The Impact of Family Provision Claims on Succession Plans

THE IMPACT OF FAMILY PROVISION CLAIMS ON SUCCESSION PLANS

• In his sardonic Irish way, George Bernard Shaw wrote in his novel Immaturity that “if you cannot get rid of the family skeleton, you may as well make it dance”. I’m sure you’ll agree this logic rings true for the Family Provision List, where we see skeletons dragged out of the closet and forced to dance to full effect in an attempt to get more out of a deceased estate.
• Today I’m going to discuss a number of recently decided Family Provision cases in which the Court was called on to consider some difficult claims on estates by estranged family, and former family, members. I’m going to respectfully suggest that the stance on disentitling conduct is yielding to a more expansive conception of a moral obligation owed towards distant family relations.
• I would like to start by repeating a comment by Justice Pembroke in Revell v Revell, a case heard in 2016 which considered a privileged son’s claim for further provision in his father’s already generous will:
• Courts do not rewrite the will of a deceased person simply because it appears to be unfair, unequal or unwise. Fairness and equality are not touchstones for relief under the Succession Act. Within the limits of the law, a testator may dispose of his estate as he sees fit. Adult children have no automatic right to a share in the estate of a parent... freedom of testamentary disposition...is an integral part of our law.
• This preservation of testamentary freedom is simply wishful thinking in NSW. While Justice Pembroke is correct in recognising the nominal right of a testator to write out an ungrateful adult child from their will, we must equally acknowledge the increasing willingness of courts to functionally rewrite wills according to the ‘natural obligations’ they owe to family members. In our common law system, the freedom of testamentary disposition is far from absolute.
• This operates under the statutory scheme provided by Chapter 3 of the Succession Act 2006 (NSW), which I will quickly revisit. There are two threshold requirements a claimant must satisfy. First, applications must be made within 12 months from the date of death unless there is sufficient cause for delay. Secondly, they must fit within the six categories of an eligible person:
• A husband or wife of the deceased;
• A person in a de facto relationship with the deceased;
• A child of the deceased (whether natural or adopted)
• A former wife or husband of the deceased
• A person who was a dependent of the deceased and who was a grandchild or
• member of the deceased’s household; and
• A person with whom the deceased was living in a close personal relationship at the
• time of death.
• In the next stage of assessment, courts traditionally undertook a two-stage inquiry as to whether adequate provision had been made, and then deciding what provision ought to have been made. However, the more recent approach is to undertake a general evaluative assessment of these two questions for the purpose of section 59 by reference to the factors listed in section 60. Although section 60 does not explicitly provide for disentitling conduct, courts have inferred that the claimant’s character and conduct toward the deceased is relevant to the consideration of what is ‘adequate and proper’ in all the circumstances.
• Case law in recent years indicates that estrangement between the claimant and deceased relative is not enough of itself to disentitle their application for further provision. While disentitlement previously had to reach a high standard where for example, a claimant had acted ‘callously, by withholding...their support and love in [the deceased’s] declining years’, more recent cases have refused to order provision where both parties contributed to the estrangement.
• However, the cases in 2016 and early 2017 suggest that you have to misbehave horrendously before the Supreme Court will characterise your conduct as “disentitling”.

Hinderry v Hinderry

• First, to Hinderry v Hinderry, where the claimant really didn’t give Justice Hallen much of a choice. Michael was the adopted son of Wahib and Samera Hinderry, who died aged 89. Michael claimed that he was only told that he was adopted in his late 20s, causing an identity crisis which he dealt with by turning to drugs, alcohol and other forms of anti-social behaviour.
• But it seems even an adopted mother’s love is unconditional, as she left two of her properties to him, which constituted about 44% of the $1.7 million estate. Not satisfied, he applied for further provision in the belief that his mother had intended him to inherit her whole estate, and accused his cousins of having manipulated her into changing the will. In his own words, his claim for provision constituted somewhat of a ‘wish list’: including a claim for purchase of a three-bedroom property in Newtown, Woolloomooloo or Darlinghurst in the order of $1.5-$2million. This was a tall order for a man living in a boarding house and living off a Centrelink allowance after a failed music career (again, there were real questions as to whether he ever had a music career at all, or just a misplaced ambition). His legal counsel wisely modified the claim at trial to a more modest claim for a legacy of cash out of the estate.
• The claim was naturally resisted by the other beneficiaries (his cousins) on account of Michael’s proven misconduct towards his mother. The court refrained from delving into all the sordid details, but referred to Michael’s ‘continual abuse and harassment’ towards his mother, which consisted of physical violence, calling her a ‘whore’ and threatening to kill her. A cousin gave evidence of seeing Michael kick his mother in the face and threaten her for money, at which point she was forced to take out an AVO. He had a substantial criminal record for having contravened these AVO’s on multiple occasions and for causing malicious destruction to his parent’s property.
• Justice Hallen held that the family relationship between Michael and his mother was the key factor in the assessment of his claim, by reference to s 61(2)(a) of the Succession Act 2006 (NSW). While noting that an order should not be withheld as punishment for bad conduct by the applicant, it is relevant to the moral assessment of whether provision ‘ought’ to be made. He quite rightly noted that there is little room for the view that community expectations would require the making of additional provision for Michael out of the deceased estate.
• We can fairly characterise this case as an uncontentious example of conduct that is so egregious that on no view could the claimant be entitled to further provision. Criminal conduct, abuse and financial manipulation are intuitive bright-line boundaries of disentitling conduct.
• I wonder whether the outcome would have been different had Michael been completely indigent, or had not been left any provision from his Mother’s estate. That would have made a difficult case even more difficult.

