Re Roth (No 2)
[2021] VSC 885
•13 August 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
TRUSTS, EQUITY AND PROBATE LIST
S PRB 2016 21063
IN THE MATTER of the Will of RUDI ROTH, deceased
- and –
IN THE MATTER of s 65 of the Administration and Probate Act 1958.
| GLENN SYDDALL WILLIAMS (in the Will called GLENN SYDALL WILLIAMS) and SONNEY ROTH (in the Will called SONNY ROTH) | Plaintiffs |
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JUDICIAL REGISTRAR: | Englefield JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 12 February and 21 November 2019 and 2 March 2021 |
DATE OF RULING: | 13 August 2021 |
CASE MAY BE CITED AS: | Re Roth (No 2) |
MEDIUM NEUTRAL CITATION: | [2021] VSC 885 |
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EXECUTORS COMMISSION – Purpose of administration accounts in executors’ commission claims – Administration accounts insufficient to establish proper administration - Potential payment of non-estate liabilities from estate – Failure to call in an estate asset – Application for commission refused – Administration and Probate Act 1958 (Vic) s 65 – Questions arising in the administration of the estate referred to a judge.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr C Northrop | Goldsmiths Lawyers |
| For the Defendant | Not applicable |
TABLE OF CONTENTS
Preface.................................................................................................................................................. 1
Introduction........................................................................................................................................ 1
The Will................................................................................................................................................ 2
Family Trust................................................................................................................................... 2
No. 2 Trust...................................................................................................................................... 4
General Provisions of the Will.................................................................................................... 5
How did the assets of the Family Trust ‘vest’ in the estate?...................................................... 6
Is the Deed of Appointment effective?...................................................................................... 8
What happened on Vesting Day?............................................................................................... 8
What were the assets of the Family Trust?.................................................................................. 10
“Cosmopolitan Place”................................................................................................................ 10
A Share in No. 2 Trustee............................................................................................................ 11
Other Family Trust Assets......................................................................................................... 12
Liabilities of the Family Trust....................................................................................................... 12
Church Street Proceeds Trust.................................................................................................... 13
No. 2 Trust.................................................................................................................................... 15
Disentangling the Accounts of the Family Trust, the Church Street Proceeds Trust and the Estate........................................................................................................................................................ 16
No Separate Accounts Produced................................................................................................... 17
Identification of Residue................................................................................................................ 18
Accountancy Fees............................................................................................................................. 20
Legal Fees........................................................................................................................................... 21
General Principles........................................................................................................................... 22
Quantum of Commission............................................................................................................... 25
Burden of Commission................................................................................................................... 28
Costs of the Claim............................................................................................................................ 29
Referral............................................................................................................................................... 31
Conclusion......................................................................................................................................... 31
JUDICIAL REGISTRAR:
Preface
(a)This is an application for executor’s commission commenced on 12 April 2018. The ruling that follows was handed down on 13 August 2021, and the application was dismissed. However, four matters arose in the course of the application, which necessitated the referral of the administration of this estate to a judge. The publication of this ruling was delayed pending the determination by the judge of that referral.
(b)One of four matters referred was determined by Her Honour McMillan J in Re Roth [2022] VSC 511. That decision was appealed. As a result of an approval of a compromise, on 26 October 2023, the appeal was dismissed along with the remaining three referred matters. Therefore, the ruling can now be published.
(c)In addition, on 12 June 2019, I handed down a first ruling on this application, which will not be published.
Introduction
Rudi Roth (‘the deceased’), died on 22 August 2016 aged 83, leaving a widow, Sandra Roth (‘the deceased’s widow’), a daughter, Vanessa Swanell, and step children. By his last will, made on 27 March 2014 (‘Will’), he appointed his accountant, Glenn Williams (‘First Named Executor’), and his nephew, Sonney Roth (in the Will called Sonny Roth) (‘Second Named Executor’), executors of his Will and trustees of his estate. The executors obtained a grant of probate on 21 December 2016.
The inventory of assets and liabilities, filed as part of the application for a grant of probate (‘the probate inventory’), detailed a net value for the estate of $5,457,438.00. Following the receipt of a distribution from a family trust, the first[1] and second[2] administration accounts, filed as part of this application for commission, show the capital receipts of the estate as $13,594,976.46. and $13,605,237.96, respectively. The third administration account shows capital receipts of the estate as $12,924,363.50.[3] On any view, this is a sizeable estate with complexities arising from the interplay of associated inter-vivos trusts and trusts created by the Will of the deceased estate.
[1]Joint affidavit of verification of Sonney Roth and Glenn Williams sworn 9 April 2018 (‘affidavit of verification of administration accounts’), Exhibit A.
[2]Joint affidavit of Sonney Roth and Glenn Williams sworn 19 March 2019 (‘executors’ second affidavit’), Exhibit D.
[3]Joint affidavit of Sonney Roth and Glenn Williams sworn 24 October 2019 (‘executors’ third affidavit’), Exhibit EX-1.
This application for executors commission has extended over two years (‘application’). Notably, the hearing commenced on 12 February 2019 and was adjourned for the executors to provide further material, a ruling was given on 12 June 2019 (‘the Ruling’) and the Will was rectified by an order of the Court dated 5 February 2021 (‘the Will Rectification Order’) and a final hearing was conducted on 2 March 2021.
In support of this application, the executors swore an initial joint affidavit on 9 April 2018 (‘executors’ first affidavit’), which has been followed by two further joint affidavits sworn 19 March 2019 (‘executors’ second affidavit’) and 24 October 2019 (‘executors’ third affidavit’), respectively. The executors’ solicitor, Darren Goldsmith, swore a further affidavit on 26 March 2021 (‘the solicitor’s affidavit’).
For the reasons that follow, I decline this application and will refer questions arising from the administration accounts to a judge.
In order to understand the complex nature of this estate, it is best to start with an overview of the Will.
The Will
First, the Will deals with two trusts called in the Will:
(a) The Rudi Roth Family Trust (‘Family Trust’); and
(b) The Roth Family Trust No. 2 (‘No. 2 Trust’).
Family Trust
Clause 4(5) of the Will deals with assets ‘formerly owned by’ the Family Trust and which ‘vested in my estate on or following my death’. This clause in the Will as probated, referred to properties at ‘62-66 Church Street, Brighton’, which were held in the Family Trust. On 5 February 2021, this clause was rectified by the Will Rectification Order to effectively add the property located at and known as 66A Church Street, Brighton to the properties already identified in Clause 4(5). These four properties will be referred to as the Church Street Properties in these reasons.
Clause 4(5) of the Will deals separately with the Church Street Properties. First, it provides that the income from the Church Street Properties is to be paid to the deceased’s widow for her lifetime and, after her death, the income or an amount of money equal to the capital value of the properties as ‘my Trustees determine in their sole and unfettered discretion’ are to form part of the residue of the estate or go to Jewish Care. The clause then further provides that if this property (sic) is sold after the deceased’s death, then ‘my trustees are in their sole and absolute discretion to identify a sum of money which represents the sale proceeds and to apply them in accordance with the trusts set out in this clause’. This trust will be referred to as the Church Street Proceeds Trust in this ruling.
All other ‘remaining unapplied capital and income which formerly belonged to the Family Trust’ are to form part of the residue of the estate.
The Church Street Properties were sold and ‘sale-proceeds of settlement’ of $11,008,538.85 were received into the estate on 9 November 2017, as per the administration accounts.[4] The executors deposed in their first joint affidavit to a ‘net sale proceeds’ of the Church Street Properties of $10,211,431.00.[5]
[4]Affidavit of verification of administration accounts (n 1), Exhibit A; Executors’ second affidavit (n 2), Exhibit D; Executors’ third affidavit (n 3), Exhibit EX-1.
[5]Joint affidavit of Sonney Roth and Glenn Williams sworn 9 April 2018 (‘executors’ first affidavit’) [15(b)].
