BA v MA
[2013] NZHC 3072
•20 November 2013
NOTE: ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B TO 11D OF THE FAMILY COURTS ACT 1980.
FOR FURTHER INFORMATION, PLEASE SEE COURT/LEGISLATION/RESTRICTIONS-ON-PUBLICATIONS.
IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY
CIV-2013-443-277 [2013] NZHC 3072
BETWEEN BA Appellant
ANDMA & ORS Respondents
Hearing: 24 September 2013
Counsel: R Wilson for Appellant
K R Pascoe for Respondents
C E Clarke for Ministry of Social Development as guardians
Judgment: 20 November 2013
JUDGMENT OF WILLIAMS J
Introduction
[1] JA died on 21 April 2011. She left an estate valued at approximately
$7.3 million. JA was survived by five of her children, MA, KK, JM (known as JM), MD and BA. In her last will dated 23 January 2006, she divided her residuary estate into five parts. MA, KK, JM and MD each received one-fifth. She left two- fifteenths on trust for the benefit of BA (the protective trust). The approximate value of this share is $930,000. She left one-fifteenth to her trustees on trust for BA’s four children (the children’s trust fund). The approximate value of this share is $465,000.
[2] BA was not happy. She applied to the Family Court for relief under the Law
Reform (Testamentary Promises) Act 1949 and the Family Protection Act 1955 (the
FPA).
BA v MA & ORS [2013] NZHC 3072 [20 November 2013]
[3] On 20 June 2013, the court dismissed both claims.1 The court also ordered that the costs of the Ministry of Social Development (which represented the two of BA’s children who are not yet adults) be paid out of the protective trust.
[4] The appellant now appeals against the dismissal of her FPA claim and the decision as to costs.
Facts
[5] The appellant is a 50 year old invalid beneficiary with recurrent mental health issues. She has been in receipt of this benefit since 1986. Her husband is also a beneficiary. The appellant and her husband have four children aged 23, 20, 19 and
17. They have no savings or capital assets. The couple have no other sources of income apart from the appellant’s parents when they were alive, and now the protective trust under her mother’s estate. The appellant suffers from a depression related illness and has been admitted several times to the mental health unit at New Plymouth hospital. She was admitted twice in 2010. Her husband is a diagnosed schizophrenic. He was hospitalised for this condition in 2010.
[6] In 1989, the appellant’s parents placed a deposit of $11,000 on a house for the appellant and her husband. The appellant and her husband were to meet the mortgage repayments and pay the rates on the property. At some point they fell into arrears on the mortgage repayments and it appears the appellant’s parents took over the payments. The appellant’s sister KK says that the house was not maintained and suffered ongoing damage. The appellant disputes the extent of the damage. The property was sold in 1997 and the appellant received either $22,500 (the appellant’s evidence) or $25,000 (KK’s evidence) from the proceeds of the sale.
[7] The appellant began receiving weekly payments of $60 from her mother in September 2005. This amount was increased to $100 per week in September 2007. It was then increased to $200. KK says that these payments were originally implemented in response to the appellant’s persistent requests of the deceased for financial support.
[8] The appellant has a long history of involvement with Child, Youth and
Family Services (CYFS). The following chronology sets out the key dates:
(a) February 1995: CYFS removed the appellant’s three eldest children from her home due to concerns that they were not receiving adequate supervision and care and were being exposed to domestic violence between the appellant and her husband.
(b) June 1995: The youngest child is born.
(c) January 1996: CYFS returns the children to the appellant’s care.
(d)March 1996: CYFS places the three eldest children with their paternal grandmother.
(e) May 1996: CYFS places the youngest child with his paternal grandmother.
(f) 21 November 1997: Custody order in favour of the paternal grandmother made for all four children.
(g)24 October 2001: CYFS is appointed sole guardian of all four children due to concerns that the appellant and her husband lacked the ability to properly care or make appropriate decisions for them.2 That order is still in place for the two youngest children.
(h)13 December 2003: Interim restraining order under the Children, Young Persons, and their Families Act 1989 made against the appellant in relation to all four children.
The relationship between the appellant and her mother
[9] The relationship between the appellant and her mother was predictably problematic at times. Ms Ruwhiu, a social worker involved with the family, filed an
affidavit in which she recalls having a telephone discussion with the deceased. The deceased said that:
(a) she loved the appellant;
(b) she did not have faith in the appellant’s ability to manage money;
(c) the appellant’s inheritance would need to be managed by another
person; and
(d) the appellant’s children would be provided for separately in her will
so that the appellant did not have access to that money.
[10] Ms Ruwhiu also referred to case notes by her supervisor, Ms Edmonds. Those notes made reference to:
(a) “standover tactics” used by the appellant to obtain money from her
mother;
(b)constant demands from the appellant and her husband for money from the deceased who, at 80 years of age, had had enough;
(c) requests for money to pay for a traffic fine;
(d)requests for money every time the appellant and her husband brought their children to see the deceased; and
(e) reference to an assault on the deceased by the appellant and her husband. The appellant’s husband was subsequently convicted of assault and received a community-based sentence.
