The Facts
Elderly couple fear losing pension due to property ownership
In 1998, an elderly married couple purchased a 255-acre rural property in northern NSW. By 2004, they were receiving the aged pension and came to believe that owning the property might disqualify them from the pension.
Their belief stemmed from a conversation with their daughter, who allegedly said words to the effect: “If you own over five acres of property, you may no longer be entitled to receive the pension.”
Couple transfers property to adult son for $1
Worried about losing their pension, the couple transferred the property to their adult son in May 2004 for nominal consideration of $1.
On the day of the transfer, the couple attended their solicitor’s office and signed a letter confirming the son would have “no residual obligations” to the father and stepmother regarding the property. The son also signed this letter.
The transfer was then registered, legally passing ownership of the property to the son. Despite this, the couple continued living on the property.
Son’s contribution to improvements to property
The son did considerable work to improve the property both before and after the transfer.
He constructed a woolshed, converted a tin shed into a residence and made significant improvements to that residence, installing suspended ceilings, insulating the walls and putting in electrical wiring, skirting boards, light switches, down pipes and tiling.
In addition, the son attended to farming activities, including drenching, dehorning and marking of cattle.
Property sold 13 years later and father and stepmother claim proceeds are held on trust
In 2017, 13 years after the transfer, the son sold the property for $350,000. The father and stepmother claimed their son held the property and sale proceeds on trust for them.
They said that in 2004, their son agreed that he would hold the property on trust for them, permit them to reside on the property for as long as they wished and account to them for the sale proceeds upon their direction.
The son insisted that no such agreement existed. He maintained the 2004 transfer was an absolute gift to him, so the father and stepmother had no entitlement to the sale proceeds.
Unable to resolve the dispute, the father and stepmother commenced proceedings in the Supreme Court against the son and his wife, seeking orders that the son held the sale proceeds on trust for the father and stepmother.
Expert commentary on the court's decision
Supreme Court dismisses father and stepmother' claim that transfer of property was subject to a trust
In the case of Maxworthy v Maxworthy [2023] NSWSC 927, the Supreme Court of NSW found in favour of the son, Chris Maxworthy, ruling that the 2004 transfer of the rural property was an absolute gift to him.
The court rejected the claim of the father and stepmother, John and Eileen Maxworthy, that their son held the property and sale proceeds on trust for them.
No persuasive evidence of trust arrangement
While the father and stepmother gave evidence of conversations in 2004 where the son allegedly agreed to hold the property on trust, allowing them to retain control, the court did not find this evidence persuasive.
The son denied that any such conversations occurred. Importantly, on the day of the transfer, the father and stepmother signed a letter prepared by their solicitor confirming the son would have “no residual obligations” to them regarding the property after the transfer.
The court considered this solicitor’s letter was the most reliable evidence of the parties’ intentions at the time. It contradicted the father and stepmother’ claim of a trust arrangement, instead indicating a clear intention to transfer the property to the son absolutely.
Father and stepmother' evidence about solicitor discussions not accepted
The father gave evidence that he told his solicitor he wanted to “live in the house and still have control over it”, merely putting the property in his son’s name. He claims the solicitor advised him that this was fine and “many people do the same thing”.
However, the court doubted that an experienced solicitor would have failed to clarify the father and stepmother’ intentions if told this, given it conflicted with the “no residual obligations” letter the solicitor had prepared.
The solicitor was not called as a witness and the court inferred her evidence would not have assisted the father and stepmother’ case. The court concluded it was unlikely the father could accurately recall these discussions 18 years later.
Significance of son’s work on property
The court examined the conflicting version of events regarding the improvements which had been made to the property.
The court noted that while John claimed that he had undertaken the improvements himself, with the help of neighbours and others, those people were not called to give evidence to corroborate John’s version of events and their absence was not explained. This undermined John’s credibility.
In the view of the court, John chose to downplay and deny the work Chris had done on the property because it supported the evidence provided by Chris that he believed the property had been given to him as a gift and belonged to him.
Gift explained by family history and pension concerns
In considering whether the transfer was a gift, the court reviewed the history of the parties’ finances and relationship.
By 2004, the father and stepmother owned the rural property and a vacant block. They did not have significant wealth beyond this, reflected by them being on the aged pension.
However, the son had a close relationship with his father and stepmother. Over the years prior to the transfer, he had provided significant assistance by improving the rural property.
The court inferred that in 2004, the father and stepmother had “love and affection” for their son. This factor, combined with his contributions to the property and their wish to preserve their pension, could explain them gifting it to him.
There was likely an informal understanding that the father and stepmother could still reside there until they moved to the vacant block, but this fell short of any legal right to the property.
Document property transfers clearly and maintain communication within families
For any parent considering transferring property to their children, this case serves as a warning to know the difference between a gift and a trust, to obtain legal advice and to document all arrangements clearly.
It is important to maintain good communication within families regarding intentions and expectations, to prevent misunderstandings which can lead to legal action and destroy relationships.
The case also highlights the risks in transferring property to adult children in an attempt to get around Centrelink means testing. Trying to have your cake and eat it too – by giving away legal ownership but still retaining control – can backfire.
If you are considering your Centrelink entitlements and passing on property to the next generation, it is crucial first to get proper legal and financial advice. Then make sure any agreement is professionally documented to avoid disputes and heartache down the track.