Re Filippone
[2019] VSC 219
•4 April 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TESTATORS FAMILY MAINTENANCE LIST
S CI 2013 05227
IN THE MATTER of Part IV of the Administration and Probate Act 1958
-and-
IN THE MATTER of the will and estate of ERCOLE FILIPPONE, deceased
| ELIZABETH ANNE FILIPPONE (by her litigation guardian SANDRA LEE PEASNELL) | Plaintiff |
| v | |
| SUSAN GAIL COOK (who is sued as executrix of the estate of ERCOLE FILIPPONE, deceased) | Defendant |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF JUDGMENT: | 4 April 2019 |
CASE MAY BE CITED AS: | Re Filippone |
MEDIUM NEUTRAL CITATION: | [2019] VSC 219 |
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FAMILY PROVISION — Where parties agree that further provision should be made to plaintiff — Where proposed compromise not formulated but includes provision by way of a special disability trust — Where executor in position of conflict — Where parties are to finalise compromise for the approval of the Court — Administration and Probate Act 1958, ss 91, 91A — Social Security Act 1991 (Cth).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R D Shepherd | Ryan Mackey McClelland & MW Law |
| For the Defendant | Mr P A Cassidy | Carew Gartlan McLelland |
HER HONOUR:
Introduction
Ercole Filippone died on 12 May 2012. Probate of his will dated 17 November 2011 was granted to Sandra Lee Peasnell (‘Ms Peasnell’) and Gail Susan Cook (‘the defendant’) on 7 August 2012.
The deceased was survived by his daughter, Elizabeth Ann Filippone. By originating motion filed 8 October 2013, she seeks further provision from the estate of the deceased. The plaintiff is a represented person and brings the proceeding by her litigation guardian, Ms Peasnell. An affidavit of Sandra Lee Peasnell sworn 2 October 2013 (‘Ms Peasnell’s affidavit’) has been filed in support of the plaintiff’s claim.
Ms Peasnell is also the plaintiff’s administrator pursuant to the Guardianship and Administration Act 1986. Her appointment was due for reassessment by 31 December 2015 and it is unclear whether this has occurred. Given Ms Peasnell’s role as the plaintiff’s administrator, the defendant is sued as the remaining executor of the estate of the deceased.
Proposed settlement
On 20 June 2014, the parties entered into a heads of agreement and recorded that the agreement did not represent any immediate or binding agreement (‘the agreement’). At that time there was an issue as to whether the assets of the estate would include the assets of the deceased’s brother-in-law, Donald Westwood. Subsequently, it was determined that the estate would include the assets of the estate of Donald Westwood.[1] This means that the sum of approximately $436,372 is now included in the estate of the deceased. The amount from the estate of Donald Westwood was said to be subject to a claim for executor’s commission. For the current purposes, it is assumed that the gross value of the deceased’s estate is approximately $1,153,670 subject to the above and the costs of this proceeding.
[1]See Cookv Westwood [2017] VSC 509.
The agreement provided, inter alia, for the maximum amount then permitted by legislation to be ordered to be held on a special disability trust for the benefit of the plaintiff, the terms of which were to be agreed between the parties. For completeness, it is noted that the parties intend to retain the balance of the deceased’s estate under the trusts created by the will.
As the progress of the proceeding seemed to have stagnated, the Court required an update on the progress of the negotiations so that the proceeding could be finalised.
On 2 October 2018, counsel for the parties provided an update in the form of a summary of settlement agreement (‘the summary’). The parties proposed that at some time approval would be sought for a special disability trust to be established for the plaintiff’s benefit, pursuant to Part 3.18A of the Social Security Act 1991 (Cth) (‘the SSA’). The parties agreed that the plaintiff receive further provision equivalent to the maximum amount that can be held in a special disability trust, which is currently $669,750 (‘the maximum amount’).[2] In present terms, this amount equates to approximately 58 per cent of the gross value of the estate, although the percentage may be higher depending on the costs of the proceeding and the foreshadowed claim for executors’ commission.
[2]The maximum amount is indexed on 1 July each year: Social Security Act 1991 (Cth) ss 1209Y(3), 1191-1194 (‘SSA’).
