Neale v Neale

Judgment - EX TEMPORE 1John Anthony Neale (the deceased) died on 25 November 2011, aged 67 years, leaving a will dated 18 December 2003, probate of which was granted to his widow and sole beneficiary, Sandra Cheryl Neale (the defendant) on 19 June 2012. 2The present proceedings involve a claim for Family Provision relief made by two of the three children of the deceased by a former marriage. 3As they are children of the deceased there is no dispute about their status as eligible persons within the meaning, and for the purpose, of the Succession Act 2006 NSW, ss 57(1) and 59(1)(a). 4The deceased left an estate which, for the purpose of these proceedings, may be taken as presently having a notional value of between about $1.21 million (the bottom line figure for which the defendant contends) and $1.45 million (the figure for which the plaintiffs contend), depending on the approach taken to: (a)the exposure of the deceased and/or the defendant to a liability for Capital Gains Tax, not yet assessed; (b)the deduction, or otherwise, of debts incurred in the winding down of the partnership business of the deceased and the defendant following the death of the deceased; and (c)in conclusion, or otherwise, of superannuation entitlements in the estate of the deceased. 5This dispute as to the value of the deceased's estate does not, ultimately, have any great bearing on the outcome of the proceedings because: (a) the plaintiffs' claims for Family Provision relief, ultimately, require an assessment of the competing claims of the plaintiffs and the defendant on the bounty of the deceased; and (b) as the defendant is the sole beneficiary under the will of the deceased, and his former business partner and co-owner of the land forming part of his estate, any indebtedness attributed to the defendant rather than to the estate of the deceased ultimately needs to be taken into account against the interests of the plaintiffs when assessing the competing positions of the parties. 6The superannuation entitlements of approximately $37,000 characterised by the plaintiffs as part of the estate of the deceased are not, I assume, strictly part of his estate; but what is true of any exposure to Capital Gains Tax and winding down expenses of the partnership between the defendant and the deceased is substantially true of the superannuation entitlements on the other side of the ledger. 7The parties are at issue as to whether, in substance, the defendant has exposure to a Capital Gains Tax liability from the sale of the property which she and the deceased co-owned. The opinion of the defendant's accountant is that provision should be made for such a liability - which will not, in practical terms, crystallise until the defendant lodges her 2013/2014 tax returns early next year. 8There is an element of imprecision in any attribution of a value to the estate of the deceased in these circumstances. 9The assets in the deceased's estate comprised: (a) a one half share in the land known as 6 xxxxxxxxxxx Road, Berrilee, co-owned by the deceased and the defendant at the time of his death; (b) a one half interest in the business, known as "Neale's Storage", conducted on that land by the deceased and the defendant in partnership; and (c) sundry property associated with that business. 10At about the same time as he made his will in favour of his then wife, the defendant, the deceased transferred a one half interest in 6 xxxxxxxxxxx Road to her. 11In the latter half of last year (2013) the defendant sold that land, and the "Neale's Storage" business, and, by application of the sale proceeds for her own purposes, effectively distributed the estate to herself in accordance with the deceased's will. 12The sequence of events was this. On 19 June 2012 probate of the deceased's will was granted to the defendant. On 22 June 2012 the defendant published a "notice of intended distribution" pursuant to s 92 of the Probate and Administration Act 1898 NSW. On 14 August 2013 she contracted to sell the land and business. The sale was completed on 11 October 2013. 13This chronology requires other events to be noticed. One such event is the filing of the plaintiffs' summons for Family Provision relief on 23 November 2012. That date has a twofold significance. 14First, the summons was filed within the 12 months limitation period following the death of the deceased prescribed by the Succession Act, s 58(2). 15Secondly, the defendant had notice of the summons well before she contracted to sell the estate's assets and to distribute proceeds of sale to herself. The summons was returnable on 29 January 2013. By her solicitor, she filed a notice appearance on 3 January 2013. 16It will be necessary, if an order for provision is to be made in favour of the plaintiffs, for there to be a designation of notional estate. It is not being suggested, however, that the process of effecting a designation of notional estate is a substantial impediment to the plaintiffs' success. 