By summons filed 7 December 2023, the plaintiffs, as executors of the estate of the late Richard Martin Lord (Deceased), seek the Court's opinion, advice or direction pursuant to s 63 of the Trustee Act 1925 (NSW) (Act) as to whether, in the circumstances described below, the executors would be justified in selling a property asset of the estate to satisfy the entitlements of three of the six beneficiaries of the estate who are sui juris.
For the reasons set out below, I am satisfied that it is appropriate to provide the advice sought.
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Facts
In November 2018, the Deceased died in West Wyalong, in the State of New South Wales.
On 26 March 2019, probate No.2019/00055155 of the Deceased's will dated 13 August 2016 (Will) was granted to the executors.
The deceased was married twice:
1. He had three children from his first marriage:
1. Christopher John Lord;
2. Samantha Jane Lord; and
3. Michael David Lord;
who are all sui juris (together, the elder children).
1. At the date of his death, he was separated from his second wife (Pamela) with whom he also had three children:
1. Mitchell David Lord, born June 2001;
2. Gemma Abby May Lord, born August 2009 (minor); and
3. Nicholas John Lord, born March 2012 (minor);
(together, the younger children).
Following separation from his second wife, the Deceased and Pamela agreed on a property settlement which was approved by Judge Neville of the Family Court (Canberra) on 18 November 2016. Pamela received her full entitlement under the property settlement before the Deceased's death, including an unencumbered house in which she resides with her children.
By the Will, the Deceased appointed his two eldest children as executors, and gave his nett estate to his six children in equal shares, contingent upon each child surviving and attaining the age of 25.
The entitlements of the elder children have vested.
The younger children are not yet 25, and two of the three are minors. Their entitlement remains contingent upon attaining the age of 25 years.
In July 2019, Pamela commenced Equity proceedings 2019/00246124 under Chapter 3 of the Succession Act 2006 (NSW), seeking further provision from the Deceased's estate (Succession Act Proceedings).
Prior to the hearing before Hallen J in early February 2020, the executors sought advice regarding the superannuation funds of which the Deceased was a member to ascertain how those funds proposed to distribute the Deceased's entitlements, which were considered to be part of the Deceased's notional estate in those proceedings. One such superannuation fund was Hub 24 Account No. 240 35234 (Hub 24 fund), which then had an estimated benefit value of $243,787.19.
The trustee of the Hub 24 fund advised the estate solicitors that the trustee proposed to distribute the Deceased's entitlement to the six children as tenants in common in equal shares in accordance with a death benefit nomination made by the Deceased. I understand that this was to be effected by the total benefit being paid to the estate.
The information from the superannuation funds was incorporated into the estate information provided to the Court in a schedule of assets and liabilities in the Succession Act Proceedings which was marked "JS1". The then value of the actual estate was estimated at $865,709.38 after the payment of legal costs and included three properties, various investments including an accommodation bond.
The Succession Act Proceedings were settled on the first day of the hearing before Hallen J. Orders were made as follows:
1. Orders that the whole of the Plaintiff's Summons be dismissed, with the intention that the Plaintiff is prevented from bringing another claim for a family provision order out of the estate and/or notional estate of Richard Martin Lord ('the deceased").
2. Orders that the Plaintiffs costs, in the agreed sum of $75,000 be paid out of the estate of the deceased within 60 days of the date of the making of these orders.
3. Orders that no interest be paid on the sum for costs if it is paid within 60 days of the date of the making of these orders; and if not so paid, interest shall be paid on any unpaid part thereof, calculated at the rate prescribed by s 84A(3) of the Probate and Administration Act 1898 (NSW) from the 61st day until paid in full.
4. Orders that the Defendants' costs, calculated on the indemnity basis, of the proceedings, be paid, or retained, as the case may be, out of the estate of the deceased.