[11] On 22 December 2005, a protection order was issued against the appellant and her husband in relation to the deceased, KK and KK’s husband and daughter. In her affidavit in reply, the appellant accepts that she made persistent requests for
money but says they were a result of her poverty. She denies that the requests amounted to abuse.
[12] The situation is complicated by the fact that in April 2004, the deceased gave KK enduring power of attorney in relation to her property and her personal care and welfare. Further, in April 2009, BA’s youngest sister MD commenced proceedings in the Family Court under the Protection of Personal and Property Rights Act 1988 challenging KK’s actions as her mother’s property attorney. These proceedings were not resolved at the time of the deceased’s death.
Previous wills
[13] The deceased executed at least one will prior to her final 2006 will. This was dated 18 September 2003. It is necessary to refer to this because the circumstances of its drafting go some way to explaining why the appellant’s mother took the approach she did with respect to the appellant’s share of the estate.
[14] The deceased’s solicitor, Mr Fitzgibbons, provided the Family Court with the instructions he was given by the deceased in relation to that will. He deposed that during their first meeting in August 2003, the deceased referred to the appellant’s “instability, relationships and past conduct”. Mr Fitzgibbons’ file note of the meeting recorded the following instructions from the deceased:
[BA] and [her husband] come frequently for money. [K] (the deceased’s husband) brought them a house, now gone. Both idle and demanding. [JA] has given them many amounts of money, but they make no progress and further demands.
[15] On 11 September 2004, the deceased told Mr Fitzgibbons to create a testamentary protective trust. She said that was the only way to ensure that the appellant and the deceased’s grandchildren would be properly provided for over the longer term. The deceased was quite sure that the appellant:
... would cut through any money left in her control in short order and with nothing of value to show for it.
The last will and the two trusts
[16] The last will of the deceased is signed and dated 23 January 2006. The executors and trustees of the deceased’s will are the appellant’s siblings, MA and KK, DB (a friend of the deceased) and Mr Fitzgibbons the solicitor. The will creates two trusts, the protective trust and the children’s trust fund. The will directs the trustees of the protective trust to:
(a) hold the appellant’s share of the residuary estate on trust for her
lifetime;
(b)use so much (and up to the whole) of the income and capital of the protective trust as they in their absolute discretion think necessary and appropriate for the maintenance, advancement and benefit of the appellant;
(c) accumulate income; and
(d) add what remains (if anything) of the trust corpus to the capital of her
children’s trust fund on BA’s death.
[17] The will directs the trustees of the appellant’s children’s trust fund to:
(a) use so much (and up to the whole) of the income and capital as the trustees think necessary and appropriate for the maintenance, education, advancement or benefit of such grandchildren;
(b) accumulate income; and
(c) divide what remains equally among the grandchildren at the distribution date, with a gift over in favour of great-grandchildren if their parent dies before the distribution date;
until all of the appellant’s children reach the age of 40 or die under that age (the
distribution date).
[18] The deceased emphasised that her primary concern was to provide the best possible education, upbringing and advancement in life to her grandchildren, and not necessarily to preserve the fund for distribution. The trustees of the children’s trust fund can distribute capital unevenly to one or more of the grandchildren according to their varying needs and abilities. If any of the grandchildren require special care or assistance, the trustees can apply whatever funds they consider necessary to alleviate that need without bringing the cost of doing so into account against that grandchild.
[19] Importantly, the will included a statement from the deceased that she created the protective trust and the children’s trust fund because the appellant:
has exhibited during my lifetime a general lack of stability and an irresponsible attitude towards money.
The Family Court decision
[20] Judge Courtney dismissed the appellant’s testamentary promises claim on the basis that the services provided by the appellant to her mother were limited, and did not go beyond the types of support that a daughter would ordinarily provide for her mother.3 This aspect of the Family Court decision has not been appealed.
[21] Judge Courtney also dismissed the appellant’s FPA claim. His Honour identified what in his view was the key question: was “provision for the appellant of a sum in the region of $930,000 by way of a protective trust adequate provision for her”.4
[22] The learned Judge rejected the argument that a testator or testatrix could not provide for an adult child using a protective trust. His Honour held that while such provision was unusual, that did not mean it was necessarily inappropriate. There can be good reason for such provision.5
[23] His Honour referred to Re Hardie.6 In that case, the testator provided for his three sons by nominating them as discretionary beneficiaries of the family trust. One
3 BSMA v MLA , above n 1, at [85] and [86].
4 At [90].
5 At [91].
6 Re Hardie [2002] NZFLR 229 (HC).
of the sons was also a trustee. The applicants were the remaining two brothers. As discretionary beneficiaries, the sons had no enforceable rights to either the assets or income of the trust and were reliant for any future benefit upon the discretion of the trustees. Harrison J held that the testator had, by this means, not discharged his moral duty towards his sons. It was unfair to leave the sons in a position of interdependence with the prospect of ongoing conflict over satisfaction of future
financial requirements.7
[24] Judge Courtney distinguished Re Hardie for two reasons. First, in that case the applicants were two of a wide number of discretionary beneficiaries. Here, the appellant is the sole beneficiary of the protective trust during her lifetime. Second, in Hardie the applicants’ relationship with their brother was “extremely strained”. His Honour noted that in the present case, KK (the sister with whom the appellant had most conflict) had apparently resigned as a trustee and, although MA remained a trustee, there were two further independent trustees.
