April 18

Testamentary capacity. What is it?

Testamentary capacity is a gauge of the mental faculties of a testator when they create their will. A testator must be of competent mind, understanding, and memory in order to make a valid will. All testators are assumed to have testamentary capacity until it is proven that they do not.

Whether or not a client has testamentary capacity is not calculated via a legislated formula but derived from case law. It has been described as requiring time, situation, person, and task specific focus on a testator’s ability to remember, reflect, and reason.

Courts have been concerned with this issues for many, many years. The cases, starting from Banks v Goodfellow (1870)  require a testator to understand:

  • what it means to be making a will;
  • the assets they have and are leaving to others;
  • the obligation owed to those who could make a claim on the estate; and
  • whether or not they are affected by a delusion that influences the disposal of their assets.

The Court determines testamentary capacity on the facts and circumstances of each case.

When taking instructions, it is prudent for lawyers to ascertain the client’s capacity and the possibility of undue influence by asking non-leading questions to determine the facts and circumstances of each case. The court suggests that where an elderly client is being cared for by someone or is residing in an aged care facility, it is prudent to ask both clients and their carers whether there is any reason to be concerned about capacity.

April 4

What is the effect of marriage and divorce on a Will?

It is often that that a marriage or a divorce automatically revokes a will.  Is it so?

Marriage

Section 13 of the current Victorian Wills legislation  deals with the effect of marriage on a will.

Marriage revokes a will unless the will was made in contemplation of that particular marriage. The contemplation need not be expressed in the will, but it will generally be easier to establish if it is.

Those who make wills while in a de facto relationship may not intend to marry when the will is executed but may nonetheless do so later. We make sure that our wills for spouses provide that it can be made in contemplation of marriage, so as to avoid an unintentional revocation if the testator (will maker) and their de facto partner subsequently marry. It also provides that the will is not void if the marriage does not take place.

Divorce or annulment

Section 14 of the current act  deals with the effect on a will of divorce – which includes a nullity or annulment of marriage.

Divorce does not revoke a will. However, unless a contrary intention is expressed in the will, divorce revokes any gifts to the former spouse and the asset passes as if the spouse had predeceased the testator.

Any appointment of the former spouse as executor or trustee is also revoked, however any appointments of the former spouse as a trustee of property left to beneficiaries that include the former spouse’s children, or any powers of appointment exercisable by the former spouse in favour of the children of the former spouse and the testator, are not revoked.

As we can see, like in many other instances,  the answer can be  yes but also no, depending on the circumstances.

February 6

Do you have a will? Do you know where it is?

Many Australians are risking their wealth, considering somewhere between 25 and 40 per cent of people die intestate, without a Will in place.

Part of that statistic is influenced also by a loss of documents. So not only is it important to have proper, strong, appropriate documents that fit your plan in place … but you should also know where they are and ensure others know where they are, especially your executor(s). There is no public registry of the Wills nor can you Google it.

Those estate planning documents should also include things like enduring powers of attorney – financial, personal (used to be called guardianship) and medical – documents relating to superannuation and the family trust, as well as a health directive which is the statement laying out your wishes to the next of kin and the health professionals in regards to some terminal illnesses and /or conditions you may be suffering from now or in the future.

The importance of knowing where the documents are cannot be overstated. For example, family discretionary trusts are the single most utilised investment vehicle in Australia today for a multiple of reasons, not the least of which include asset preservation, that is, against claims and also for tax flexibility.

However, often people say that they lost the trust deed. That’s a disaster. So, it is extremely important to know where they are , are the documents in place, do they accurately express that which was intended to be created?Again, as with Wills, there is no public registry of these trust deeds . If you lose them you cannot recover/replace them unlike certificates of title, for example, which can be replaced by a new title issued by Land Titles Office

August 5

Superannuation Death Benefit Payment

On 23 June 2015 the Federal Court of Australia gave judgment in an appeal from a decision of the Superannuation Complaints Tribunal (“SCT”) to affirm the trustee’s determination to pay death benefits to the deceased’s adult children. The decision can be accessed here: http://www5.austlii.edu.au/au/cases/cth/FCA/2015/612.html

The deceased made no binding death benefit nomination and the legal personal representative of the estate was unable to persuade the trustee to pay the death benefits to the estate, which was subject to an application for further provision from the estate.

Ultimately, the Court upheld the decision of the SCT, so the death benefits will be paid to the adult children of the deceased and therefore will not be available in the family provision proceedings.

The judgment is an interesting read and provides a summary of the relevant matters the SCT will take into account when determining the payment of superannuation death benefits.

Here are those specified reasons for the SCT’s decision:

44. First, superannuation is not an asset of the estate and a trustee is not bound to follow the directions of a will. Even if superannuation is specifically mentioned in a will, it does not make it an asset subject to the terms of the will.
45. The subject matter of proceedings commenced by the Adult Sons against the executors of the Deceased Member’s estate under Part IV of the Administrative and Probate Act 1958 relates to inadequate provision for their proper maintenance out of the estate of the Deceased Member. The complaint to the Tribunal concerns the distribution of the death benefit, which is not part of the estate.
46. Although the Trustee will look to a deceased member’s will and any other document which purports to identify the wishes of a deceased member to assist in determining the wishes of the member, the role of the Trustee in the distribution of a death benefit is not to resolve any perceived or real issues in a deceased member’s estate.
47. Second, the Trustee must decide the distribution of a death benefit unless there is in force a binding death benefit nomination. In this matter, the Deceased Member did not have a binding nomination of beneficiary for receipt of his superannuation although it was permitted under the Trust Deed.
48. Third, in general a trustee does not pay to the LPR unless there are no dependants or if there were such a direction in a binding death benefit nomination. The Trustee submitted that it follows this general procedure. It stated that it is not the practice of the Trustee to pay the benefit to a deceased member’s LPR if the deceased member is survived by dependants.
49. Finally, while the Deceased Member may have been of an age where he could have received the benefit directly, the benefit remained in the superannuation system at the time of his death and subject to a decision of the Trustee.
50. The Tribunal concluded that, having identified dependants and with no binding nomination to pay to the LPR it was not unreasonable for the Trustee to follow its practice to pay to dependants.”

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