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01 May 2013 Richard Williams

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Richard Williams considers the recent Australian case of Re Matsis, which confirms that statutory wills can be used for estate-planning purposes, particularly for elderly clients who have lost capacity.

Statutory wills (also known as ‘court-authorised wills’) are a relatively new concept in Australia. They are creatures of statute, introduced by amendments to the succession legislation in the various states and territories, commencing in the early 1990s. Applications are heard by the state and territory Supreme Courts, except in Tasmania, where they are usually made to the Guardianship and Administration Board.1 The statutory provisions are modelled on the mental health legislation of England and Wales, specifically the Mental Health Act 1983, which conferred a wide judicial power for the management of the property and affairs of a ‘patient’, including the execution of a will on their behalf.2

The relevant principles for the exercise of judicial discretion in the exercise of this power were determined in 1981 by Sir Robert Megarry VC in Re D(J)3 and have since been applied in Australia.

Significant changes have been made in England and Wales by the Mental Capacity Act 2005 (the 2005 Act): the ‘substituted decision making’ approach, evident in Re D(J), has been replaced with a structured decision-making process that is principles-based and is focused on an enquiry into the patient’s best interests.4 it was confirmed that Re D(J) can no longer be directly applied to the structured decision-making process required by the 2005 Act. These changes have not been replicated in Australia.

In one of the leading Australian decisions, Re Fenwick,5 Palmer J in the New South Wales Supreme Court conducted a detailed analysis of the history of the court’s jurisdiction to authorise statutory wills in both England and Wales and Australia, and concluded:

‘… in its 80-year evolution from s171(1) of the Law of Property Act1925, the law in the United Kingdom relating to statutory wills has travelled a full circle. After a shaky start in In re Freeman, the objective approach was established in In re Greene. Some 50 years later, In re D(J) re-established the highly artificial “substituted judgment” approach of the old lunacy cases. By 2005 Courts, while paying lip service to the “substituted judgment” approach, were taking the realistic and pragmatic approach that whether a statutory will should be ordered was to be determined having regard to the best interests of the patient, ascertained objectively, and to the wishes of the patient, if known. That approach is now enshrined in legislation.

‘In Australia, however, the statutory will concept was adopted before it had completed its evolutionary cycle in the United Kingdom.’

The ‘realistic and pragmatic approach’ referred to by Palmer J is evident in G v Official Solicitor.6 In that case, it appears that the decision to make a statutory will, leaving the dispositive provisions unchanged but appointing a professional executor in place of the patient’s son, was made with regard to ‘the best interests of the patient’, determined objectively, having regard to all the circumstances.

Case law in Australia

The Australian cases need to be treated with caution because, there being no uniformity of succession law in Australia, each state and territory has enacted its own version of the legislation providing for statutory wills.

Some of the differences in the legislation relate merely to procedural aspects, such as whether a preliminary leave application is required and, if so, whether there is prescribed information that must be placed before the court on that application. However, there is also a lack of uniformity in the key test:

  • In Queensland, the court must be satisfied that ‘the proposed will, alteration or revocation is or may be a will, alteration or revocation that the person would make if the person were to have testamentary capacity’.7
  • In New South Wales, the court must refuse leave unless satisfied that ‘the proposed will, alteration or revocation is, or is reasonably likely to be, one that would have been made by the person if he or she had testamentary capacity’.8 is whether ‘the proposed will or revocation reflects what the intentions of the person would be likely to be, or what the intentions of the person might reasonably be expected to be, if he or she had testamentary capacity’.9

In the other states and territories, there are further variations in the wording of the relevant provision.10

Statutory will cases in Queensland

In Queensland, there have not been many cases since the legislation was introduced in 2006. Some applications have involved a person who has suffered a serious injury and received a substantial damages award, and for whom the intestacy rules would not achieve a just outcome in all of the circumstances.11 Others have involved a wide variety of factual circumstances.

The judicial approach seems to be moving away from a strict application of the Re D(J) principles. Those principles were applied in Re Keane; Mace v Malone12 by Daubney J. The application in that case was unsuccessful; his Honour was not satisfied, on the facts, that the statutory test was met. However, a different approach has been taken in two subsequent decisions.

The first was McKay v McKay and others,13 in which Ann Lyons J examined the relatively few decisions to date in this state in relation to statutory wills, and reviewed them in line with the analysis undertaken by Palmer J in Re Fenwick. Her Honour was not convinced that the approach in Re D(J) was necessarily the appropriate approach in the particular circumstances, and noted Palmer J’s criticism of the artificiality of that approach in Re Fenwick. She instead simply focused on the words of s24(d), to determine whether that test had been satisfied.

The second was Re Matsis; Charalambous v Charalambous and others,14 in which a statutory codicil was authorised in circumstances in which the effect of the document was to implement estate planning, for asset-protection and tax-planning reasons. This appears to be the first such decision in Australia.