Clause 10 of the Will states that any bequest in the Will to Jewish Care is ‘for the purpose of establishing residential accommodation for intellectually disabled’. Any such bequest has the condition that two family members named in the Will (‘two named family members’) be entitled to stay in the proposed residence for their lifetime without charge. If Jewish Care do not accept this condition, the executors as trustees are authorised by the Will in their ‘sole unfettered discretion’ to refuse the gifts or to vary the condition in such manner as they consider reasonable and as far as possible to look after the two named family members. To the extent that such gifts fail or are refused, the funds form part of residue of the estate. Finally, this clause states that the ‘Trustees’ may impose any other conditions as they think reasonable ‘in consultation’ with Jewish Care.
The probate inventory detailed that the deceased held one share in the corporate trustee of the Family Trust, Rothcorp Holdings Pty Ltd (‘FT Trustee’), which formed part of the estate held by the executors. Clause 2(2) of the Will provides that the deceased’s shares in FT Trustee are to be transferred to the executors to enable them to administer the Family Trust and are then to form part of the residue of the estate. The executors depose to subsequently becoming directors of the FT Trustee.[6]
[6]Ibid [23].
No. 2 Trust
Clause 3 of the Will deals with the No. 2 Trust. It states the executors became appointors of this trust on the death of the deceased. It transfers the shares in the corporate trustee of this trust, Roth Holdings Pty Ltd (‘No. 2 Trustee’), to the executors in similar terms to the shares in the corporate trustee of the Family Trust, except only the Second Named Executor received the transfer of shares and a direction to be appointed as the sole director of the No. 2 Trustee. The executors depose to becoming shareholders and directors of the No. 2 Trustee, and becoming ‘appointors and controllers’ of the No. 2 Trust, by virtue of their position as executors.[7] The Court is also informed that a new trustee has been appointed as trustee of the No. 2 Trust, being Roth Wyndham Pty Ltd (‘Replacement No. 2 Trustee’), of which the Second Named Executor is the sole director and shareholder.[8] The No. 2 Trustee had assets and revenue in its own right and the executors depose to resolving to liquidate the No. 2 Trustee to realise capital losses.[9]
[7]Ibid.
[8]Ibid.
[9]Ibid.
Clause 3 of the Will also purports to deal with two assets described as ‘derived’ from the No. 2 Trust, the funds derived from the holding or sale of a property in Malvern Road, Armadale and units in the ‘Wyndham Private Unit Trust’. The executors deposed that the assets of this trust did not ‘vest in the estate’ or did not ‘form part of the estate’ and that in any event, the property in Armadale had been sold prior to the death of the deceased.[10] That is, the Court is informed that this gift failed.
[10]Executors’ second affidavit (n 2) [25]-[26].
General Provisions of the Will
The Will also provides the following:
(a) for the deceased’s shareholding in Sandrock Investments Pty Ltd, which was valued at $0.00 in the probate inventory, to be left to the deceased’s widow;
(b) for a conditional right of residence in a 50% interest in a unit in Toorak, valued at $1,700,000.00 in the probate inventory (that is, the whole unit is valued at $3,400,000.00), to be given to the deceased’s widow with capacity to substitute another residence for the deceased’s widow on the same terms and conditions, and after the right has ended, the net sale proceeds are to be distributed as part of residue of the estate (‘Right of Residence Trust’);
(c) for a sum of money to be set aside to assist with the costs of private schooling and tertiary education of four named step-grandchildren and grandchildren, specifically, $15,000.00 per annum per grandchild/step-grandchild indexed by CPI until such children reach 25 years of age and with any surplus funds forming part of the residue of the estate (the executors have set aside the sum of $866,900.00 for this purpose) (‘Education Trust’);
(d) for various gifts of a motor car, paintings, jewellery and personal items;
(e) for a gift of $25,000.00 to the First Named Executor in gratitude for his friendship;
(f) for a sum of money to be set aside sufficient to fund a sports scholarship of $5,000.00 per annum, indexed by CPI, for 20 years, which terminates when the full amount set aside has been utilised (the executors have set aside the sum of $147,500.00 for this purpose) (‘Sports Scholarship’); and
(g) for the residue of the estate to be left 50% to the deceased’s grandchildren and 50% to the deceased’s widow’s grandchildren (that is, the deceased’s step-grandchildren), who survive him, as tenants in common in equal shares. There are seven residuary beneficiaries. As at 12 April 2018, five residuary beneficiaries were minors, aged between 13 and 16 years of age, and two were adults, but one is presumed to lack legal capacity.[11]
[11]Executors’ first affidavit (n 5) [12]; Harley Nate Rose, an adult beneficiary of residue, is also referred to Clause 10 of the Will as potentially able to benefit from residential accommodation for the intellectually disabled and the executors applied for notice of this claim to be sent to one of his parents, rather than sent to him personally.
The value of the residue of the estate is unclear and remains a recurring issue with this application, as will be explained.
How did the assets of the Family Trust ‘vest’ in the estate?
The Will itself does not bind the FT Trustee or act to ‘vest’ anything held in a separate trust in the estate. The FT Trustee is bound by the terms of the Family Trust deed dated 9 April 1975 (‘FT deed’), which has been varied by deeds of variation dated 22 April 1985 (‘First Deed of Variation’), 23 September 1994 (‘Second Deed of Variation’) and 1 February 1996 (‘Third Deed of Variation’).
The First Deed of Variation varies the definitions of General Beneficiary, Guardian and Appointor of the Family Trust and excludes Zilla Judith Roth as a General Beneficiary of the Family Trust.[12]
[12]Executor’s second affidavit (n 2), Exhibit E, First Deed of Variation.
The Second Deed of Variation varies the definition of the ‘Vesting Day’ of the Family Trust to include the date of the death of the deceased as one of a number of potential dates, on a first to occur basis, which might become the ‘Vesting Day’ of the Family Trust within the meaning of its deed.[13] The executors depose that the date of death of the deceased, 22 August 2016, subsequently became the ‘Vesting Day’ of the Family Trust, under this amended definition.[14]
[13]Ibid, Exhibit E, Second Deed of Variation.
[14]Ibid [5]-[6].
In accordance with the FT deed, from the Vesting Day, the discretionary power in the FT Trustee to distribute (or not distribute) income or capital of the Family Trust to any of its beneficiaries ends, and the capital and income is held for a beneficiary or beneficiaries appointed by the FT Trustee by an instrument in writing revocable or irrevocable prior to the Vesting Day, or if no such appointment has been made, for a cascading sequence of default beneficiaries as defined in the FT Deed.[15]
[15]Ibid, Exhibit E, FT Deed clauses 1(f), 4, 5 and 7.
As well as varying the FT deed, the Second Deed of Variation purports to ‘declare’ that, ‘in the event of the death of Rudi Roth’, the trustee of the Family Trust:
…shall stand possessed of the trust fund and the income thereof in trust for the executor of the estate of Rudi Roth to be held pursuant to the trusts created by the said Rudi Roth’s Will provided however that at least one of the residual beneficiaries named in the said Will is a general beneficiary as defined in the Trust Deed.[16]
[16]Ibid, Exhibit E, Second Deed of Variation.
The Third Deed of Variation substituted the definition of guardian and appointor in the FT Deed with ‘The said Rudi Roth and upon his death his legal personal representatives’.[17]
[17]Affidavit of Darren Goldsmith sworn 26 March 2021, Exhibit DSG-7 (the solicitor’s affidavit).
On the same date as the Third Deed of Variation, being 1 February 1996, an irrevocable deed of appointment was made, with the consent of the guardian and appointor, that refers to the power in the FT Deed to appoint beneficiaries from Vesting Day (‘Deed of Appointment’) and provides:
Upon the death of Rudi Roth the Trustee shall stand possessed to the Trust Fund for the Trustees of the Trust created by the Will of Rudi Roth to be held pursuant to the Trust created by the said Rudi Roth’s Will.[18]
[18]Ibid, Exhibit DSG 8.