As final terms of settlement have not yet been signed, for the purposes of this ruling, it is assumed that the settlement amount will be the current maximum amount. It is possible, however, that this amount may increase depending on what is contained in the final terms. The purpose of this ruling is to facilitate the finalisation of this long outstanding claim by providing the parties with the Court’s concerns with the proposed settlement as it presently stands.
Plaintiff’s circumstances
The plaintiff was born on 15 February 1966 and is currently 53 years old. She suffers from epilepsy and has an intellectual disability ‘secondary to pre and perinatal factors’. Since 1993, the plaintiff has resided in community residential care. It appears that the plaintiff has no immediate close family members other than a possible half-sister in Italy whom she may not know.[3]
[3]Cook v Westwood (n 1) [32] (Ierodiaconou AsJ).
The deceased’s will provided for his residuary estate to be held on trust to pay, at the defendant’s absolute discretion, the capital and or such income for the plaintiff’s maintenance and support for her life, however, the payments are not to affect the plaintiff’s pension entitlements.
On the plaintiff’s death, the estate of the deceased is to be distributed as follows:
(a) 25 per cent to Ms Peasnell;
(b) 10 per cent to Ms Peasnell’s three children in equal shares;
(c) 25 per cent to the deceased’s four nieces and nephews in equal shares;
(d) 10 per cent to the defendant;
(e) 15 per cent to the National Heart Foundation of Australia; and
(f) 15 per cent to the Anti-Cancer Council of Victoria.
Consideration
Plaintiff’s circumstances as at 2013
As at June 2013, the plaintiff’s net income exceeded her liabilities by approximately $1,500 and her other assets were:
Personal assets $1,000;
Bank accounts and Residents Trust Fund $102,476.17;
Funeral Plan and family burial plot $8,900.[4]
[4]Both the personal assets and the funeral plan and burial plot are irrelevant for current purposes.
As more than five years has passed, the plaintiff’s financial position may have deteriorated since 2013. In making any application for approval of a compromise on behalf of the plaintiff, her updated and current financial circumstances must be provided to the Court.
The summary suggests a future personal carer would allow the plaintiff to take more holidays and engage in other activities. Ms Peasnell deposes to her opinion as to the plaintiff’s needs as at October 2013. Her opinion and the suggested future needs provided in the summary are not sufficient to assess the plaintiff’s future needs. In similar cases, what is usually provided is an occupational therapist’s report who would provide expert guidance and a fulsome, yet succinct, review of the represented person’s background and current circumstances, and indicates the person’s future needs at a high and low level. Such a report is an indicator by which a compromise can be assessed by the Court.
Management of funds
In approving a compromise for a person under a disability, the Court must be advised as to how it is anticipated that the provision will be managed.[5] In this instance, the parties propose a special disability trust.
[5]Supreme Court of Victoria, A guide to practitioners: applications for approval of compromises in Testators Family Maintenance (TFM) Cases, [21]–[26].
A special disability trust can only have one beneficiary.[6] It can be established, among other limited categories,[7] for individuals that have a severe disability and receive, or are otherwise eligible to receive, a disability support pension.[8] The beneficiary of a special disability trust is referred to as the ‘principal beneficiary’. Whether a person has a severe disability is a question for Centrelink. A principal beneficiary must also, if they have a sole carer, qualify for carers’ payments or they must reside in a government funded institution, hostel or home for people with disabilities.[9] The SSA allows a principal beneficiary to work up to 7 hours per week.[10]
[6]SSA (no 2) s 1209M(1).
[7]An SDT may also be established for persons receiving an invalid service pension or income support supplement for permanent incapacity pursuant to the Veterans Entitlements Act 1986 (Cth). An SDT may also be established for individuals under the age of 16 years, with additional requirements: see SSA (n 2) ss 1209M(2)(a), (4), (4A).
[8]SSA (n 2) s 1209M(2); Australian Government, Guide to Social Policy Law - Social Security Guide (online 13 March 2019) 4.14.2 (‘Guide’).
[9]SSA (n 2) s 1209M(2)(b).