17Although she is in the course of re-arranging her affairs generally to accommodate life following her husband's death, the defendant presently holds a term deposit of $1 million which, if required, would be available for designation as notional estate of the deceased. 18Another event required to be noticed is the defendant's deployment, upon completion of the sale of 6 xxxxxxxxxxx Road and "Neale's Storage", of proceeds of sale in the discharge of mortgage debt not only on that land, but also on the adjoining land, known as 4 xxxxxxxxxxx Road, where the defendant proposes to build a new residence for herself. 19The land at 6 xxxxxxxxxxx Road compromises 5 acres. That at 4 xxxxxxxxxxx Road compromises 20 acres. The two parcels of land were once one, subdivided some decades ago. 20The defendant and her son (the one child of the marriage between the deceased and the defendant), Russell, purchased "No. 4" by a contract, the completion of which occurred on 23 June 2006. The defendant acquired a three fifths share. Russell acquired a two fifths share. 21Russell transferred his share to the defendant by Memorandum of Transfer dated 17 April 2014 and registered on 26 May 2014. The consideration for the transfer was expressed to be $338,650.23; but the evidence is to the effect that most of that sum was applied to the discharge of mortgage indebtedness, and Russell received what might easily be described as a "pay out" (agreed with his mother) of $98,800 (an amount of $100,000 adjusted for repayment of a debt owed by Russell to his mother). 22In practical terms, Russell used his pay out to fund his purchase of a home unit near Hornsby. Transfer of the land gave formal expression to an arrangement given substantive effect at or about the time of completion of the sale of "No. 6" and "Neale's Storage" in October 2013. It was at about that time that Russell purchased his unit. 23Having sold "No. 6", the defendant is moving steadily towards building a residence of choice on "No. 4", a consequence of which is likely to be that old buildings presently erected on "No. 4" will need to be demolished. 24The defendant, who presents as a formidable businesswoman, can be expected to turn to business advantage the larger area of land she now contemplates living upon. 25The unusual family circumstances of the deceased, and his descent into dementia (with Alzheimer's disease) for the last decade or so of his life, appear to lie at the heart of disputation in these proceedings. 26The deceased was married three times. In 1968 he married Lorraine. They separated in 1972 and were divorced in 1978. 27In 1973 the deceased's brother, Peter, commenced living at the matrimonial home (not far from the land now known as Nos. 4 and 6 xxxxxxxxxxx Road) with Lorraine and her three children, children of her marriage to the deceased. 28Peter and Lorraine have maintained their relationship, and Peter has served as a surrogate father for all three children, since that time. 29In their early years the children (including the plaintiffs) referred to their two fathers affectionately as "Daddy John" and "Daddy Peter" respectively. 30The three children of the marriage of the deceased and Lorraine are: (a) the first plaintiff (Craig), born in 1969 and now aged 44 years; (b) the second plaintiff (Michelle), born in 1970 and now aged 43 years; and (c) Kristian, born in 1973 and now aged 41 years. 31Kristian has made no application for Family Provision relief, and he has given no evidence in the proceedings. Other family members, although they have not made competing claims for Family Provision relief, have given evidence in the proceedings. 32Following his separation from Lorraine, the deceased took up residence on the land now known as "No. 6" xxxxxxxxxxx Road. He continued to live there until he entered a nursing home in 2010. 33Between 1981-1984 he was married to his second wife, Maree (Rosemarie). There were no children of that marriage. 34The deceased and the defendant commenced living together, at "No. 6" xxxxxxxxxxx Road, in 1985. They were married in 1987. The one child of that marriage, Russell, was born in 1988. He is now aged 26 years. The deceased was significantly older than the defendant. He was born in 1944. She was born in 1955. She is presently aged 58 years. 35From 1986 or thereabouts the defendant became increasingly involved in the business that evolved into that (known as "Neale's Storage") only sold after the deceased's death. It was conducted on "No. 6" xxxxxxxxxxx Road, with capital improvements effected for the purpose of the business, over several years, including the period following the deceased's diagnosis with Alzheimer's disease. 36In 1986 the defendant resigned her employment as a council officer. At some time in or following 1987 (the year of their marriage) she and the deceased formed a partnership for the ongoing conduct of the business, "Neale's Storage". Russell was born in 1988. 37In 2000, and then in 2003, the deceased made wills which, in effect, left everything to the defendant. Of more particular notice, the 2003 will (that in respect of which a grant of probate has been made to the defendant) left everything to the defendant and, in a series of alternative provisions, favoured Russell over the interests of the children of the deceased's first marriage. 