Is the Deed of Appointment effective?
The first question is whether the Deed of Appointment is effective to appoint the executors, in that character, as the sole beneficiaries of the Family Trust from Vesting Day, where the estate or its executors are not named as beneficiaries in the FT Deed.
Until 2021, the executors relied only on the Second Deed of Variation to appoint them, as executors in their character as executors of the estate, as the beneficiary of the Family Trust from Vesting Day. The Ruling raised the question of whether this reliance was well founded and observed that it may be prudent for the executors, in their role as directors of the FT Trustee, to review and confirm their advice on this issue.[19]
[19]The Ruling [19].
When this application was re-listed in early 2021 following the Will Rectification Order, it remained unclear if this step had been taken. Therefore, I ordered legal submissions on this question. The solicitor’s affidavit then produced the Deed of Appointment for the first time.
Legal submissions for the executors dated 26 March 2021 rely on the intention of the declaration in the Second Deed of Variation, the Deed of Appointment and the Will to submit that the executors, as executors, became entitled to the capital and income of the Family Trust as from Vesting Day of the Family Trust to be held pursuant to the terms of the testamentary trust created by the Will.[20]
[20]Executors’ submissions, 26 March 2021 [23].
If the executors are wrong, a very substantial liability arises for the estate. This question will be referred to a judge for determination. However, the executors were content for me to proceed to finalise this application for commission in advance of that referral.
What happened on Vesting Day?
The executors ‘treat’ the assets of the Family Trust as part of the estate of the deceased from the date of death, as if the legal title passed on Vesting Day.[21] This treatment is also used to justify paying liabilities of the Family Trust from assets of the deceased estate.[22] This treatment burdens the estate accounts with complexity, inaccuracies and obscurity.
[21]This occurs a number of times in the material, especially the estate accounts, but see particularly executors’ second affidavit (n 2) [17]-[19] and executors third affidavit (n 3) [11].
[22]Executors’ third affidavit (n 3) [18].
The executors recognise that what vested on the Vesting Day of the Family Trust was the beneficial interest in the trust.[23] The executors depose, under the heading ‘Was the Church Street property (sic) transferred to the estate of Rudi Roth?’, the following:
No. The beneficial interest in the Church Street property automatically vested in the estate upon the deceased’s death by operation of the terms of the trust. However, the title to the property was left in the name of the trustee Rothcorp Holdings Pty Ltd and was sold by us as directors. We did not receive any directors’ fees from Rothcorp Holdings Pty Ltd …[24]
[23]Executors’ second affidavit (n 2) [5].
[24]Ibid.
The solicitor’s affidavit seeks to recall this previous evidence as incorrect.[25] The solicitor exhibits the contract of sale for all four Church Street Properties at a sale price of $11,250,000.00 signed by the executors (without any description of their role) on 10 October 2017 (‘the Contract of Sale’).[26] Title searches exhibited by the solicitor indicate that the title to all four Church Street Properties were transferred from ‘Bavister Pty Ltd’, an earlier name of the FT Trustee, to the names of the executors the day after the Contract of Sale was signed.[27] The Contract of Sale provided for settlement in 30 days. The estate accounts show receipt of proceeds of settlement of the ‘Church Street sale’ on 9 November 2017, 30 days later.[28]
[25]The solicitor’s affidavit (n 17) [3]-[5].
[26]Ibid, Exhibit DSG-5.
[27]The solicitor’s affidavit (n 17) [4], Exhibit DSG-6; see also Executor’s second affidavit (n 2), Exhibit E.
[28]Affidavit of verification of administration accounts (n 1), Exhibit A.
I am satisfied that legal title to the assets of the Family Trust, and the legal obligation to pay the liabilities of the Family Trust, did not pass to the executors in that character on Vesting Day.
The executors’ material makes clear that a significant amount of highly beneficial work was done by the executors, as directors of the FT Trustee for the benefit of the Family Trust. In this character, they were required to deal with management of commercial property, bank guarantees, tenants, air conditioning works, financial decisions regarding the retention or sale of assets, conduct of the sale process (including direct involvement in the marketing strategy) and obtaining advice on complex taxation matters. Their efforts contributed to a sale price for the Church Street Properties of more than $2,000,000.00 higher than the valuation of $9,000,000.00 obtained prior to sale.
The FT deed permits the trustee to charge and retain out of the trust fund such trustee’s commission as is reasonable.[29] Trustee commission was not charged nor did the executors charge directors’ fees. The Ruling noted that the executors, as directors of the FT Trustee, may seek advice regarding that situation.[30]
[29]Executors’ second affidavit (n 2) Exhibit E, FT trust deed clause 20.
[30]The Ruling [47].
What were the assets of the Family Trust?
“Cosmopolitan Place”
As at the date of death of the deceased, the financial statements of the Family Trust showed 62 Church Street, Brighton, valued at $155,283.00, 64-66 Church Street, Brighton, valued at $525,218.00 and another real property called ‘Cosmopolitan Place’ valued at $829,869.00.[31] Cosmopolitan Place did not appear in the first administration account[32] or the second administration account.[33]
[31]Executor’s second affidavit (n 2), Exhibit G.
[32]Affidavit of verification of administration accounts (n 1), Exhibit A.
[33]Executors’ second affidavit (n 2), Exhibit D.
Like the Will, the executors’ first affidavit referred only to properties located at 62-66 Church Street, Brighton.[34] No mention is made of Cosmopolitan Place or 66A Church Street, Brighton in the executor’s first affidavit, nor in the executors’ second affidavit.
[34]Executors’ first affidavit (n 5) [11].
Among other things, the Ruling required the production of accounts for the Family Trust to determine what had happened to the real property called in the financial statements ‘Cosmopolitan Place’. This resulted in disclosure of 66A Church Street, Brighton.
The executors’ third affidavit states that the term Cosmopolitan Place ‘covers’ and is ‘formed’ by 62, 64-66 and 66A Church Street, Brighton.[35] The executors’ third affidavit also reveals that 66A Church Street, Brighton, valued at some millions of dollars, had been sold with 62 and 64-66 Church Street, Brighton and its sale proceeds were held in the Church Street Proceeds Trust, although it was not included in the wording of cl 4(5) of the Will as probated.[36] The third administration account, exhibited to the executors’ third affidavit, then merely used the expression ‘Church Street’ to refer to these properties.[37] An adjournment was granted for the executors to consider applying to rectify the Will, as well as dealing with any other extant issues with the administration of the estate. As noted above, the Will Rectification Order added 66A Church Street, Brighton to cl 4(5), which ratified the executors’ dealings with this asset.[38]
[35]Executors’ third affidavit (n 3) [15].
[36]Ibid.
[37]Executors’ third affidavit (n 3), Exhibit EX-1.
[38]See above [3].
Although the Family Trust’s financial statements had two separate names for the Church Street Properties, with two separate values, I accept the executors’ evidence that these two references are in reference to the same four real properties located at 62, 64, 66 and 66A Church Street, Brighton. Therefore, the rectification of the Will to include 66A Church Street, Brighton in clause 4(5) also resolves a deficiency in the administration accounts of several million dollars arising from the absence of an apparently separate asset called ‘Cosmopolitan Place’.
It should be noted, however, that ‘Part D’ of the third administration account again refers to 62 Church Street and 64-66 Church Street, Brighton, as well as a distinct asset called “Cosmopolitan Place”.[39]
[39]Executors’ third affidavit (n 3), Exhibit EX-1, Part D.