[10]Ibid s 1209M(2)(c).
Any special disability trust must follow the model trust deed, which includes essential and optional terms.[11] A special disability trust can be incorporated into a will, like a testamentary trust, or otherwise stand alone. For a special disability trust to be established, Centrelink must make a determination[12] and the special disability trust takes effect on the date which all requirements for a special disability trust are met.[13]
[11]Ibid s 1209P; Social Security (Special Disability Trust — Trust Deed, Reporting and Audit Requirements) Determination 2013 (Cth).
[12]Guide (n 8) 4.14.3.10.
[13]Ibid; Social Security (Administration) Act 1999 (Cth) pt 3 div 9.
A special disability trust quarantines any special disability trust funds from the asset and income test relating to that principal beneficiary’s disability support pension. A special disability trust can currently hold funds up to $669,750 (indexed on 1 July each year)[14] before a disability support pension may be affected. A principal beneficiary’s principal place of residence is an exempt asset and is not included in trust assets.[15]
[14]See SSA (n 2) ss 1209Y(3), 1191–1194.
[15]Guide (n 8) 4.14.3.40.
Pursuant to s 1209R of the SSA, with the exception of a bequest or a superannuation death benefit, the funds themselves cannot include funds transferred by the principal beneficiary or a partner, or be compensation received by or on behalf of the principal beneficiary. For bequests or superannuation death benefits, the donor must gift them into the special disability trust within three years of receipt.
For completeness, it is noted that any individual or corporation, save for the settlor, may gift to a special disability trust. Among other things, gifts must be unconditional, with no consideration and not exceed $500,000.[16] The SSA also provides an outline of the effect of disposal of assets to a special disability trust for the donor, including the effect on any social security entitlements.[17]
[16]See SSA (n 2) ss 1209Z.
[17]Ibid ss 1209Z–1209ZC.
Special disability trust funds must be used for the primary purpose of providing reasonable care and accommodation for the principal beneficiary (‘the primary purpose’) or other purposes ancillary to the primary purpose (‘the ancillary purpose’).[18] The trust property must not be used or pay for anyone other than principal beneficiary, such as a child or other immediate family member of the principal beneficiary.[19]
[18]Ibid ss 1209N(1)–(2).
[19]Ibid ss 1209R(3)–(4).
Guidance as to reasonable care and accommodation is provided in the regulations.[20] For care, the need must arise due to the principal beneficiary’s disability, or other medical or dental expenses, or be to pay approved fees; the care must be provided in Australia. For accommodation, it may include the purchase of a property, payment of rent, taxes, rates, maintenance and/or upkeep. The regulations provides the test for determining an ancillary purpose,[21] and may include, for example, the payment of legal fees for the purchase of a property for the principal beneficiary.[22]
[20]Social Security (Special Disability Trust) Guidelines 2011 (Cth) pt 2 divs 2.1–2.2 (‘Guidelines’).
[21]Ibid pt 2 div 2.3.
[22]Guide (n 8) 4.14.3.30.
A further sum, for the 2018/2019 financial year of $12,000, may be applied from the special disability trust by way of discretionary spending for the principal beneficiary (‘the discretionary spending’); discretionary spending is indexed yearly.[23] The discretionary spending has no relationship with the primary or ancillary purposes and may include, for example, food, toiletries, leisure activities and cleaning services.
[23]SSA (n 2) s 1209N(2); Social Security (Special Disability Trust – Discretionary Spending) Determination 2018.
To protect the principal beneficiary, the current model trust deed requires at least two individual trustees, who can be friends and family, a company with at least two directors, or a single professional trustee, such as a legal practitioner or a trustee company. The trustees must meet the eligibility requirements in s 1209Q of the SSA. Among other things, the trustee must file an annual financial statement, on or before 31 March each year, with respect to the previous financial year. The report must be prepared by a suitably qualified individual, such as an accountant, and must be provided, in the case of severe disability, to Centrelink.[24] The principal beneficiary or their guardian or administrator, an immediate family member, and/or Centrelink may request an audit of the financial statement, or that of any earlier year.[25]
[24]See SSA (n 2) ss 1209S(1)–(2).