Estate of May Berry

• However, not all cases are so clear-cut, and the range of incidents that tarnish positive family relationships are as diverse as the number of families. By way of example, in the 2016 case concerning the Estate of May Berry, two sisters put their family through protracted litigation in order to sever themselves from the (very successful) family business. The evidence was that they felt disaffected by the strict, gendered division of labour with their 9 siblings. Despite the consequent estrangement in the family, their mother included them in the equal division of the estate with the siblings.
• Having fallen on hard times since their capital sum payouts from the litigation, they made a claim for further provision from the estate. Surprisingly (and in a decision made ‘not without intermittent hesitation’), Justice Lindsay held that the litigation payouts had not discharged the mother’s moral obligation for financial provision. A key factor in the award was that the sisters were not well-off, as one was living in public housing. They successfully modified the equal apportionment of the mother’s will so that they got a greater share than their estranged siblings, to the tune of an extra $300,000.

Lodin v Lodin

• But this award pales in comparison to the provision that was made in January this year for an estranged wife who had threatened to make her husband’s life hell, and did everything in her power to keep this promise, even after his death. In Lodin v Lodin, Dr Mohammed Lodin’s intestate estate of $5 million went directly to his daughter upon his death. However, her inheritance was reduced by her mother’s provision claim, who was awarded an astounding $750,000 from the estate of her estranged ex-husband from 25 years ago.
• Magdalena first met Dr Lodin while he was her general practitioner, and she a married mother. Their interactions moved from the doctor’s office to social squash playing, and eventually into a sexual relationship. When Magdalena became pregnant, they married and moved in together. The marriage fell apart after only 18 months.
• Despite a favourable property settlement in the Family Court, from then on Magdalena threatened to destroy her ex-husband’s life if he did not give her more cash. In executing this promise, she informed the NSW Health Department of their doctor- patient relationship, which subsequently resulted in a finding of unsatisfactory professional conduct against him and saw him undertake compulsory ethics training. She then tried to make an application out of time to sue him for breach of professional duty. Next, she falsely told police that he possessed firearms and was going to kidnap their daughter, She also falsely claimed he had sexually abused their daughter. These claims resulted in him being arrested at the hospital where he worked, an incident he described as ‘the most embarrassing moment in his life’.
• Whatever his relations with his ex-wife, Dr Lodin was punctilious in his child support payments and paid for their daughter to attend a prestigious private school. Although he had not indicated any intention of refusing to do so, Magdalena threatened that if Dr Lodin did not pay their daughters university fees, she would make what was left of his wretched life (as he undergoing chemotherapy) not worth living, and that he would ‘feel the wrath of Allah’. She later wrote a follow-up letter retracting the part about Allah. One daughter described her as ‘toxic’, and she is estranged from the other. In short, Magdalena carried into effect as best she could her stated aim of making his life a misery.
• With these circumstances in mind, one would think that she had an uphill battle in getting anything further out of her ex-husband. Justice Brereton dismissed Magdalena’s argument that the testamentary obligation should be considered an atonement for their unprofessional sexual relationship. He found that Dr Lodin had sufficiently “atoned” for this conduct through the Department of Health investigation and the course of and impact of numerous criminal allegations she sought to make against him.
• However, Justice Brereton then moved on to cite numerous cases concerning parties to longstanding marriages where an ex-wife finds herself in the ‘predicament of insufficient financial resources’, and held that the moral obligations arising out of the Lodin marriage had not been discharged by the matrimonial financial settlement. He found that the factors lending towards a ‘clean break’ of Dr Lodin’s moral and financial obligations towards Magdalena were outweighed by other, more important factors.
• The most important of these was the fact (attested to by psychiatric evidence) that the marriage breakdown had an ‘unusually enduring impact’ on Magdalena, due to the exploitation and betrayal by a person in a fiduciary relationship (as her doctor). Further, his Honour attributed Dr Lodin’s ability to accumulate his wealth and assets to his ability to work ‘untrammelled’ by responsibility for a wife and child. Finally, he found that there was something ‘unbecoming about an estrangement under which the plaintiff is left in circumstances of considerable need’ while the daughter whom she raised inherits in excess of $5 million.
• In light of the relative paucity of the matrimonial estate at the time of their property settlement and her indirect contribution to Dr Lodin’s estate for the purpose of s 60(2) (h), it was held that Magdalena was entitled to $750,000 out of the estate.
• I am cautious to criticise the discretionary decision of a judge who heard all the evidence and had the opportunity to observe the witnesses in court, particularly where Justice Brereton himself acknowledged that it was not an easy case, and one in which ‘judicial minds may differ’. In saying this, it is surprising that Magdalena’s relentless hostility, active career sabotage and false criminal allegations were not enough to disentitle her from a claim on her ex-husband’s estate.
• Perhaps most interesting of all from the decision is the suggestion that the inheritance by a daughter to the4 exclusion of the former wife was somehow “unbecoming”. Whether an evaluative process of this nature is carried into future cases remains to be seen.

Conclusion

• Perhaps the most important lesson to take away from this case is to actually prepare a succession plan! Dr Lodin’s solicitors had actually prepared a will expressly excluding Magdalena when he was first diagnosed with cancer in the 1990s. However, he failed to formally execute it – a decision I’m sure he would now regret.
• In comparing these cases, it appears that the standard for disentitling conduct in a will has been placed very high. While Michael was barred from further provision in Hinderry, his egregious conduct seems unreasonable as a base-line standard for disentitling conduct. I would argue that criminal misconduct should not be the starting threshold for resisting the claim of an estranged family member on a deceased estate, especially where the testator has already made provision for them.
• T he take-home message from these cases is that testamentary freedom is firmly an illusion in NSW. Moreover, judges are increasingly prepared to enforce notions of enduring moral obligations, including from prior relationships, and this obligation is more likely to be enforced where the claimant can prove their own financial hardship.