Cornell v Cornell - [2015] WASC 43

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: CORNELL -v- CORNELL [2015] WASC 43

CORAM: JENKINS J

HEARD: 8 APRIL, 11, 17, 18, 26 & 30 JUNE 2014

DELIVERED : 30 JUNE 2014

PUBLISHED : 6 FEBRUARY 2015

FILE NO/S: CIV 3060 of 2012

BETWEEN: KIERAN SCOTT CORNELL by his next friend JULIE MARIE SCOTT
Plaintiff
AND
GRAEME STANLEY CORNELL as executor of the will of PHILIP GEORGE CORNELL
Defendant

Catchwords:

Succession - Executors and administrators - Power of court to direct executor - Whether executor should be directed to facilitate and authorise transfer of funds in deceased's pension account into a child pension account in the name of primary beneficiary, the plaintiff - Whether executor should be empowered to do same if the will does not grant the power - Whether court should empower or direct the executor to do so if it means that the estate's major asset will not be brought into the estate

Succession - Wills, probate and administrators - Construction and effect of testamentary dispositions - Under the will the plaintiff bequeathed the death benefit payable to the estate as a consequence of deceased's membership of the pension account - Whether executor empowered by terms of will to direct that death benefit not be paid to the estate but rather pension account be transferred into child pension account in the name of the primary beneficiary, the plaintiff - Alternate statutory sources of power - Alternate statutory power enabling court to empower executor

Legislation:

Administration Act 1903 (WA), s 8, s 45
Income Tax Assessment Act 1936 (Cth), s 27A, s 14O
Rules of the Supreme Court 1971 (WA), O 18 r 14
Trustees Act 1962 (WA), s 30, s 89, s 92

Result:

Application granted

The defendant is empowered, has the authority to do and is directed to do all things necessary to facilitate and authorise the transfer of funds held by Colonial First State Investments Limited (the Colonial Trustee) in a First Choice Wholesale Pension account [number omitted] in the name of the Estate of Philip George Cornell (the pension account) to an account established pursuant to the [plaintiff's application], by 6 July 2014 (the child pension account)

Order 1 shall not require the defendant to make any statements which are untrue

If an account is established by the Colonial Trustee pursuant to order 1 then that account will be in lieu of any entitlement of the plaintiff to any part of the death benefit that might otherwise have been payable to the defendant as executor

Category: B

Representation:

Counsel:

Plaintiff: Ms W F Gillan
Defendant: Mr M P Bruce

Solicitors:

Plaintiff: Ball & Co
Defendant: Bennett + Co

Case(s) referred to in judgment(s):

Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66
Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198
O'Brien v Warburton [2012] WASC 82
Perpetual Trustee Co Ltd v Cheyne [2011] WASC 225; (2011) 42 WAR 209
Riddle v Riddle [1952] HCA 12; (1952) 85 CLR 202
Tsaknis v Lilburne [2010] WASC 152

JENKINS J: On 30 June 2014 I made orders in the following terms:
(1)The defendant is empowered, has the authority to do and is directed to do all things necessary to facilitate and authorise the transfer of funds held by Colonial First State Investments Limited (the Colonial Trustee) in a First Choice Wholesale Pension account [number omitted] in the name of the Estate of Philip George Cornell (the pension account) to an account established pursuant to the [plaintiff's application], by 6 July 2014 (the child pension account).
(2)Order 1 shall not require the defendant to make any statements which are untrue.
(3)If an account is established by the Colonial Trustee pursuant to order 1 then that account will be in lieu of any entitlement of the plaintiff to any part of the death benefit that might otherwise have been payable to the defendant as executor.
These are my reasons for making the orders.
Philip George Cornell (deceased) died on 22 July 2010 leaving a last will dated 2 September 2004 (the will). On 11 October 2010, a grant of probate of the will in common form was made to the defendant, the only executor and the trustee of all testamentary trusts, under the will.
The parties agree that the plaintiff, Kieran Scott Cornell, who is the deceased's son, and who was aged 15 at the time of the deceased's death, is the only primary beneficiary under the will. His next friend is his mother.
The defendant has embarked on the process of administering the estate but it is far from complete due to the complexity of the terms of the will, the nature of the estate, the defendant's inexperience in estate administration, conflicts between the defendant and the plaintiff's mother and, perhaps, the defendant's reluctance to perform his role because of the large value of the estate. For the purpose of this decision it was unnecessary for me to determine whether any person is at fault for the delay in administering the estate.
The plaintiff commenced this matter to obtain the court's assistance in construing the will and administering the estate. The application which resulted in me making the orders to which these reasons relate, was made by the defendant but in the plaintiff's matter. It was made pursuant to the Administration Act 1903 (WA) s 45 and the Trustees Act 1962 (WA), and it sought advice and direction as to whether or not the defendant should do all things necessary to facilitate and authorise the transfer of the pension account to an account established pursuant to an application by the plaintiff for the funds in the pension account to be rolled over into the child pension account in the plaintiff's name which would enable a pension to be paid to the plaintiff from the account (the plaintiff's proposal). As the hearing progressed, an issue arose as to whether the defendant also needed to be empowered to facilitate the plaintiff's proposal.

Background

In 1999, the deceased suffered a major workplace injury. He sustained injuries which resulted in him becoming a quadriplegic. He died in 2010 from complications arising from his injuries.
In 2004, the deceased was awarded approximately $5,800,000 in damages. With the major portion of this award, the deceased became a member of the Colonial First State FirstChoice Superannuation Trust (the Colonial Trust), of which the Colonial Trustee is the trustee. The Colonial Trust is governed by a consolidated trust deed (the Colonial Deed). The deceased became an Allocated Pension Member and, thus, the pension account was established. The deceased did not nominate a person to be the beneficiary of the pension account.
The value of the pension account at the time of my orders was approximately $4,300,000. It fluctuated daily depending on the state of the market.
The balance of the estate at the time of death consisted of the deceased's home at Dalyellup, other real estate of modest value, some motor vehicles and trailers, cash at bank and some other relatively minor moveable assets. By far the major asset of the estate was the entitlement to the death benefit payable by the Colonial Trustee as a consequence of the deceased's membership of the Colonial Trust.
The deceased's membership of the Colonial Trust meant that he had a beneficial interest in the assets of the Colonial Trust (the Colonial Deed cl 2.1). After his death the Colonial Trustee was obliged to pay a death benefit as a lump sum, a pension or in any other manner as the Colonial Trustee thought fit (the Colonial Deed cl 8.14H) to the defendant (as executor). However, neither the deceased or his estate had an interest in any particular Colonial Trust asset or any right to receive a particular trust asset or a balance in an account. The death benefit was to be determined according to the terms of the Colonial Deed and the amount of it depended upon the value of the trust units held by the deceased. As at 30 June 2014 the Colonial Trustee had not paid a death benefit.
If the death benefit was paid wholly as a lump sum, the Colonial Trustee had to pay an amount which would be equal to the value of the deceased's pension account (schedule b-B4). As there was no nominated beneficiary of the relevant pension account, the Colonial Trustee would have to have paid the death benefit to the defendant as the deceased's legal personal representative.
If the death benefit was paid wholly or partially as a pension, the Colonial Trustee had to pay the pension to the person entitled to it in accordance with the Colonial Deed, which meant that the same rules apply as if the recipient was receiving the pension as a member of the Colonial Trust.
The plaintiff was born on 7 July 1996 and he is a first year apprentice in Certificate III motor engineering. He works for a business in Bunbury. He earns about $400 per week. He lives with his mother and intends to remain doing so, but he spends sometime at the deceased's Dalyellup property. He has interests which do not require a lot of money.
The plaintiff has no dependants, did not have a partner and had no short term plans to embark on a long term relationship with a partner. Neither did he intend to have children in the short term.
On the basis of accounting advice the plaintiff and his mother received after the deceased's death, the plaintiff and his mother did not want the death benefit to be paid to the defendant, that is brought into the estate, as a lump sum. They were advised that there would be significant tax advantages for the plaintiff if the pension account was retained in the Colonial Trustee as the child pension account. Secondly, as it was likely to be a large sum of money and he is young and inexperienced with money, the plaintiff thought it would be better to receive a child pension direct from the Colonial Trustee rather than a large capital sum, as a distribution from the estate.
The plaintiff also wanted the death benefit to be in a child pension as he wanted the 'money to be in a safe pair of hands'. He was aware that he would get a lot more income from the child pension account than he earned as an apprentice. He intended to save as much as possible so that in the future he could buy an investment property. He did not have plans to change the child pension into a lump sum before he turned 25 as he did not wish 'to be responsible for such a large amount of money at this time'.
The plaintiff and his next friend were aware that if the plaintiff's proposal proceeded it would be in lieu of any claim that the plaintiff had to the death benefit that would otherwise be paid to the estate.
The defendant was not prepared to facilitate and authorise the plaintiff's proposal without the advice and direction of the court. He was of the view that to do so may have been contrary to his obligations as the executor to bring in the estate, may have been inconsistent with the terms of the will and may have exposed him to future liability.
Initially, when the plaintiff asked the Colonial Trustee whether it would permit the establishment of the child pension account, it refused to do so. Rather, it said that where there was no nominated beneficiary, it generally paid the death benefit, as a lump sum, to the deceased member's estate . However, it seemed that it may permit the establishment of the child pension account if the defendant consented to the Colonial Trustee reconsidering its position. The defendant declined to consent without the direction of the court. The plaintiff then applied to the court for such a direction. After hearing the parties, on 8 April 2014, I made a direction that the defendant consent to the Colonial Trustee reconsidering its position.
After that direction was made, the defendant wrote to the Colonial Trustee enclosing an application by the next friend, on behalf of the plaintiff, for the rollover of the pension account into a child pension account. The covering letter advised that the defendant as executor of the deceased's estate consented to the Colonial Trustee reconsidering its position not to permit the establishment of a child pension account.
As a consequence of that letter and its enclosures, on 9 May 2014 the Colonial Trustee advised that it had 'signed off the request' on two conditions, only one of which is relevant. It said that the 'application' had to be 'co‑signed by the defendant'. The parties assumed that 'the application' referred to by the Colonial Trustee was the application for the rollover of the pension account and establishment of the child pension account. That was a reasonable assumption and I proceeded on the same basis.
At the hearing of this application, I heard submissions about what may be involved in the defendant co‑signing the application. I said that I would not be prepared to direct the defendant to co‑sign the application if by his signature on the application he made the declarations contained in the application. These declarations would not have been true if made by the defendant.
Clarification was sought from the Colonial Trustee as to what it required by way of co‑signing. By the time I made my orders the Colonial Trustee had not provided information which clarified its position. Order 2 reflected my position that the defendant should not make any untrue statements in the course of facilitating the plaintiff's proposal.
The determination of the defendant's application was urgent because the law regulating funds such as the Colonial Trust provided that a child pension account had to be established by the relevant child's 18^th birthday. If it had not been established by then, the plaintiff's proposal could not have proceeded. Instead, the Colonial Trustee would have paid the death benefit as a lump sum to the defendant.

