Re Zsomlye
[2019] VSC 513
•31 July 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY & PROBATE LIST
S ECI 2018 02340
IN THE MATTER of the estate of IBOLYA ROSZA ZSOMLYE (named in the Will and Codicil as Ibolya Zsomlye), deceased
-and-
IN THE MATTER of an application pursuant to rule 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 for directions in relation to the administration of an Estate
BETWEEN:
| ELVIRA FRANCESKA BENCS (as executor of the estate of the IBOLYA ROSZA ZSOMLYE) | Plaintiff |
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JUDGE: | Moore J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF JUDGMENT: | 31 July 2019 |
CASE MAY BE CITED AS: | Re Zsomlye |
MEDIUM NEUTRAL CITATION: | [2019] VSC 513 |
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TRUSTS – Settlement trust – Application to vary settlement trust – Where beneficiary is a minor – Whether variation is in interests of minor – Whether it is proper or appropriate to approve variation – Variation is in interests of minor – Not proper or appropriate to approve variation – Terms of variation vague or incomplete – s 63A of the Trustee Act 1958
TRUSTS – Administration of trust – Appointment of trustee – Whether proper and appropriate to appoint plaintiff as trustee – Where plaintiff is mother and guardian of beneficiary – Where beneficiary is a minor – Not proper or appropriate to appoint plaintiff as trustee – Plaintiff has previously preferred own interests to those of beneficiary
TRUSTS – Administration of trust – Distribution from trust for maintenance of property in which beneficiary resides – No distribution permitted
ADMINISTRATION AND PROBATE – Reimbursement of executor for costs incurred in administering trust property – Reimbursement permitted
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr T Mah | Beaumaris Law |
| For Jamie John Bencs, as independent counsel | Mr P Pascoe |
HIS HONOUR:
Introduction
Ibolya Rosza Zsomlye (the deceased) died on 27 April 2013. She was survived by her two children, Elvira Franceska Bencs (Elvira), the plaintiff in this proceeding, and Kalman Zsomlye (Kalman).
The principal issue in the proceeding is Elvira’s application to the Court for approval of an arrangement, pursuant to s 63A of the Trustee Act 1958, to vary a settlement trust created as part of the settlement of a separate proceeding commenced by Kalman under Part IV of the Administration and Probate Act 1958.
The remainder beneficiaries under the settlement trust sought to be varied are Elvira’s children, Joseph Brendan Bencs (Joseph) and Jamie John Bencs (Jamie). Joseph is sui juris, having been born on 16 October 2000, and consents to the proposed variation of the settlement trust. The need for Court approval of the variation arises because Jamie is currently 15 years of age.
Background
The deceased left a will dated 28 August 2009 (the will) and a codicil dated 7 April 2013 (the codicil). The will appointed Elvira and Kalman as executors and trustees of the deceased’s estate.
On 24 June 2014, Elvira obtained a grant of probate of the deceased’s will and codicil with leave reserved to Kalman to come in at any time and prove the same.
The principal assets of the deceased’s estate were a property located at 4 Snowy Court, Clayton South, Victoria (the Clayton South property) valued at $475,000, and a half interest in a property located at 14 Coogee Avenue, Frankston, Victoria (the Frankston property) valued at $170,000.
The effect of the terms of the will and codicil are that:
(a) Elvira and Kalman have the right to live in or rent out the deceased’s real property;
(b) upon the death of Elvira and Kalman, the Clayton South property and the Frankston property pass to Elvira’s children, Joseph and Jamie;
(c) the deceased’s motor vehicle passes to Joseph;
(d) the deceased’s jewellery passes to Elvira; and
(e) the residue of the deceased’s estate passes to Elvira and Kalman in equal shares.
Elvira currently resides in the Frankston property with Joseph and Jamie.
Part IV proceeding
In October 2014, Kalman commenced a proceeding in the County Court of Victoria under Part IV of the Administration and Probate Act 1958 seeking further provision from the deceased’s estate (the Part IV proceeding).
Elvira and Kalman settled the Part IV proceeding on 4 April 2016. The schedule to the terms of settlement provided for the sale of the Clayton South property and, after deduction of various expenses and costs, provided as follows:
[8]-The balance then remaining shall be available for the use by the parties to purchase an alternative property in the names of both parties for the plaintiff to use and enjoy as a life tenant therein, subject to him keeping same in good and habitable condition and paying all rates and charges and insurances payable in respect thereof with the remainder interest held for the remaindermen Joseph and Jaime (sic) as per the will of codicil herein. Including the right to buy an alternative property if required.
[9]-The purchase price plus the costs of any conveyancing or expenses associated with such purchase shall be paid out of the said sum.
[10]-Any balance then remaining shall be held by the defendant as trustee of the estate and the plaintiff shall be entitled to the income thereon as life tenant during his lifetime and on the death of the plaintiff the said sum shall be paid to the remainderman, Joseph and Jaime (sic) pursuant to the terms of the will and of codicil herein.