[25] Judge Courtney also referred to the following passage from Law of Family
Protection and Testamentary Promises:8
Each case involving a family trust is likely to turn on the particular circumstances. Where an independent trustee or trustees are involved and there is no suggestion that they will not carry out their duties impartially a Court is likely, as in Flathaug v Weaver, to give weight to the provisions made by the trust deed. In other cases, where there is some evidence that the trust may not operate in his (sic) way the Court may, as in Re Hardie, take a different view.
[26] Judge Courtney then turned to the submission that the appellant is capable of appropriately managing her inheritance. His Honour noted that two of her sisters, MD and JM, supported her claim. His Honour placed considerable weight on a concession by the appellant’s lawyer that, if the protective trust is appropriately administered then the provision for the appellant would meet her needs.9 The
learned Judge continued that:10
7 At [37].
8 WM Patterson Law of Family Protection and Testamentary Promises (4th ed, LexisNexis, Wellington, 2013) at [4.20].
9 BSMA v MLA, above n 1, at [102].
10 At [104].
Even if there were not that acknowledgement ... I am of the view that the provision for the claimant by way of the protective trust is appropriate. The deceased was in an extremely good position to assess the applicant’s ability with money due to her involvement with her over the years. She saw good reason to differentiate between the applicant and her other children. The dire financial circumstances which the applicant relies on to support her claim can equally be relied upon to support the deceased’s decision to make provision in the way that she has. The deceased had good reason to come to the conclusion she expressed in three of her wills that the applicant had “... exhibited a general lack of stability and an irresponsible attitude towards money”.
[27] His Honour concluded that:11
The provision of a sum in excess of $900,000 on a protective trust for the applicant in the circumstances of this case cannot be said to amount to a breach of the deceased’s moral duty to the applicant.
[28] The learned Judge was also mindful of the difficulties experienced by the appellant in approaching the trustees for financial assistance. All approaches to date had been turned down. His Honour held that any such issues must be addressed under the Trustee Act 1956.12
Applicable principles
[29] A claim against the estate of a deceased person is made under s 4 of the FPA. Section 4 provides that where any deceased does not make adequate provision from their estate for the proper maintenance and support of claimants, the claimant may seek from the court such provision and the court, in its discretion, may order any provision it thinks fit.
[30] The court’s approach to the assessment of proper maintenance and support is set out in Williams v Aucutt,13 Auckland City Mission v Brown,14 and Henry v Henry.15 The relevant principles were recently restated by the Court of Appeal in
Fisher v Kirby.16
11 At [105].
12 At [101] and [103].
13 Williams v Aucutt [2000] 2 NZLR 479 (CA).
14 Auckland City Mission v Brown [2002] 2 NZLR 650 (CA).
15 Henry v Henry [2007] NZCA 42, [2007] NZFLR 640.
16 Fisher v Kirby [2012] NZCA 310.
[31] The basic principles are well settled. The question is whether there has been a breach of moral duty judged by the standards of a wise and just testator or testatrix, and, if so, what is appropriate to remedy that breach. The onus is placed on the applicant to establish such a breach. Where a breach of moral duty is established, the award should be no more than is necessary to repair the breach. A deceased’s moral duty is assessed at the date of death, but regard may be had to later events
when deciding how any established breach should be remedied.17
[32] The question involves a broad inquiry. Support includes providing recognition of the emotional relationship between the claimant(s) and the deceased, as well as provision for financial or economic need.18
[33] Relevant factors in assessing the existence and extent of a moral duty include:19
(a) the size of the estate;
(b) any competing moral claims to the estate;
(c) changing social attitudes regarding what would constitute fair provision; and
(d) moral and ethical considerations.
[34] The overall inquiry is intensely fact and context specific.20 To interfere, the court must identify a demonstrable and unmet need for support. Mere unfairness is not sufficient to warrant disturbing a testamentary disposition.21
The respondent’s submissions
[35] Counsel for the respondent did not address any of the substantive issues in this appeal, submitting only that the Family Court decision was correct in both fact
17 Little v Angus [1981] 1 NZLR 126 (CA) at 127.
18 Williams v Aucutt, above n 13, at [52].
19 Little v Angus, above n 17, at 127.
20 Carter v Carter [2013] NZHC 1071 at [41].
21 Fisher v Kirby, above n 16, at [119].
and law. Counsel for the Ministry of Social Development emphasised cases that confirmed there is no legal obligation to provide an adult child with a capital sum.22
The appellant’s submissions
[36] Mr Wilson’s three substantive arguments are that:
(a) the establishment of the protective trust was an improper delegation of
the deceased’s moral duty;
(b)the protective trust does not adequately provide for the maintenance and support of the appellant; and
(c) the protective trust was not necessary.
First submission: improper delegation of moral duty
[37] Mr Wilson submitted the deceased improperly delegated her moral duty to provide for the appellant to the trustees of the protective trust.
[38] Mr Wilson referred to a number of decisions: re Wilson,23 re Harkness,24
Benson v Gallagher,25 Creser v Creser,26 Mills v New Zealand Insurance Company
Limited,27 and re Bendien28 – all cases involving discretionary trusts.