A Share in No. 2 Trustee
As discussed above, the No. 2 Trustee had assets and revenue in its own right, with the Probate Inventory valuing a share that the deceased owned in his personal name at $557,000.00.[40] This share, and the remaining share in the No. 2 Trustee, which was an asset of the Family Trust, were not observable in the initial estate accounts. The executors informed the Court that dividends had been declared to the value of the shares and that the company was subsequently liquidated.[41] However, no dividend was recorded in the first and second estate accounts.[42] Instead, the executors explained the dividend was ‘paid’ from a loan owed ‘by the Family Trust’ to the No. 2 Trustee, as trustee of the No 2 Trust.[43] The Ruling raised the issue of whether this use of assets from the estate to pay liabilities of the Family Trust disadvantaged the residue of the estate.[44]
[40]See above [14].
[41]Executors’ second affidavit (n 2) [14]-[17].
[42]Affidavit of verification of administration accounts (n 1), Exhibit A; Executors’ second affidavit (n 2), Exhibit D.
[43]Executors’ second affidavit (n 2) [17].
[44]The Ruling [41].
Subsequently, the third estate accounts include two items representing the receipt of dividends from the No. 2 Trustee, one on 28 June 2017 for $1,140,000.00 and another on 13 February 2018 for $12,817.00.[45] In total, the income receipts in the third set of accounts exceeds the income receipts in the second set of accounts by $1,478,099.79 and the first set of accounts by $2,126,334.87.
[45]Executors’ third affidavit (n 3), Exhibit EX-1, Part B (Income) Items 87 and 147.
Other Family Trust Assets
Assets of the Family Trust which appear in the estate accounts, and flow into the residue of the estate by virtue of Clause 4(5) of the Will, include bank accounts with a total balance of approximately $982,416.00 and 360,000 units in a unit trust called the WP Clinic Unit Trust, valued at $360,000.00.[46]
[46]Ibid, Exhibit EX-1, Parts A and D.
Liabilities of the Family Trust
Another issue in the administration of the estate of the deceased is the treatment of the Family Trust liabilities. The Family Trust financial statements show liabilities of $2,435,025.00 as at Vesting Day (in other words, the deceased’s date of death).[47] Significant liabilities that may arise after Vesting Day and have been included in the third set of estate accounts include land tax relating to the Church Street Properties, as well as regular expenses of the Family Trust, such as Business Activity Statement payments.[48]
[47]Executors’ second affidavit (n 2), Exhibit G.
[48]Executors’ third affidavit (n 3), Exhibit EX-1, Part B (Expenses), Items 6, 12, 25, 26 and 41.
The executors say that, as they ‘moved’ assets from the Family Trust accounts into the estate, paying the Family Trust liabilities from the estate was ‘an appropriate way to deal with the administration of the estate.’[49] This is not correct. The executors have no authority to ‘pay’ the liabilities of the Family Trust from the estate. The FT Trustee should have discharged its liabilities from its own assets before winding up that trust. However, the real vice of the approach taken by the executors is that it may have potentially disadvantaged the residue of the estate.
[49]Executors’ third affidavit (n 3) [18].
For example, one significant liability of the FT Trustee is a debt to the estate of $746,976.00.[50] Although this is a liability of the FT Trustee, it is an asset of the estate. However, this asset was not collected by the executors of the estate, but was considered to be ‘satisfied’ by ‘transferring’ the gross assets of the Family Trust to the estate.[51] Therefore, unless the assets received from the Family Trust, excluding the Church Street Properties, exceed the Family Trust liabilities (as at Vesting Day and arising thereafter) paid (or treated as being paid) from the estate by more than $746,976.00, residue is diminished by this treatment.
[50]Executors’ third affidavit (n 3), Exhibit EX-1, Part D.
[51]Executors’ second affidavit (n 2) [11].
Church Street Proceeds Trust
As the Church Street Properties were sold, Clause 4(5)(c) of the Will gives the executors the power, and perhaps the duty, to ‘identify a sum of money which represents the sale proceeds’ of the Church Street Properties to be held in the Church Street Proceeds Trust. It is unclear on the executors’ material whether or how the identification of this sum of money occurred nor when this separate trust was established by distribution from the estate accounts.
As at 12 April 2018, the executors attested that they held $10,211,431.00 as the ‘net sale proceeds of 62-66 Church Street, Brighton (sic)’,[52] however it is not clear how this amount is derived from the amount of $11,008,538.85 paid into the estate on 9 November 2017.[53] Was this amount determined by the executors under the power in Clause 4(5)(c) of the Will, or was it the subsequent capital value of the investments made from the sale proceeds paid into the estate on 9 November 2017? If a reduction of $797,107.85 was made before distributing funds from the estate to the Church Street Proceeds Trust, was that reduction sufficient to meet the liabilities relating to the Church Street Properties paid from residue?
[52]Executors’ first affidavit (n 5) [11(b)].
[53]Affidavit of verification of administration accounts (n 1), Exhibit A.
The estate accounts include entries relating to transactions of the Church Street Proceeds Trust such as purchase of investments in 2017 and 2018, payment of expenses, receipt of income and distributions to the deceased’s widow as the income beneficiary of this trust. However, it is not possible on the state of the accounts to determine whether these expenses of the Church Street Proceeds Trust are paid from its own capital or income, or from the residue of the estate.
The responsibility of investing the capital of the Church Street Proceeds Trust and the general administration duties of this trust during its existence, arise for the executors in their character as trustee of this trust, not as executors of the estate. Since December 2017, the executors, as trustees of the Church Street Proceeds Trust, have invested in a real property, a property trust, a unit trust and an infrastructure fund.[54] The executors depose to the process of executing and arranging these significant capital investments of this trust being a particularly onerous and time consuming task.[55] They are confident that the income which will be produced for the deceased’s widow will be approximately double what might have been received by retaining the Church Street Properties.[56] However, this material regarding their performance as trustees of a separate, free-standing trust does not justify commission from the estate, to the detriment of its residuary beneficiaries.
[54]Executors’ first affidavit (n 5) [11(b)], [15(b)].
[55]Ibid [19(p)].
[56]Ibid.
No. 2 Trust
As mentioned earlier, the assets of the No. 2 Trust did not ‘vest’ on the death of the deceased and the gifts in Clause 3 of the Will did not take effect. However, the existence and operation of this trust is relevant for at least two reasons.
First, the No. 2 Trustee owed the deceased $1,660,206.00 as at the date of death, of which only $527,463.35 has been repaid.[57] If paid in full, this asset forms part of the residue of the estate. The executors have purported to ‘offset’ a debt owed by the Family Trust to the No. 2 Trust of $420,473.00 against this debt owed by the No. 2 Trust to the estate, and say that only $713,302.87 remains outstanding (‘No. 2 Trust Debt’).[58] However, the estate asset represented by the No. 2 Trust Debt, appears in the estate accounts at only $544,145.48, not $713,302.87.[59] In any event, this ‘offset’ is another example of the residue of the estate being diminished by liabilities of the Family Trust, where the Family Trust was well able to pay its own liabilities in full from its own assets.
[57]Executors’ second affidavit (n 2) [18]-[19].
[58]Ibid [20].
[59]Executors’ third affidavit (n 3), Exhibit EX-1, Part F.
Second, the executors have not called in the No. 2 Trust Debt as they depose that doing so would ‘necessitate the sale’ of units in ‘Wyndham Private Unit Trust’ (‘No. 2 WP Units’) held by the trustee of the No. 2 Trust with the consequence that the ‘wishes’ of the deceased, as expressed in the failed gift in Clause 3 of the Will, could not be given effect.[60]
[60]Executors’ first affidavit (n 5) [23(c)].
Clause 3(5) of the Will directs income derived from the No. 2 WP Units (or if sold, the proceeds of sale) to the deceased’s daughter, Vanessa Swanell, for life and thereafter ‘income and corpus’ to her descendants per stirpes.