[11]-The parties hereby agree to each relinquish and release any life interest they have in the properties as described below:
The plaintiff any and all rights or interest in respect of the property at 14 Coogee Avenue Frankston.The defendant any and all rights or interest in respect of the property at 4 Snowy Court Clayton South.
(the Settlement Trust).
The settlement of the Part IV proceeding was subject to court approval as Joseph and Jamie were minors at the time. By orders made by Judge Kings of the County Court on 21 September 2016 (September 2016 orders):
(a) the Part IV settlement was approved;
(b) Elvira and Kalman were to sell the Clayton South property, such sale being approved pursuant to s 38(a) of the Settled Land Act 1958;
(c) Kalman’s life interest in the Frankston property was extinguished;
(d) Elvira’s life interest in the Clayton South property was extinguished; and
(e) Elvira was given liberty to appoint her husband to be a second trustee of the estate interest in the Frankston property pursuant to s 30(3) of the Settled Land Act 1958.
Since the September 2016 orders were made, Kalman has married an American citizen and relocated to the United States of America. Kalman’s relocation and various difficulties which have arisen between him and Elvira have resulted in attempts to renegotiate the Settlement Trust.
The Clayton South property was sold in April 2017 for $765,000, from which some $587,000 remained after payment of agreed expenses, the majority of which has since been invested.
Since August 2017, Elvira and Kalman have communicated through their solicitors regarding payment of a fixed sum to Kalman in exchange for him relinquishing his life interest in the Clayton South property.[1] Elvira has deposed that, subject to approval by the Court, Kalman has agreed to accept the sum of $155,000 from the deceased’s estate in lieu of any further entitlements to the deceased’s estate. To the extent that the agreement is recorded in writing at all, it is recorded in very brief terms in correspondence between the solicitors for Kalman and Elvira dated 27 September 2017 and 28 September 2017 (the two letters).
[1]Prior to the sale of the Clayton South property, Kalman told Elvira that he wanted to extinguish his life interest in that property and instead be paid out a capital sum from the estate equal to half the net proceeds of sale of the property. Elvira refused this request.
This proceeding
Elvira commenced this proceeding by originating motion on 20 November 2018. In substance she seeks the Court’s authority to do the following things:
(a) to end the Settlement Trust on the basis that:
(i) Kalman receive the sum of $155,000 from the proceeds of sale of the Clayton South property in lieu of his life interest in that property;
(ii) Joseph receive half of the balance of the proceeds of sale of the Clayton South property; and
(iii) Elvira hold the other half of the balance of the proceeds of sale of the Clayton South property on trust for the benefit of Jamie until he attains the age of 18 years (Jamie’s fund);
(the Settlement Trust termination agreement); and
(b) to deduct the sum of $13,034.69 from the amount of $155,000 proposed to be paid to Kalman as set out above, being the value of costs incurred by the deceased’s estate in storing Kalman’s possessions; and
(c) to distribute to herself $40,000 from Jamie’s fund.
On 18 January 2018, the solicitors for Elvira served on Kalman, Kalman’s solicitor and on Joseph the originating motion and supporting affidavits in this proceeding.
No material has been filed by Kalman in the proceeding.
By affidavit sworn 18 January 2019, Joseph agreed to the Court making orders as sought by Elvira.
On 18 February 2019, the Court appointed Mr Peter Pascoe of counsel as independent counsel to represent Jamie’s interests in the proceedings, as a person who had not yet attained the age of 18 years. In these reasons for judgement, I describe Mr Pascoe’s role as an independent contradictor in the proceeding.
Approval of Settlement Trust termination agreement
Jamie is a remainder beneficiary under the Settlement Trust. In circumstances where he is a minor and therefore incapable of consenting to an arrangement to vary that trust, Elvira seeks an order from the Court pursuant to s 63A of the Trustee Act 1958 approving the Settlement Trust termination agreement on his behalf. This is the substantial subject matter of the proceeding.
Section 63A of the Trustee Act 1958 empowers the Court to approve an arrangement varying a trust on behalf of any person who has an interest in a property held on trust, and, by reason of minority or other incapacity, is incapable of assenting to a variation, where the execution of the arrangement would be for the benefit of that person.
I am satisfied that the Court has jurisdiction to approve the Settlement Trust termination agreement on behalf of Jamie given that the funds from the sale of the Clayton South property are held on trust and that Jamie is a minor who has a direct interest in the trust property as a remainder beneficiary.
In order to approve the Settlement Trust termination agreement, the Court must be satisfied that the variation is for Jamie’s benefit and a fair and proper one overall. The Court must take into account the purpose of the trust and the deceased’s intention and engage in a ‘businesslike consideration of the arrangement, including the total amounts of the advantages which the various parties obtain, and their bargaining strength’.[2]
[2]Perpetual Trustees Victoria v Barns & Anor (2012) 34 VR 387, [36].