[39] Mr Wilson argues these cases show that generally a testatrix cannot satisfy her moral duty by means of a discretionary trust. Although in Mills and Re Bendien the court took into account provision by means of a discretionary trust, they are distinguishable because in each case the deceased had also made separate provision for the claimant. Mr Wilson submitted that to provide for the appellant solely by
way of a trust of which she is a discretionary beneficiary necessarily breaches the
22 BDS v Public Trust as executor of the estate of MJC FC Auckland FAM-2010-090-1974,
17 November 2011 at [20] citing Imms v Gunson [2009] NZFLR 596.
23 Re Wilson [1973] 2 NZLR 359 (CA).
24 Re Harkness HC Christchurch M322/97 & M634/97, 30 October 1998.
25 Benson v Gallagher HC Napier CP19/01, 19 June 2002.
26 Creser v Creser HC Wellington CIV-2005-485-2157, 11 May 2006.
27 Mills v New Zealand Insurance Company Ltd [1958] NZLR 356.
28 Re Bendien (1991) 8 FRNZ 108 (HC).
deceased’s moral duty. The remedy is to award the appellant her two-fifteenths share of the estate outright.
Second submission: protective trust inadequate
[40] Mr Wilson submitted the protective trust is inadequate because the appellant can only require the trustees to consider making a distribution to her. She has no other enforceable rights. A discretionary beneficiary has no legal or equitable interest in the assets of a discretionary trust until the trustees exercise their discretion in that beneficiary’s favour.29 Until that point, a discretionary beneficiary’s interest
is merely an expectation or hope.30
[41] Mr Wilson argues the poor relationship between the appellant and the trustees means that there is a real risk that the trust will not benefit the appellant to the extent that she is required to be protected under the FPA. Mr Wilson argues that:
(a) all of the appellant’s approaches to the trustees have been turned down;
(b) DB is aligned with KK; and
(c) there is a claim but no evidence that KK has resigned as a trustee. [42] The two remaining trustees are Mr Fitzgibbons and MA.
[43] Mr Wilson also submitted that the trustees are further instructed to act against the wishes of the appellant because, even in administrating the protective trust, they are required to consider the interests of the appellant’s children.
Third submission: protective trust unnecessary
[44] Mr Wilson submitted there was insufficient evidence to support
Judge Courtney’s conclusion that the appellant exhibits a “general lack of stability
29 Nation v Nation [2005] 3 NZLR 46 (CA) at [74].
30 Hunt v Muollo [2003] 2 NZLR 322 (CA) at [11].
and an irresponsible attitude towards money”.31 That conclusion was integral to his Honour’s finding that a protective trust is necessary. The appellant accepts his Honour’s summary of:
(a) her mental health condition; (b) her involvement with CYFS;
(c) her difficult financial circumstances; and
(d) the deceased’s belief that she has an irresponsible attitude to money.
[45] But Mr Wilson submitted that these facts do not justify the need for a protective trust. In particular, he argued that the appellant’s lack of financial progress is a reflection of the fact that she and her husband have been beneficiaries for most of their lives and that her involvement with CYFS was a result of her mental health condition and did not relate to her ability to manage her finances.
[46] Mr Wilson submitted that a protective trust is not necessary because:
(a) the appellant’s general practitioner states that “she appears competent to manage her own financial affairs with appropriate advice and guidance”;
(b) the appellant intends to obtain and act on legal and accounting advice;
(c) the appellant’s application was supported by her two sisters, MD and JM. Both women describe her as an intelligent person capable of managing her own money;
(d) the deceased and her husband were multi-millionaires and “no doubt”
assisted all of their children regularly when called upon; and
31 BSMA v MLA, above n 1, at [104].
(e) apart from the provision of a house, there is no evidence that the
appellant’s parents provided her with any significant capital sums.
[47] Mr Wilson concludes by submitting that a protective trust should only be upheld where there is a clear and demonstrable need for protection of the claimant and that is not the case on the facts here.
Subsidiary issues
[48] Mr Wilson raises three subsidiary issues. First, he accepts that an interim restraining order was made against the appellant in respect of her children on
13 December 2003. By way of response, he submits that the restraining order was discharged on 27 February 2004 and that no evidence is given as to the basis upon which the restraining order was established.
[49] Second, Mr Wilson highlights that Ms Ruwhiu’s affidavit is based on notes made by Ms Edmonds that have not themselves been filed as evidence. He submitted that most if not all of the information may have come from KK and therefore the court should not give the information any weight to the extent that it is disputed by the appellant.
[50] Finally, Mr Wilson refers to [39] of the decision, which states that a letter of support from the appellant’s eldest son was not filed. He (rightly) submitted that a letter of support from the appellant’s eldest son was in fact annexed to the first affidavit of the appellant dated 14 December 2012.
Standard on appeal
[51] The question of whether or not there was a breach of moral duty by JA is appropriately assessed on appeal in accordance with the principles discussed in Austin, Nichols & Co Inc v Stichting Lodestar.32 I must therefore consider the case afresh but attach such weight as I consider appropriate to the Judge’s decision at first
instance. That is the approach I will take.
32 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141. See
Moon v Carlin HC Auckland CIV-2010-404-5486, 23 February 2011.