5. Notes the agreement of the parties that:
a. The nett proceeds of the deceased's Colonial Mutual Life Assurance Policy 00154596 (described in the inventory of Property attached to the Probate documents as "First State Retirement Fund Plan No. 00154595") with an estimated value of $129,164.96) to be paid to the deceased's estate;
b. All parties will do all things possible to facilitate the payment of the proceeds of the Colonial Mutual Life Assurance Policy to the estate, and, when it is paid, those proceeds will be applied in accordance with these orders and agreements;
c. The Defendants, as trustees, shall appropriate the deceased's real property situated at, and known as 18 Lamont Crescent, West Wyalong NSW (folio Identifier 1008/753135) ("the Lamont Crescent property") in satisfaction of the contingent entitlement of the trust beneficiaries, Mitchell John Lord, Gemma Abbey-May Lord and Nicholas John Lord, to the intent that that appropriation does not derogate from the entitlement of the trust beneficiaries in clause 3.2 of the deceased's Will dated 13 August 2016 to share one half of the deceased's nett distributable estate upon attaining the age of 25 years;
d. The Defendants, as trustees, shall direct the nett income received by the managing agent (when appointed) from the Lamont Crescent property, to be paid, as to one third, to Mitchell John Lord, absolutely, for his maintenance, education, or benefit;
e. The Defendants, as trustees, shall direct the nett income received by the managing agent (when appointed) from the Lamont Crescent property, to be paid, as to the remaining two thirds, to the Plaintiff, as parent and guardian of the infant children of the deceased, being Gemma Abbey May Lord and Nicholas John Lord, for their maintenance, education, or benefit;
f. The net income from the Lamont Crescent property will be calculated after the managing agent has retained a balance of $5,000 In the property account for the payment of outgoings from time to time;
g. The Defendants intend to apply $5,000 from the Colonial Mutual Life Assurance Policy to create the fund to be retained by the managing agent of the Lamont Crescent property at first Instance, or from other funds to which the trust beneficiaries are entitled, or contingently entitled, as the case may be.
h. The Defendants, as trustees of the Lament Crescent properly, shall rent it to a tenant, at market rent, as soon as practicable, and shall oversee and manage the condition of that property and the payment of the outgoings thereon.
i. Exhibit "JSI", which has been retained by the Court, is an accurate reflection of the parties' understanding of the present nature and value of the estate of the deceased.
6. Notes that each of the parties, as well as Michael Lord and Mitchell Lord, consents to these orders and notations.
The fate of the Hub 24 fund is not specifically mentioned in the orders, because as the trustee had already represented to the executors, and thus to the Court, the funds would be distributed equally in accordance with the death benefit nomination, and consequently, the Will.
The Hub 24 fund trustee subsequently notified the executors that it had determined to distribute the fund as if the Deceased had not left a death benefit nomination, and that the Hub 24 fund would be distributed as to:
1. Nicholas John Lord, (minor), 27.5%;
2. Gemma Abby May Lord, (minor), 27.5%;
3. Mitchell David Lord, 15%;
4. Christopher John Lord, 10%;
5. Samantha Jane Lord, 10%; and
6. Michael David Lord, 10%.
The Hub 24 fund was subsequently divided and paid directly to each of the children in the above proportions. The executors called upon the guardian of the younger children to repay the funds to the estate. That request was refused.
The elder children (including the executors) wish to receive their share of the estate. The executors propose that the remaining one half of the estate to which the younger children are entitled may be retained in trust by a new trustee until each of the three younger children attains the age of 25.
The Deceased's superannuation entitlements paid directly to the beneficiaries do not form part of the Deceased's estate, although they were treated as notional estate in the Succession Act Proceedings. The Hub 24 fund trustee's decision has affected the liquidity of the estate as it was understood by the executors at the time the Succession Act Proceedings were settled.
Without the Hub 24 fund, the estate does not hold sufficient cash to permit the distribution of half the estate to the elder children. The executors are thus obliged to realise some of the estate assets.
The estate presently contains two parcels of realty, namely 18 Lamont Crescent, West Wyalong (Lamont Crescent property), and 46 Creswell Street, West Wyalong. Relatively recent market appraisals of the estate realty indicate likely market prices of $475,000 - $500,000 and $330,000 - $350,000 respectively.
The estate also contains a cash balance of $84,605.30.
The estate has an estimated current value of $893,490, slightly higher than the estimated nett value at the date of the hearing of the Succession Act Proceedings. Approximately $446,745 in cash is required to pay the entitlements of the elder children.
The executors wish to take steps to sell the Lamont Crescent property, to satisfy the entitlements of the elder children.
As set out above, the orders made by Hallen J on 11 February 2020 included the following notations in respect of the Lamont Crescent property at 5(c) - (h):
c. The Defendants, as trustees, shall appropriate the deceased's real property situated at, and known as 18 Lamont Crescent, West Wyalong NSW (folio identifier 1008/753135) ("the Lamont Crescent property") in satisfaction of the contingent entitlement of the trust beneficiaries, Mitchell John Lord, Gemma Abbey-May Lord and Nicholas John Lord, to the intent that that appropriation does not derogate from the entitlement of the trust beneficiaries in clause 3.2 of the deceased's Will dated 13 August 2016 to share one half of the deceased's nett distributable estate upon attaining the age of 25 years;
d. The Defendants, as trustees, shall direct the nett income received by the managing agent (when appointed) from the Lamont Crescent property, to be paid, as to one third, to Mitchell John Lord, absolutely, for his maintenance, education, or benefit;
e. The Defendants, as trustees, shall direct the nett income received by the managing agent (when appointed) from the Lamont Crescent property, to be paid, as to the remaining two thirds, to the Plaintiff, as parent and guardian of the infant children of the deceased, being Gemma Abbey May Lord and Nicholas John Lord, for their maintenance, education, or benefit;
f. The net income from the Lamont Crescent property will be calculated after the managing agent has retained a balance of $5,000 in the property account for the payment of outgoings from time to time;
g. The Defendants intend to apply $5,000 from the Colonial Mutual Life Assurance Policy to create the fund to be retained by the managing agent of the Lamont Crescent property at first instance, or from other funds to which the trust beneficiaries are entitled, or contingently entitled, as the case may be.
