parents’ assets for themselves before their parents’ “death”.
In W v H [2014] NSWSC 1696, the Supreme Court of NSW approved a family settlement relating to the property of a 94-year-old man who lacked capacity and, whose estate was subject to a financial management order. In doing so, Justice Lindsay outlined the principles and the material considerations to consider, when a Court considers making financial allowances for family members from the estate of a Protected Person before death.
What follows is an overview of the factual circumstances and Principles to consider in preparing financial management orders for a Protected Person.
Factual Circumstances
Despite tensions in the family, the family negotiated an agreement to distribute estate assets to bring about a distribution of the Protected Person’s estate whilst the Protected Person was still alive. In approving the agreement, Justice Lindsay acknowledged the necessity for the Court to consider the proposed orders specifically from the perspective of the Protected Person. This meant reviewing the Protected Person’s interests and what courses of action were likely to be beneficial to the Protected Person.
The proceedings before Justice Lindsay also demonstrated what may be achieved for the benefit of a whole family in the administration of a large managed estate before death of the Protected Person.
The Protected Person, lived in his own home in Vaucluse with his de facto wife of 34 years and her daughter. He also had three adult children from an earlier relationship.
The Protected Person was admitted to hospital and upon his release, went to an aged care facility for respite care.
The Protected Person was granted residency at a nursing home when he could not return home.
Whilst the Protected Person owned his home in Vaucluse, as well as an investment property in Surry Hills, less certain liabilities, the value of the net estate was in excess of $15 million.
The Protected Person was asset rich but cash poor.
The Protected Person lacked liquid funds which meant that for him to move into an aged care facility he needed to borrow the bond money from one of his son’s family companies and subsequently, sell one or both of his two properties.
The Protected Person’s spouse and her daughter lived in the Vaucluse home and did not want to leave as they did not have anywhere else to go nor the money to live elsewhere.
There was already tension in the family stemming from the Protected Person’s decision in 2012 to make a new Will favouring his spouse over his sons and revoking an earlier power of attorney granted to one of his sons. His son and spouse bought competing applications in the Guardianship Division of the NSW Civil and Administrative Tribunal (NCAT) in 2013 in relation to the appointment of a financial manager and an enduring guardian, as well as a review of the Protected Person’s revocation of his son as his attorney. Ultimately, NCAT made a financial management order, pursuant to s 25 of the Guardianship Act 1987 (NSW) appointing his son as manager of the Protected Person’s estate. At the same time, the appointment of his spouse as enduring guardian was left undisturbed. Thus his son was in charge of the Protected Person’s assets and his spouse in charge of the Protected Person’s wellbeing.
In his capacity as the Protected Person’s financial manager, his son started Supreme Court proceedings seeking various directions and authorisations pursuant to ss 64-65 of the NSW Trustee and Guardian Act 2009 (NSW). Primarily, his son wanted orders for the sale of the Vaucluse home to enable the nursing home bond to be met and the previous loan from his company to be repaid. His spouse wanted the investment property to be sold; it was an investment only and selling the residential home would leave her and her daughter without a home.
The agreement which was approved by the Court — involved the sale of the Protected Person’s Vaucluse home with sufficient proceeds being paid to the Protected Person’s spouse to allow her and her daughter to find another home.
This was done through the creation of a statutory Will which also made provision for the Protected Person’s sons and sundry other people; an order under s 95 of the Succession Act 2006 (NSW) approving releases by all eligible persons of their rights to apply for family provision relief in respect of the Protected Person’s estate; an order confirming the appointment of his son as financial manager for the remainder of the Protected Person’s life and orders making provision for the costs of the proceedings and other ancillary orders.
The Protective Jurisdiction — Principles and Practice
Justice Lindsay provided an outline of the principles inherent in protecting the Protected Person subject to the Court orders where:
- a person of advanced age has irretrievably lost all mental capacity to transact business;
- he/she is secure in a quality care facility, with more than adequate provision for present and future care;
- his/her estate is under management pursuant to orders made under the NSW Trustee and Guardian Act 2009 (NSW) or the Guardianship Act 1987 (NSW);
- the estate is more ample than any present or prospective need of the Protected Person; and
- it is in his/her interests, and for his/ her benefit, to do so;
Given the principles noted above the Court may, on terms, approve a family settlement designed (with the fully informed consent of all persons interested in the estate) to make “reasonable” provision out of the estate under management for the Protected Person’s family.