Discussion
Subsidiary issues
[52] I deal with the subsidiary issues raised by Mr Wilson first, before turning to the substantive arguments. I accept Mr Wilson’s submissions in respect of the restraining order and the letter of support from the appellant’s eldest son. Mr Wilson’s concerns in relation to Ms Ruwhiu’s affidavit are also valid. In any case, to the extent that the affidavit refers to the deceased’s intentions, it only confirms the evidence of Mr Fitzgibbons and DB. I have placed little weight on references in the Ruwhiu affidavit to actions by the appellant and her husband towards the deceased. The courts have generally set a high threshold for excluding provision on grounds of disentitling conduct by a claimant child. Disentitling
conduct requires:33
deliberate malice directed toward the testator or committing serious criminal offences with no remorse or ignoring or neglecting the testator over a period of time.
[53] Even if the allegations in the affidavit are true, the behaviour of the appellant and her husband does not reach that high threshold.
Improper delegation
[54] Turning to the substantive arguments on appeal, the first question is whether duties under the FPA can be delegated to a discretionary trust. Mr Wilson submitted they cannot. The cases cited by Mr Wilson provide guidance on the way in which courts have dealt with discretionary trusts in the context of family protection claims. But, for the most part, they do not involve protective trusts.
[55] In Re Wilson, the testator and his wife both had severe disabilities.34 The testator’s estate was worth $6,500. The testator did not think that his wife was capable of managing money, despite contrary medical evidence from his doctor, and
his wife’s doctor.
33 Horton v Wakeham FC Porirua FAM-2006-091-407, 18 May 2007 at [39].
34 Re Wilson, above n 23.
[56] Under the will, his widow received a car worth $250 and furniture. The will directed a trustee to hold the residue of his estate on trust for his widow and to provide the widow with income for life (at a rate of about $5 per week). The trustee had an absolute discretion to distribute additional capital to the widow. At the widow’s death, the assets of the trust would go to the testator’s nephews and nieces.
In the leading judgment, McCarthy P held that:35
There are without doubt cases where, when a testator has adequately met his responsibilities in all areas except one, the needs of that one can from all points of view best be met by a discretionary trust... But in the more usual case a testator cannot off-load his responsibility to make adequate provision for those having moral claims on him by the creation of a discretionary trust in his trustee.
The Court of Appeal awarded the whole of the estate to the widow.
[57] In Re Harkness, the testator’s will bequeathed to his wife $100,000 and a life interest in his home.36 He also bequeathed each of his two children $100,000. He left the residue to a family trust. The testator’s widow, children, grandchildren and any charities (to be chosen by the trustees) were discretionary beneficiaries of the trust. The testator’s intention was to fulfil his moral duty by providing immediate and long term provision to his widow and children.
[58] Unusually, the will was made on the mistaken assumption that the deceased’s estate was then about $800,000. The estate was actually worth $1.9 million. The value of the residue placed in trust was therefore greater than had been intended. The widow and the deceased’s two children all made FPA claims.
[59] Panckhurst J cited Re Wilson as authority for the proposition that it is now settled law in New Zealand that a testator cannot off-load his moral responsibility to make adequate testamentary provision by establishing a discretionary trust. In relation to the widow’s claim, Panckhurst J distinguished Re Wilson on the basis that the testator had provided a house and a legacy and had established the trust as a back
stop. In these circumstances:37
35 At 363.
36 Re Harkness, above n 24.
37 At 681.
The testator had not delegated his moral duty. In reality, he gave careful consideration to the disposition of his estate. His intention was to establish a balance between immediate personal provision under the will and leaving the remainder on trust.
[60] Panckhurst J held that if the testator had known the true value of his assets he would have left a greater legacy. The testator’s wife received an additional $50,000 and his children received an additional $100,000 each.
[61] In Benson v Gallagher the testator’s will disposed of his estate into a trust.38
The beneficiaries were a number of specified people but in reality the beneficiaries were intended to be only the five children and the grandchildren of the testator. The trustees of the trust were the testator’s friend and his solicitor. The testator’s aim was to ensure that his grandchildren, whom he viewed as most in need, were provided for.
[62] The following approach taken by Gendall J is instructive:39
What provision constitutes proper support is always to be a matter of judgment in all the circumstances of a particular case. They include age, health, financial provision of claimants, any advantages they received during the deceased's life time, their reasonably foreseeable need, their relationship with the deceased, the size of the estate, competing moral claims, the manner in which an estate is acquired and all relevant surrounding circumstances.
[63] In ordering that the residue of the estate be distributed equally to the
testator’s five children in fulfilment of the testator’s moral duties Gendall J said:40
The fact that the children of the deceased were nominated as discretionary beneficiaries of the Family Trust could not result in a discharge of the deceased's moral duty towards them especially as the questions of if, when and how they receive any income or capital (if any) fell to the absolute discretion of the Trustees. The children had, and have, no enforceable rights to either income or capital of the Trust.
[64] The only case cited by Mr Wilson that involved a protective trust was Creser v Creser41. In that case, the testatrix established a protective trust for her son John.