Consistent with the submissions of both the independent contradictor and counsel for Elvira, I am satisfied that the substance of the Settlement Trust termination agreement is for Jamie’s benefit. The following matters may be noted:
(a) As to the quantum of the benefit which would likely flow to Jamie under the Settlement Trust termination agreement, Kalman’s life interest benefit under the Settlement Trust is valued at approximately $433,000.[3] Under the Settlement Trust termination agreement he would instead receive $155,000. This indicates that, in actuarial terms, Jamie will receive a greater benefit under the Settlement Trust termination agreement than he would receive under the Settlement Trust.
[3]In accordance with the revenue ruling published by Revenue SA on 4 June 2015, calculated by the Australian Government Actuary on behalf of Revenue SA.
(b) Kalman is 52 years of age and may be expected to live, on average, for another thirty years. Jamie’s interests are therefore significantly improved under the Settlement Trust termination agreement because funds could be held on trust and immediately applied for his benefit, with Jamie receiving the entitlement absolutely upon attaining the age of majority in three years.
(c) Although Jamie’s entitlement under the Settlement Trust termination agreement is reduced by $77,500 (being half of the payment proposed to be made to Kalman), this does not pose a significant disadvantage to Jamie’s overall position given the matters referred to in the above subparagraphs and the fact that there is no certainty that the value of Jamie’s entitlement upon Kalman’s passing would have increased in comparison. Furthermore, if no alternative property is purchased and the funds are held on trust with interest being paid to Kalman, the value of the funds may well be eroded by inflation.
(d) In addition to a financial benefit, I accept the submission by the independent contradictor that there is a reasonable prospect that approval of the Settlement Trust termination agreement may have the advantage of improving family harmony[4] within Jamie’s family and between his family and Kalman. He would be placed in a similar position to his adult brother Joseph in three years’ time. It would also have the benefit of Elvira and Kalman each going their own ways, as is evidently their wish, rather than being locked into a trust arrangement lasting for many years into the future.
(e) It may also be noted that the Settlement Trust termination agreement gives effect to the deceased’s apparent intention to not only benefit her children, but her grandchildren as well.
[4]See Re Weston’s Settlement [1969] 1 Ch 223, 245 (Denning MR).
Although I am satisfied that the substance of the Settlement Trust termination agreement is for Jamie’s benefit, I do not consider that it is appropriate or proper for the Court to approve it in the form as it is currently advanced. As submitted by the independent contradictor, the two letters constitute an unusually informal basis upon which orders are sought in the proceeding. There are no extant or proposed Terms of Settlement, nor a Deed of Surrender to give effect to Kalman’s proposed surrender of his life interest under the Settlement Trust. Counsel for Elvira concedes that the preparation of a deed ‘would have been ideal’, but submits that the Court should nonetheless make the orders sought because of the delays in finalising the deceased’s estate due to Kalman’s inaction, the modest value of the estate, the desirability of avoiding further costs associated with the preparation of a deed and the fact that a deed is of particular importance to Elvira (rather than Jamie).
Although there is some force in these submissions by counsel for Elvira, the chief difficulty is the skeletal nature of the two letters upon which orders are sought in the proceeding. They state as follows:[5]
[5] The first letter is a letter from Kalman’s solicitor; the second is a letter from Elvira’s solicitor.
Dear Sir,
Re: Estate of the late Ibolya Zsomlye
We refer to the above matter and note our client is prepared to settle for:
1. $155.000.00
2. his goods in storage to be released so that he can get a removalist to remove, subject to the Estate paying the storage costs.
We await your response.
Yours faithfully
WATERS LAWYERS PTY LTD
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Dear Sirs,
RE: ESTATE OF THE LATE IBOLYA ZSOMLYE – DECEASED
We acknowledge receipt of your letter dated 27 September 2017 and advise that the Executor accepts your client’s counter-offer contained therein.
This is, of course, subject to Court approval.
In order to release the goods in storage, your client will have to advise the details of the removalist and the date of arrival, so that our client can instruct the storage facility accordingly. Alternatively, your client may contact the storage facility and arrange for the account to be transferred into his name, and our client will forward the key to your office. The estate agrees to pay the storage costs providing this occurs within 30 days from today’s date. Please advise which alternative your client wishes to adopt.
We will now commence preparation of the documents necessary to apply for Court approval and will provide copies in due course.
Yours faithfully
WILLIS SIMMONDS LAWYERS
I do not consider it proper or appropriate for the Court to exercise its jurisdiction under s 63A of the Trustee Act 1958 on the basis of an asserted agreement cast in such vague and seemingly incomplete terms. Neither do I accept that it is in Jamie’s best interests to do so, notwithstanding the other matters referred to above by counsel for Elvira.
