Elder law & succession: August 2024

Mutual wills agreement

In 1993, Kurt Miglic and his second wife Marilyn made wills that were in substantially similar form. Kurt left his estate to Marilyn with gift-over to his two children, Lisa and Andrea. Marilyn left her estate to Kurt with gift-over of $20,000 to her nephew and nieces – Stephen, Victoria and Louise – and the balance to Lisa and Andrea. Kurt died in 2007 after some years of senility and Marilyn inherited his entire estate pursuant to his 1993 will. She also took ownership of their matrimonial home (the ‘home’) by right of survivorship.

Marilyn made wills in 2001, 2005, 2011, 2014 and 2018. She died in 2020. Under Marilyn’s 2018 (and final) will, the home was left equally to Stephen, Louise, Victoria, Andrea and Lisa. The home was later sold for $11.5 million and was by far Marilyn’s most valuable asset. Some gold items were left to Andrea, and she also received assets in a superannuation fund for which she was the nominated beneficiary. The balance of Marilyn’s estate was divided between Andrea, Victoria and Louise.

Lisa and Andrea contended that Kurt and Marilyn made a binding agreement in 1993 that they would not change their wills without the other’s consent. There were a number of obstacles to that claim succeeding. It was an allegedly oral agreement made between persons who had since died. The agreement was not mentioned to the solicitor who prepared the wills, something the Court described as ‘somewhat surprising’ and ‘odd’ (Re Miglic [2024] VSC 20 (Gorton J) at [26] and [118]).

Further, ‘[t]he fact that a couple make wills in corresponding form that ultimately leave their estates to the same beneficiaries is not, of itself, sufficient reason to conclude an associated intention that neither is able to make a new will in the absence of the other’s consent….It may be that they instead rely on each other’s good sense and on the trust they have for each other to make good and fair decisions in any subsequent wills. This is because a legally binding agreement would, among other things, preclude a surviving partner from making a different will in the event that there were a change of circumstances such as, for example, a person unexpectedly dying or suffering some misfortune, or the asset pool changing substantially’ (at [9]).

Nevertheless, the Court concluded that Kurt and Marilyn had made a contract in 1993 that neither could change their wills without the consent of the other because of various facts, including (at [117]):

• the good relationship between Marilyn, Andrea and Lisa;
• Marilyn had no children of her own;
• Kurt changed his previous testamentary arrangements to leave his children’s inheritance entirely dependent on Marilyn;
• Kurt subsequently explained that he wanted to leave his estate on trust to Marilyn for life but Marilyn had not been prepared to accept this, and they reached the mutual will arrangement as a compromise;
• Kurt subsequently explained he could not change his will without Marilyn’s permission; and
• Marilyn’s conduct in making various later wills could be explained as either ‘she may have mistakenly felt herself free to do so, or she might have deliberately acted contrary to what she understood was an agreement she had previously reached’.

The Court declared that the executors of Marilyn’s estate held it on trust to give effect to the will made in 1993. This decision is being appealed.

Avoiding a void gift to an attesting beneficiary

A retired real estate agent prepared and attested Alan Hooper’s last will. It was also attested by his sole beneficiary. Accordingly, the disposition to the beneficiary was made void by section 10(2) Succession Act 2006 (the ‘Act’), unless a relevant exception could be established. The beneficiary relied on s 10(3)(c), by which the gift is not void if the court is satisfied that it was given or made freely and voluntarily by the testator. The Court, in Walters v Dawson [2024] NSWSC 570 (Hammerschlag CJ in Eq), was satisfied so. This was based on the deceased and beneficiary being in a de facto relationship, the consequence of intestacy producing the same result, statements by the deceased to the beneficiary, the evidence of an impartial witness about the testator’s testamentary wishes, and the retired real estate agent’s admitted ignorance of s 10 of the Act (at [7] – [10]).

Executor waiving client legal privilege

The primary issue in Pirrottina v Pirrottina [2024] NSWSC 558 (Peden J) was whether one son, Sam, could enforce against Rocco – his brother, a co-executor and joint beneficiary of their parent’s estate – promises made by the parents to Sam before their death that they would give him a part of their farm. A subsidiary issue was whether Rocco could have access to his parents’ communications in relation to their wills where Sam opposed access.