The executors conducted a number of meetings with the deceased’s widow and Ms Swanell regarding the failure of the gift in Clause 3(5) of the Will.[61] The executors mediated a “non-legally binding understanding between Ms Swanell and the deceased’s widow” to the effect that the estate would not call on the No. 2 Trust Debt but interest on this debt would be paid from the No. 2 Trust to the estate; meanwhile Ms Swanell will receive the actual income on the No. 2 WP Units, less the amount of interest the No. 2 Trust pays to the estate; and, if the annual income on the Church Street Proceeds Trust exceeds $500,000.00, the deceased’s widow makes a non-legally binding promise to gift Ms Swanell, each year, an amount equal to the interest paid by the No. 2 Trustee to the estate on the No. 2 Trust Debt.[62]
[61]Ibid [19(k)].
[62]Ibid [23(c)].
In their second affidavit, the executors exhibit a loan agreement dated 1 July 2017 between themselves as executors and the trustee of the No. 2 Trust, of which they are directors (‘Loan Document’).[63] The Loan Document shows the interest rate is 4.5%, which was later revised down to 4%. The amount of the ‘loan’ is not recorded in the Loan Document, neither is the repayment date.
[63]Executors’ second affidavit (n 2), Exhibit F.
The residuary beneficiaries of this estate include minors and an adult person under a disability who are unable to consent to any steps in the administration of the estate that is adverse to their interests. The Ruling recommended that the executors obtain advice from independent solicitors about whether the No. 2 Trust Debt should be promptly collected and how to calculate the amount owed.[64] The executors, by their third affidavit, accept that they have not insisted on full payment of the debt owed by the No. 2 Trust but say the arrangements described above were agreed to by family members of the deceased and that the debt is an asset of the estate.[65] Agreement by adult family members to arrangements that benefit those persons financially to the potential detriment of the residuary beneficiaries cannot release the executors from their duty to gather this asset or its income, in full, for the residuary beneficiaries.
[64]The Ruling [39].
[65]Executors’ third affidavit (n 3) [22].
Disentangling the Accounts of the Family Trust, the Church Street Proceeds Trust and the Estate
As can be seen, the executors’ material filed in support of their claim for commission created some confusion. With the handing down of the Ruling, orders were made requiring the executors to provide:
(a) accounts for the Family Trust, from the date of death of the deceased to the date of termination or 31 March 2019, if still in existence;
(b) further supplementary administration account for the estate;
(c) accounts in the form of an ‘administration account’ for the Church Street Proceeds Trust;
(d) to the extent, if at all, the preparation of such accounts does not make clear the following, a separate explanation be given by affidavit as to:
(i) how the sum held in the Church Street Proceeds Trust was identified;
(ii) the No. 2 Trust Debt and the dividend derived from the deceased’s share in the corporate trustee of the No. 2 Trust;
(iii) the value and composition of residue; and
(e) a schedule setting out all the legal costs charged to the estate, paid and unpaid.
No Separate Accounts Produced
Following the Ruling, 66A Church Street, Brighton (valued at perhaps several million dollars) and a dividend of over $1.1 million are now clear in the material in support of this application. However, there has been no production of any separate accounts for the Family Trust or the Church Street Proceeds Trust.
The executors depose that the ‘accounting’ for the Family Trust concludes on 22 August 2016, which is the Vesting Day and the date of death.[66] As the financial statements for the Family Trust as at 22 August 2016 have previously been provided to the Court, in the view of the executors, it seems there are no further accounts to produce. The executors did exhibit the final tax return for the Family Trust, lodged for the 2017 year.
[66]Executors’ third affidavit (n 3) [11]-[14].
The executors depose that the Church Street Proceeds Trust commenced on 1 July 2019 and that ‘prior to that date’ there were ‘internal records’ that separated this trust from residue.[67] Substantial investments and distributions of income were made in respect to this trust as early as December 2017.[68] The executors did not produce separate accounts or identification of the sum held in the Church Street Proceeds Trust in response to the orders. However, there should not have been a need to order the accounts of the Church Street Proceeds Trust, these should have been prepared and produced in the first place.[69]
[67]Ibid [27].
[68]Executors’ first affidavit (n 5) [11(b)].
[69]Re Huber [2020] NSWSC 1539 [62] (Slattery J), citing The Estate of Barbara Dawn Orre (Supreme Court (NSW), Powell J, 19 December 1991).
The orders required clear separation between the assets and liabilities of these trusts, and the estate accounts, not just to have a clear account of the administration of this estate, but to help determine the value of residue. For example, prior to the purported establishment of the Church Street Proceeds Trust on 1 July 2019, did income from the Church Street Properties flow into the residue of the estate?
Identification of Residue
Ordinarily, once proper administration accounts are prepared for an estate, the correct value and form of investment of residue should appear.
In their first affidavit on 12 April 2018, the executors deposed to an initial value for the residue of the estate of $3,590,420.00 which appeared to be calculated by first considering a bank account balance of $6,199,995.00 at 2 April 2018, and then notionally subtracting various amounts.[70] This calculation included the value of the property held in the Right of Residence Trust of $1.7 million. The remainder interest in this property falls into residue after the death of the deceased’s widow. For consistency and ease of calculation, this remainder interest will not be included when calculating the value of the immediately distributable residue in these reasons.
[70]Executors’ first affidavit (n 5) [15(a)].
On 19 March 2019, the executors revalued the residue of the estate at $3,758,076.00, including the Right of Residence Trust, the Education Trust and the Sports Scholarship.[71] If the assigned value of the assets of these trusts are removed from this calculation, the executor’s valuation of immediately distributable residue may have been around $1 million.
[71]Executors’ second affidavit (n 2) [3].
On 24 October 2019, the executors revalued the immediately distributable residue at $2,058,076.00, of which $731,500.00 is held in units in the Wyndham Private Unit Trust, $540,000.00 is held in units in the WP Clinic Unit Trust, $544,155.00 comprises the executors’ valuation of the No. 2 Trust Debt and only $242,421.00 is held in cash.[72]
[72]Executors’ third affidavit (n 3) [10].
It may assist if a comparative ‘notional’ immediately distributable residue figure is calculated. To start, the probate inventory valued the gross assets of the estate at $5,670,657.00. Once the value of property in the Right of Residence Trust at $1.7 million and a car specifically gifted by the Will at $28,000.00 are subtracted, there is approximately $3.9 million remaining. If approximately $1 million is then subtracted for the Education Trust and the Sports Scholarship, this figure reduces to approximately $2.9 million. Then, if the value of the assets derived from the Family Trust, other than the Church Street Properties, (namely, the share in the No. 2 Trustee or the dividend derived therefrom, term deposits and units in the WP Clinic Unit Trust) of approximately $1.77 million is added, a ‘notional’ estimated gross immediately distributable residue figure of $4.67 million is derived. If liabilities in the probate inventory in the amount of $213,219.00 are deducted from this figure, a ‘notional’ net distributable residue as at date of death of over $4.4 million results. I am unable to make a deduction for proper estate expenses in the administration, but it may assist the executors to observe that this calculation results in a figure that is approximately $2.3 million higher than the executors’ most recent valuation of immediately distributable residue.
Clearly, this is a ‘rough and ready’ calculation. It is intended only to highlight the potential impact on residue resulting from the manner in which the estate has been administered, rather than to give any realistic assessment of the true value of residue at the date of the last accounts.[73] Part of the difference in the calculations of ‘residue’ will be caused by the executors’ payment of proper estate administration expenses. However, the significant question for the executors is whether residue has been further reduced by such things as their undervaluing of the No. 2 Trust Debt or ‘paying’ the Family Trust liabilities from the estate.
[73]A similar ‘notional’ residue calculation was undertaken in the Ruling to aid the executors’ understanding of this point at [16] and [17], although at that time there was even less information in the accounts.
