McGowan v Waites; Estate of Ruth Patricia Watts

Lo Surdo v Public Trustee [2005] NSWSC 1186 CASES CITED : Singer v Berghouse (No 2) (1994) 181 CLR 201 Vigolo v Bostin (2005) 79 ALJR 731; (2005) 213 ALR 692 Walker v Walker (NSWSC, Young J, 17 May 1996)

Ruth Helen McGowan (plaintiff) PARTIES : Robert James Waites (first defendant) Phillip John Holder (second defendant)

COUNSEL : L J Ellison SC (plaintiff) D M Flaherty (defendants)

SOLICITORS : Turnbull Hill - Charlestown (plaintiff) Walter Madden Jenkins (defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1492/05 Ruth Helen McGowan v Robert James Waites & anor; Estate of Ruth Patricia Watts

1 HIS HONOUR: Ruth Patricia Watts died on 15 November 2003, leaving a Will dated 15 July 2003, probate of which was granted on 14 May 2004 to the defendants Robert James Waites and Phillip John Holder, by which she left substantially the whole of her estate to the executors upon protective trust for her son Martin Watts, with remainder to her daughter the plaintiff Ruth Helen McGowan. The plaintiff Ruth claims provision out of the estate of her late mother.

2 The deceased was born in 1927. She had two children: Ruth, born 25 December 1950 and now aged 55; and Martin, born 27 January 1956 and now aged 50. Her husband (Ruth's father) died on 13 July 1998; there is no suggestion that Ruth received any benefit from his estate.

3 Ruth lived at home with her parents and Martin until about 1970, when she married her first husband, Patrick John Ryan, and moved with him to Moree. There were two children of her marriage to Mr Ryan: Thomas, born in 1976 and Helen born in 1978, both of whom are now adults and independent.

4 Ruth and Mr Ryan separated in 1985, following which she received a supporting parent's pension, and occupied Housing Commission accommodation in Moree. She remarried on 10 December 1988, her second husband being Kenneth Graham McGowan, to whom she remains married. They have no children, although Mr McGowan has two adult children of a previous marriage.

5 The deceased was an intelligent and forceful woman, but was affected by bipolar disorder and, when unwell, would become delusional. From an early age Martin had learning difficulties and cognitive deficits, and was apparently thought to be of borderline low intellectual functioning. He lived with the deceased until her final admission to hospital prior to her death. Each was dependent on the other, and Martin in particular was dependent on his mother for all decisions about his life, which resulted in his rapid deterioration into psychosis when the deceased was from time to time hospitalised. Martin was diagnosed with paranoid schizophrenia, bipolar affective disorder and dyslexia in 1998; epilepsy was also suspected but later discounted. The deceased refused to accept that Martin had a psychiatric illness, and used to convince Martin that he did not need medication, which led to relapses on his part. When unwell herself, she would become delusional about attempts to manage Martin's illness, and accused others of trying to poison him. When the mental state of one of them deteriorated, the other's was affected, and they shared similar delusional beliefs in what the psychiatrists call a folie a deux.

6 In 2000, the deceased had surgery for an aneurism. A community counselling order was made in respect of Martin, following a psychiatric hospital admission in July 2000, on the grounds that Martin was reluctant to engage in treatment, notoriously non-compliant with medication, had been violent towards his mother when unwell, and was a danger to himself on the basis of his delusional beliefs. He was the subject of an admission to Macquarie Hospital under the Mental Health Act between 30 January and 19 February 2002 with an exacerbation of chronic schizophrenia. The discharge summary records that he was quite dependent on his mother to perform activities of daily living and other skills, and that his mother often told Martin that he did not need his medication.