Trustees Act s 92

The application relied on the power of the court under the Trustees Act s 92 to give directions to a trustee. That section provides:
92.Directions, trustee may ask Court for
(1)Any trustee may apply to the Court for directions concerning any property subject to a trust, or respecting the management or administration of that property, or respecting the exercise of any power or discretion vested in the trustee.
(2)Every application made under this section shall be served upon, and the hearing thereof may be attended by, all persons interested in the application or such of them as the Court thinks expedient.
The Trustees Act defines 'trustee' so as to include an executor, where the context permits. I was satisfied that this application could be brought under s 92.
In respect of the power of the court to give directions in trust matters, in Tsaknis v Lilburne [2010] WASC 152, EM Heenan J said [35] ‑ [40]:
However, [s 92] is not the only source of the jurisdiction and power of the court to give directions with the respect to questions arising concerning powers or duties of trustees or in the administration of trusts. This court has jurisdiction under s 16(1)(d)(i) of the Supreme Court Act 1935 (WA) as a court of equity with power and authority to do, exercise and perform all acts, matters and things necessary for the due execution of such equitable jurisdiction as, at commencement of the Supreme Court Ordinance 1861, the Lord Chancellor of England could or lawfully might have done within the realm of England in the exercise of the jurisdiction to him belonging; …' with the consequence that this court has general jurisdiction in equity extending to all matters relating to and concerning the operation, administration or terms of any trust and the duties and obligations of any trustee. Without in any way restricting the amplitude of these powers, the Rules of the Supreme Court 1971 (WA) O 58 r 2 provide that any trustee or any person interested under the administration of a deceased estate or under any trust may apply on originating summons for the determination, without a general administration of the estate or trust, of any of a number of designated questions or matters including '(g) the determination of any question arising in the administration of the estate or trust'.
The availability of this jurisdiction to enable a trustee to seek directions from the court, including 'judicial advice', as to whether or not to commence or to defend legal proceedings affecting the interests of the trust estate has been confirmed on many occasions and, recently, at the highest level in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66 (the 'Macedonian Orthodox Community case'), especially at [37] ‑ [74]. ...
The power can be employed by the trustees … where any doubt exists as to their position or correct course of action. The so-called 'Beddoe' applications are discussed in Underhill and Hayton (supra) at (815 ‑ 817 and 841). This recourse is part of the duty of a trustee to protect and preserve the trust estate and, accordingly, to represent the trust in third party disputes (Underhill and Hayton, 844). In the Macedonian Orthodox Community case, Gummow ACJ, Kirby, Hayne and Heydon JJ said [58] that only one jurisdictional bar to the employment of the analogous statutory jurisdiction existed, namely, the existence of some question respecting the management or administration of the trust property or a question respecting the interpretation of the trust instrument, and, at [64] that the jurisdiction enabled the court to provide 'private advice' to the trustee for the trustee's personal protection, …
The position has long been recognised that a trustee, including an executor of a deceased estate, if in doubt about the course of action to be adopted in the course of administration of the estate or the trust, may always apply to the court for its opinion, direction or advice: In re Atkinson (dec) [1971] VR 612, 615.
… Mr David Lilburne also submits that s 92 ought not be used to determine substantive issues which involve the resolution of a contest between the trustee and other parties to the trust: Re Nilant [2004] WASC 7; (2004) 28 WAR 81 [41]; Re Saunders Nominees Pty Ltd; Ex parte Saunders Nominees Pty Ltd [2007] WASC 152 [3] (Martin CJ).
There are many cases containing dicta that the procedure should not be used to determine substantive issues involving hostile disputes between a trustee and beneficiaries - Harrison v Mills [1976] 1 NSWLR 42 [45]; and Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405, 440, but these dicta now need to be read in the light of the observations in the Macedonian Orthodox Community Church case that there are no limitations implied upon the exercise of the jurisdiction once it is enlivened and such expressions of judicial opinion about when the statutory power applies go rather to discretion than to power: [56], [75].
Initially, the parties' attitude to the defendant's application was that if the Colonial Trustee was prepared to pay the death benefit as a child pension to the plaintiff then all that was required from the court was a direction to the defendant to facilitate the plaintiff's proposal. As the hearing of the application progressed, an issue arose as to whether the court had the power to give the directions sought to the defendant if, under the will or general law, the defendant did not have the power to facilitate the plaintiff's proposal. The defendant's final position was that the court could not direct him to do something which was beyond his power. He submitted that he did not have the power under the terms of the will, if he was to act in accordance with his duties as executor, to facilitate the plaintiff's proposal. The plaintiff's position ultimately was that if power was required, the defendant had such power or could be empowered by the court to facilitate the plaintiff's proposal.

To determine whether the defendant had the power and, if not, whether I would grant him such power, it was necessary to first have regard to the terms of the will.

The will - clause 4

Clause 4 of the will states:
My executors will hold my estate on trust and, subject to the powers set out in this Will, after the selling, calling in or converting into money any part of my estate and the payment of all or any debts and testamentary expenses associated with my death or the administration of my estate, will hold and dispose of the balance of my estate as provided hereafter.
That general obligation to call in the estate, pay estate debts and then deal with the estate in accordance with the terms of the will, is to some extent qualified by the general and specific powers contained in the will. Neither party suggested that the general and specific power contained in the will gave the defendant the power to facilitate the plaintiff's proposal. That is because those powers relate to the distribution of capital and income, whereas until the death benefit is paid to the estate, the only interest that the estate had as a consequence of the pension account was a right to have a death benefit paid to the defendant, as executor of the estate.

The will - clause 22.10

Clause 22.10 may have provided the requisite power. It states that the defendant has power:
To appropriate any asset or share or interest in an asset ('an asset') of the estate not specifically given to a beneficiary in full or partial satisfaction of a legacy or share of my estate without needing to obtain the consent of any beneficiary;
For the reasons which I will give, I was satisfied that the plaintiff was given a legacy of a death benefit, once it had been paid to the defendant, as executor. It could be argued that facilitating the plaintiff's proposal would have been appropriating an asset of the estate, being the estate's right to have a death benefit paid to the defendant, to the plaintiff in full satisfaction of his legacy, being the death benefit once paid, without the need to obtain his or any other beneficiary's consent. The right to be paid a death benefit would also satisfy the requirement of being an asset of the estate that was 'not specifically given to a beneficiary' (cl 22.10).
However, there were still issues under cl 22.10 as to whether the defendant's actions to facilitate the plaintiff's proposal would amount to an appropriation, whether a right to the payment of a death benefit is an asset of the estate and whether the creation of a child pension is an appropriation to a beneficiary.