The Court explained that client legal privilege continued after death for the benefit of the deceased’s successors in title until waived by a person or entity competent and able to waive it, such as the deceased’s executor or administrator (at [5]). The executor owes fiduciary obligations to the beneficiaries of the estate which include avoiding conflicts, or potential conflicts, between the executor’s personal interests and the interest of the estate which he is bound to protect (at [6]). Similarly, an executor is not entitled to be indemnified out of the estate for costs incurred to further the executor’s personal interest, as opposed to administration of the estate (at [8]).

As Rocco did not intend to use the documents for the purposes of administering his parents’ estates but sought them to understand the testamentary intention of the parents in relation to the equitable interest sought to be established by Sam, the waiver of the parents’ privilege would be for the purpose of advancing Rocco’s personal interests. Accordingly, ‘[w]hile Rocco may be entitled, as an executor, to waive privilege, doing so in this instance would not be a waiver with a view to discharging his duties as executor, nor would it be in the interests of the beneficiaries per se, but in his own interests’ (at [10]). The Court was not satisfied that Rocco (or Sam) should be permitted to access the privileged documents and thereby abrogate the fundamental protection afforded to the parents by privilege.

Elder financial abuse: acting without authority

QZH is 89 years old and is of Greek heritage. He lives with his spouse, UBH, in a house in southwest Sydney owned by one of the couple’s two sons, KAH. They share the house with OYH, their other son, while his own property in west Sydney is being rebuilt. OYH is his enduring attorney. KAH made application for a financial management order for his father.

The information provided to the Civil and Administrative Tribunal of NSW was that the couple had a net worth in 2019 of about $2 million but it was now in the order of $750,000 (QZH [2023] NSWCATGD 21 at [40]). OYH explained that the money had primarily been used to fund the building works at his property in west Sydney, where the couple would move (along with him) on completion, and cared for by him. He stated that the arrangement for his parents to assist him with the building works was agreed with his father, and the couple approved, because it offered them long-term accommodation in a caring family environment (at [41]).

The Tribunal observed that the enduring power of attorney did not contain any provision that expressly provided for the attorney to provide benefits to himself from the estate of the grantor of the instrument. Accordingly, the attorney was not authorised to confer such a benefit on himself pursuant to s 12 of the Powers of Attorney Act 2003 (NSW) (at [44]). The Tribunal considered there was ‘a credible possibility, to put it at its lowest, that OYH has been acting outside his authority under the relevant enduring powers of attorney in order to confer a financial benefit on himself’ (at [46]).

It concluded there was a need for someone to manage QZH’s affairs and it was in the best interests of QZH that a financial management order be made.

Elder financial abuse: unconscionable conduct and undue influence

A 92-year-old ill mother transferred two parcels of Sydney real estate to one of her daughters in-law, Jenny, for $1 each, and another parcel of Sydney real estate to one of her granddaughters, Krystina, for $1. The mother paid the transactions costs involved with the transfers. The mother lived with one of her sons, Kevin, his wife, Jenny and daughter, Krystina at the time of the transfers. The transfers were prepared by a solicitor who signed as the transferees’ solicitor. The mother’s only other asset of significant value was her home.

After her death, one of her sons, Stan, brought a derivative action on behalf of the estate against Jenny and Krystina seeking to set aside the transfers on the basis of lack of mental capacity, unconscionable conduct, undue influence and an unjust contract pursuant to the Contracts Review Act 1980 (NSW). The Court found there was insufficient evidence to support a finding that the mother lacked mental capacity at the time of entering into the transfers but they were the product of both unconscionable conduct and undue influence on the part of Jenny and Krystina. Given those conclusions, the court found it unnecessary to decide the Contract Review Act claim.

The Court concluded that the mother was an impressionable and very vulnerable woman who was easily influenced by the people she trusted (Rydzewski v Rydzewski [2024] NSWSC 810 (Richmond J) at [244]). She was heavily reliant on family members, had difficulty communicating with people who didn’t speak Polish, did not like being alone with strangers and relied on others to assist her with finances at the time of the transfers (at [269]). She had significant health issues and cognitive impairment at the time (at [271]).

These factors, among others, established the first of the three ‘essential elements which need to be established [for unconscionable conduct]’(at  [272]. They are:

• ‘first, that one party (the “weaker” party) to a transaction is placed at a special disadvantage, vis-a-vis the other (the “stronger” party);
• second, that the weaker party has knowledge of that special disadvantage; and
• third, there is an unconscientious exploitation by the stronger party of the weaker party’s special disadvantage’ (at [272], [296]).

