In February 2015, the Supreme Court of Western Australia heard and decided a family provision application involving an estate estimated to be valued $1 billion.
Michael Wright (the deceased) died on 26 April 2012. At the time of his death, Michael’s family consisted of:
– his fourth wife, Mary;
– his three adult children born to his earlier wife, Jennifer;
– his 19 year old daughter, Olivia Mead, born to another relationship.
The application was brought by Olivia on the basis that she had not been left with adequate provision from her father’s estate. The defendants in the application were the executor (Michael’s solicitor), two of Michael’s adult children who benefited from the estate, and a company jointly owned by the two children.
The judge noted that this was the first case brought in WA in which it was not necessary to assess the value of the estate. Olivia’s lawyers speculated the size of the estate was $1 billion, and this was undisputed by the defendants.
Olivia’s entitlement from her father’s estate was for annual payments to be made into a trust that he had previously established for her benefit, with distributions to be capped when the trust assets reached a maximum value of $3 million (subject to annual CPI increases).
What made this case especially unique was that the two adult children acting as defendants acknowledged that their entitlements were so significant that any award to Olivia would make no difference to their position. There was evidence from the executor that these children were entitled to around $400 million each from their father’s estate.
Contrary to the usual rule that prohibits executors from making distributions once a claim is made against an estate, the executor in this case had distributed the bulk of the estate. While the court did not excuse this conduct by the executor, all of the parties generally agreed that the $45 million remaining in the estate was likely to be sufficient to meet Olivia’s claim.
In Western Australia, the relevant sections of the Family Provision Act 1972 provide that:
- where the dispositions from the estate of a deceased to a child of the deceased
- are not such as to make adequate provision from the estate for the proper maintenance, support, education or advancement in life of that child
- the Court may, on application by the child, order that such provision as the Court thinks fit be made out of the estate for that purpose
In comparison, the Queensland Succession Act 1981 relevantly provides:
- where adequate provision is not made from the estate for the proper maintenance and support of the deceased person’s child
- the court may, on application by the child, order that such provision as the court thinks fit be made out of the estate of the deceased person for that child
In Queensland, the courts apply a two limb test in hearing these types of application. In broad terms, the court must first be satisfied the applicant has not been left with adequate provision, before it then considers how much provision is adequate.
The law is similar in Western Australia, which could raise the question, what possible further provision would Olivia need?
However, in reaching his decision, the judge’s considerations including the following issues:
- the terms of the trust were unclear;
- the value of Olivia’s inheritance by way of the trust was arguable;
- the trustee had absolute discretion over the income and capital of the trust, for example, the trustee could lock away all earning in the trust until Olivia was 30;
- the trustee could agree to or refuse any distribution from the trust;
- Olivia had no right to call on any capital in the trust;
- the appointer could name a charitable organisation as beneficiary and the trustee could distribute all of the trust income to that beneficiary;
- Olivia could be excluded as a beneficiary of the trust for reasons including converting to Buddhism or Islam.
The judge’s reasoning also considered the term “adequate”, recognizing that the term:
“is almost always in the context of whether the financial provision in the will is sufficient. But there is no reason why the term could not be used to described the form in which the provision is made in the will. The Macquarie Dictionary has as a definition for ‘adequate’ the word ‘suitable’.”
Due the vast nature of Michael’s estate and the real risk that Olivia might not receive any distribution, given the unreasonable and unworkable terms of the trust, the judge determined that “suitable” provision had not been made for Olivia’s proper maintenance, support, education or advancement in life.
The wish-list Olivia produced included a $250,000 diamond-studded guitar, however the judge did not think poorly of her imagination and went as far as saying he “was not left with the impression the plaintiff was a gold digger or in some way a narcissistic greedy individual.”
The Court awarded Olivia a cash payment of $25 million conditional upon her forfeiting any right or interest in the Trust, which the judge said, in the context of the estate, was “little more than a rounding error.”
The results of this case may have lifted the bar for estate planning and provision in very large estates, but it goes without saying that estates of this size and nature may be few and far between.
If you wish to know more about family provision applications, please do not hesitate to call our Business Development Team on (07) 3252 0011 to set up an appointment with one of our estate lawyers.