Trustees Act s 30(1)(k)

Another possible source of power to make the orders sought was the Trustees Act s 30(1)(k) which states:
(1)Every trustee, in respect of any property for the time being vested in him may -
…
(k)[A]ppropriate any part of the property in or towards satisfaction of any legacy payable thereout, or in or towards satisfaction of any share of the trust property, (whether settled, contingent or absolute) to which any person is entitled, and for that purpose value the whole or any part of the property in accordance with section 50; but -
(i)the appropriation shall not be made so as to affect adversely any specific gift; and …
'Property' is defined in the Trustees Act s 6(1) which states:
includes real and personal property and any estate, share, and interest in any property, real or personal, and any debt, and any thing in action, and any other right or interest, whether in possession or not;
The property of the deceased is vested in the defendant as a consequence of the Administration Act s 8 which states:
Upon the grant of probate or administration, all real and personal estate which a deceased person dies seised, possessed of, or entitled to in Western Australia shall, as from the death of such person, pass to and become vested in the executor to whom probate has been granted, or administrator for all the estate and interest of the deceased therein in the manner following, that is to say -
(a)on testacy or on partial intestacy, in the executor or administrator with the will annexed; and
(b)on intestacy, in the administrator.
The power in the Trustees Act s 30(1)(k) is a statutory form of a similar common law power. The creation of the power avoided the situation whereby a legatee, who was entitled to a monetary gift from an estate but who would have preferred an item of estate property, could only secure the item of estate property they preferred by the executor selling it and passing the funds onto the legatee who could then afford to buy it.
It was arguable that as the plaintiff was entitled to be paid the death benefit once it was paid to the estate, in lieu of that payment, the Trustees Act s 30(1)(k) empowered the defendant to appropriate the deceased's right to have a death benefit paid to the estate. However, as with the application of cl 22.10 of the will to the defendant, there were difficulties in applying s 30(1)(k) to the facts of this case, including difficulties in identifying the property which would be appropriated, and determining whether facilitating the plaintiff's proposal would amount to appropriating that property or not.
These difficulties were such that neither party submitted that either the will or the Trustees Act s 30(1)(k) empowered the defendant to facilitate the plaintiff's proposal. Given that lack of support from both parties, that the Colonial Trustee is not a party to these proceedings and that the parties agreed that the Trustees Act s 89(1) empowered me to confer on the defendant any necessary power, that he would otherwise lack, to facilitate the plaintiff's proposal, I did not make a final determination as to whether the defendant could facilitate the plaintiff's proposal with the powers conferred on him by the will and by the general law. Rather, I relied on the Trustees Act s 89(1) to empower the defendant to facilitate the plaintiff's proposal.

Trustees Act s 89(1)

Section 89(1) relevantly states:
Where in the opinion of the Court any sale, lease, mortgage, surrender, release or other disposition, or any purchase, investment, acquisition, retention, expenditure or other transaction is expedient in the management or administration of any property vested in a trustee, or would be in the best interests of the persons, or the majority of the persons, beneficially interested under the trust, but it is inexpedient or difficult or impracticable to effect the disposition or transaction without the assistance of the Court, or it or they cannot be effected by reason of the absence of any power for that purpose vested in the trustee by the trust instrument (if any) or by law, the Court may by order confer upon the trustee, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions (if any) as the Court may think fit, ...
There are only a few cases in Western Australia which discuss the Trustees Act s 89(1). However, there are more cases which deal with similar statutory provisions in other jurisdictions. Whilst some of the general principles gleaned from those cases are of assistance, they must be used with caution because of the different wording of the interstate provisions and the different facts of each case.
In Riddle v Riddle [1952] HCA 12; (1952) 85 CLR 202, the High Court considered the NSW counterpart of the Trustees Act s 89. The question was whether the relevant trustees should be authorised to invest trust funds in shares. The NSW provision was narrower than the Trustees Act s 89. It required the court to be satisfied that the proposed investment 'is expedient to the management or administration of trust property, but cannot be effected, by reason of the absence of any power for that purpose vested in the trustees' (233). Dixon J (as he then was) said:
Section 81 is a provision conferring very large and important powers upon the Court which depend upon the Court's opinion of what is expedient, a criterion of the widest and most flexible kind. The power necessarily carries with it responsibilities of equal extent. The responsibilities imposed involve business and financial considerations, but responsibilities of that description have always fallen on courts of administration.
I do not think that the powers given by s 81 were intended to be restricted by any implications [6] - [7].
The description in the Trustees Act s 89(1) of the types of dealings which may be the subject of an order under the section is so broad that it was unnecessary for me to determine whether the plaintiff's proposal would involve one of the specified types of transactions. Although I accepted, for the reasons explained by Edelman J in Perpetual Trustee Co Ltd v Cheyne [2011] WASC 225; (2011) 42 WAR 209 [50] ‑ [56], that the plaintiff's proposal would not be an investment by the defendant in the Colonial Trust. The insurmountable hurdle in construing the plaintiff's proposal as an investment was that the defendant would not receive anything in return for effecting the plaintiff's proposal. I was content to find that the plaintiff's proposal would be an 'other transaction'.
Next, in order for me to empower the defendant under the Trustees Act s 89(1) I was required to find either that:
(1) the plaintiff's proposal was 'expedient in the management or administration of any property vested' in the defendant as executor; or
(2)the plaintiff's proposal would be in the best interests of the persons, or the majority of the persons, beneficially interested in the trust.
In Riddle, Williams J said that the ordinary natural grammatical meaning of expedient is 'advantageous', 'desirable', 'suitable to the circumstances of the case'.
If the first alternative was to be relied on, the plaintiff's proposal had to also be expedient in the management or administration of any property vested in the defendant, as executor. That raised the issue of whether the right to have a death benefit paid to the defendant, as executor, was property vested in the trustee. I thought that the correct view was that it was. But if I was wrong in that respect, alternatively, the power in the Trustees Act s 89(1) could be invoked if I was satisfied that the plaintiff's proposal would be in the best interests of the persons, or the majority of the persons, beneficially interested under the trust. For the reasons expressed in this judgment, I was so satisfied.

Administration Act s 45

Another provision which was invoked by the plaintiff was the Administration Act s 45 which states:
(1)The Court may make such order with reference to any question arising in respect of any will or administration, or with reference to the distribution or application of any real and personal estate which an executor or administrator or Public Trustee may have in hand, or as to the residue of the estate, as the circumstances of the case may require.
(2)Such order shall bind all persons whether sui juris or not.
(3)No final order for distribution shall be made except upon notice to all the parties interested, or as the Court may direct.
Although there are similarities between the Administration Act s 45 in regards to wills and the Trustees Act s 92 in regards to trusts generally, the Administration Act s 45 has received less examination by the courts than the Trustees Act s 92. By its terms it gives the court power to decide any question arising from a will or administration. This case raised questions arising in respect of the construction of the will. However, it arguably did not concern 'the distribution or application of any real and personal estate' which the defendant had 'in hand' as the death benefit had not been paid. It was not clear that the defendant's right to be paid the death benefit was part of the personal estate which the defendant could be said to 'have had in hand'.