Accountancy Fees
The estate has been charged $96,330.30[74] for accountancy work by TWF Partners, a firm of which the First Named Executor is a partner (‘Accountancy Fees’).[75] The Will does not contain any clause permitting either executor to charge professional fees, including a profit margin. The residuary beneficiaries are unable to give consent to these charges. The First Named Executor is also entitled to 34.5% of the net profit arising from the Accountancy Fees.[76] Arguably, an immediate refund may be required, even if the First Named Executor’s work was undertaken in good faith, achieved excellent accountancy outcomes and saved money by reducing the time required to take instruction due to his familiarity with the estate.[77]
[74]Executors’ first affidavit (n 5), Exhibit D.
[75]Ibid [24]-[26].
[76]Ibid [26].
[77]Chan v Zacharia (1984) 154 CLR 178 at 199-200 (Deane J). See also Boardman v Phipps [1967] 2 A.C. 46; Regal (Hastings) Ltd v Gulliver [1967] 2 A.C. 46.
In this case, however, there is an even more fundamental problem with the Accountancy Fees. The invoices show that the charges related to work done for the Family Trust, the No. 2 Trust, a self-managed superannuation fund of which the deceased was a member at the date of death and an entity called the ‘Rudi Roth Group’. A substantial proportion of the charges relate to the Church Street Properties while held by the FT Trustee in the Family Trust. The Ruling noted that accountancy charges that were incurred by other entities should be paid for by those entities and the estate must be reimbursed.[78] Further, the Ruling noted that if the Accountancy Fees had been reimbursed, it may still be permissible to award executors’ commission to the First Named Executor.[79]
[78]Ruling [43]-[44].
[79]The Ruling [44], citing Eric Vance, Executors Commission (Law Book Company, 1969) 205-7 (‘Vance’).
Subsequent to the Ruling, the executors depose to the ‘Rudi Roth Group’ being a colloquial term used to refer to all the ‘entities of the deceased’s asset group’. They also depose that all accounting work done in respect to the Church Street Properties is payable by the estate as these properties were ‘treated’ as part of the estate from the Vesting Day of the Family Trust and that, since the deceased was the sole member of the superannuation fund and the superannuation benefits were paid to the estate, it makes no net difference if the estate or the superannuation fund pays for its accounting work.[80] It was deposed that only $4,194.30 will be reimbursed for accounting charges by the First Named Executor’s firm in respect to the No. 2 Trust.[81]
[80]Executors’ third affidavit (n 3) [25].
[81]Ibid.
This is unfortunate. The Ruling outlined this issue. The First Named Executor has profited by paying his firm’s accountancy fees apparently from the residuary beneficiaries’ share of the estate and the Second Named Executor has allowed him to do so. The accounting work is not limited to estate work and, indeed, may be predominately work done for the Family Trust or other ‘entities’ comprising the ‘Rudi Roth Group’. Beyond the obvious deficiencies in this approach, it is a fundamental breach of fiduciary duties.
The question of whether or not the estate should be reimbursed any accountancy fees will be referred to a judge.
Legal Fees
In compliance with the orders made 18 June 2019, the executors’ third affidavit exhibits a schedule setting out the legal fees charged to the estate up to 24 October 2019.[82] The total amount is $197,125.35. This does not include the costs of the will rectification, which were allowed out of the estate, as per the Will Rectification Order dated 5 February 2021. Some of the invoices relate to work done for the Family Trust, the No. 2 Trust or the Church Street Proceeds Trust, and amount to $52,877.71. Costs of over $47,000.00 relate to this application for commission to that date. I will return to costs of this claim later in these reasons.
[82]Executors’ third affidavit (n 3), Exhibit EX-5.
The cost of legal work performed for the trusts connected to the estate or advising the executors or the family of the deceased regarding matters that are not related to the administration of the estate should not be charged to the estate and paid from residue. The executors are able to reimburse the estate (effectively the residue) from the No. 2 Trust and the Church Street Proceeds Trust, as they are the directors of the trustee and the trustees, respectively, of those trusts, for any legal costs of those trusts invoiced to the estate and paid from residue. Difficulties arise with respect to reimbursement of legal costs of the Family Trust, as the FT Trustee may need to be reinstated, but that may arise in respect to other liabilities of that trustee in any event. The question of whether or not the estate ought be reimbursed for legal fees that are not estate liabilities will be referred to a judge.
General Principles
77 Section 65(1) of the Administration and Probate Act 1958 (Vic) (‘the Act’) provides:
It shall be lawful for the Court to allow out of the assets of any deceased person to his executor ... such commission or percentage not exceeding Five per centum for his pains and trouble as is just and reasonable.
Section 65 uses old language, however, ‘pains’ has been interpreted as the ‘responsibility, anxiety, and worry’ connected to the role of executor and ‘trouble’ as the actual practical work of the administration.[83]
[83]In the estate of Stone (deceased); Patterson v Halliday [2003] VSC 298 [30] (Smith J) (‘Patterson’), citing Vance (n 79) at 147. See also Re Buckingham [2016] VSC 757 [54] (McMillan J) (‘Re Buckingham’).
In Atkins v Godfrey, Le Miere J explained the purpose for commission as follows:
It may be that in times gone by there were more people with the leisure and resources to take on unremunerated trusteeships. However, in contemporary times the payment of executors’ remuneration is conducive to the good administration of estates. An executor is more likely to be able to devote the time and resources to the proper administration of an estate if he or she is remunerated for doing so.[84]
[84]Atikens v Godfrey [2006] WASC 83 [17] (Le Miere J).
On the other hand, an executor is not entitled to commission unless the estate has been administered properly.[85] Honest administration is not sufficient to justify a grant of commission where the administration has been irregular and unsatisfactory.[86] For example, an executor may be denied commission if guilty of neglect or disregarding their fiduciary obligations.[87] The purpose of facilitating proper administration of deceased estates is not advanced if there is no consequence to maladministration. Due performance of the duties and obligations of executorship is a prerequisite to an award of commission.
[85]Vance (n 79), 221.
[86]Ibid.
[87]Re Estate Gowing; Application for Executor’s Commission [2014] NSWSC 247 [68] (Lindsay J) (‘Gowing’), citing In the Will of Henry Sherringham (1901) 1 SR (NSW) (B&P) 48; In the Will of James Geer (1911) 11 SR (NSW) 21 at 23; Guazzini v Pateson (1918) 18 SR (NSW) 275 at 285-6.
The general approach is that unless an objector establishes otherwise, an administration will be presumed to be on proper lines and the executor will be granted commission.[88] The residuary beneficiaries of this estate include minors and an adult person who are unable to consent any steps in the administration that are adverse to their interests. This requires the Court to be satisfied of regularity on the material presented, particularly as no contradictor appeared. The presumption of regularity is not absolute and indeed, may be rebutted by the executors’ own material.
[88]Vance (n 79), 150; adopted in Re Joe White, deceased; Tweedie v Attorney General [2003] VSC 433 (‘Tweedie’) (Kellam J) and Re Buckingham (n 83) [51] (McMillan J).
The sole duty of an executor is to ‘administer’ the estate. That is, gather the estate assets, pay the estate liabilities (as at death and arising in the administration) and distribute the net estate according to the will (including into a trust created by the will). As explained by Campbell J in Gonzales v Claridades:
The duties of administration which an Executrix is required to perform include ascertaining what are the assets of the deceased, getting in those assets, ascertaining what are the liabilities of the estate, discharging those liabilities, apportioning the burden of payment of liabilities among the beneficiaries, keeping accounts and proper records of all dealings with the assets and liabilities of the estate, delivering accounts to those entitled to them, and distributing the net assets of the estate to the people entitled to receive them.[89]
[89]Gonzalez v Glaridades (2003) 58 NSWLR 188 [42] (Campbell J).
An administration account is required as part of any application for commission.[90] The administration account, properly prepared, shows the course of administration.[91] That is, the full and proper performance of the duty to administer the estate, for which remuneration is sought, is demonstrated through the administration accounts. Therefore, completing an administration account is not an extraneous exercise in form filling. It is an essential element in establishing the claim for commission, voluntarily embarked on by an executor for personal benefit (emphasis added).
