Plaintiffs v Defendant

Supreme Court of Victoria|2010-02-25|Before: ROBSON J

ADMINISTRATION AND PROBATE - renunciation of probate by executor - form of renunciation - requirement to declare no intermeddling by executor with the estate - power of court to accept renunciation in the event of intermeddling - application for passing over the executor in grant of administration

TRUSTS - appointment of trustee under a testamentary trust - validity of exercise of power to appoint substitute trustee under s 41 of the before the trust becomes effective or the trustee accepts the appointment - necessary conditions for a trust to come into effect - acceptance by trustee of office

In the Will of Lyndon [1960] VicRp 17; [1960] VR 112

Mallott v Wilson [1903] 2 Ch 494

Monty Financial Services Ltd v Delmo [1996] VicRp 7; [1996] VR 65

Re Higginbottom [1892] 3 Ch 132

1 This application concerns the administration of the estate of Eva Orloff, who died on 4 September 2009. Mrs Orloff was aged 93 at her death having been born in Berlin , Germany and was a survivor of the holocaust. By her last will and testament the testatrix appointed her solicitor, the defendant, Joseph Dennis Churkovich, the executor and trustee of her estate. The testatrix also made a codicil to her will on 7 June 2006.

2 The testatrix's estate exceeds $6m. Under her will and codicil, the bulk of her estate fell into her residuary estate. The testatrix left her family photographs and personal mementoes to her daughter, the first plaintiff. Under her residuary estate, she left $400,000 to a friend, Jasmine Lucic. The balance was divided into two trust funds: one a charitable trust called "The Eva Orloff Trust" for the benefit of several well known medical research institutions; the other in trust for her only granddaughter, Elly Steinlauf, the second named plaintiff, the daughter of the first plaintiff Paulette Terracall. The testatrix settled $650,000 on the charitable trust and the balance of her residue on the trust in favour of her granddaughter. By her codicil, the testatrix left a small sum to another friend.

3 Under clause 11 of the will, the defendant, as a solicitor, was entitled to a commission of two per cent of the gross capital value of the testatrix's estate and three and one half percent of the income received by her trustees. Under clause 12 of the will, the defendant was entitled to charge and be paid all professional charges for any business or act done by him or his firm in connection with the trusts under the will.

4 By an originating motion of 13 November 2009, the plaintiffs, Paulette Terracall and her daughter, Elly Steinlauf sought orders, inter alia, that clause 11 be severed from the will, that the defendant be removed as executor of the will pursuant to s34(1)(c) of the Administration and Probate Act 1958 and that Paulette Terracall be appointed as the administrator of the estate of the deceased pursuant to section 20 and/or 22 of the Administration and Probate Act 1958 and/or pursuant to the court's inherent jurisdiction.

5 By summons on the originating motion, the matter came before Mukhtar AsJ on 20 November 2009. His Honour made orders authorising the commencement of the proceedings by originating motion, set out directions for its hearing and referred the matter to mediation.

6 Mrs Terracall deposes that as a consequence of the mediation, the proceedings settled, in principle, on the basis that the defendant in effect renounce his appointment as executor and trustee of her late mother's last will.

7 On 5 February 2010, Mukhtar AsJ referred the matter to Williams J. On 10 February 2010, Williams J adjourned the matter to be heard in the Practice Court and the matter came before me.

8 Mr Robbins, who appeared as counsel for the plaintiffs, informed me that Williams J had considered the application by Mrs Terracall as administrator and raised the question whether the application should be advertised as it would if the application had been made to the Probate Registry. Williams J also raised the question whether an inventory as to the deceased's assets and liabilities should be produced to the court.

9 Both these matters have now been attended to, as deposed to in Mrs Terracall's affidavit of 17 February 2010.

10 Mr Robbins tendered a letter from the defendant which says as follows:

To whom it may concern

c/- Nathan Kuperholz

Level 2, 280 Queen Street

MELBOURNE VIC 3000 3 February 2010

Dear Sir,

JOSEPH DENIS CHURKOVICH ats

PAULETTE JOAN TERRACALL AND ELLY STEINLAUF

SUPREME COURT PROCEEDING NO SCI 2009/10076

I, Joseph Denis Churkovich, being named as the executor in the last will of the late Eva Orloff hereby acknowledge that:

1. I hereby confirm that I will not apply for Probate of the Will dated 25th October 2004 and the Codicil thereto dated 7th June 2006 of the late Eva Orloff and record that I do not wish to take any further part in the administration of the Estate of the late Eva Orloff or the trusts created under her will. I similarly refuse to continue in appointment as trustee of any of the trusts created under the said will pursuant to section 41 of the Trustee Act 1958.

2. I have no objection to the first plaintiff, Paulette Terracall, being appointed as administrator of the Estate of the late Eva Orloff.

3. I hereby exercise my power of appointment under section 41(1) of the Trustee Act 1958 to appoint the first plaintiff, Paulette Terracall, as trustee of the trusts created under the will of the late Eva Orloff.

I further acknowledge that the first plaintiff, Paulette Terracall, may rely upon this letter in support of any application by her, either pursuant to the Trustee Act 1958 or the Administration and Probate Act 1958 or pursuant to the Supreme Court's inherent jurisdiction, as she may be so advised to bring, for her appointment as administrator of the Estate of the late Eva Orloff and/or to recognise her appointment as trustee of the said trusts.

Yours faithfully

J Denis Churkovich

Mulcahy Churkovich

11 Mr Robbins submits that in the above circumstances, the court has power to appoint the first plaintiff as administrator of the will and codicil attached.