7 The deceased made her last Will on 15 July 2003. Her husband had been in the police force, and she appointed as her executors and trustees two legators of Police Legacy, who are the defendants. She gave, devised and bequeathed the whole of her estate to her trustees to pay her just debts, funeral and testamentary expenses and duties, and thereafter to hold the same upon the following trusts: During the lifetime of my intellectually disabled son Martin James Watts (hereinafter called "the special beneficiary") my Trustees shall hold the capital upon trust for the said Martin James Watts as follows: (a) To invest the capital and additions to capital freely as if they were beneficially entitled and this power includes the right to invest in assets producing no or below market income provided that investment in such assets is in my trustee's opinion for the benefit of the special beneficiary. Investments may include property for occupation or use by the special beneficiary either alone or in conjunction with others. With a view to such occupation my trustees may on such terms as they think fit grant leases, licences, rights to occupy real estate to whomsoever they think fit. In determining any rent from time to time payable under such lease my trustees may take into account the value of the accommodation and other services and benefits accruing to the special beneficiary as a result of the granting of rights. My trustees may also purchase or take on lease, licence or otherwise any real or personal property as tenants in common but not as joint tenants with any other person, and this power expressly authorises my trustees to mix trust funds provided that by so doing in their discretion the exercise of this power will benefit the special beneficiary; and (b) During each financial year in my trustee's discretion at any times to pay or to apply for the benefit of the special beneficiary such part of the income sufficient to provide necessities, assistance and funds for the general purposes and benefit in life of the special beneficiary but only such part as may not have the effect or be treated as assessed or deemed to be assessed in such a way as to reduce the Disability Pension or any other entitlement of the special beneficiary; and (c) Subject to (b) above at the end of each financial year to add any undistributed income to capital; and (d) Subject to (b) above in my trustees' discretion at any times to apply or to apply for the benefit of the special beneficiary the whole or any part of the capital and of additions to the capital.

8 The deceased died aged 78 on 15 November 2003. Her estate comprised her home in North Ryde, and some moneys on deposit. The house has been sold, and the net distributable estate (before the legal costs and disbursements of these proceedings) is $537,000.

9 On the day next following the death of the deceased, 16 November 2003, Martin moved to Moree and took up residence with Ruth and her husband, with whom he has since resided. There is no doubt that he has thrived in those circumstances. With Ruth's encouragement, he has obtained full-time work in a sheltered workshop operated by Gwydir Industries. He attends TAFE each week for art lessons.

10 Martin receives a disability pension of $512 per fortnight, a mobility allowance of $68 per fortnight, and about $90 per fortnight from Gwydir Industries. He pays board of $100 per week, and one third of the electricity bill for Ruth and Mr McGowan's Moree home in which he lives. After his expenses, he is left with some funds to expend on himself and entertainment each week. He requires constant care and supervision, and is dependent upon Ruth for that. She drives him to medical appointments, collects his scripts from the pharmacy, arranges for his hair to be cut and attends to the grocery shopping.

11 Ruth is 55 years of age. She is employed by Coles as a casual sales assistant/clerk earning approximately $160 per fortnight or $4,160 per year. She also receives a carer's pension of $45 per week or $2,340 per year for looking after Martin. Mr McGowan, her husband, is 59 years of age. He is a worksite co-ordinator for the local council. His taxable income for the year ended 30 June 2005 was $50,259, although a Retirement Scheme Benefit Statement records that his salary as at that date was $35,386; presumably the difference is explained by overtime. Mr and Mrs McGowan also receive board of $100 per week from Martin. They estimate their modest living expenses to be less than $500 per week (including mortgage repayments). They jointly own a house at 334 Chester Street, Moree, worth $68,000 and subject to a mortgage on which the debt is $54,000. They have recently acquired a 2004 Holden Commodore worth $19,990, on which there is a debt of $19,000. Ruth has a Commonwealth Bank account with a credit balance of $5,885; they also have $500 in a joint ANZ Bank account, and miscellaneous personal property of about $10,000. Mr McGowan has a retirement benefit entitlement of $175,000.

12 As its undisputed value of $68,000 suggests, the home is a very modest one, of approximately 10 squares. Martin occupies a sleep-out into which part of the veranda has been converted, which has no insulation and is cold in winter and very hot in summer. There is only one toilet in the house, which presents problems, as Martin is incontinent. The interior has not been painted for at least ten years. The carpet has not been replaced for the same period and has holes in it, a musty smell and many stains.

13 Mr McGowan has recently (in 2005) been diagnosed with cancer and treated for it, including with chemotherapy. At present he is in good health, but there must be some doubt as to whether that will remain the case. While he was ill, some conflict arose between him and Martin, quite understandably in the circumstances that there were three people living in a small two-bedroom and one-bathroom house, so that there were often competing and urgent demands for use of the only bathroom. These tensions culminated in statements by Mr McGowan, and perhaps also by Ruth, to the effect that the situation was becoming intolerable and that Martin would have to leave. All three say now that those issues have been resolved and that everyone is happy, though the house is still too small for them.

14 The deceased is a person in respect of whom administration has been granted. Ruth's summons was filed on 14 February 2005, within eighteen months of the deceased's death on 15 November 2003, and accordingly the application is brought within time. Ruth, being a child of the deceased, is an "eligible person" in relation to the deceased within category (b) of the definition of that term in Family Provision Act, s 6(1), and accordingly has standing to apply for provision out of her estate under the Act. The only other eligible person is Martin, to whom notice has been given and who, from his presence in court during the hearing, was obviously aware of the proceedings.