The trustees were directed to provide John with maintenance and support during his
38 Benson v Gallagher, above n 25.
39 At [20].
40 At [28].
41 Creser v Creser, above n 26.
lifetime. Upon his death, the assets of the trust were to be applied for the benefit of John’s children. The protective trust was established because the testatrix believed John had substantial debts and was concerned that leaving capital to John would benefit only his creditors. It transpired that the testatrix was mistaken as to the claimant’s financial position. In fact, he did not have any debts.
[65] Miller J accepted evidence that the discretionary protective trust meant John was unlikely to receive the benefit intended by the testatrix. It was likely that part of his share would be held for John’s children. In awarding John his one third share absolutely, Miller J said:42
The provision made for John is materially less in substance that the one-third share of the residue that Mrs Creser had in mind and it represents a breach of her duty to him in circumstances where his needs are immediate and significant.
[66] Creser is not authority for the proposition that duties under the FPA cannot be delegated to a discretionary trust. Miller J granted relief primarily because the testatrix was mistaken as to the need for a protective trust.
[67] Mr Wilson identified two High Court cases where provision by means of a discretionary trust was taken into account when assessing whether the testator’s moral duty had been fulfilled.
[68] In Mills v New Zealand Insurance Company Ltd, the testator gifted his assets worth £1,650.00.43 The residue of his estate, which was worth approximately
£13,200.00, was placed on trust. The widow’s interest in the trust entitled her to
£485.00 per annum as well as the right to live in the relationship home for the remainder of her life. The trustee was also given an absolute discretion to pay capital out of the trust to the widow if the residue did not provide sufficient maintenance. There was evidence that the house was old and that the cost of maintaining it would make unreasonable demands on the widow’s resources.
Barrowclough CJ held that the widow had been adequately provided for by the
42 At [42].
43 Mills v New Zealand Insurance Company Ltd, above n 27.
testator. The testator had not, however, provided for the purchase of a replacement home. In concluding, his Honour said:44
I am bound, in considering the adequacy of the provision made for his widow by this testator out of the estate of which he was possessed, to take some account of the discretionary trust which he created ... It confirms my conclusion that, save in the one respect already mentioned, the will makes adequate provision for the applicant.
[69] The court empowered the trustee to sell the relationship home and apply the proceeds and any additional capital required to purchase a more suitable home.
[70] In Re Bendien, the testatrix left her house to her widower and $3000 to each of her three children.45 Her widower decided to settle the house on trust for the sole benefit of the testatrix’s children and grandchildren. The trust deed contained a date of appropriation (1 August 2006). On that date, the trustees had an absolute discretion to pay any living children any amount of shares or, in the default of such a determination, to pay the remaining children equal shares. The children made a
claim under the FPA. Wylie J held that the deceased’s breach of her moral duty had been remedied by her widower’s actions provided that the capital of the trust was distributed fairly and justly.
[71] Taken together, these cases do not establish that duties under the FPA cannot be delegated to a discretionary trust. Rather, they show that what constitutes proper support will depend on all the relevant surrounding circumstances.46 That was the approach applied in BDS v Public Trust as executor of the estate of MJS, a case involving a protective trust 47 In that case the testatrix was survived by her adopted son BS. BS was a sickness beneficiary in his 50s. He had several criminal convictions but had not offended for a number of years. He lived in a Housing New Zealand house and had no significant assets. He was an alcoholic, however he
maintained he had been sober for many years apart from a relapse in 2008.
44 At [360].
45 Re Bendien, above n 28.
46 Benson v Gallagher, above n 25, at [20]. See also WM Patterson Law of Family Protection and
Testamentary Promises (4th ed, LexisNexis, Wellington, 2013) at [4.20].
47 BDS v Public Trust as executor of the estate of MJS, above n 22.
[72] Under the deceased’s will, the bulk of her estate was distributed to the BDS Inheritance Trust. The sole beneficiary of the trust was BS during his lifetime. The testatrix signed a memorandum of wishes that said she provided for BS in this way because of her concerns about his ability, given his past history, to make decisions and handle funds responsibly. The court held the deceased did adequately provide for BS by nominating him as the sole discretionary beneficiary of the trust. There was no basis to assume that the independent trustee would not properly exercise its discretion for the benefit of BS in the future.
[73] By way of contrast the same approach was taken to produce a different result in Parsons v New Zealand Guardian Trust Company Ltd.48 In that case the testator distributed 40 per cent of the residue of his estate to a family trust. In his will, the testator said the trust was set up to provide a secure future for the applicant, his daughter. In particular, the testator was concerned that the applicant’s inheritance would be mismanaged by her husband. However, the applicant had separated from
her husband. The court concluded that the need for the protective trust had now passed and redistributed the residue of the estate.49 The applicant received 80 per cent of the residue outright. The remaining 20 per cent was distributed to her two children in equal shares.
[74] BDS v Public Trust and Parsons v New Zealand Guardian Trust Company Ltd show that Judge Courtney was correct to view provision by way of a protective trust as unusual, but not necessarily inappropriate. Here, the appellant takes issue with the manner of provision under the will, rather than the amount of provision. She is an adult of full capacity, there must be good reason to displace the presumption that she should receive her inheritance outright, rather than by way of a protective trust.