38The deceased was diagnosed with Alzheimer's disease in 2003. At about the same time, and before the deceased made his last will and transferred a half share in "No. 6" to her, the defendant commenced a bed and breakfast business on that land. 39A fair inference from the evidence, including that relating to the deceased's declining health, is that the defendant played an increasingly important role in the conduct of all business activities on the land, and in the personal care provided to the deceased, from about 2003. 40The deceased was admitted to a nursing home only in 2010, when his health had rendered that a necessity. 41It was in this dynamic environment that there occurred an event which played a large part in a dramatic breakdown in family relationships. The mother of the deceased and his brother Peter, Mrs Muriel May Toft, died in September 2005, leaving in her wake an inter-generational dispute about disposition of her estate. 42Mrs Toft left a will dated 30 August 2004 and an estate with a gross value (estimated for probate purposes) of about $1.2 million. 43The will provided a $100,000 legacy for each of Mrs Toft's sons (Peter and the deceased) and divided the balance of her estate between her four grandchildren (the children of the deceased), with a larger share for the three children of the deceased's first marriage than for the child of his third. 44The deceased, in particular, appears to have been dissatisfied with this division of his mother's estate. That dissatisfaction was fuelled, in part, by anxiety about his declining health and a perceived need for further assistance from his mother's estate if he were to cope with the cost of ongoing care. 45The deceased and Peter appear, before this time, to have adjusted their relationship, if not attained a state of reconciliation, following the change of domestic arrangements in the 1970s that resulted in Peter displacing the deceased in the deceased's first family home. 46However, the death of their mother brought that undone. Their relationship appears to have broken down, not assisted one might expect by the deceased's ill health and the domestic difficulties within his own household of accommodating, not only his current health, but also his prognosis. 47It is not possible, and it would be unlikely to be productive to endeavour in retrospect, to determine the parties' collateral disputes about the validity of Mrs Toft's will and exposure of her estate to competing Family Provision claims. It is sufficient to make four observations. 48First, all members of the extended Neale family entered a "deed of arrangement" dated 26 February 2007 in which beneficial entitlements to Mrs Toft's estate were adjusted. 49Secondly, predicated on that foundation, Peter (as the executor named in the will dated 30 August 2004) obtained a grant of probate of the will on 5 March 2007. 50Thirdly, the estate was administered on the basis of the deed so that Peter and the deceased obtained a greater share of the estate, largely at the expense of the children of the deceased's first marriage, than they would have obtained under the terms of the will. 51Fourthly, the deceased secured his increased share of the estate, in part, via a representation to the children of his first marriage (including, importantly, the current plaintiffs) that he would make provision for them in his own will. 52A point made by the defendant, in this context, is that the deed of arrangement favoured Peter (with 35 per cent of Mrs Toft's net estate) over the deceased (who obtained 30 per cent of the net estate). However, the present focus for attention is not so much any benefit conferred on Peter (or speculation about the possibility that some of that benefit might flow through to the plaintiffs as his stepchildren) as on the benefit conferred by the plaintiffs, on their father, with an expectation that he would, in time, favour them with participation in his estate. 53Under the deed of arrangement the plaintiffs effectively gave up, in favour of the deceased, about $112,600. Even if (as the defendant contends) that money was largely, if not wholly, absorbed in the treatment of, and care given to, the deceased in the last years of his life, the events surrounding succession to Mrs Toft's estate did give rise - not unreasonably - to an expectation on the part of the plaintiffs that they would receive something from their father's estate. 