15 There are two stages in considering an application for provision out of an estate under Family Provision Act, s 7. The first is to determine whether the applicant has been left without adequate provision for his or her proper maintenance, education and advancement in life. This is a question of fact, albeit a jurisdictional fact, and requires an assessment of what in all the circumstances was the proper level of maintenance etc appropriate for the applicant, having regard inter alia to the applicant's financial position, the size and nature of the estate, the totality of the relationship between the applicant and the deceased (including any contributions made by the applicant to the deceased's estate and/or welfare), and the relationship between the deceased and other persons who have a legitimate claim upon his or her bounty. The second stage, which only arises if the first is answered affirmatively, is to determine what provision ought to be made out of the estate for the applicant. This involves a discretionary judgment, in which the court considers all of the facts and circumstances in order to evaluate what provision community standards would require a person in the position of the testator to make for the applicant [Singer v Berghouse (No 2) (1994) 181 CLR 201, 208; Vigolo v Bostin (2005) 79 ALJR 731; (2005) 213 ALR 692 [5], [74]-[75], [112]; Lo Surdo v Public Trustee [2005] NSWSC 1186 [44]-[50]; Walker v Walker (NSWSC, Young J, 17 May 1996)].

16 Although Ruth is entitled under the Will to the remainder after the death of Martin, she is older than Martin, and their life expectancies are approximately the same. For practical purposes, she receives no real provision from her mother's estate.

17 When the deceased made her Will, and indeed when she died, there were factors might be said to have supported the view that the deceased ought to have made some provision for Ruth. First, there was mere fact of maternity - more so when Ruth's father had predeceased the deceased, making no provision for Ruth. Secondly, there was the very modest asset position of Ruth and her husband. Thirdly, there was the size of the estate, especially relative to Ruth's very modest assets. Fourthly, there was the circumstance that Ruth had always enjoyed a good relationship with her mother. Fifthly, there was the circumstance that in 1991, apparently in response to a letter in which Ruth had mentioned that she was having financial troubles, the deceased pointed out that she too had a struggle when her children were young, and wrote, amongst other things: As for owning your home, well, you'll be able to pay it off with the money from my estate. Half (from the sale of our house) will be yours, and half to Martin plus whatever we have in the bank, half each. Plus furniture, jewellery etc. Houses in North Ryde are fetching good prices.

18 Against those factors, however, was a weighty combination of circumstances: first, the competing claim of Martin, with a considerable disability, who would never be able to support himself, could not live independently and needed care and supervision, and had no-one else upon which he could rely for support in the future; and secondly, that there was another person, her husband Mr McGowan, upon whom Ruth was entitled primarily to rely for her future support. In the context of providing support for a disabled person who cannot live independently, $500,000 is a small enough amount. While Ruth's circumstances were very modest indeed, she and her husband had (just) enough income to cover their expenditure, and they had accommodation that was acceptable to them. Mr McGowan had a retirement benefit entitlement which, upon his retirement, could either fund a pension or provide capital to discharge their mortgage. There is no suggestion that Ruth had relied to her detriment on what the deceased had written in the 1991 letter, quoted above.

19 The testator apparently determined that her obligation to provide for Martin's security in the future had to take priority over any obligation which she might have had to Ruth - who, unlike Martin, had someone else, her husband, to support her. In those circumstances, even if it could be concluded that Ruth had been left without adequate provision for her proper maintenance and advancement in life, I would have concluded that no order should be made, on the basis that the deceased was entitled to give priority to Martin's claim and make provision for him to the effective exclusion of Ruth.

20 However, unlike the deceased, the court considers the matter as at the date of the hearing [Family Provision Act, s 9(2)], and takes into account circumstances existing after as well as before the death of the deceased [s 9(3)(c)]. What the deceased did not know, and which radically changed the situation, was that immediately following her death, Ruth would assume responsibility for Martin's care. Ruth and Mr McGowan have given evidence that they propose to continue to provide accommodation and care for Martin indefinitely. Martin has given evidence that he is happy with them in Moree and wishes to stay there.