Deduction of storage costs from payment to Kalman
Elvira seeks that Kalman reimburse the deceased’s estate the sum of $13,034.69 for the costs associated with removing, storing and disposing of his items from the Clayton South property. The reimbursement is sought to be effected by deducting this amount from the proposed payment to Kalman of $155,000.
This claim is accepted. The relevant costs incurred by the estate are established on the evidence before the Court. Kalman is on notice of this claim, but has not challenged any aspect of it. Elvira has made repeated unsuccessful requests of Kalman for him to pay these costs. I accept that they are costs for which Kalman is personally responsible; there is no proper basis for the estate – and ultimately Joseph and Jamie – to incur them.
Elvira’s proposal for the administration of Jamie’s fund
Two issues arise in relation to the proposed administration of Jamie’s fund.
First, Elvira submits that, because she is Jamie’s mother and guardian and the person usually responsible for managing his funds, she is an appropriate person to act as trustee of Jamie’s fund. She submits that, as she is not a beneficiary of Jamie’s fund, the potential for conflict is reduced. Further, as the appointed executor under the deceased’s will and codicil, she is the person that the deceased intended to administer the trust established in the codicil for Joseph and Jamie’s benefit.
Secondly, Elvira seeks a distribution of $40,000 from Jamie’s fund on account of her ‘impecunious circumstances,’ the significant maintenance said to have been undertaken by her at her expense on the Frankston property[6] and further significant works which remain necessary to be undertaken on the property.[7] It is submitted that Joseph has agreed to payment of the same amount to Elvira from his entitlement. Elvira further submits that the proposed distribution from Jamie’s fund would be of benefit to Jamie in both the short term (because he is living in the property) and in the long term as the remainder beneficiary.
[6]Including the installation of a new hot water system; gas ducted heating and evaporative cooling; fixing doors and windows; painting the interior and exterior; and garden maintenance.
[7]Including a new bathroom and kitchen at a total cost in excess of $35,000.
I do not accept either of these claims. As to the first, in my view the money from Jamie’s fund should be paid into Funds in Court to be managed by the Senior Master for Jamie’s benefit to be paid out on him attaining 18 years of age. This is because it would appear that Elvira has, at least on one occasion,[8] preferred her own interests to Jamie’s. The independent contradictor submitted that this is apparent from the fact that, in her originating motion, Elvira sought that $80,000 be paid to her from Jamie’s fund, which amount was later reduced to $40,000. This contention and the reasons for the change in Elvira’s claim were unanswered in Elvira’s reply submissions and further evidence. In those circumstances, I accept the submission advanced by the independent contradictor.
[8]I have considered, but do not accept, the independent contradictor’s submission that Elvira also preferred her own interests over Jamie’s by initiating correspondence with Kalman to seek that the funds derived from the Clayton South property be paid to her and Kalman. I accept Elvira’s evidence that the proposal to bring to an end her trustee relationship with Kalman was initiated by Kalman.
As to Elvira’s second claim, I also accept the independent contradictor’s submission that, absent an out of time claim for further family provision pursuant to Part IV of the Administration and Probate Act 1958, the Court does not have power to make an order for payment of $40,000 out of Jamie’s fund to Elvira. No submission was advanced on behalf of Elvira to identify a source of power for the Court to make an order of the type sought.
Costs
As submitted by counsel for Elvira, the central part of this proceeding is the question of obtaining the Court’s approval of the Settlement Trust termination agreement, which application was necessary given that it affects the interests of a minor. The Court accordingly accepts that it is appropriate for Elvira’s costs and the costs of the independent contradictor to be paid from the estate on an indemnity basis.
Further steps
Although I have found that the substance of the Settlement Trust termination agreement is in Jamie’s benefit, for the reasons I have explained, I do not consider it proper or appropriate for the Court to exercise its jurisdiction under s 63A of the Trustee Act 1958 on the basis of the two letters.
As submitted by the independent contradictor, a more orthodox and appropriate approach would be for the Court to make declarations in relation to the Settlement Trust termination agreement upon the execution by Kalman of a deed of surrender. The Court will consider any application by Elvira for leave to amend her originating motion to seek appropriate declarations and related orders. [9]
[9]Such as declarations to the effect proposed in paragraph 25 of the independent contradictor’s submissions in conjunction with an order pursuant to s 22 of the Supreme Court Act 1986 in relation to the execution of a deed of surrender.
The Court will accordingly order as follows:
1. Within 7 days, the plaintiff file and serve on the independent contradictor, Kalman Zsomlye and Joseph Brendan Bencs any amended originating motion, minute of proposed declarations and orders and short submissions.
2. Within 14 days, the independent contradictor, Kalman Zsomlye and Joseph Brendan Bencs file and serve any material, including any short submissions, in reply.
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