[25]Ibid s 1209T(3).
A special disability trust ceases on the death of the principal beneficiary, or due to non-compliance with the SSA and relevant regulations. Non-compliance may result in the special disability trust not being classified as a special disability trust, although some breaches may be remedied by the issuing of certain waivers.[26] The terms of the special disability trust deed may, for example, dictate how any remaining special disability trust funds may be dealt with upon cessation. The SSA provides a mechanism to determine re-distribution. Any assets deposited within five years prior to the cessation of a special disability trust may be subject to social security gifting rules and affect a donor’s entitlements, if returned.
Suitability
[26]Ibid s 1209U; Guidelines (n 20) pt 3.
Assuming that the plaintiff qualifies for a special disability trust, the parties agree that the plaintiff should receive the maximum amount. In this case, the plaintiff would have liquid funds over and above the $465,500 allowed before her disability support pension, wholly or in part, is affected. Quarantining the future provision, or part thereof, into a special disability trust would ensure that the plaintiff maintains all or part of her disability support pension, which has a current yearly maximum value of $24,081.20. Quarantining would also enable the plaintiff to retain, or obtain if she has not got one, a pensioner concession card enabling her to receive concession rates for, among other things, medications, public transport, and utilities.
Given the primary or ancillary purposes, the plaintiff can retain and use her liquid assets and pension, in addition to discretionary spending and savings derived from a concession card, to independently fund any extraneous needs she may have or may be identified in an occupational therapist’s report. This negates, in this case, the inherent criticism of special disability trusts that the discretionary spending threshold is arbitrarily low and cannot accommodate unforeseen eventualities falling outside the primary or ancillary purposes. This criticism is well-founded in cases where a person under a disability has no independent assets and is not currently on a disability support pension.
It is also noted that even if a larger amount is awarded to the plaintiff, and the remainder of the deceased’s estate is held according to the will, it is still likely in her best interests that a significant portion of those funds be deposited into a special disability trust. While funds outside the special disability trust may potentially affect her disability support pension, they may only do so proportionally.
The draft deed exhibited to Ms Peasnell’s affidavit contains minor discrepancies that may be a result of an update of the model deed between the swearing of her affidavit and now.
Proposed trustee
There is a serious concern that the draft deed provides for Ms Peasnell to be the sole proposed trustee. This is impermissible and defeats the protective nature of multiple trustees. In addition, given the plaintiff’s disability, limited familial relations and Ms Peasnell’s role as administrator, there would be no persons or entities, other than Centrelink, to scrutinise or audit the financial statements of the plaintiff’s special disability trust.
In light of these factors, an independent professional trustee ought administer any special disability trust for the plaintiff. Any trustee must be suitably experienced, and given the age of the plaintiff, a trustee that will remain for years to come. Accordingly, State Trustees Limited (‘State Trustees’) or another professional trustee with experience in the area, would be the most appropriate trustee. State Trustees has extensive experience and expertise in this area and may be appointed a trustee.[27] For completeness, the Senior Master does not hold funds paid into Court as trustee and could not act as trustee of the special disability trust.
Cessation of the special disability trust
[27]State Trustees (State Owned Company) Act 1994 (Vic) s 8.
If the special disability trust is not depleted on the death of the plaintiff, the remaining funds must be distributed to the donors. Who the donor is, in this case, will depend on the structure of the final order. For example, orders may be made for any funds to be paid by the deceased’s estate into the plaintiff’s special disability trust and upon her death distributed to the residuary beneficiaries of that estate. Alternatively, should an order for provision be made to the plaintiff personally, then any funds would be distributed under the provisions of her estate.
Implementation
There has been judicial consideration of special disability trusts in the context of provision applications. In Stern v Sekers; Sekers v Sekers, a plaintiff sought further provision from her father’s estate.[28] The plaintiff suffered from psychiatric illness and lived in the property of which she received a life interest under the will. The plaintiff had minimal assets and received the disability support pension. The Court noted the benefits of a special disability trust and, as a result, intended to frame orders ‘to constitute the [special disability] trust, or an appropriate part of the [special disability] trust’.[29] In that case, Centrelink had determined the plaintiff’s suitability for a trust, and the NSW Trustee and Guardian consented to acting as the trust’s trustee.[30]
[28][2010] NSWSC 59.