h. The Defendants, as trustees of the Lamont Crescent property, shall rent it to a tenant, at market rent, as soon as practicable, and shall oversee and manage the condition of that property and the payment of the outgoings thereon.
The notations in the orders do not have the force of orders. Rather, as I was informed by Ms Pringle, who appeared for the plaintiffs on the application, the 'agreement' noted sets out the then understanding of the parties to the proceedings brought by Pamela as to how the estate would be administered having regard to the facts as they were then understood, including that the Hub 24 fund trustee would pay the entire superannuation benefit to the estate so as to give effect to its distribution equally to each of the six children who attain 25 years.
Given the notation regarding appropriation in the orders, the executor trustees ask the Court to provide the executor trustees with advice and direction on the following questions:
1. Are the executor trustees justified in selling the Lamont Crescent property, notwithstanding the notation in the family provision orders made in Equity proceedings 2019/00246124?
2. If the answer to (1) is 'no', are the executor trustees justified in mortgaging the Lamont Crescent property to secure a capital amount to pay out the entitlements of the elder children?
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Consideration
No issue of principle arises in relation to the power of the Court to give advice under s 63 of the Act. The principles were recently summarised by Meek J in Application of Macedonian Orthodox Community Church St Petka Inc [2023] NSWSC 918 at [48] - [50].
I proceed on the basis of the facts summarised above.
I have also had the benefit of an opinion of M Pringle of counsel dated 7 September 2023 (Opinion).
In my view it is appropriate for the Court to provide the advice sought. Having regard to the material summarised above and the Opinion, the plaintiff would be justified in selling the Lamont Crescent property notwithstanding the notation in the Succession Act Proceedings.
The starting point is that the plaintiffs as executors are obliged to administer the estate according to the Will. In so doing, they must act even-handedly among the six beneficiaries, and avoid preferring the position of one beneficiary or class of beneficiaries over another.
The entitlement of the elder children has vested, and they are at liberty to call for their entitlements to be paid, which they have done. It is now some five and a half years since the Deceased died and five years since probate was granted.
The executors clearly have the power to sell one of the properties in the estate to satisfy the entitlements of the elder children. The properties have vested in the executors subject to the trusts in the Will.
In circumstances where the current estimated value of the assets of the estate is $893,490, cash of $446,745 is required to satisfy the entitlements of the elder children. Based on the market appraisals obtained, the only way that these entitlements can be satisfied is by sale of the Lamont Crescent property or by seeking to raise approximately $390,000 by borrowing against the Lamont Crescent property (if that were possible).
The notation to the orders in the Succession Act Proceedings do not preclude the Lamont Crescent property being sold. As set out above, I have been informed that the notation did not reflect any enforceable agreement, but rather the then understanding of the parties to the Succession Act Proceedings as to how the estate would be administered based on the facts as then known (this is consistent with what is recorded at 'i' in the notation). Importantly, those facts included that the Hub 24 fund trustee would pay the entirety of the Hub 24 fund to the estate. That did not occur, frustrating the intent of the parties as reflected in the notation and resulting in there being insufficient funds to pay the elder children their entitlements.
The entitlements of the younger children under the Will remain unaffected. All that is occurring is that the elder children are receiving their entitlements in circumstances where they are fully entitled and have requested to be paid. The remaining one half of the estate will continue to be administered by a new trustee for the benefit of the younger children until they respectively attain the age of 25 years.
There is no reason why the usual order for costs should not be made.
The orders of the Court are:
1. The plaintiffs are justified in selling the estate realty situated at and known as 18 Lamont Crescent, West Wyalong (folio identifier 1008/753135), notwithstanding the notation in the family provision orders made in Equity proceedings 2019/00246124.
2. The costs of the application be paid out of the estate of the late Richard Martin Lord on the indemnity basis.
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Decision last updated: 28 March 2024