We need to change the terms of a Will, but the beneficiary doesn’t have the capacity to agree to it...!
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It is not uncommon for the beneficiaries of an estate to wish to make changes to the distribution provisions in a deceased’s Will. This can be achieved by, for example, entering into an agreement to alter:
- the terms of the Will prior to the finalisation of the estate; and/or
- the terms of a trust created by the Will, before or after the finalisation of the estate, while the Trust remains in existence.
In seeking to make these alterations, issues arise where a beneficiary lacks the capacity to deal with financial matters (including receiving estate assets), for example, because the beneficiary is a minor, or is suffering from mental incapacity. In these circumstances, any alterations to the terms of the Will, or to the terms of a trust, must be approved by a court.
However, obtaining a court’s approval is not a straightforward matter. The Victorian case of Re Estate of Barns [2011] VSC 314 is a prime example of the difficulties inherent in these types of applications.
The Facts: The deceased’s Will directed for his estate to be held on trust for his wife and daughter, Timothea. Although his wife was entitled to receive trust distributions of both income and capital, after her death, the terms of the Trust only allowed Timothea to receive distributions of income. After Timothea’s death, the capital of the Trust was to be gifted to charity.
Timothea suffered from an intellectual disability, requiring full time care and financial support. After her mother’s death, the Trust income was insufficient to meet her (not insignificant) needs. The Trustee wished to make capital distributions to provide for Timothea, and sought an order of the Court to either:
- authorise the Trustee to deal with the trust property by making capital distributions to Timothea, on the basis that doing so would be beneficial to the management and administration of the Trust; or
- vary the terms of the Trust, to enable capital distributions to be made to Timothea, in circumstances where the charities named in the deceased’s Will did not consent to this variation.
The Trustee argued that the deceased’s intention was for the capital of the Trust to be used to generate income for Timothea during her life. The extent of the deceased’s charitable intention was for the remainder of his wealth to pass to charity after Timothea’s death, and it was not the intention to deny Timothea adequate support in favour of preserving his wealth for charity.
The Decision: The Court’s powers under the Trustee Act 1958 (Vic) to authorise a trustee to deal with the trust property are limited. It could grant the Trustee a power that would be “expedient to the administration or management of the trust property” even if to do so may alter a beneficiaries’ interest, provided that the power was to be exercised to the benefit of the trust estate as a whole. It could not however make an order that would expressly alter the beneficiaries’ interests in the estate.
The Court held that powers sought by the Trustee did not relate to the management or administration of the Trust, but rather were to deal with the distributions of the Trust in a way that differed to the terms of the Will. The effect of granting those powers would not be for the benefit of the estate as a whole, but solely to advance Timothea’s interests. The Court declined to make an order permitting the Trustee to deal with the Trust by making capital distributions to Timothea.
Turning to its power of variation, the Court noted that it did not have the power to unilaterally alter the terms of the Trust. Rather, the Court’s power was limited to approving variations to the terms of the Trust on behalf of a person (here, Timothea) who lacked capacity. Because the charities – the ultimate capital beneficiaries – had not consented to that variation, the Court had no authority to approve the proposed amendment.
Ultimately, the distribution provisions set out in the Will were upheld, and the Court dismissed the application.
Relevance in Tasmania: Similar legislative provisions, with similar restrictions, apply in Tasmania. Making changes to the terms of a Will or a trust created in a Will, where beneficiaries lack capacity, can be a difficult undertaking.
Key Points: An important aspect of estate planning is planning for contingencies. In Re Estate of Barns, although the Willmaker likely had a clear idea of what he wanted his Will to achieve, it was not drafted in a way that anticipated what might occur if the trust income became insufficient to provide for Timothea’s needs.
When making an application to alter or vary the terms of a trust or Will, particularly involving a beneficiary who lacks capacity, the alteration or variation must not change the intention of the deceased. The variation must benefit the estate as a whole (or all beneficiaries must consent to the variation), rather than just an individual beneficiary.
How Can We Help? If you would like assistance in preparing a comprehensive estate plan to ensure that all beneficiaries will be properly taken care of after your death, please contact our estate planning lawyers, Kimberley Martin, Casey Goodman or Ashleigh Furminger.
Worrall Moss Martin Lawyers also has specialist skills and experience in estate administration and estate litigation. If you need assistance in the administration of an estate or making an application to the Supreme Court to vary or revoke the terms of a Will or trust in a Will, please contact our estate administration and dispute lawyers, Kate Moss, Robert Meredith, Eve Hickey, Megan Bird or Leanne Rama.
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