[29]Ibid [383] (Ward J).
[30]Ibid [344]–[345].
Provision by way of a special disability trust was also considered in Oswell v Jones (‘Oswell’).[31] The plaintiff was severely disabled and suffered from cerebral palsy. Under the will, the plaintiff received $100,000 by way of an absolute discretionary trust. The Court outlined the advantages of a special disability trust and considered whether orders should take into account the pension entitlements of an individual in order to preserve them. The Court also referred to the decision of Bryson J in Whitmont v Lloyd where Bryson J said:
The availability of … pensions and other social benefits is a circumstance which should be regarded, and particularly in small estates it may be appropriate to leave an applicant wholly or partly dependent on them or to mould the provision made so that their availability is observed in whole or in part. The acceptance of benefits which statute law provides is in every way legitimate, involves no social stigma and incurs no disapproval from the court.[32]
[31][2007] QSC 384.
[32](Supreme Court of New South Wales, Bryson J, 31 July 1995) [16].
With this background and the detailed analysis of special disability trusts, the Court in Oswell made the following provision order, in addition to other orders:
3.2.2 I GIVE the sum of $500,000.00 (FIVE HUNDRED THOUSAND DOLLARS) or any lesser sum that is available in my estate unto my trustees, upon trust to create a Trust Fund that qualifies as a special disability trust within the meaning of the Social Security Act 1991, to be known as “the Margaret Oswell SD Trust, for the primary benefit of my daughter Margaret Frances Oswell, the terms of the trust being acceptable to the proposed trustees of the trust AND I DIRECT that the trustees of the said trust be PETER ANTHONY ARCHOS and MARGARET LAURELLE MCNAMARA, solicitors, of the firm Biggs & Biggs.
The order in Oswell enabled the Court to set the parameters of the special disability trust effectively, including the appointment of an appropriate trustee, while also allowing Centrelink the flexibility it requires to make a positive determination with respect to the proposed special disability trust, if it had not already done so. The parties ought give consideration as to whether or not an order similar to the order made in Oswell is possible in Victoria, under the family provision legislation.
Alternatively, the Court may require that the provision be paid to the plaintiff, which must first be paid into Funds in Court and then paid out on satisfaction of various conditions, such as:
(a) that any special disability trust established for the plaintiff contain certain features, such as that State Trustees or some other appropriate professional be appointed as trustee;
(b) that upon a positive determination by Centrelink, and the satisfaction of the Senior Master, the funds then be paid out to form a part of the assets of the special disability trust; and
(c) that evidence of payment into a special disability trust be produced to the Senior Master.
Residuary beneficiaries of estate
There is also no indication that the parties have consulted with the residuary beneficiaries of the estate, save for the defendant. Any terms of settlement must be signed by those residuary beneficiaries.
Conflict
Ms Peasnell deposes in her affidavit to disclaiming any right to bring her own family provision claim and would seek to be discharged as executor and trustee of the deceased’s estate. These factors address some of the potential conflicts inherent in this proceeding. However, Ms Peasnell would be compromising this proceeding as the plaintiff’s administrator and litigation guardian when, at the same time, she remains as a residuary beneficiary. The parties need to address this conflict.
Conclusions
This proceeding needs to be finalised promptly. There has been ongoing delay in the proceeding, some of which resulted in part from the determination in the proceeding concerning the estate of Donald Westwood. Otherwise, the delay is not explained. Whether or not the maximum amount, whatever that may be, is within the range that allows the proposed compromise to be approved is a matter for further evidence. The various matters set out must be addressed by the parties before an application for approval can be made to the Court. In addition to those matters, the Court will appoint independent counsel to provide a confidential report on the final terms of settlement. The form of any order for provision for the plaintiff will ultimately determine what conditions ought to be included in the final order.
The parties are to agree on a timeframe for the finalisation of the settlement of the proceeding so that the application for approval of any compromise of the further provision for the plaintiff can be finalised.
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