[90]Supreme Court (Administration and Probate) Rules 2014 (Vic) r 10.03(1).
[91]Vance (n 79), 73.
Regardless of whether a claim for commission is made, an executor has a duty to keep proper accounts.[92] Maintenance of proper records and accounts is ‘fundamental to good management of a deceased estate’.[93] Good management is evidenced by the production of the administration account in any application for commission. It is a crucial and active part of the evidence of the completion and quality of the executor’s performance of their duty to administer the estate.
[92]Freeman v Fairlie (1817) 3 Mer 24, 43; 36 ER 10, 17; Pearse v Green (1819) 1 Jac & W 135, 140; 37 ER 327, 329; Kemp v Burn (1863) 4 Giff 348; (1863) 66 ER 740; Re Watson (1904) 49 Sol Jo 54; Struss v Wykes [1916] VLR 200, 203–4; Re Craig (1952) 52 SR (NSW) 265, 267; (1952) 69 WN (NSW) 205; Williams v Stephens (NSWSC, Young J, 24 March 1986); Re will of Ruthenberg (QSC, Ryan J, 27 October 1993); Skaftouros v Dimos [2002] VSC 198 (‘Dimos’); Yates v Halliday [2006] NSWSC 1346.
[93]Dimos (n 92) [11], citing Butterworths, Wills, Probate and Administration Service (Victoria) (at 29 May 2002) [49,000], [49,015].
Indeed, commission may be denied if a failure to keep proper accounts causes loss or expense to the estate.[94] A determination to grant commission to an executor of a deceased estate is a discretionary concession, given on the passing of accounts in the estate in respect of which fiduciary obligations are owed.[95] Any doubts caused by the failure by an executor to present proper records should be resolved against them.[96]
[94]Vance (n 79), 221.
[95]Gowing (n 87) [64] (Lindsay J).
[96]Byrnes v Kendle (2011) 243 CLR 253, 270-1 [43] (Gummow and Hayne JJ), citing Kemp v Burn (1863) 4 Giff 348 at 349-350 [66 ER 740 at 740-741]; Mark L. Ascher, Austin Wakeman Scott and William Franklin Fratcher, Scott and Ascher on Trusts (Wolters Kluwer Legal & Regularory U.S., 5th ed, 2007) vol 3, §17.4.
As Lindsay J said in Gowing:
The jurisdiction to allow executor’s commission does not shift the primary focus of the Court away from the task of ensuring that there is due administration of an estate, having regard to the interests of the estate, beneficiaries and any known testamentary intentions of the deceased.[97]
[97]Gowing (n 87) [50] (Lindsay J).
In the present case, the executors’ administration accounts do not support a finding that the estate has been properly administered. Despite three separate administration accounts, specific guidance given by the Ruling and orders for production of various clarifying material, serious questions remain regarding the administration of this estate. Unfortunately, due to the state of the estate accounts and the failure to provide separate accounts for the Family Trust and of the Church Street Proceeds Trust, it is not possible to determine whether this administration has well and faithfully been performed, especially as to the position of the residuary beneficiaries. In particular, it appears that not all assets of the estate have been gathered and that liabilities of the Family Trust have been incorrectly ‘treated’ as estate liabilities, to the significant detriment of the residue of the estate. Additionally, the issues raised with the respect to the Accounting and Legal Fees will have diminished the residue of the estate. In these circumstances, the significance of the executors’ failure to show due and proper administration of this estate is sufficient to refuse any award of commission.[98]
[98]Re Mountney [2017] VSC 364 (‘Re Mountney’) [44], [47] (Derham AsJ), citing Peter Henry Atkins (as Executor of the Estate of Robert Charles Godfrey) v Godfrey & Ors [2006] WASC 83 (‘Atkins’) [55]; Speight v Gaunt (1883) 9 AC 1.
Quantum of Commission
If I am wrong and some commission should be awarded, some factors that may be considered in assessing the quantum of commission were set out in Patterson by Smith J as follows:
(a) the work and judgment involved in the realisation of assets and earning income;
(b) the extent of administrative activities;
(c) the responsibility generally;
(d) the amount of work done not reflected in financial terms;
(e) for how long the estate was administered;
(f) the size of the estate and its capacity to pay;
(g) the work of a non-professional character not undertaken by the applicant and performed by professionals; and
(h) executors’ pains and troubles relative to the result.[99]
[99]Patterson (n 83) [27] (Smith J).
Other factors which often may be taken into account include whether there has been any litigation, such as family provision litigation, against the estate and where there is conflict in relation to some of the distribution.[100]
[100]Richards v Richards [2015] VSC 335 [30] (McMillan J) (‘Richards’); Re Buckingham (n 83) [57] (McMillan J); Re will and estate ofMacleod [2017] VSC 67 [46] (Ierodiaconou AsJ) (‘Re Macleod’); Re Mountney (n 98) [49] (Derham AsJ).
It has been said although commission may be awarded up to 5%, in practice 3.5% tends to be at the top end of the scale.[101] Where an estate administration is ‘at the simple end’ commission at a lower rate may be awarded.[102] That is, an award of commission is a matter of discretion and quantum should be restricted to what is ‘just and reasonable’ particularly where the Court is dealing with an application in the absence of a contradictor.[103]
[101]Szmulewicz v Recht [2010] VSC 447 [18] (Mukhtar AsJ).
[102]Re Estate of D A Lindsay [2004] NSWSC 578 [15] (Campbell J).
[103]Gowing (n 87) [89]-[90] (Lindsay J).
The executors seek 2.5% of corpus and 5% of income as commission. The first set of administration accounts details that the executors have gathered into the estate capital to the value of $13,594,976.46, the second accounts $13,605,237.96 and the third accounts $12,924,636.50.[104] The executors calculate estate income as $612,160.35 to 9 April 2018, $1,251,395.43 to February 2019 and $2,738,495.22 to 24 October 2019.[105] The administration accounts for the estate mix income from the Family Trust and Church Street Proceeds Trust in the estate accounts, so that the actual amount of the income of the estate during its administration phase is presently unknown. Therefore, it is not possible to quantify the value of the executors’ income commission claim and none can be awarded. The capital commission claim is approximately $325,000.00.
[104]Affidavit of verification of administration accounts (n 1), Exhibit A; Executors’ second affidavit (n 2), Exhibit D; Executors’ third affidavit (n 3), EX-1.
[105]Ibid.
This level of capital commission claim raises considerations of what has been termed the ‘large estate argument’.[106] That is, there are cases where the sheer size of the estate requires a moderation in the percentage of commission awarded so as to avoid an award that is disproportionate to the pains and trouble involved in administering the estate. Slattery J in Hawkins rejected this argument as an unacceptable constraint on the discretion to award such commission as is ‘just and reasonable’.[107] The size of the estate is not a factor which, by itself, requires a limitation on the rate of commission.[108] The real question is what is the appropriate award, taking into account the work and responsibility of the administration, including any additional burden arising from the magnitude of the estate, such as highly complex financial arrangements, significant time commitments and the heavy responsibility of decisions involving vast sums of money. On the other hand, where a large estate involves economies of scale, simplicity and minimal time demands, the percentage of commission may be reduced to reflect a determination of what is ‘fair and reasonable’ in that particular case. Equally, the administration of a relatively small estate can be more onerous than the largest estates to come before the Court.[109]
[106]Hawkins v Barkley-Brown [2010] NSWSC 48 [31]-[38] (Slattery J) (‘Hawkins’).
[107]Ibid [33].
[108]In the Will of Sheppard [1972] 2 NSWLR 714, 721 (Helsham J).
[109]Inre Allan Mclean (Deceased) (1911) 31 NZLR 139, 143 (Denniston J).
