What to do about a loss of benefit in estate

Compensation for beneficiaries under the Powers of Attorney Act

When a person has executed a will which provides for a specific gift (for example a house) to be given to a beneficiary upon his or her death, at general law, the gift will fail if no property in the estate matches the description of the gift as provided in the will.

If that specific item of property is disposed of or sold prior to the testator’s death, the relevant beneficiary will no longer be entitled to it. This is known as the doctrine of ademption.

In the past, this has often led to inequitable results for beneficiaries in circumstances where the testator has lost capacity, and his or her assets are required to be sold to facilitate their ongoing health care.

For this reason, the Powers of Attorney Act (‘the Act’) was enacted in Queensland incorporating provisions such as section 106 and 107, to deal with these inequities caused.

The sections provide as follows:

  1. Section 106 provides a mechanism to compensate the testator’s estate if the attorney has failed to comply with his or her obligations under the Act, causing a loss to the estate; and
  1. Section 107 provides a mechanism for beneficiaries to be compensated for a loss of benefit in a testator’s estate due to the lawful actions of an attorney.

In this news post we will focus on section 107; where an attorney has lawfully disposed of a testator’s property prior to the death of the testator, thereby causing a loss of a benefit to a beneficiary.

The duties of a person under an enduring power of attorney

If acting as an attorney, whether under an ‘enduring’ document or not, the following obligations and duties must be complied with:

  1. An attorney must exercise power honestly and with reasonable diligence to protect the principal’s interests.
  1. An attorney who may exercise a power under a document must, when exercising the power, exercise it subject to the terms of the document.
  1. If a person is appointed under the Guardianship and Administration Act 2000 as a guardian or administrator for the principal, an attorney can only exercise power to the extent authorised by the tribunal (QCAT in Queensland).
  1. An attorney cannot exercise a power which he or she knows has been revoked
  1. An attorney for a financial matter must avoid ‘conflict transactions’ – i.e. they cannot enter into a financial transaction which conflicts with his or her interest. An example would be where the attorney purchases the principal’s car.
  1. An attorney for a financial matter must keep and preserve accurate records and accounts of all dealings and transactions under the power.
  1. An attorney must keep their property separate from the principal’s.
  1. An attorney can only disclose confidential information of the principal in certain situations, including but not limited to situations where:

a) the disclosure is authorised under a regulation or another law;
b) the disclosure is made in relation to proceedings which have arisen out of or in connection with the Act; or
c) the disclosure is authorised by the principal etc.

Disposition of property leading to a loss of benefit

One common situation is where a principal/testator has lost capacity to manage their health and financial affairs, requiring them to be placed into full-time healthcare.

Given the costs associated with such healthcare, the attorney for the principal is often required to sell the principal’s assets (usually their house) to cover the relevant bond for the principal’s subsequent living arrangements.

When this occurs, and there is a valid will in place which provides that the asset was supposed to be gifted to a beneficiary, the beneficiary (at general law) would lose out.

Bringing an action under section 107 of the Act

The section is very clear when it comes to a person’s standing to bring a compensation claim. So long as the person making the claim has lost a benefit in a principal’s estate under the principal’s will, due to the lawful actions of an attorney in the disposition of the principal’s property, and the action is commenced subsequent to the principal’s death (subject to statutory time limitations), the person will have standing to bring the action.

What do you need to be successful in bringing a compensation claim under S 107?

The Court has the power to make an order for compensation out of the principal’s estate as the Court considers appropriate. No further guidance has been provided as to the discretionary power given to the Court in deciding what order is ‘appropriate’ in the circumstances.

However, in accordance with previous decisions, the circumstances that may be taken into account include:

(a)        The size of the estate;

(b)        The identity of the other beneficiaries and the nature of the gifts to them;

(c)        The proportions that the gifts to the applicants bear to the whole estate. In cases involving real property some form of valuation will be necessary;

(d)        The actions of the Attorney;

(e)        Whether there was any default by the Attorney;

(f)         Whether any action could or might have been taken under S 106 of the Act;

(g)        What was done with the funds after the sale took place;

(h)        The costs which have been incurred and which will be paid out of the estate; and

(i)         Had the property not been sold, what would the position have been?