21 The care and supervision of an intellectually disabled person affected by paranoid schizophrenia such a Martin is a very considerable burden, which necessarily increases the needs of Ruth: it increases the accommodation needs of the household; it increases the costs of running the household; it requires time of Ruth which could otherwise be spent on other activities (including part-time work); and it demands her sustained emotional commitment. The difficulties of caring for and supervising such a person are prone to be stressors from time to time in the household. Even if Martin's contribution to board and the electricity account covered the total increase in financial costs occasioned by his membership of the household, it does not compensate for the totality of the financial and non-financial costs and burdens which Ruth has assumed. Nor, might it be added, does the carer's pension to which Ruth is entitled do much to compensate for the burden that she has assumed.

22 In particular, Ruth's assumption of responsibility for Martin brings with it a need for more suitable accommodation. While on any view Ruth's current accommodation is very modest, a particular need for its enhancement arises from Martin's presence. This is not just Martin's need for accommodation, but also Ruth's reasonable need that her family's accommodation not be unduly reduced in its amenity for her and her husband by her generous acceptance into it of Martin. She desires to obtain more suitable and spacious accommodation, and has produced evidence which shows that three to four bedroom family homes with two bathrooms are available in Moree in the price range $230,000 to $250,000.

23 The trustees agree that Martin's best interests are served by his remaining in the care of Ruth, and in more spacious accommodation. But the parties are at issue as to how that result should be achieved. Ruth seeks provision out of the estate to enable her to acquire more suitable accommodation, to discharge her car loan, and to provide a fund for contingencies. The trustees propose, primarily, that they should acquire, in the name of the estate, a suitable home of Ruth's choice up to a value of $420,000, which Ruth could occupy (with her husband) so long as Martin continued to do so.

24 Ruth and her husband are not prepared to accept an arrangement by which they would occupy property owned not by them but by the trustees; similarly, they are not prepared to entertain an arrangement by which they would occupy a home owned by them and the trustees as tenants in common. Mr McGowan described his reasons for this, metaphorically but powerfully, as being that, after all these years, he did not want to live in a house, in which he needed the trustees' permission to erect a dog house in the backyard. Ruth explained that, she and her husband having worked to pay off their own home over a long period, she did not want to live in a home owned by someone else. There was also a concern that, if the property were beneficially Martin's, there would be a shift in the balance of the relationship, such that their ability to require Martin to tidy his room and comply with other domestic requirements (which has on occasion been an issue in the past) would be diminished. In my judgment, this attitude is reasonable. The McGowans should not be obliged to accept those disadvantages, as a condition of Ruth obtaining proper provision in the light of their assumption of responsibility for Martin's care, accommodation and supervision.

25 Ruth submits that provision for her is effectively provision for Martin, who is now her dependent. There is force in this submission, but not to the same extent as provision for a widow is provision for her dependent minor children - because the claim of an adult daughter vis-a-vis an adult son, especially one with a disability, does not have the same primacy of that of a widow. Ruth further submits that all parties consider that the current arrangements for Martin's care are in his best interests, that she and her husband have sworn that they will continue, so long as they are physically and mentally able to do so, to provide accommodation and care for Martin; that Martin has said that he wishes to remain in that situation; that, in those circumstances, the present arrangements will continue; and that, if they do so continue, the trust fund will simply be preserved during Martin's lifetime for the ultimate benefit of Ruth's children, but provide no practical benefit to either Martin or Ruth in the meantime.

26 Against this, the trustees submit that that will be so only so long as the current arrangements remain on foot; that it cannot be guaranteed that they will remain on foot - more so given some tensions which have appeared in the past; and that if they do not, the trustees will be left to find alternative accommodation and care for Martin from a fund which, if provision has been made for Ruth out of it, will inevitably be insufficient for that purpose. The trustees submit that the matter cannot be approached on the basis of Ruth's promise to continue to provide accommodation and care for Martin, since such a promise is unenforceable and could be defeated by any manner of subsequent circumstances.

27 Both these competing submissions, in absolute terms, are correct. It is likely that Martin will continue to reside with the McGowans, and on that most likely scenario - that the current living arrangements remain in place - the trust fund will simply be preserved, without present benefit to any of those most in need of provision from the estate. But if for some reason he does not do so, and provision is made for Ruth to the extent that she seeks, there will remain manifestly insufficient funds to provide alternative arrangements for Martin. I agree that the matter cannot be approached without reservation on the basis of Ruth's promise to continue to provide accommodation and care for Martin, since although I think that it is most likely that the current arrangements will remain in place, the possibility that they may break down - through death of Ruth or Mr McGowan, or the recurrence of Mr McGowan's illness, or the enormous stresses which care of a person such as Martin imposes, or otherwise - cannot be disregarded.