Expert evidence

The plaintiff's proposal relied heavily on the advice of Mr Aaron Ross‑Connolly. Mr Ross‑Connolly swore an affidavit, dated 2 April 2014, in which he stated:
(1)He is a private client advisor employed by R M Black Morgan Management which is a Corporate Authorised representative of Patersons Securities Ltd, an Australian Financial Services Licensee (AFSL no. 239 052).
(2)He has a Graduate Diploma in Applied Finance and Investment.
(3)He has been working in the financial industry for 14 years.
(4)He has been retained by the next friend as her financial advisor for six years.
(5)Essentially, a child pension is a superannuation stream income stream paid to a child, after the death of a parent. For the child pension to be paid, the child must be less than 25 years of age.
(6)If the death benefit was paid as a lump sum to the plaintiff, because the plaintiff was the deceased's dependant it would be tax free. However, when paid out of the superannuation environment as a lump sum, all investment earnings would be subject to personal marginal tax rates (MTR).
(7)If the death benefit was paid as a child pension to the plaintiff no tax is payable upon the commencement of the pension and the capital in the Colonial Trust will continue to receive concessional tax treatment applicable to such funds. However a requirement of a child pension is to draw a minimum pension each year. Income tax may be paid by the recipient on the pension payments.
(8)As both the deceased and the plaintiff beneficiary are/were under the age of 60, tax will be payable only on a portion of the child pension paid to the plaintiff.
(9)The tax payable by the plaintiff on a child pension will be based on the taxable components of the fund balance. Any taxable components will be taxed at the plaintiff's MTR less a 15% rebate.
(10)Based on information from the Colonial Trustee, the portion of the fund that is taxable is approximately 31%. Accordingly, approximately one‑third of any income stream payment to the plaintiff will be taxed at his MTR, less the 15% rebate. As such, the tax implications of any child pension will be somewhat variable, dependent both on the plaintiff's taxable earnings in any one financial year, and the size of the income stream payment taken from the fund.
(11)A child pension can only be paid until the child (who is not disabled) reaches the age of 25 years. When the child attains the age of 25 years, the pension must then be commuted. Any residual capital within the fund is paid as a tax‑free lump sum directly to the adult child.
(12)One of the primary benefits of a dependant taking a child pension over a lump sum payment is that the capital is held in a zero tax superannuation environment. This means that there is no tax payable by the superannuation fund or the dependant on income produced by the asset and no tax on any capital gains generated by the asset. Given the size of funds involved in this case, the cumulative benefits of this tax‑free environment over a period of time would likely be substantial.
(13)The following provides a specific example of the benefit of a child pension. If the current balance of the fund was $4,000,000, and the funds were invested in simple term deposits (zero capital risk) and earned a rate of return of 4%, the annual earning of the fund would be $160,000. Within a child pension, this entire return would have zero tax applied.
(14)The tax payable on the pension withdrawals would be variable, but based on drawing the minimum pension amount (4% of the fund or $160,000), the plaintiff would be subject to less than $1,000 in tax in his personal name. This is calculated based on taxable income of $49,600 (31% taxable component out of the $160,000 payment), taxable at personal MTR less a 15% tax rebate. On the other hand, if the funds were held in a testamentary trust, the entire amount of income would be taxable and would incur just over $49,500 of tax per annum.
(15)These examples are based on the plaintiff having no other taxable income. If the plaintiff earned income from employment or other sources, the tax benefits of a child pension would increase further.
(16)The above examples assumes a very conservative investment strategy of investing in term deposits. If the funds were invested in a balanced investment portfolio and achieved a return of 8% per annum (still substantially below long‑term equity market returns), the tax payable would be zero in a child pension, but the tax payable on investments through a testamentary trust would increase to over $93,000 per annum. This would increase again if the plaintiff were to earn income from employment or other sources.
(17)On balance, the optimal strategy is to have the death benefit paid to the plaintiff as a child pension.
(18)The primary attributes of the child pension include:
(a)a reliable income stream for the plaintiff to meet costs such as education and general living expenses;
(b)the size of benefit can be targeted to the plaintiff's needs - subject to limits. These limits dictate that a minimum pension equivalent to 4% of the account balance must be paid each year;
(c)the income stream can be fixed or indexed; and
(d)an adult tax‑free threshold applies and as a result, the plaintiff can receive income in the form of pension payments up to over $150,000 per annum, tax‑free, given the taxable components of the fund and current tax rates and rebates;
Mr Ross‑Connolly concluded that there were both risks and benefits in the creation of a child pension. In his opinion the balance of the risks and benefits 'very clearly shows' that paying the death benefit as a child pension was a substantially more favourable option than taking it as a lump sum.
As of the date that Mr Ross‑Connolly swore his affidavit, he had not received any financial remuneration from the next friend or the plaintiff in relation to this matter. His services had been provided as part of the ongoing financial advice his employer provided to the next friend. Mr Ross‑Connolly said that if funds were to be invested in a child pension, his firm would offer ongoing financial advice to the plaintiff in relation to the specific investments in the child pension account. If the plaintiff was to accept that advice, his firm would charge an ongoing fee for that advice. He said that typically industry fees for this sort of advice were in the range of 0.6% ‑ 1.2% of the investment balance.
In this regard, the application to the Colonial Trustee for the creation of the child pension included a request to have an ongoing adviser service fee of 1% per annum deducted from the child pension account.
Initially, the only expert evidence which the defendant provided to the court was advice he received in August 2011, through a firm of financial planners, from Ronald Doig, a solicitor and director of MD Legal Pty Ltd trading as Munro Doig.
Mr Doig's initial advice was limited to certain issues and did not address the correctness of Mr Ross‑Connolly's opinions.
However, I raised with counsel the proposition stated by Lord Oliver in Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198 that if a trustee applied to a court for directions regarding the exercise of a discretion it was of 'the highest importance' that the court should be put into possession of all the material necessary to enable the discretion to be exercised. If the discretion was one which involved for its proper execution the obtaining of expert advice, it was the trustee's duty to obtain that advice and place it fully and fairly before the court (201).
I saw every reason to apply that principle to this case, especially as the questions before me were whether the defendant should be granted discretionary power, and then directed to exercise his discretion. I did not think that this case was distinguishable from Marley because the defendant had asked for directions as to whether or not he should effect the plaintiff's proposal, as opposed to a direction to effect the plaintiff's proposal.