As to the second element, it was implicit from Jenny’s and Krystina’s acceptance in cross-examination, that the mother was capable of being manipulated by those she trusted, that they knew she had a special disadvantage which affected her ability to make a judgment as to her own best interests (at [298]).

As to the third element, ‘[t]he Transfers were clearly improvident transactions. They were gifts of property having a total value of $1,970,000… In these circumstances, the evidentiary onus shifts to Jenny and Krystina to establish that the Transfers were fair, just and reasonable. Critical to the discharge of that evidentiary onus is whether [the mother] was given independent advice. The only advice she was given … was not independent because [the solicitor] was acting for Kevin, Jenny, Krystina and [the mother]. It was manifestly inadequate because: he had no independent recollection of discussing with [the mother] the pros and cons of leaving the [three properties] by her will rather than making inter vivos transfers; he could not recall discussing the advantages of transferring or not transferring the [three properties]; he made no file note of her financial position suggesting that he did not consider that to be an important issue; he had no discussion with [the mother] and gave her no advice about the effect of the gifts on her pension; his file notes do not record any reason being given for why such large gifts would be made and thereby disturb the testamentary intention contained in [the mother’s] September 2016 Will, which [the solicitor] drafted. Of particular significance is that [the mother] was not given any advice that the Transfers exposed her to stamp duty of $75,180 which would not have been payable if the gifts had been made by her will’ (at [299] – [300]).

The transfers were also set aside as unconscionable transactions: ‘for essentially the same reasons, [Stan] established his case of undue influence on the part of Jenny and Krystina … [T]he evidence establishes that … when [the mother] was living with Kevin, Jenny and Krystina, she placed trust and confidence in each of them as members of her family and her carers, which placed Kevin, Jenny and Krystina in a position of being able to exert influence over [the mother]. [Her] special disadvantage … gave Kevin, Jenny and Krystina a moral or practical superiority in their relationship with [the mother]… [T]he transfers were improvident, conferring a very substantial benefit on Jenny and Krystina which cannot be explained by the relationship of the parties, and consequently the presumption that they resulted from undue influence arises… Jenny and Krystina have not discharged their evidentiary onus of establishing that [the mother] knew what she was doing, and that the transaction was the result of her free will’ (at [316]).

In another case, in 2009, the mother and father transferred their jointly owned family home to one of their daughters, Angela, for a stated sum of $1,225,000, which was never paid. The family home was the father’s only significant asset. He did not have any significant cash reserves. The transfer meant he gave away practically all his property.

The mother died in 2018 and in 2020 the then 96-year-old father commenced proceedings to reverse the transfer. He was unsuccessful at first instance but succeeded on appeal. The Court explained that undue influence was ‘an equitable doctrine that at its core protects people from the abuse of a power imbalance (Wu v Wu [2024] ACTCA 8 (Mossop, Baker and McWilliam JJ) at [33]). The Court analysed the elements of the doctrine of undue influence. Influence ‘means a psychological (including emotional) ascendancy or influence by the donee over the donor, or a dependence or trust on his part. It is not necessary that the ascendancy amount to actual domination’ (at [47]). Moreover, ‘[i]nfluence will be “undue” if the donee takes improper advantage or makes “unconscientious use”… of the relationship or opportunity for influence. Such descriptions do not necessarily import a degree of moral turpitude or exploitation…’ (at [50]).

It was submitted that the person shown to unduly influence the father was the mother, not Angela to whom the family home was transferred. However, the Court pointed out that ‘the person in a position of influence (presumed or proven), and the recipient of the benefit do not have to be one and the same before the doctrine may operate’ (at [56]). Furthermore, ‘[w]here the third party is a volunteer, the transfer of property procured by undue influence may be set aside regardless of whether the third party had notice of the undue influence or not. This is because equity will not assist a volunteer, and so where this occurs the recipient will be fixed with the consequences of the other’s undue influence and the transfer may be set aside’ (at [57]). The position would be different if the transaction involved consideration (at [91]).

The Court also found the transfer involved unconscionable conduct. A factor was that the father did not receive any legal advice. Angela submitted that was unnecessary as the transfer did not involve any legal complexity. However, the Court explained that ‘[t]he advice that was required was whether it was in the [father’s] own interests – in this case separate from the interest of his wife – to gift unconditionally his only significant asset to his daughter and the risks or consequences for him if he did so’ (at [120], emphasis in original).

Darryl Browne is the principal at BROWNE.Linkenbagh Legal Services and Chair of the Law Council of Australia’s Elder Law and Succession Committee.