[75] What then is the evidence of the need for the paternalistic approach taken? The deceased clearly explained why she established the protective trust in her will:
[BA] has exhibited during my lifetime a general lack of stability and an irresponsible attitude towards money.
48 Parsons v New Zealand Guardian Trust Company Ltd [2008] NZFLR 933 (FAMC).
49 At [64].
[76] According to Mr Fitzgibbons, the deceased believed the appellant would “cut through any money left in her control in short order and with nothing of value to show for it”. He said the deceased believed a protective trust was the only way of “assuring that BA does not waste her inheritance but is provided for, and for protecting her grandchildren”.
[77] DB (a trustee of the protective trust), also gave evidence of the deceased’s
wishes. He deposed that:
From discussions with [JA] I know she was adamant that [BA’s] children would inherit their share of her estate separately from [BA]. This was due to [BA’s] instability and inability to handle money. This was also the reason [JA] wanted [BA’s] share to be disbursed to her over time and not in one lump sum.
[78] It is also relevant to some extent that the appellant has a history of mental health problems. Both she and her husband have been hospitalised for serious mental health problems in the past. The evidence is also that she has had difficulty in the past managing her household (as evidenced by her involvement with CYFS), and with parenting.
[79] Two of the appellant’s siblings KK and MA support the deceased’s establishment of a protective trust for the appellant. They are both trustees as I have said.50 KK’s evidence is that:
[BA’s] entrenched inability to manage money, erratic behaviour and poor decision making are the reasons my Mother decided to treat [BA] and her family differently from the rest of us in her will.
[80] MA agreed with the contents of KK’s affidavit, saying that:
[BA’s] inability to manage her financial affairs and take heed of budgetary advice over many years must be taken into account.
[81] Mr Wilson submitted the appellant’s financial position speaks to her long
term poverty as much as anything else. He said the appellant has never had a substantial amount of money to manage. The appellant kept up with the mortgage
50 Or in KK’s case, a former trustee (allegedly).
payments for the house purchased for her in 1989 until her benefit was reduced in
1995 when, by reason of that reduction, she lost the capacity to make payments.
[82] The appellant said the only reasonably large sum of money she has had the opportunity to manage was the proceeds of the sale of the house (which was between
$22,500 and $25,000). Her evidence is that she spent this money wisely over a period of one and a half years before the modest fund was finally exhausted.
[83] Two of the appellant’s sisters support her. MD deposed that:
[BA] has the ability of being capable of handling money ... the problem is that she has never been given anymore than a shoe string to try to survive on with her meagre welfare pension.
[84] JM said the appellant “is an intelligent person” who is “quite capable of managing her own money”.
[85] The appellant’s doctor agreed (for what it is worth). He said:
[BA] has been a patient in my practice for the past 15 years. Currently she appears competent to manage her own financial affairs with appropriate advice and guidance.
[86] The appellant’s claim is also supported by her two eldest children.51
[87] On one hand, the evidence of the appellant’s inability to manage her finances is old and she is supported in this appeal by two of her siblings, her doctor, and two of her children. On the other hand, the deceased clearly and forcefully expressed her assessment of the appellant. And the deceased is supported by two of her children, MA and KK. As Judge Courtney observed, the deceased was in “an extremely good position to assess the applicant’s ability with money due to her involvement with [the
appellant] over the years”.52 That assessment should be given considerable weight.
51 I note that it is not known whether the two eldest children received independent legal advice prior to writing their letters. Judge Courtney was told by the appellant’s counsel during a judicial conference that the two eldest children had an appointment to see a lawyer that day regarding the proceedings. Judge Courtney directed that if either of them wished to file affidavits they were to be filed by 26 November 2012. No affidavits were filed by either of the children.
52 BSMA v MLA, above n 1, at [104].
[88] I am satisfied that there remains good reason for the protective trust at this stage.
[89] The appellant’s history of serious mental illness (together with that of her husband) and the steps taken by CYFS to extract all of her children from the home speak to deep underlying problems that may well be being managed better now, but cannot have simply disappeared over the intervening years. There is something in the point that the appellant’s difficulties in money management could be a problem of poverty not inability. But in light of serious problems in her background, the appellant would need to prove that the cause was the former and not the latter. There is just too much risk in a bad judgement call being made by me at this stage due to lack of reliable information.
Adequate maintenance and support
[90] The next question is whether the terms of the protective trust allow the trustees to exercise their powers in too arbitrary a fashion even if a protective trust is still required.
[91] Mr Wilson submitted that the terms of the trust provide inadequate maintenance and support because first, the trustees are required to consider the interests of the appellant’s children in exercising their discretion and second, the appellant can only require the trustees to consider making a distribution to her. She has no enforceable rights to require any kind of distribution in her favour.
[92] Turning to the first submission, the nomination of the appellant’s children as final beneficiaries of the trust does not mean the trust does not provide adequate provision to the appellant. The deceased’s intention is clearly expressed. The trustees can use up to the whole of the fund for the benefit of the appellant. When the appellant dies, “the remainder (if anything) is to be given to the children’s trust fund”. A separate trust was created to provide for the appellant’s children. Taking these factors together, the trustees could be in breach of their fiduciary duties if they prioritised the interests of the children to BA’s detriment in their administration of this protective trust.