Mr Matsis, aged 90, had amassed substantial property portfolios in Australia and Greece, valued in excess of AUD13 million. He had an existing will, executed in 2001, under which his estate would pass to his wife if she survived him, and otherwise the family home would pass to one of his grandsons, John, with the residuary estate to be equally divided between Mr Matsis’ three grandsons (Harry, Carl and John). The will contained no gift to Mr Matsis’ only child, Esther (the mother of Harry, Carl and John), because she was independently wealthy.

At the time the will was prepared, the possibility of the grandsons receiving their inheritances via testamentary trusts, rather than outright, was discussed. It was clear that they would potentially receive significant amounts, which could be exposed to future claims, and that the inclusion of testamentary trusts would be desirable for tax-planning purposes. Mr Matsis was not amenable to discussing this further at that time and there was some urgency to ensure that at least a basic will was in place to avoid an intestacy.

Mr Matsis’ wife died in 2007; he lost testamentary capacity around 2009. In 2012, following his admission to hospital for an operation, thought was given to whether the estate planning that had been outlined in 2001 but then put on hold could be implemented. The need for testamentary trusts had become more pressing because Carl and Harry were now both engaged in businesses that carried financial risk. It was expected that the third grandson, John, would follow the same path. It was, therefore, highly desirable for their inheritances to be protected by way of trusts.

Carl applied for an order authorising a statutory codicil. The draft codicil did not seek to alter the appointment of executors, nor the general dispositive scheme (i.e. the gift of the family home or the proportions in which the three grandsons would share the residuary estate). It did, however, contain details for the establishment of separate testamentary trusts for each of them. It also included flexible powers that could be used to undertake tax planning, depending on the circumstances of the beneficiaries at the relevant time.

Ann Lyons J noted at the outset that it appeared that the requirements for leave to apply for a statutory codicil had been satisfied, in that the relevant information relating to each of those requirements had been placed before the court. However, this was a somewhat novel application, in that it was brought for estate-planning purposes.

In relation to the key test under s24(d) of the Queensland Succession Act 1981, her Honour adopted the same approach that she had taken previously in McKay v McKay and others, focusing on the words of the section and concluding that she was satisfied that the draft codicil was one that Mr Matsis ‘may have made had he had testamentary capacity’. At the same time, her Honour found that the test as stated in Re D(J)was, on the facts, also satisfied. Accordingly, an order was made authorising a codicil for Mr Matsis in terms of the draft.

Note that in this case evidence was adduced that the two elder grandsons (Carl and Harry) were not aware of any significant creditor claims against them, or current circumstances that might give rise to such claims in the future, and that they were not insolvent. The younger grandson (John) was a student and not yet set up in business, so was not yet subject to those risks. These circumstances were therefore markedly different to those of the New South Wales case Hausfeld v Hausfeld and another,15 in which a proposed alteration to a will that would have defeated creditors of the applicant (the son of the testator) was refused.

The facts of Matsis were fortuitous, in that evidence was available to confirm that the codicil was one that Mr Matsis may have made, had he had testamentary capacity. This included evidence of his entrepreneurial approach to business and his emphasis on keeping wealth in the family. Consequently, the test was satisfied, notwithstanding the relatively detailed and complex terms of the draft codicil.

Re Matsis demonstrates that, in Queensland at least, statutory wills present an opportunity to undertake estate planning for persons lacking mental capacity, in appropriate cases. The importance of this can readily be appreciated, given the increasing number of elderly persons living with dementia.

  • 1Wills Act 2008 (Tas), Part 3. Applications to alter or revoke a will are heard by the Supreme Court.
  • 2Mental Health Act 1983, s102(1) and s103(1)(dd)
  • 3[1982] Ch 237; [1982] 2 All ER 37
  • 4Mental Capacity Act 2005, s1 and s4 In Re P,Re P [2009] EWHC 163 (Ch); [2009] 2 All ER 1198p
  • 5Re Fenwick; Application of J R Fenwick & Re Charles [2009] NSWSC 530 at paragraphs 108–109
  • 6[2006] EWCA Civ 816; [2006] WTLR 1201
  • 7Succession Act 1981 (Qld), s24(d)
  • 8Succession Act 2006 (NSW), s22(b).[/fn>
  • In Victoria, the test (following an amendment in 2007)Wills Amendment Act 2007 (Vic).
  • 9Wills Act 1997 (Vic), s26(b)
  • 10Wills Act 1968 (ACT), s16E; Wills Act (NT), s21(b); Wills Act 1936 (SA), s7(3)(b); Wills Act 1992 (Tas), s24(e) and s33(f); Wills Act 1970 (WA), s42(1)(b)
  • 11Payne v Smyth as Litigation Guardian for Welk [2010] QSC 45; Bock v Bock (unreported, de Jersey CJ, 23 September 2010); McKay v McKay and others [2011] QSC 230; Wickham v Smith (unreported, Daubney J, 8 February 2012)
  • 12[2012] 1 Qd R 319
  • 13[2011] QSC 230
  • 14[2012] QSC 349
  • 15Hausfeld v Hausfeld and another [2012] NSWSC 989

Authors

Richard Williams

CPD Reflective Learning