54Instead, what appears to have happened is that the acrimony surrounding the dispute about Mrs Toft's estate produced an estrangement which the plaintiffs, again not unreasonably, attribute to: (a) tensions, not of their making, between the deceased and his brother, Peter; (b) hostility towards them from the defendant, increasingly absorbed in caring for the deceased and conducting the family business; and (c) the onset and steady development of the deceased's Alzheimer's. 55The plaintiffs say, and I accept, that, all things considered, they had a reasonable relationship with their father until family relationships broke down following the death of their grandmother. It could not have been easy for them to steer a path through the domestic arrangements put in place by their elders during their early years, arrangements which necessarily coloured their relationship with their father and their access to him. Those difficulties are not to be disregarded merely because Peter appears to have performed his duties as a surrogate father with diligence and affection. 56The financial, and family circumstances, of each of the plaintiffs is such that it is not unreasonable for them to look to their father's estate for assistance. 57The first plaintiff was married in 2006. He and his wife have two children, one aged about nine years, the other about seven years. The first plaintiff left high school in year 11 and holds no formal qualifications. He pursues the occupation of a floor sander and tiler. His taxable income is of the order of about $33,000, and his wife's taxable income is nominal. They own their family home at Nabiac, valued at about $394,000, subject to a mortgage debt of about $242,000. 58The younger of the first plaintiff's children, a son, has experienced ill health which has caused anxiety within the family, not only for him. He has been diagnosed with leukaemia and has to cope with the difficulties inherent in that, difficulties shared no doubt by the entire family. 59The second plaintiff married in 1994. She and her husband have three children, now in their teenage years. The eldest has attained a majority. The youngest is aged about 13 years. 60The second plaintiff works as a teacher's aid and her income stands at about $25,000 a year. Her husband is a qualified mechanic, with an annual income of about $46,000. 61They own their family home at Kilaben Bay, valued at about $340,000, subject to a mortgage debt of about $244,000. 62Each of the children of the second plaintiff has suffered hearing difficulties which give rise to concern and the middle child, now aged about 16 years, has been diagnosed with Turner syndrome. The prospect of medical expense for the family is a real one. 63Any needs the plaintiffs have for assistance fall, ultimately, to be measured against the competing needs of the defendant. She has been a dutiful wife, in a long marriage, in the course of which she has made a positive contribution to the accumulation of whatever wealth resides in the deceased's estate. Her counsel contends, with reasonable grounds, that, were she a claimant for Family Provision relief, she would be entitled to lay claim to the standard of provision contemplated for a widow by the decision of Powell J in Luciano v Rosenblum (1985) 2 NSWLR 65. From that base, he contends that the plaintiffs' claims should be dismissed. 64Although there is no difficulty in characterising the defendant as a deserving widow, her financial circumstances are relatively secure. The land at "No. 6" xxxxxxxxxxx Road and the business known as "Neale's Storage" were sold in 2013 for a total sum (representing a price for the combined interests of the defendant and the deceased's estate) of about $3.2 million. 65The defendant presently has assets with a combined current value of the order of $2.6 million. She anticipates earning income from a licence over part of her land, investments and the conduct of a bed and breakfast business on her land. Against that she has still to finalise arrangements for the erection of a residence on "No. 4" xxxxxxxxxxx Road. 66Viewed in terms of current community standards (as cases such as Andrew v Andrew (2012) 81 NSWLR 656 suggest is the appropriate course) or from the perspective of a wise and just testator (according to standards of an earlier day), it seems to me that, applying the statutory criteria found in ss 59 and 60 of the Succession Act, it is appropriate to conclude that, with knowledge of things as they appear today, each of the plaintiffs has been left with inadequate provision for their proper maintenance, education and advancement in life (Succession Act, s 59(1)(c)) and, subject to being satisfied as to the appropriateness of a designation of property as notional estate, an order should be made for provision in favour of each of them (Succession Act s 59(2)). 67In reaching that conclusion, I take into account not only the present, modest circumstances of each of the plaintiffs and their households, but also the health difficulties with each family must deal, and the expectations, which I regard as reasonable, that each of the plaintiffs has arising from the deference they showed their father upon the death of their grandmother. 68I am conscious, however, that any provision that is to be made for the plaintiffs' needs to accommodate the circumstances of the defendant and the contribution she has made to the estate of the deceased over the length of their marriage. 