After I raised these matters, counsel for the defendant properly offered to obtain further expert opinion about the matters Mr Ross‑Connolly had advised on. Thus, the defendant briefed Mr Doig to provide further advice. This was provided in his affidavit sworn 26 June 2014.
Mr Doig has practised extensively in superannuation and tax matters since 1989. A very large part of his practice is in relation to superannuation, tax and (non‑litigious) estate planning matters. The plaintiff did not dispute his expertise in these areas. I accepted his evidence in respect of tax and superannuation issues and relied on it. Insofar as he commented on the construction of the will, this was a matter for me to decide. Insofar as Mr Doig passed comment on the obligations of the Colonial Trustee under the Colonial trust deed and relevant laws, I regarded those obligations as matters for the Colonial Trustee to determine. It is not a party to this proceeding and I did not see it as my role to question what it had decided it may or would do. Rather, my role was to determine whether I should empower and/or give directions to the defendant in his capacity as executor of the deceased's estate, having regard to what the Colonial Trustee has said it may or would do.
Mr Doig's advice is very comprehensive but he provided a useful summary of his opinion in the following paragraphs:[1]
[1] In this quote the following abbreviations are used:
3.3I summarise the position as it applies to Kieran and my opinion as follows:
(1)A pension can under SIS be paid to Kieran in which case the pension payments will be assessable income to him although it appears around 69% of that pension would be tax free. A 15% rebate should apply to the taxable 29% component.
(2)This would give a very low taxed income stream to Kieran, with the income stream able to continue until he turns 25.
(3)During that time the income and profits earned within the Fund (relevant to his account balance) should be exempt from tax.
(4)The lump sum payable to him at age 25 would not be subject to tax.
(5)At the time of the payment to him the Fund would still be exempt from tax (e.g. on any capital gains triggered by a disposal of assets to make the lump sum payment) due to the pension exemption continuing.
(6)Unless agreement to the contrary is reached Kieran would have full control of the entire amount as from turning 18, and there would be no restriction on him withdrawing the entire amount.
(7)There is no maximum pension amount but taking a higher amount of pension would mean a higher tax cost to him. There is however a minimum pension amount being 4% per annum which needs to be paid, and if not the tax free exemption within the fund is lost for that year (there is however a provision enabling a 1/12^th underpayment to be rectified within month of year end).
(8)This represents a current tax advantage compared to payment to the Estate in which case it is expected that the lump sum paid would (as Kieran would be expected to benefit) most likely be tax free.
(9)However the earnings in the Estate would then be subject to tax.
(10)The likely result is the tax is payable by Kieran on the basis he would be 'presently entitled' to those earnings. If so there is normal tax payable, no rebate.
(11)There is doubt on this aspect as it may be Kieran is only entitled to the 2.5% with any excess income being assessable to the trustee (which would be at 45%).
(12)Having assets passed to the Estate however could have the potential for a longer term tax advantage.
(13)This arises by virtue of the potential ability for income for many years (up to 80 years being the maximum life of a trust) to be able to be distributed to infant beneficiaries (e.g. Kieran's children and grandchildren) who can then be taxed at ordinary adult rates.
(14)It is in effect holding assets in a discretionary trust but with flexibility of making distributions to infants (ordinary family trust distributions to infants are taxed broadly at the top rate).
(15)The Will contemplates such a trust, including (if the provisions are seen as unduly restrictive) the power to amend the trust terms.
(16)In this situation however the act of deciding the Will operates so as to allow the money to be held generally for the additional beneficiaries of the testamentary trust (e.g. Kieran's future children), would suggest the payment to the estate is probably not tax free.
(17)Accordingly the possible tax cost to achieve this longer term advantage could be quantified at around $200,000 (being say $4.32M payment, times the 'assessable component' of 31%, times the tax rate of 15%).
(18)The tax benefits of retaining the money in superannuation and paying Kieran a pension would last for approximately seven years and may, or may not, outweigh the possible but longer term (and uncertain) tax advantages of payment to the Estate.
(19)The advantage of payment to the Estate from a tax perspective however would depend upon future income and the ability (and wish) to distribute to members of Kieran's future family.
3.4It is useful to compare the potential future tax saving by maintaining the capital for example in a testamentary trust as compared to the tax disadvantage in the early years in doing so:
(1)My analysis and the tax numbers (my costs show the tax payable at current rates but ignoring the Medicare levy) and use the same numbers as set out in paragraph 18 of the Ross-Connolly Affidavit (except his number of $49,500 of tax per annum includes the levy, which I have not).
(2)On the assumed income of $160,000 per annum (being 4% of account balance) the tax payable by an individual would be $47,147. Assuming this is held in a testamentary trust for the next seven years (directly comparing to the period in which it could remain within the allocated pension environment) the total tax is approximately $330,000.
(3)It is possible that there is also an initial $200,000 tax cost which is payable by reason of the conclusion that the payout is made to the Estate and it is not reasonably expected that Kieran is the only person to benefit from it.
(4)Therefore there is either a potential $330,000, or a potential $530,000 tax disadvantage in paying the Estate which would need to be recouped in future years for payment to the Estate to be tax effective.
(5)The advantage of a testamentary trust is the ability to distribute to infant children in future years who are taxed as ordinary adults. However he could readily split the income with a future wife, for example by way of holding the cash in a family trust so this should probably be factored in when calculating the potential tax benefit of the testamentary trust.
(6)If we assume that Kieran is well paid in his employment (e.g. $160,000 per annum) it would probably be tax effective for him to distribute the entire $160,000 say to a wife at which point she would have a tax cost of $47,147 on that income (assuming no other income).
(7)In a testamentary trust however assuming he has say three children that $160,000 could be split between his future wife and those three children giving $40,000 assessable income each and (assuming no other assessable income) being tax of $4,547 each (i.e. $18,188 per annum total).
(8)This, compared to $47,147 per annum is a yearly saving of $28,959 in tax.
(9)If the initial additional tax in the first seven years is $330,000 this would need in round terms 11½ years of future savings to recoup that cost.
(10)If the initial upfront cost of having the money passed to the Estate is $530,000 the period to recoup the tax saving would then be approximately 18 years.
3.5The above is for illumination only using the assumptions set out and also assuming the tax rates remain the same, as does the legislation.
3.6In my opinion on Kieran turning age 25 the pension cannot be commuted to the Estate, but to Kieran (unless he has died) (section 302‑10, 303‑5 and 307‑5(3) ITTA 1997 and SIS Regulations 6.21(2B) and 6.22)
Whilst Mr Doig did not agree with everything that Mr Ross‑Connolly said, he was in agreement with him that the creation of the child pension account, as opposed to the payment of the death benefits as a lump sum, would have significant taxation advantages to the plaintiff in the short to medium term. Whilst tax would not be payable on the lump sum payment of the death benefit, it would be payable at the plaintiff's MTR on the earnings from the lump sum. Whereas, by keeping the lump sum in a superannuation environment the plaintiff would pay considerably less tax on the earnings.
Mr Doig considered the comparative advantages of the plaintiff being paid a lump sum which would be put into a discretionary trust enabling him to distribute income to his dependants. This would enable the plaintiff to recoup some of the tax benefits of a child pension, but only over a period of more than 10 years. The other issue is that the plaintiff has no dependants and no plans in the short term to have dependants.
The parties understood Mr Doig's and Mr Ross‑Connolly's advice to be that, on the basis of the tax laws current at the time the advices were given, there would be a considerable tax advantage to the plaintiff if the death benefit was not paid to the estate and paid or held in trust for him but, instead, a child pension account was established. This was because of the beneficial tax laws applying to capital and interest in what is sometimes called 'the superannuation environment'. However, this tax advantage could be reduced over the longer term if the death benefit was paid to the estate, a testamentary trust was established and the plaintiff distributed the income of the trust between himself, his future partner and his future children.
Given that the plaintiff did not have a partner and did not have short term plans to have children or a long term partner, I formed the view that the creation of the child pension account was likely to provide substantial tax advantages for the next seven years compared to any other suggested investment of the death benefit. The plaintiff strongly supported this conclusion and the defendant did not dispute it.
The defendant also obtained expert advice in response to Mr Ross‑Connolly's evidence about the fees charged by financial planners and the proposed adviser service fee of 1% contained in the application for the child pension.
That expert advice was contained in the affidavit of Rodney Watts, a senior financial planner at PRPIA Pty Ltd trading as Guild Financial Planning. The plaintiff did not dispute Mr Watts' expertise in financial planning or his knowledge about the fees charged by financial planners. Mr Watts did not agree with Mr Ross-Connolly's opinion that typical industry fees for the type of advice required by the plaintiff were in the order of 0.6% ‑ 1.2% of the investment balance.
Mr Watts said that fees paid for financial advice depend on the different stages at which advice is given. His evidence was to the effect that a fee of 0.6% ‑ 1.2% of an investment balance in an investment fund like the Colonial Trust would be well above his experience. As examples, he noted that the deceased had authorised an adviser service fee of 0.1% per annum to be automatically deducted from the pension account. The highest capped maximum rate for an ongoing fee that he (Mr Watts) had charged was $15,000 per year (plus GST) for an investment fund of over $5,000,000 in a self‑managed superannuation fund, which included a very diverse investment strategy. This was the equivalent of about 0.3% per year (plus GST) of the investment fund. Mr Watts acknowledged that the proposed fee may reflect that Mr Ross‑Connolly had not been paid to date and also that a higher fee may often be charged for initial advice.
It concerned me that the plaintiff's application to the Colonial Trustee proposed that the fee would be paid at a high rate to Mr Ross‑Connolly for an indefinite period.
Given Mr Watts' opinion, the plaintiff's next friend properly agreed to amend the application for the child pension account to delete the authorisation for automatic deduction of the adviser service fee.
I now turn to discuss the various matters which were raised by the defendant as obstacles to him effecting the plaintiff's proposal without the court's imprimatur.

Is the plaintiff's proposal inconsistent with the defendant's duties as executor?

The defendant submitted that if he effected the plaintiff's proposal, he did not wish it to be later asserted against him that he failed in the discharge of his duties as executor to collect in the estate's assets.
Whilst the essential role of an executor is to get in the estate of the deceased, the reason that must be done should not be overlooked. It is primarily so that the deceased's debts can be paid and the balance of the estate distributed in accordance with the terms of the will. This part of my reasons deals with the question as to whether the plaintiff's proposal would jeopardise payment of the deceased's debts.
The defendant filed a statement of assets and liabilities for the purpose of probate. Apart from the pension account, the deceased's assets were said to comprise moveable property, including furniture, chattels, jewellery, gold nuggets and vehicles to the value of approximately $81,000 and cash at bank in the sum of approximately $5,000. There was also real property valued at approximately $1,585,000. The estate's debts were said to be approximately $1,050 in credit card debt and funeral expenses of $8,710.
Very shortly prior to his death, the deceased sold an apartment. Settlement of the sale of that property occurred after his death and the proceeds of the sale, less expenses, were deposited into a bank account in the name of the estate of the deceased.
A later statement of assets and liabilities, dated 13 February 2012, stated that the estate comprised moveable assets of the deceased valued at approximately $44,000, approximately $406,000 cash at bank, the deceased's former home valued at $475,000, a second property valued at approximately $610,000, and the pension account which was then valued at approximately $3,575,705.34. The only liabilities were stated to be unknown liabilities to the Australian Taxation Office (the ATO). Thus, payment of the unknown liability to the ATO was the only debt which may be jeopardised by the establishment of the child pension account.
Just before I announced my decision, the defendant tendered an email from Dale Murray of Rezolt Pty Ltd, accountants and business advisers. Mr Murray said that he had been appointed as the taxation agent and estate accountant by the defendant. Mr Murray said he had drafted the estate's tax return for the years 2012, 2013 and 2014. He expected the estate to have a net income tax return of $136.00 for these combined years but that he believed that the return would probably be more than that as he had overestimated income for 2014. Thus, there did not appear to be any justification for a concern that the plaintiff's proposal would defeat a potential claim by the ATO against the estate.
The defendant also deposed that on 2 November 2011, and on or around the beginning of May 2013, he paid the next friend, on behalf of the plaintiff, $80,000 on each date. These payments were made on the basis that one view of the meaning of the will is that it provides for the deceased's estate (including any death benefit paid to the estate) to be placed into a testamentary trust which will vest in the plaintiff at the rate of 2% per annum up until he reaches the age of 35, at which time the balance will vest entirely in him. The $80,000 payment was based on the value of the estate being not less than $4,000,000. If the plaintiff's proposal was implemented, it was arguable that these payments should be reversed. Thus, providing further funds in the hands of the defendant to meet the estate's debts.
I acted on the principle that I should not empower the defendant to, and give directions to the defendant to, do all that was required to facilitate the plaintiff's proposal, unless I was satisfied that there would remain in the estate ample funds to pay the deceased's and the estate's debts. On the basis of the evidence before me, I was so satisfied. The evidence before me was that the estate had more than sufficient assets, with or without repayment of monies already paid out to the plaintiff, to meet its liabilities, including any tax liability. Further, for the reasons which follow, I was satisfied that the plaintiff's proposal would not be prejudicial to any beneficiary under the will.

