The Facts
Father dies leaving small legacy to daughters and balance of estate to second wife
The deceased and his first wife had two children.
The deceased’s first wife died in 1985, and in 1997 he married his second wife, S.
There were no children of this marriage, which ended when the deceased died in July 2003.
The deceased’s estate was estimated at almost $2,000,000, with the main asset being the matrimonial home.
The deceased left each of his daughters a legacy of $25,000 in his will. He left the residue of his estate to his second wife, S.
The will named S’s brother as executor.
At the time of his death, neither of the deceased’s children sought to challenge the will.
Second wife sells matrimonial home
In March 2011, S sold the matrimonial home and purchased a home unit in its place.
Second wife dies leaving small legacy to stepdaughters and balance of estate to siblings
S died in November 2016, 13 years after the deceased’s death.
At the time of her death, S’s estate was valued at about $1.9 million, and included the home unit she had purchased with the proceeds from the sale of the matrimonial home.
S’s will named her brother as executor and left a legacy of $100,000 to each of her two stepdaughters. She left the balance of her estate to her siblings and their children.
Executor sells home unit that replaced matrimonial home
Acting in his capacity as executor of S’s estate, her brother sold the home unit and put the sale proceeds into an investment account.
Daughter belatedly applies for family provision order out of her father’s estate
The deceased’s younger daughter felt that the legacy of $100,000 from her stepmother was insufficient, given that much of the estate was acquired by reason of her stepmother’s marriage to her father.
However, the daughter was not eligible under the relevant legislation to make a claim against her stepmother’s estate.
She therefore applied to the Supreme Court for a family provision order against her father’s estate. This was notwithstanding that he had died some 14 years earlier and his estate had been fully distributed shortly after his death.
For the daughter’s claim to succeed, she required the court to grant her an extension of time for the making of the application.
She also required that the court designate property in her stepmother’s estate as the notional estate of her father, so that provision could be made out of that property.
Supreme Court rules in favour of daughter and executor appeals
The Supreme Court found in favour of the daughter. The court granted the extension of time, designating $740,000 of S’s estate as the notional estate of the father, and provisioning $250,000 for the daughter out of this notional estate. This was payable in addition to the $100,000 left to the daughter in S’s will.
S’s brother, as the executor of both the father’s and S’s estates, appealed the ruling to the NSW Court of Appeal.
Expert commentary on the court's decision
Court of Appeal finds in favour of executor
In Haertsch v Whiteway [2020] NSWCA 133 the NSW Court of Appeal upheld the appeal of the executor, Adrian Haertsch, overturning the Supreme Court’s decision and dismissing the daughter, Elizabeth Whiteway’s, claim for a family provision order.
Notional estate governed by section 24 of Family Provision Act
In determining whether the property in the stepmother, Stephne’s, estate could be designated as the notional estate of the father, Donald, the court referred to section 24 of the NSW Family Provision Act 1982 (Act).
This Act was applicable to Donald’s estate because he died in 2003, before the commencement of Ch 3 of the NSW Succession Act 2006 in 2009.
If the criterion in section 24(a) is met, then under section 24(b) if the court finds that “as a result of a distribution from the estate of the deceased person, property became held by a person”, it can make an order designating as notional estate of the deceased person such property as it may specify, being property which is held by the person.
Primary judge construes section 24(b) as inviting chain of causation inquiry
The primary judge construed section 24(b) as inviting a “chain of causation” inquiry, leading to a conclusion that the property in Stephne’s estate could be designated as the notional estate of Donald.
The primary judge found that as a result of the distribution from Donald’s estate, property became held by Stephne, and in due course by her brother Adrian in his capacity as her legal personal representative. Further:
Court of Appeal rejects primary judge’s construction of section 24(b) and rules no notional estate
The Court of Appeal rejected the primary judge’s construction of section 24(b).
The court instead construed the section as identifying a single event (ie the distribution from the deceased’s estate), and inquiring whether, as a result of its occurrence, and nothing else, property became held by a person. The court said that “if a finding is made to that effect, the power [under section 24(b)] is enlivened in respect of property of that person”.
On this construction, the court said that “the persons whose property may be designated notional estate by reason of s 24 are those who have ‘received a benefit from [the] deceased estate’”.
Adrian Haertsch was not such a person. He did not become an owner of property as a result of a distribution from Donald Whiteway’s estate, and therefore he was not a person within paragraph 24(b) whose property might be designated as the notional estate of Donald Whiteway.
Court has discretion to grant extension of time for making of family provision claim
The court also considered whether the extension of time for the making of an application should have been granted.
Section 16(1)(b) of the Act provided that claims should be made within 18 months of the death of the deceased. (Under section 58 of the Succession Act 2006, which replaced the Family Provision Act, this time limit was reduced to 12 months.)
The court had discretion to extend that 18-month period if “sufficient cause is shown for the application not having been made within that period”.
The court highlighted that an important consideration in whether to exercise its discretion is the prejudice suffered by other beneficiaries by reason of the delay.
Primary judge erred in exercising discretion to grant extension
The court disagreed with the primary judge’s finding that sufficient cause had been shown by the daughter, Elizabeth, to justify an extension of time.
The court did not accept that Stephne’s assurances to Elizabeth justified Elizabeth’s expectation that when Stephne died, she would receive a greater provision from her estate than she actually did.
The court also rejected the primary judge’s conclusion that granting an extension of time would cause no material prejudice to Stephne and the persons who claim under her.
In the court’s view, the primary judge failed to recognise the prejudice caused by departing from Stephne’s expectation in life as to the ownership of her property and her entitlement to make testamentary provisions from that property for friends and family.
Family provision claims involving notional estates are unpredictable
Family provision claims on deceased estates are often complex. Those involving potential notional estates are usually even more unpredictable.
The result of litigation may not always be in the interests of the claimant or competing beneficiaries and the outcomes may sometimes be unexpected.
For those reasons, expert legal advice should be obtained by any intending claimant for further provision, as well as by executors and beneficiaries who may be in a position of defending a will.
Do not wait until step-parent dies to make claim
As this case shows, claims are subject to time limits and other considerations.
If a parent dies leaving a spouse who is not their parent, the child who is intending to make a family provision claim would be advised not to wait for the parent’s spouse to die.
Rather, it is best to make a family provision application within the prescribed time limit, which varies from state to state.
In NSW the current time limit is 12 months from the date of death of the deceased, while in Queensland it is nine months from the date of death.
In Victoria, South Australia and Western Australia the limitation is six months from the grant of probate, whereas in Tasmania it is only three months from the grant of probate.
So that is when the clock starts ticking.
For more information about family provision claims, please see Family provision claims in NSW – spare us the details and curb your expectations.