[93] Turning to the second submission, it is true that trustees have an absolute discretion in deciding whether to distribute income or capital to the appellant. But that is not determinative. The real issue here is whether the relationship between the appellant and the trustees means there is a risk the appellant will not be adequately provided for.
[94] The trustees are currently distributing $200 per week or just over 1.1% of the value of the protective trust’s corpus to the appellant per annum. As a result, the appellant lives in abject poverty. MD deposed that the appellant is living in substandard housing. JM said:
[The appellant] is in desperate circumstances. She has very poor health and she is living in slum like accommodation which is hazardous to her health attributing to having a severe effect on her overall health and well being.
[95] It is clear from the deceased’s conversations with DB and Mr Fitzgibbons that it was not her intention to lock the appellant into this kind of life. Mr Fitzgibbons’ evidence was that the deceased set up the protective trust to ensure the appellant does not waste her inheritance ‘and is provided for.’
[96] Given the concerns both I and Judge Courtney expressed about the appellant’s underlying self-management issues, and my concern with current levels of support for her, it seems to me that a compromise needs to be found for the medium term at least.
[97] Current distributions are woefully inadequate but transfer of the entire bequest is fraught with difficulty, at least until the appellant is able to establish positively that she is sufficiently and permanently in a good enough space to handle a permanent capital distribution of the entire corpus of the trust. My instinct is to move carefully and conservatively toward that goal.
[98] Section 4 of the FPA gives the court a wide discretion to intervene in the terms of the deceased’s will where adequate provision is not available for the proper maintenance and support of the claimant. Section 5 of the FPA provides that the court may attach such conditions to any order as it sees fit. The court may also order provision by way of periodical payments. I propose therefore to order that the
trustees distribute no less than 5% of the value of the trust corpus to the appellant annualised. This should amount to around $1,000 per week if the entire value of the trust is held intact. That order is without prejudice to any decision the trustees may wish to make over the next 12 months to distribute such capital sums from the corpus as they deem fit. For example, the purchase of a modest home on the appellant’s behalf (and with her consent) may well be a matter for consideration over the next 12 months, although that will of course reduce the level of income payable to her. My aim in making this order is to ensure that the appellant gets a reasonable proportion of the trust’s annual income for her ongoing needs.
[99] The matter is adjourned for 12 months to see how well that new regime operates to the benefit of the appellant, and whether the trustees and the appellant are able to work together for her benefit. It may be that, at the end of 12 months, the trust can be discontinued but that will depend on how well the next 12 months goes. Leave is reserved for the appellant to make an application for variation or discharge of the order at the expiry of 12 months accordingly.
[100] The appeal is allowed to that limited extent.
Costs
[101] Judge Courtney ordered that the costs of the Ministry of Social Development be paid out of the protective trust.
[102] The appellant submitted that the costs of the Ministry of Social Development should be paid out of the residue of the estate rather than from the protective trust. The appellant advises that the cost of the Ministry of Social Development’s involvement totalled $41,136.68.
[103] Counsel for the Ministry of Social Development submitted that it was the appellant’s original challenge to the one-fifteenth that was left to her children that precipitated its involvement. Its costs should therefore be borne by the protective trust. The respondent echoes that submission.
[104] The costs of and incidental to any proceeding or any step in the proceeding are at the discretion of the court.53 In the context of Family Court proceedings, the range of general considerations that a court may have reference to in the exercise of its wide discretion include:54
(a) the outcome of the proceedings; (b) the matters in issue;
(c) the way the parties (and their legal advisors) have conducted the proceedings;
(d)whether the proceedings were made unnecessarily complex and protracted because of stalling tactics or procedural ploys adopted by a party;
(e) the means of the parties;
(f) the actual costs incurred by the parties; and
(g) the overall interests of justice.
[105] Here, the appellant has been partially successful. The court has ordered a minimum annuity be distributed to her from the protective trust. She also has leave to apply for a variation in 12 months. This was a valid claim, brought in good faith. The costs of the appellant and the respondent should therefore be paid out of the residue of the deceased’s estate.
[106] I turn now to whether the costs of the Ministry of Social Development’s involvement should be borne out of the protective trust. It was finely balanced whether the appellant’s two-fifteenths share of the estate ought to be distributed to her outright. But whether the one-fifteenth share used to establish the children’s
trust fund ought to be distributed to the appellant was more clear cut. The Ministry
53 High Court Rules, r 14.1.
54 R v R [Costs] [2005] NZFLR 461 (FAMC) at [8].
of Social Development’s involvement was perhaps unnecessary. The appellant was unsuccessful on this aspect of her claim.
[107] On the other hand, the costs incurred by the Ministry of Social Development ran to over $40,000. That is a substantial chunk of the capital of the protective trust. Taking into account the relative means of the parties and the outcome of this particular issue, I consider that it is in the overall interests of justice for half of the costs incurred by the Ministry of Social Development to be paid out of the protective
trust. The remainder is to be borne out of the entire estate.
Williams J
Solicitors:
R Wilson, New Plymouth
Nicholsons, New Plymouth
C&M Legal, New Plymouth
C&M Legal, New PlymouthC&M Legal, New Plymouth
0
3
0