Is the plaintiff's proposal inconsistent with the terms of the will?

The defendant submitted that he did not wish it asserted against him at a later date that he had dealt with the estate assets in a manner inconsistent with the terms of the will and the trust created by it. In order to examine the validity of this concern, it was necessary for me to construe some of the terms of the will.
The will is unnecessarily complicated (it is 20 pages in length) and, in some respects, its meanings are obscure. Because of its complexity, it is not practicable for me to set out all the provisions of the will. However, cl 3 is an important clause. It states:
Superannuation and Pension Death Benefits
3.In the event that I leave dependants (as defined by section 27A of the Income Tax Assessment Act 1936), and superannuation, allocated pensions or other superannuation related pension death benefits ('death benefits') are paid to my estate in consequence of my death, I direct that my executors deal with such proceeds:
3.1Up to the Reasonable Benefit Limit applicable to payments made in consequence of my death within the meaning of the Income Tax Assessment Act 1936 ('my death benefit RBL') in accordance with Part C of this Will; and
3.2Which exceed my death benefit RBL in accordance with the succeeding clauses of this Will.
Part C of the will reads as follows:
PART C - SUPERANNUATION AND PENSION DEATH BENEFITS
Distribution of Superannuation and Pension Death Benefits
26.If:
26.1My Son survives me by thirty (30) days, my executors will distribute the death benefits referred to in clause 3 to any one or more of:
(a)my Son; or
(b)with the prior consent of my Son to:
(i)any one or more persons who are dependants for the purposes of section 27A of the Income Tax Assessment Act 1936;
(ii)a superannuation death benefits testamentary trust;
26.2Death benefits are to be paid other than to my executors in respect of my death and I have dependants who will be under eighteen (18) years at the end of the financial year in which my death falls, it is my wish that, subject to the consent of my Son, all or part of those death benefits be paid into a trust that complies with subparagraph 102AG(2)(c)(v) of the Income Tax Assessment Act 1936;
26.3My Son does not survive my by thirty (30) days, my executors will hold on trust and distribute the death benefits referred to in clause 3 in such manner as to give effect to my directions as expressed in Part A and in doing so may have regard to taxation and other considerations and pay a greater part of the death benefits to a particular beneficiary.
Superannuation Death Benefits Testamentary Trust
27.If a superannuation death benefits testamentary trust is established by this Will, my Son will be the primary beneficiary and the trust will be administered in accordance with Part B of this Will PROVIDED THAT at all times, the beneficiaries of the trust will be limited to those beneficiaries who are also my dependants for the purposes of section 27A of the Income Tax Assessment Act 1936.