The executors submit that this was an exceptionally complex, time consuming, onerous and difficult administration that required dealing with complex trusts, family and financial affairs. They submit that they have achieved a resolved, beneficial and orderly administration which has greatly enhanced the value of the estate and the interests of its beneficiaries.
To an extent the executors are right, they have acted tirelessly in the interests of others to complete a very complex and demanding task. However, as discussed above, the title to the Church Street Properties were only held for a short period of days after sale and prior to settlement.[110] The proceeds of sale were then invested in the Church Street Proceeds Trust. The time in which the sale proceeds were held in the estate was short and were apparently eventless. It is important not to conflate the work done as directors of the corporate trustee of the Family Trust and the work done as trustees of the Church Street Proceeds Trust with work done as executors of this estate. Most of the work outlined in the executors’ material does not relate to the administration of the estate as such. This is a large estate, but the pains and trouble of administering the bulk of its funds were relatively minor. It seems that the pains and trouble of administering the general provisions of the Will were also relatively minor.
[110]Although the purchaser did not lodge the transfer documents for some time after settlement, see the solicitor’s affidavit (n 17), Exhibit DSG-6.
Therefore, not in any misplaced reliance on the ‘large estate’ argument, if I am wrong about the state of the accounts precluding commission in this case, 2.5% of capital is too high in this particular claim. In my view, 1.5% of capital better reflects the pains and trouble of administering the estate, as distinctly separate from the administration of the ‘Rudi Roth Group’.
Burden of Commission
The executors initially applied for any commission to be awarded to them be paid on a ‘pro-rata basis’, being 72.83% from the ‘Church Street proceeds’ and 27.17% from residue.[111] That is, capital commission of roughly $250,000 from the ‘Church Street proceeds’ and roughly $95,000 from residue.[112] There were no authorities presented by the executors to guide the Court as to how executor’s commission can be paid from a separate, free standing trust created under the Will.
[111]Executors’ second affidavit (n 2) [7].
[112]Income has not been considered as it has not been quantified in the estate accounts, see above [91].
Commission is usually paid from residue, as the source of testamentary expenses until exhausted.[113] This principle applies even if the commission relates to a specific asset. For example, it may be that a lower rate is applicable to the property held in the Right of Residence Trust, as it was transferred in specie, reducing the pains and trouble attributable to it, but such lower rate of commission is payable from residue.
[113]Vance (n 79) [241]-[243].
The usual principle may be displaced by the Will in this case. Clause 4 commences with a requirement to pay testamentary expenses from the ‘balance’ of the estate, then sets out a number of gifts and directions in 16 further sub-clauses, including the Church Street Proceeds Trust in Clause 4(5) and ‘rest and residue’ in Clause 4(17). If the executors seek to rely on this structure in the Will, they need to address two problems. First, if the Will permits executors’ commission to be paid from all the Clause 4 gifts, why should it be limited to only two of them, namely, the Church Street Proceeds Trust and residue? Second, once part of the estate is distributed, even by way of appropriation to a separate, free-standing trust created by the Will, it is no longer available for payment of executors’ commission, which can only be paid out of retained estate assets.
After their first affidavit, the executors later deposed that the estate is still in its administration phase and the trusts contemplated by the Will were not yet ‘completely constituted’ and their proposal to proportion commission was intended to ensure part of the commission is borne by the ‘Church Street Properties’ proceeds, but if the Court prefers, commission may be paid entirely from residue.[114] However, the Church Street Proceeds Trust has come into existence, otherwise what authority did the executors have to purchase investments and distribute income? This also contradicts the previous paragraph of the same affidavit which deposes to the Church Street Proceeds Trust starting as a separate entity on 1 July 2019.[115] Therefore, its assets no longer form part of the estate and are not available for an award of commission.[116]
[114]Executors’ third affidavit (n 3) [28].
[115]Ibid [27].
[116]Vance (n 79) 177, 221; Burke v Dawes (1938) 59 CLR 1, 19 (Dixon J).
Costs of the Claim
In the unique circumstances of this application, I am minded to allow the executors their costs of their application out of the estate, although it has been unsuccessful. To do otherwise, is to throw on the executors significant personal cost where they have acted selflessly in their multiple roles in the interests of others. This has been a protracted and complicated application however some benefit may have been derived, especially for the residuary beneficiaries, as issues have arisen for resolution.
As noted above, a total of $47,778.47 has been invoiced and paid in respect to this application for commission up to 24 October 2019. This was already an extraordinarily high amount for an application for executors’ commission. Since October 2019, there have been further appearances and material filed, although relatively short and dealing with matters well known to the solicitors, as they acted in the preparation of the Will and the Deed of Appointment. In effect, in recent material, the solicitors were just updating the efficacy of their estate planning advice given less than ten years ago. It is also noteworthy that the solicitors delegated the preparation of the third administration account to the First Named Executor, so there should have no charges for this work.[117] While I do not anticipate substantial further costs, all further invoices (paid and unpaid) relating to this application need to be produced, together with an estimate of the final charges, before I consider the quantum of costs further.
[117]Executors’ third affidavit (n 3) [4].
The pre-payment of these legal costs also raises another issue. An executor cannot take their legal costs of an application for commission in their own interests without fully informed consent or an order for costs.[118] In Re Estate of Zsuzanna Gray, Daly AsJ said:
… Making a claim for commission is not of itself an executorial function in respect of which costs should automatically be borne by the estate. Ultimately, the liability for costs of any such application is and should be a matter for the Court, and no party should presume that the Court will invariably order that such costs would be recoverable from the estate. The question of costs is always a matter for the discretion of the Court, having regard to all of the circumstances of the case.[119]
[118]Re Stuckey; Scholte v Stuckey [2021] VSC 67 [61] (Englefield JR), citing Richards (n 100) [109] (McMillan J).
[119]Re Estate of Zsuzanna Gray [2010] VSC 173 [34] (Daly AsJ).
Again, in the unique circumstances of this application, I am minded to excuse the executors’ unauthorised advance payment of the legal costs of this application, even though it was an application made by them in their own interests. However, if an order is made fixing costs at a sum less than the amounts already paid, a reimbursement may arise. The solicitors must consider whether their clients will require separate representation at any costs hearing, and only act for the executors in respect to their costs if they are able to do so.
Referral
As can be seen, there are a number of issues that rise from the administration accounts which are incapable of resolution in this application. Uncertainty continues as to the value of residue, whether or not liabilities of the Family Trust are payable by the estate, whether the executors’ reliance on the Deed of Appointment gives rise to any liability for the estate and whether various accountancy and legal fees should be reimbursed. As such, I will also refer the estate’s accounts to a judge for further consideration. A judge may exercise the inherent jurisdiction of this Court to consider these accounts or may, under s 28 of the Act, exercise the power to require the executors to ‘bring in’ a further account.
This referral relies on the parens patriae jurisdiction of the Court, an equitable jurisdiction of the Court derived from a delegation of the prerogative of the Crown to the Court.[120] This jurisdiction, and the associated power, requires the Court to protect the welfare of those who need protection due to an inability to protect themselves, such as minor children and adult persons who lack legal capacity.[121] The parens patriae power is theoretically without limit, as it arises from the responsibility of the Court to take care of those who cannot take care of themselves.[122] The residuary beneficiaries come within this jurisdiction.
[120]Carseldine v Director of Department of Children’s Services(1974) 133 CLR 345, 350-1 (McTiernan J).
[121]Secretary, Department of Health and Community Services v J.W.B. and S.M.B.(1992) 175 CLR 218, 258 (Mason CJ, Dawson, Toohey and Gaudron JJ) (‘Marion’s Case’).
[122]Ibid.
The publication of these reasons will await the judge’s determination of the referral.
Conclusion
For the reasons set out above, this application is dismissed and the executors are to submit orders to the Court within 14 days giving effect to these reasons.
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