Justice Lindsay drew guidance from the English Court of Appeal decision of In re Darling (a person of unsound mind) (1888) 39 ChD 208. Furthermore he referred to the parental nature of the protective jurisdiction, his Honour considered that a large and liberal view is to be taken as to what falls within the realms of the Protected Person’s ‘benefit’.
His Honour found that the notion of ‘benefit’ involved not only the direct personal benefit to the Protected Person but also what they would want to do with their estate if he/she were capable of managing their own affairs.
In taking this approach, his Honour affirmed the principle that the Court will not be constrained or governed by the rules of adversarial litigation and may approach the issue of what is in the interest of the Protected Person in a inquisitorial manner.
Safeguards to be Observed Before Family Settlements will be Approved
Legislative developments (such as chapter 4 of the NSW Trustee and Guardian Act 2009 (NSW)), when viewed alongside the Court’s inherent powers, exemplify recent parliamentary endeavours to meet the demands of an ageing population, so that, where necessary, the Court may facilitate the administration of estates, not only after death but before it.
As his Honour noted, the law, as it has developed, ‘seeks to protect those in need of protection and to allow them, and their families, a normal life in their respective communities’.
It also demonstrated the willingness of the Court to help deliver practical solutions where otherwise the parties would have assuredly ended up in a costly and acrimonious probate suit and allied family provision proceedings. The nature of the family settlement in Protected Person’s case involved the making of voluntary allowances out of Protected Person’s estate for his family’s benefit.
However, whether the Court will approve donations or provision for family members in every situation will depend upon the circumstances of the particular case.
Approvals will also be cautiously controlled so that personal arrangements which simply give away the Protected Person’s estate are not sanctioned.
To this end, Justice Lindsay stressed the importance of adhering to the following ten safeguards:
- all persons with a present, or prospective interest in the estate should be joined as parties to the proceedings, or at the very least given notice and an opportunity to intervene;
- all participants in the proceedings should be reminded that the jurisdiction is not simply a “consent jurisdiction” in which orders can be procured merely by the consent of parties;
- primacy is to be given to the welfare, interests and benefit of the person in need of protection;
- the Court should make an objective judgment, taking into account all material considerations to give effect to the Protected Person’s probable judgment – informed by knowledge of all the circumstances, contemporary community standards and the presumed intention of the incapacitated person.
- the Court should be slow to approve any family settlement where the Protected Person is able to express a personal view about the disposition of his/her estate or where there is any prospect of the Protected Person recovering capacity;
- although not a ‘consent jurisdiction’, the Court should be slow to sanction a family settlement where any interested person does not consent to the terms of the proposed settlement;
- the parties should record the effect of the family settlement in a deed or other formal instrument which acknowledges their agreement;
- the Court must be vigilant not to circumvent a judicial determination of questions which should, in the public interest, be determined in the course of ordinary litigation;
- the Court’s assessment of a claim on the estate of a Protected Person will be assisted by an independent report by the NSW Trustee & Guardian or another professional; and
- consideration should be given as to whether any order for provision can, and should, be made on particular terms (e.g. on condition that the provision be brought into the respective shares of beneficiaries who may be entitled to the Protected Person’s deceased estate; or on terms which secures the repayment of a provision in particular circumstances).
Conclusion
While the Court has shown a preparedness to facilitate family arrangements affecting the disposition of assets of a Protected Person, all parties and the Court must be mindful that the focus must always and unequivocally be on the welfare and interests of the Protected Person (see NSW Trustee and Guardian Act 2009 (NSW) s 39; Guardianship Act 1987 (NSW) s 4); that all interested persons must be consulted before any order for provision is made: and that the Protected Person will not regain his/her capacity for self-management.
Where this occurs, the incidence of improper claims should, in practice, be reduced and the Court more ready to give its imprimatur to settlements between family members of a Protected Person.
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Family Lawyers Sydney at Pavuk Legal can assist you with family provisioning before death in respect to Enduring Guardianship and Financial Management of the estate and Distribution of estate assets. Pavuk Legal can also assist you with a full range of legal services in respect to estate and succession planning including structuring businesses to be retained, sold or liquidated in the event of death, preparation of Wills, Testamentary Trusts, Advanced Health Care Directive, Powers of Attorney, Binding Death Benefit Nominations, Letters of Wishes, Contingent Purchase Agreements, Probate, and Management Services post death.
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