For the purpose of the Income Tax Assessment Act 1936 (Cth) (the Income Tax Act) s 27A, the 'son' referred to in pt C is the plaintiff. The plaintiff and his mother were the deceased's only dependants for the purposes of the Income Tax Act s 27A.
The parties agreed that the death benefit payable as a consequence of the deceased's membership of the Colonial Trust should be regarded as a death benefit for the purpose of the will. As I have said, when I made my decision the death benefit had not been paid to the deceased's estate, Further, if the child pension account had not been established before the plaintiff reached the age of 18, the death benefit would have been paid to the defendant, as executor, and dealt with pursuant to cl 3 and the other provisions of the will.
Clause 5 of the will was also relevant, as if the death benefit, or any part of it, once paid to the estate, were not to be dealt with in accordance with pt C, then it would have been dealt with in accordance with the succeeding clauses of the will and cl 5 is one of those clauses.
Beneficiary Testamentary Trust for Son
5.If my Son, KIERAN SCOTT CORNELL survives me by thirty (30) days then:
5.1subject to subparagraph 5.2, my executors are to hold my property at Dalleyup, or any other property that is my principal residence at my death ('the Residence') on trust for my Son until he attains thirty five (35) years of age;
5.2my executors must out of the capital and income of the testamentary trust containing the balance of my estate, pay the rates, taxes and insurance on the Residence and maintain it in a state similar to that in which it is at my death;
5.3I direct my executors to:
(i)to give the household chattels in the Residence to my Son; and
(ii)'household chattels' means all furniture, curtains, drapes, carpets, linen, china, glassware, ornaments, domestic appliances and utensils, garden appliances, utensils and effects and other chattels of ordinary household use or decoration, liquors and consumable stores and domestic animals, which, immediately before my death, were owned by me (whether absolutely or subject to any charge, encumbrance or lien securing the payment of money) or in which, immediately before my death, I held an interest as grantor under a bill of sale or as hirer under a hire‑purchase or leasing agreement but does not include any motor vehicle, boat, aircraft, racing animal, original painting, trophy, clothing, jewellery or other chattel of a personal nature which was so owned by me or in which I held such an interest;
5.4If my Son requests, in writing, that the Residence be sold then my executors must apply the proceeds of sale of the Residence in or towards the purchase of acquisition of a new Residence for him and hold the new residence on the same trust as the residence was held, including this paragraph;
5.5on my Son attaining 35 years of age the Residence form(s) part of the residue of my estate;
5.6the balance of my estate will be held on trust with my Son as the primary beneficiary.
Clause 17 of the will applies to the trust established under cl 5.6. When reading cl 17 it is important to understand that the plaintiff is the 'primary beneficiary'. Clause 17 states:
Terms of Trusts
17.In respect of each of the trusts established under this Will that nominate a person to be the primary beneficiary I declare that the following terms will apply:
Beneficiaries:
17.1The beneficiaries of the trust will be:
(a)any person who is a descendant of a grandparent of either the primary beneficiary of the trust or a spouse of the primary beneficiary;
(b)the spouse and children of any of the persons specified in the preceding paragraph;
(c)the entities (including companies and trusts) in which any of the above beneficiaries are a director, or directly or indirectly have an absolute, contingent or expectant interest;
(d)charitable or religious funds or institutions;
and the trustee may:
(e)elect to temporarily or permanently exclude a beneficiary;
(f)elect to temporarily or permanently refrain from distributing or providing income, capital or other benefits to or for the benefit of a beneficiary; or
(g)need to take note of any family trust or other election that may be made;
Allocation of Net Income or Capital:
17.2The trustee will allocate or accumulate the net income or capital of the trust as follows:
(a)the net income and capital (or any category of the net income or capital) of the trust may in each year be paid or allocated to or applied for the benefit of such beneficiaries that the trustee selects from time to time or (in the case of the net income) may be accumulated as an addition to the capital of the trust;
(b)at any time when the trustee has been appointed by virtue of paragraph (c) of the subclause headed 'Appointment and Removal of Trustee' below, the trustee will either accumulate all or any part of the trust net income or pay allocate or apply all or any part of the net income to or for the benefit of such beneficiaries as the trustee considers is in the best interests of the primary beneficiary or all of the specified beneficiaries;
Consent of Primary Beneficiary:
17.3The written consent of the primary beneficiary will be required before the trustee may amend the terms of the trust or nominate the ending date of the trust or may (other than to or for the benefit of the primary beneficiary or equally between the specified beneficiaries):
(a)allocate trust capital;
(b)lend trust monies other than at market rates of interest;
(c)permit the use of trust property without, or at a nominal charge; or
(d)make a binding election under the subclause headed 'Beneficiaries' above;
Powers to Pass to Specified Beneficiaries:
17.4Subject to this clause:
(a)on the death of the primary beneficiary, all powers in respect of the trust held by the primary beneficiary, including the power to appoint a substitute or additional trustee or the power to remove an existing trustee ('the power of appointment') will pass to the specified beneficiaries jointly; and
(b)PROVIDED THAT where a specified beneficiary has not attained the age of eighteen (18) years or is otherwise under a legal disability, my executors will exercise that specified beneficiary's powers in the best interests of that specified beneficiary;
Exercise of Trustee's Discretions:
17.5Where the power of appointment in respect of the trustee is held by more than one person, the trustee may only exercise a discretion:
(a)with the written consent of each of those persons who are also beneficiaries;
(b)for the benefit of each of those persons who are also beneficiaries, and as nearly as is practicable in the proportions specified in the deed of Will nominating the holders of such power, or if not such proportion is specified or if there is no such deed or Will, then equally;
Appointment and Removal of Trustee:
17.6The trustee may be appointed or removed as follows:
(a)subject to paragraph (c) of this subclause, the primary beneficiary or the specified beneficiaries, or a person nominated by the primary beneficiary or the specified beneficiaries, will be the initial trustee or trustees;
(b)the primary beneficiary or the specified beneficiaries may exercise the power of appointment to appoint such other person as he, she or they choose to be an additional or replacement trustee and may subsequently remove the person as a, or the trustee;
(c)any trustee who:
(i)is also a primary beneficiary or specified beneficiary or a company wholly or partly owned by a primary beneficiary or a specified beneficiary; and
(ii)who by reason of disability, bankruptcy or otherwise, is unable to act or to continue to act as trustee;
Will not be appointed as trustee or will be deemed to have resigned as trustee (as the case may be), and my executors will be the trustee, or one of the trustees (as the case may be), in that trustee's place;
Amending the Terms of Trust:
17.7To the extent permitted by law, and subject to this clause, the trustee may amend the terms of the trust;
Ending of Trust:
17.8(a) Subject to clause (b) below, the trust will end on the earlier of a date nominated in writing by the trustee or at the expiration of the later of eighty (80) years from the date of my death or the maximum period permitted by law, and will vest in such beneficiaries and in such proportions as the trustee with the consent of the primary beneficiary or all of the specified beneficiaries may by instrument in writing nominate PROVIDED THAT if no such nomination is made then equally between the specified beneficiaries;
(b)In relation to the primary beneficiary such vesting will occur, subject to clause 13, at a rate of 2% per annum of the total value of my estate as determined by an accountant appointed by the executor for that purpose, but not including the Residence described in clause 5 until the primary beneficiary has attained thirty five (35) years, at which time he will receive the balance of his entitlement;
Interpretation:
17.9In this clause unless the context otherwise requires the following expressions will have the following meanings:
'capital' includes the corpus of the trust;
'children' in relation to a beneficiary includes an adopted child, an ex‑nuptial child, a foster child, a grandchild or a child of a spouse, widow or widower of a beneficiary and 'child' and 'descendant' have a corresponding meaning;
'specified beneficiaries' mans the beneficiaries whose appointment by the primary beneficiary by deed or Will as specified beneficiaries has taken effect or, if the primary beneficiary dies without making such an appointment, such of the beneficiaries entitled to the residuary estate of the primary beneficiary and a specified beneficiary may similarly be solely or jointly succeeded as a specified beneficiary;
'spouse' in relation to a beneficiary includes another person of a different gender who, is legally married to the beneficiary and lives, or lived with the beneficiary prior to the beneficiary's death, on a bona fide domestic basis as a partner of the beneficiary;
Explanation of 'Beneficiary':
17.10A person or entity:
(a)will be comprehended to be a beneficiary notwithstanding that the person may be born, incorporated or otherwise come into existence or comply with the relevant description after the establishment (but not later than the date of vesting) of the trust;
(b)only will be included as a beneficiary if their inclusion does not invalidate the creation of the trust or cause resettlement of the trust.
In 2004, when the will was executed, the Income Tax Act s 140 provided that eligible termination payments (ETP) which exceeded the relevant reasonable benefit limit (RBL) were included as assessable income and were not subject to any concessional tax treatment. Whereas ETP up to the RBL were subject to concessional tax treatment. It is possible that at the time the will was executed the payment of the whole of the death benefit as a lump sum to the defendant, as executor, would have been an ETP to which the RBL applied. The provisions regarding the RBL have been repealed since then.
If the death benefit was an ETP and if the RBL provisions of the Income Tax Act had remained in force when the death benefit was paid to the defendant, cl 3 and pt C of the will would have had the effect of gifting absolutely to the plaintiff the death benefit up to the RBL. The balance of the death benefit would have been placed into a testamentary trust to be dealt with in accordance with the remaining clauses of the will. This distribution would only have been subject to the consent of the plaintiff to a different distribution, which may have included his mother or which may have been made to a superannuation death benefit testamentary trust. The only beneficiaries of such a trust would have been the plaintiff and his mother.
The deceased's intention which is manifest in these clauses of the will was to gift to the plaintiff absolutely (unless he otherwise consented) that portion of the death benefit which was subject to concessional tax treatment (that is, up to the RBL) and to place the balance in a testamentary trust of which the plaintiff was the primary beneficiary.
Now that the RBL provisions have been repealed, there are two differing constructions of cl 3 open. They are that:
(1)the whole of the death benefit once paid to the estate must be dealt with in accordance with pt C of the will; or
(2)the whole of the death benefit once paid to the estate must be dealt with in accordance with 'the succeeding clauses' of the will.
In order to make sense of cl 3, the words 'the succeeding clauses' in cl 3.2 must be read as referring to the succeeding clauses of the will, other than pt C. This is to give effect to the clear intention that there will be different clauses of the will which applied to a death benefit up to the RBL, and those which applied to a death benefit which exceeds the RBL. I digress to note that is why I had difficulty accepting the parties' contention that a death benefit which was placed in a testamentary trust under cl 3.2 would be in a 'superannuation death benefits trust' referred to in cl 27, which is part of pt C.
The plaintiff favoured the first construction and the defendant favoured the second construction.
Under the first construction, a death benefit once paid to the estate would be distributed directly to the plaintiff or, with his (the plaintiff's) consent it would be distributed in accordance with cl 26.1(b). If the plaintiff so consented, he and his mother would be the sole beneficiaries of a superannuation death benefits testamentary trust (cl 27) established under cl 26.1(b)(ii), as at the time of his death the deceased had no other dependants for the purposes of the Income Tax Act s 27A.
On the second construction, the pension account would be dealt with in accordance with cl 5.6 of the will which states that the balance of the deceased's estate would be held on trust for the plaintiff as the primary beneficiary, and other beneficiaries. Clause 17.8 says that the vesting of that trust will occur at a rate of 2% per annum of the total value of the deceased's estate, not including the deceased's home, until the plaintiff attains the age of 35 years, at which time he will receive the balance of his entitlement.
If the first construction is correct, the deceased's intention, manifest in cl 3 and cl 26, was that a death benefit paid to his estate which was subject to concessional tax treatment would be gifted to the plaintiff unless he (the plaintiff) consented otherwise.
The defendant was reticent to do all that was necessary to implement the plaintiff's proposal because it would mean that he would stop the death benefit from being paid to the estate and distributed in accordance with the terms of the will. Clause 4 of the will states:
My executors will hold my estate on trust and, subject to the powers set out in this Will, after the selling, calling in or converting into money any part of my estate and the payment of all or any debts and testamentary expenses associated with my death or the administration of my estate, will hold and dispose of the balance of my estate as provided hereafter.
I was of the opinion that it may be appropriate to give the advice and directions requested in this application, if the first construction of cl 3 was correct. In effect, the court would thereby enable the plaintiff to legally reduce the amount of tax payable on his testamentary gift and for him to receive it in the manner which he thought was appropriate. If the plaintiff is the sole beneficiary of the death benefit there could be no objection to this course.
Any concern which the defendant had about the plaintiff's proposal being contrary to the terms of the will would be appeased by him receiving the protection of the court's advice and direction in this regard.
The situation would have been different if the second construction of cl 3 was preferred. If that construction was correct the plaintiff's proposal would mean that the death benefit, which under the will was to be held in a testamentary trust until the plaintiff was 35, would never be paid to the estate. The plaintiff's proposal would also have the effect of disregarding the interests or contingent interests of other beneficiaries of the testamentary trust.
So, the issue was how should cl 3 be construed?
The proper approach towards the construction of a will was described by EM Heenan J in O'Brien v Warburton [2012] WASC 82 [57] ‑ [62]. Of particular relevance is the well‑settled primary rule that the intention of the testator as expressed in the will shall prevail.
The intention as expressed in cl 3 was that estate property which was comprised of death benefits up to the RBL, that is, up to the limit at which concessional tax treatment of death benefits cut out, were to be gifted to the plaintiff absolutely subject only to his right to consent to them being distributed to him and/or his mother, or to a superannuation death benefits trust. This must have been done to reduce the tax payable on the death benefits. As there is now no RBL, cl 3 should be construed as leaving the whole of any death benefits paid to the estate to the plaintiff absolutely, subject to his consent to an alternative distribution. That is, I have determined that the first construction of cl 3 is correct.
As the plaintiff did not consent to any alternative distribution of the death benefit, this construction meant that the plaintiff's proposal would enable him to take the estate property, being the pension account, in lieu of the legacy of the whole of the death benefit, once it was paid to the estate. It was consistent with the Trustees Act s 92 for the defendant to be directed to do all that was required to facilitate the plaintiff's proposal, or in the Colonial Trustee's words, to enable the rollover of the pension account into the child pension account.