69Although the defendant has realised the assets of the estate of the deceased, and applied proceeds of sale of estate assets, for her own benefit, she cannot reasonably have conducted her affairs without an expectation that the plaintiffs could well make an application for Family Provision relief. 70In any event, by the time the defendant came to realise the estate she had notice of the plaintiffs' then pending claims for Family Provision relief. 71The nature of the relationships within the Neale family following the death of Mrs Toft has been such that the possibility of disputation following the death of the deceased could have come as no surprise to the defendant. 72I am satisfied that, notwithstanding the importance of not interfering with reasonable expectations of the defendant in relation to property, the substantial justice and merits of the case point in the direction of there being a legacy granted to each of the plaintiffs. 73The availability of the defendant's term deposit as property for the designation of notional estate is not, of itself, a reason for making an order for provision in favour of the plaintiffs. It does, however, lessen any hurdle that might otherwise have been imposed on the plaintiffs' application by the defendant's distribution of the estate. 74In my assessment the level of provision that should be made for each of the plaintiffs is a legacy in the sum of $100,000. 75I am satisfied that such a legacy will not materially affect the defendant but will provide assistance to the plaintiffs which is appropriate as a call by them on their father's bounty. 76In my assessment, this level of provision can be made even upon an adoption of the defendant's estimate of the value of the deceased's estate ($1.21 million or thereabouts), particularly but not only bearing in mind the possibility that "the estate" is arguably a larger sum than that. 77The difference between the parties as to the value to be attributed to the estate is, it might be noted, less than their lawyers' estimates of the costs incurred in the conduct of the proceedings. As is not uncommon in Family Provision proceedings, the level of costs incurred in the conduct of the proceedings is a cause for concern. 78The costs estimates provided by the lawyers, said now to be an overestimate, because a four-day hearing will have been confined to three days, come in at something of the order of $370,000, $170,000 on the plaintiffs' side and $200,000 on the defendant's side. 79It may be that there is some further disputation to be dealt with in the light of the orders that are to be made. I will deal with any such disputation if and when I am alerted to it. 80Subject to allowing the parties an opportunity to bring in Short Minutes of Order giving effect to these Reasons for judgment, I propose to make orders to the following effect: (1)Order that provision for the maintenance, education and advancement in life of the first plaintiff be made, out of the notional estate of the deceased, by way of a legacy for the first plaintiff in the sum of $100,000. (2)Order that provision for the maintenance, education and advancement in life of the second plaintiff be made, out of the notional estate of the deceased, by way of a legacy for the second plaintiff in the sum of $100,000. (3)Order that those legacies bear interest, at the rate prescribed by the Probate and Administration Act 1898 NSW for interest on legacies, from 15 October 2014, if not earlier paid. (4)Order that so much of the defendant's term deposit be designated as notional estate of the deceased as may be necessary to pay: (a)the legacies (totalling $200,000) in favour of the plaintiffs; and (b)any costs orders made in these proceedings. (5)Order that the costs of the plaintiffs be paid out of the notional estate of the deceased on the ordinary basis. (6)Order that the costs of the defendant be paid out of the notional estate of the deceased assessed on the indemnity basis. 81In indicating as I have these forms of costs orders, I intend to do no more than indicate what orders will be made upon an assumption that particular submissions are not to be made to me about special costs orders. If those submissions are in fact to be made, naturally I will re-assess the approach to be taken to costs orders. 82[His Honour heard submissions, and received evidence, about the costs order to be made in favour of the plaintiffs.] 83The orders as to costs that I have foreshadowed will be as I have foreshadowed, subject to this: that the costs of the plaintiffs are to be assessed on the ordinary basis up to and including 28 February 2014, and on the indemnity basis on and from 1 March 2014. 84Before the proposed orders can be made it will be necessary for the parties either to agree on the identity of the term deposit or for further evidence about it to be adduced. 85What I propose to do, bearing in mind the experience of the lawyers involved, is simply to say that the orders that I propose in due course to make are, in substance, those that I have announced. I direct that the parties bring in Short Minutes of Order to give effect to these Reasons.