28 A wise and just testator, enjoying the advantage of knowing what has happened since her death, would have approached her task on the footing that it was likely that Martin would continue to reside indefinitely with Ruth and Mr McGowan, but that it was possible that those arrangements might fail. She would have sought a means by which Ruth was compensated for assuming the responsibility - which the testator had herself previously performed - of accommodating and caring for Martin, by providing Ruth with accommodation suited to the circumstances which arose from housing Martin, in the sense that it minimised the disruption, inconvenience and reduced amenity which his presence in their existing accommodation would necessarily occasion. But at the same time, she would have sought to ensure that in the event that those arrangements broke down, there were funds available for the establishment of alternative arrangements for Martin.

29 As well as increasing Ruth's needs, her assumption of responsibility for Martin's care and accommodation reduces the needs of Martin, to which the deceased was otherwise entitled to give priority. As Ruth has been left with no compensation for her assumption of the care of Martin, and accommodation that in those circumstances is inadequate, I am satisfied that she has been left with inadequate provision for her proper maintenance and advancement in life.

30 Ruth's costs are estimated at $43,000 and the trustees' at $42,000. This total of $85,000, I have to say, seems excessive for a one-day case. Assuming it to be correct, however, it would leave, out of the net distributable estate of $537,000, about $450,000 after costs.

31 The cost of a unit or house in Sydney suitable for Martin's accommodation would be upwards of $500,000. Recurrent support costs of attendant carers could be expected to be in the range $85,000 to $120,000 per annum. Even if no provision were made for Ruth, the trust fund would be insufficient provision for Martin in that eventuality.

32 The McGowans owe $19,990 on their recently purchased Holden Commodore motor vehicle, on which they pay $204.52 per fortnight. They owe $54,000 on the mortgage on their home, on which they pay $200 per fortnight. Provision of a legacy of $100,000 would enable them to discharge those liabilities, free up approximately $400 per fortnight of income, and leave a fund for contingencies of $25,000. It would increase the McGowans' net asset position (excluding Mr McGowan's superannuation) from $31,000 to $131,000, leaving them debt free. If they were to rehouse, they would have their equity in their existing home ($68,000, after discharge of the mortgage from the legacy) and the fund for contingencies ($25,000), a total of in excess of $90,000, available.

33 The estate is insufficient to provide both accommodation suitable for Ruth in her present circumstances, and a fund sufficient to cover the contingency that the present arrangements may fail. Compromises must be made. If the current arrangements remain in place, then provision can be made for Ruth and Martin concurrently. But if the current arrangements were to break down, Martin's needs are entitled to some priority.

34 In my view, balancing the likely continuation of the current arrangements against the possibility of their collapse, Ruth should receive a legacy of $100,000, and be entitled to access the trust fund to the extent of $250,000, to be applied to the purchase of a house in her own name, subject to a charge for repayment to the estate of the capital advance (without interest) if Martin ceases permanently to reside with Ruth or Mr McGowan in that house, but not otherwise. The interest-free character of the advance is in the nature of an on-going provision for Ruth so long as she continues to accommodate and care for Martin. Such an outcome would leave $100,000 in the estate under the trustees' management, and allow in addition for the recoupment of the $250,000 advance if the current arrangements were to break down.

35 Subject to submissions as to their form, I will make the following orders:-

1. Order that in addition to the provision made for the plaintiff Ruth Helen McGowan by the Will of Ruth Patricia Watts, deceased:

1.1 The plaintiff receive a legacy of $100,000, such legacy not to bear interest if paid within 28 days, but otherwise to bear interest at the rate prescribed by the rules of court for interest on unpaid judgment debts;

1.2 The defendants shall, upon completion of the purchase by and in the name of the plaintiff of a property selected by the plaintiff, and upon the plaintiff tendering to the defendants a mortgage which complies with order 1.3 below, pay to or as directed by the vendor of such property, such sum not exceeding $250,000 as the plaintiff may request, or such greater sum as the defendants may agree, as payment pro tanto of the purchase price of the property;

1.3 The mortgage referred to in 1.2 shall be a first mortgage in registrable form, of the property referred to in 1.2, securing repayment to the defendants of the capital sum advanced, without interest, upon Martin permanently ceasing to reside in the property (but not otherwise), for which purpose he shall be taken to have permanently ceased to reside in it if and only if he has been absent from it for a period of six months and does not intend to resume living in it.

2. Order that the burden of the provision made by order 1.1 be borne by the gift contained in clause 3 of the Will.

3. Order that the costs of the plaintiff (on the party/party basis) and the defendants (on the indemnity basis) be paid or retained as the case may be out of the estate.

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