Does the plaintiff's proposal compromise the exercise of cl 17.8 of the will?

Next, the defendant expressed concerns that if the plaintiff's proposal was implemented, the value of the deceased's estate would be substantially depleted because the pension account or the right to be paid the death benefit would not form part of it. Consequently, any annual payment due to the plaintiff pursuant to cl 17.8(b) of the will would be reduced by about $80,000 per annum. The defendant was particularly concerned about this as he is a defendant to an application by the plaintiff for adequate provision to be made for him out of the will. On the other side of this concern, was the contention that if the plaintiff's proposal was implemented and the death benefit would not be brought into the estate, it could be argued that the $160,000 payment which the defendant had already made to the plaintiff were excessive.
In respect of the first concern, the implementation of the plaintiff's proposal was at his specific request to enable him to gain access to his legacy in a form in which he desired it. In those circumstances, he could not be heard to complain that by the implementation of the proposal, the defendant had wrongly depleted the estate and, thus, adversely affected either his annual payment or the value of the estate as a whole.
Similarly, if after the implementation of the plaintiff's proposal the plaintiff proceeded with the family provision proceedings, it would have to be taken into account, adversely to him, that at his specific request he had received the child pension, in lieu of his main legacy, at a time and in a manner which suited him.

In any event, I accepted and made my orders on the basis of the plaintiff's submission that the family provision proceedings were only commenced because the defendant would not pay him an annual payment under cl 17.8(b) and because the meaning of the will was uncertain. If the plaintiff's proposal was implemented, he said that he did not intend to pursue the family provision proceedings.
Other potential beneficiaries to the testamentary trust could not complain about the implementation of the plaintiff's proposal because I have found that the death benefit was bequeathed to the plaintiff, in any event. The only possible complaint they could have is that the plaintiff should not have been paid the $160,000 paid to him to date. It seemed to me that there were sufficient sums due to the plaintiff from the estate in the future to enable any adjustment to be made, if the plaintiff had been overpaid to date.

Is the plaintiff's proposal a sound proposal?

The next concern that the defendant had was that at the time the application was first heard he had not made any independent enquiries as to whether the child pension account was a prudent or sound investment and whether some other fund with a different manager would be a more prudent, sound or preferable investment. He said that he did not wish to bear any responsibility or liability for any loss of the funds, lack of performance of the Colonial Trust, or for any suggestion that the funds were transferred as a result of his failure to prudently carry out his duties as executor, including by failing to undertake the sort of due diligence contemplated by cl 23 of the will which states:
It is my wish but I do not direct that in making substantial investments my executors obtain and consider the advice of someone who is experienced and knowledgeable in financial and investment planning and, where appropriate, is also a member of the Institute of Chartered Accountants, the Australian Society of Certified Practising Accountants, the National Institute of Accountants, the Australian Stock Exchange or the Financial Planning Association of Australia Limited.
As is apparent from the terms of cl 23, what is expressed is a wish of the deceased. The wish does not bind the executor.
The defendant's possible responsibility or liability as a result of his acts or omissions to the date of which I made my orders in respect of the estate were not things I could insure him against. However, a function of proceedings under the Trustees Act s 92 is 'to give personal protection to the trustee': Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66 [64].
No matter has been placed before me which would warrant me calling into question the advice of Mr Ross‑Connolly or Mr Doig. Mr Ross‑Connolly is apparently qualified and experienced to give the advice which he gave. It was true that if the plaintiff's proposal was implemented, he would be paid to provide continuing financial advice on the child pension account to the plaintiff. This prospective interest having been disclosed did not cause me to call into question his advice. I was satisfied that his opinion was that of a relevant expert on the relevant issues. Mr Doig's advice, was generally consistent with Mr Ross‑Connolly's advice. Mr Doig is a highly qualified and experienced expert. He had no interest in the outcome of this application. In the circumstances, I had before me all the material appropriate to enable me to give the relevant directions and advice to the defendant.
The next issue for me then was, given the experts' opinions, was the plaintiff's proposal in the best interests of the trust estate? At first blush, it might be thought that it was not in the best interests of the estate as the implementation of the plaintiff's proposal would be to place the pension account into the plaintiff's name and give him control over it. The death benefit, which was payable to the estate, would never be brought into the estate. The plaintiff's control of the child pension account, arguably, would be to the exclusion of the defendant and any other person acting on behalf of the deceased's estate. Although the Colonial Trustee has indicated that it may still require the defendant's consent to any changes in the child pension account.
However, as Lord Oliver said in Marley, the real question at issue was what directions ought to be given in the interests of the beneficiary of the estate? I was satisfied that the sole beneficiary of any death benefit paid to the estate is the plaintiff. The only purpose of bringing the death benefit into the deceased's estate would be to pay it to the plaintiff. The plaintiff wished to maximise the value of the legacy that would inevitably come to him by having his proposal implemented. I was satisfied that it was in the best interests of the trust estate, in the sense that it was in the interests of the sole beneficiary of the death benefit, the plaintiff, his proposal be implemented. That required that the defendant be empowered to implement the plaintiff's proposal and that advice and directions be given to the defendant to implement it too.

Notice to other persons

Pursuant to the Trustees Act s 92(2) I was satisfied that, as the plaintiff was the beneficiary affected by the plaintiff's proposal, no other persons needed to be given notice of the application, especially as the plaintiff's mother was in court for all the hearings and supported the application. The Colonial Trustee was an interested party but it already had notice of the plaintiff's proposal.
Pursuant to cl 17 of the will there are potential beneficiaries of a discretionary testamentary trust established by the will, apart from the plaintiff and his mother. The Rules of the Supreme Court 1971 (WA) O 18 r 14 says that proceedings such as these may be brought and determined without such beneficiaries being joined as parties, especially where the defendant, as trustee can represent their interests. In this respect, the submissions of the defendant about the proper construction of cl 3 of the will favoured the interests of the general beneficiaries of a discretionary testamentary trust administered under cl 17.
Some of these potential beneficiaries are members of such a large class that it was not possible to give them notice of these proceedings. For example the class includes any charitable organisation. However, there is a smaller subgroup of the class of potential beneficiaries whose members are ascertainable. They are the descendants of the plaintiff’s grandparents. I am told that people in this class includes the plaintiff’s aunts and uncles and cousins.
After considering their interests I was satisfied that it was unnecessary to give them notice of the defendant’s application for directions and advice. This was primarily because I decided that the application was properly determined without having to construe, adverse to their interests, cl 17 of the will or any clause of the will which relates to property which is part of the discretionary testamentary trust of which they are potential beneficiaries.
In any event, the potential beneficiaries of the discretionary testamentary trust have no present entitlement and may never have any entitlement to any part of the income or capital of such a trust. Their rights will be in respect of the trust once the administration of the estate is complete and the trust property has been ascertained.

Issues raised by the Colonial Trustee

In its email of 9 May 2014 to the defendant's legal representatives the Colonial Trustee said that it was important for the defendant to fully understand the consequences of setting up the child pension account and it then listed a number of issues. The first issue was that the child pension account had to be set up before the plaintiff turned 18. My orders enabled this timeframe to be met. The second issue was that any child pension account would automatically close when the plaintiff reached the age of 25. A lump sum payment would be paid to the plaintiff which the email said, 'is not in accordance to the will of his late father'. In reaching my decision I have taken into account that the child pension account will close and a lump sum will then be paid to the plaintiff when he reaches the age of 25. The basis for the comment by the Colonial Trustee that this is not in accordance to the will is unclear. In any event, I have construed the will and I do not consider that the plaintiff's proposal is contrary to the intention of the deceased, as expressed in the will.
The last issue referred to by the Colonial Trustee was that without the defendant's consent, the child pension account once established would be accessible to the plaintiff and his mother at any given time. The parties submitted that the reference to the plaintiff's mother having access to the child pension account, could only be a reference to her being able to direct the Colonial Trustee on the plaintiff's behalf up until the plaintiff reached the age of 18. To alleviate any concern that the plaintiff's mother may have attempted to gain control of the child pension account, either prior to the plaintiff turning 18 or afterwards, I required her to give an undertaking to the court that she would not attempt to do so without giving written notice to the defendant and the plaintiff or, if not able to do so, without obtaining the permission of the court.
As to the ability of the plaintiff to access the child pension account, I took this factor into account in making my decision. It is important that the plaintiff have access to the child pension account as his financial advice may alter, or he may decide that he wishes to obtain access to the capital prior to him turning 25. There is no reason why he ought not to be able to access the child pension account if he so wishes.

SIS:     Superannuation Industry (Supervision) Act 1993 (Cth);
Fund:   child pension account; and
ITAA 1997:       Income Tax Assessment Act 1997 (Cth).