In any case, it is worth noting that even if a claim was made against the estate, an order for compensation will only be made with respect to the remaining property constituting the estate; the function of the section is not to trace the lost benefit, as this would be more or less pointless given the doctrine of ademption.

This means that it is likely that only the remaining property at the time of the principal’s/testator’s death (provided it is not a refundable bond as this could be traced) will form part of the estate.

Get advice or assistance with an outstanding debt

If you need assistance with understanding your obligations as an attorney, if you need help drafting your last testamentary will, or you wish to commence a claim against an estate, MDL can help.

Our experienced commercial and litigation lawyers can assist you with each step of the process during these difficult periods.

Call the experienced commercial or Litigation Law team at McCarthy Durie Lawyers on 07 3370 5100 or fill out the contact form here.


114 year-old Australian college can't be sold due to founder's will

The historic Australian all-women's university Sweet Briar College will be closing later this year. The Business Insider Australia reported on March 10 that the college will not be able to sell the property nor the 3,250 acre lands of the campus as per the last will and testament of the founder, Indiana Fletcher Williams. 

Context 

In 1900, Williams stipulated in her will that her estate must be used to establish a school for young women to honour her daughter, Daisy. The will states "no part of the said Sweet Briar Plantation and the two tracts of land adjoining … shall at any time be sold or alienated by the corporation", however it granted power to lease or hire certain areas so long as they were not needed for the school's activities. 

Due to this explicit clause, the college can not legally sell the lands or property to compensate any debts or administrative costs of running the school. Possible legal solutions include applying the doctrine of cy-près, which allows the judge to amend the will, but keep the changes as close as possible to the intentions and principles of Williams' will. In this context, that might mean not selling the college but rather transferring ownership to another charitable organisation or not-for-profit education provider for women. 

Benefits of a legally advised will 

In 1901, William's family challenged the will yet her wishes prevailed and her bequest created the college. This historic example serves a key lesson for estate planning and will makers, which is that having a well-crafted and legally advised will ensures the will maker's demands and desires are respected even hundreds of years later. The purpose of a last will and testament is to protect one's assets and to distribute all possessions in accordance with one's own wishes. The best way to confirm this occurs is to solicit expert legal advice on estate planning


3 things to consider when choosing your will's executor

There is a lot to carefully consider when drafting your last will and testament. In particular, selecting the right person to be your executor requires a lot of deliberation.

In Queensland, the duties expected of an executor are diverse and often require them to be financially adept. It is essential to think long and hard if the person you name as the executor of your will has the right skill set for the job. Essentially, the executor has the same rights as the deceased if he or she was alive.

These three considerations can help ease the decision process.

1. Will they be able to perform the duties expected? 

An executor's duties include finding and notifying beneficiaries, checking and protecting assets, identifying debts and liabilities, confirming insurance for assets and seeking a grant of probate from the Supreme Court of Queensland.

The executor often needs to prepare tax returns, financial statements or get income tax clearances. They have a large responsibility in the process of distributing the estate. Will they be able to efficiently manage these tasks? The estate's Solicitor and Accountant will assist but ultimately the responsibilities lie with the executor.

2. How do they handle pressure?

Losing a loved one can be one of the most traumatic experiences in life. Keeping in mind the demanding range of tasks expected of an executor, evaluate how they managed previous challenges in their life. Reviewing how they performed under stress or in the midst of an emotionally difficult time can help make your decision. 

3. Would it be better to name multiple executors?

Estate planning changes from person to person depending on what best suits their needs. Usually, only one or two people are names as an executor in a will, however there isn't technically any limit imposed. It might be beneficial in some cases to name several executors. This can help ease the pressure for grieving loved ones. It also allows an executor who is unable or unwilling to act to renounce his responsibilities and allow the other executor/s to act.

Sometimes, the best course of action is to name a solicitor as one of the executors as they have years of professional legal experience dealing with such matters and can offer an independent, unbiased view. Their expertise can help provide structure and planning for executor duties, giving loved ones time to mourn. The costs of administering an estate will commonly be lower when a Solicitor is the executor as he does not need to consult anyone else in acting in the best interests of the estate.

Make sure to consult with expert lawyers during your estate planning process, to gain advice that is specific to your needs.