12 A person appointed to be the executor may, after the death of the testator, renounce probate unless he has taken a grant or intermeddled.[1]

13 Under s 16 of the Administration and Probate Act 1958, where a person appointed executor by a will renounces probate of the will, his rights in respect of the executorship cease and the representation to the testator and the administration of his estate shall devolve and be committed in like manner as if that person had not been appointed executor.

14 The usual procedure is for the named executor to execute a form of renunciation.[2] It is the practice to require the executor, as part of the formal act of renunciation, to declare that he has not intermeddled in the estate.[3] The usual procedure is to file the renunciation in the Probate Registry.

15 In In the Will of Lyndon,[4] Pape J considered an application for probate by the widow of the deceased where the person appointed under the will as executor had executed a deed of renunciation. The registrar had refused to make the grant of probate as the renunciation did not state that the executor had not intermeddled with the estate and he referred the matter into court. Pape J considered the issue of whether the deed of renunciation should be accepted despite the fact that the named executor had intermeddled with the estate. He found that according to the old doctrine of the ecclesiastical courts, a renunciation did not become an effective instrument until it had been accepted and entered and recorded in the proper court.[5] He held that the matter is at all times under the control of the court and that the court did have power to accept a renunciation even where the person seeking to renounce had intermeddled with the estate.

16 In the case before him, the appointed executor had intermeddled with the estate to such an extent that it would have precluded him from making a renunciation in normal circumstances. However, the beneficiaries under the will were content to accept the executor's renunciation and Pape J accepted the renunciation.

17 There is some evidence of what Mr Churkovich has done as executor in his affidavit of 17 December 2009. He has obtained a valuation of Mrs Orloff's artworks from Mr John Albrecht of Leonard Joel. In his letter of 15 October 2009 to Mr Kuperholz, the solicitor for the plaintiffs, Mr Churkovich says that he proposes to continue in his capacity as executor in administrating the estate and applying for probate. Otherwise I am not aware of the activities Mr Churkovich has undertaken as executor of the estate.

18 Accordingly, it is not clear whether Mr Churkovich has intermeddled with the estate or if he has, whether he has intermeddled to such an extent that a court would not normally accept his renunciation as executor.

19 Mrs Terracall deposes that her daughter, the second plaintiff, consents to her appointment as administrator. In this case, a charitable trust has been established under the will. Neither those charities, nor the Attorney General on their behalf, have appeared.

20 I do not accept the defendant's letter "to whom it may concern" as a proper form of renunciation. In my view, the proper course to adopt is for the defendant to execute a proper form of renunciation and to declare that he has not intermeddled with the estate, or if he has, to declare the extent of his intermeddling. The court will then be in a position to determine whether or not it should accept the renunciation.

21 In my opinion, before the court passes over the named executor and makes a grant of administration to the first plaintiff, the proper procedure with respect to renunciation ought to be followed.

22 The plaintiffs seek a declaration that Mrs Terracall has been duly appointed by the defendant as trustee of the testamentary trusts created under the will and codicil. I note that such relief has not been sought in the originating motion, nor in the summons on the originating motion.

23 Under clause 4(a) of the will, the testatrix bequeathed $650,000 for the purpose of establishing "The Eva Orloff Trust" upon a prescribed trust on the terms thereafter set out "and in such trust the Appointor shall be Joseph Denis Churkovich". Clause 5 set out terms of the trust, including that the appointor should have the power to remove and replace the trustees of the prescribed trust and that he should exercise such power at any time and from time to time.

IT IS MY WISH but I DO NOT DIRECT that my solicitor JOSEPH DENIS CHURKOVICH act as the Trustee of the trust established by clause 4 (a) herein.

I DIRECT that my will shall take effect as if the following sentence was substituted for the first sentence of clause 5(c) of my will -

"The appointor shall have the power to appoint and to remove and to replace the Trustees of the prescribed Trust and may exercise such power at any time from time to time."

26 As noted above, there are two trusts created by the will. Under the terms of the prescribed trust, the defendant will have the powers set out in the codicil. As to the trust in favour of the second plaintiff, the defendant does not have any powers under the will to appoint a new trustee. I understand the plaintiffs contend that the defendant has exercised his powers under s 41(1) of the Trustee Act 1958 which provides:

41. Power of appointing new or additional trustees

(1) Where a trustee is dead, or remains out of Victoria for more than one year without having properly delegated the execution of the trust, or desires to be discharged from all or any of the trusts or powers reposed in or conferred on him or refuses or is unfit to act therein, or is incapable of acting therein, or is a minor, then, subject to the restrictions imposed by this Act on the number of trustees-

(a) the person or persons nominated for the purpose of appointing new trustees by the instrument (if any) creating the trust; or

(b) if there is no such person or no such person able and willing to act, then the surviving or continuing trustees or trustee for the time being, or the personal representatives of the last surviving or continuing trustee-

may, by writing, appoint one or more other persons (whether or not being the persons exercising the power) to be a trustee or trustees in the place of the trustee so deceased, remaining out of Victoria, desiring to be discharged, refusing, or being unfit, or being incapable, or being a minor as aforesaid.

27 My preliminary view is that s 41 gives powers to a person who is a trustee and does not extend to a person who may become a trustee. For a person to be a trustee, the trust must come into effect and the person named as trustee must accept the appointment. In my view, the trusts have not taken effect and will not take effect until probate is granted, at the earliest.[6]

28 It may be the case that the trusts will not take effect until the trusts' assets are identified and are able to vest in the trustee. In Principles of the Law of Trusts, the learned authors say:

For the creation of a trust, whether a trust inter vivos or a testamentary trust, it is essential that the trustee's assumption of a personal obligation to act for the benefit of the beneficiaries (or to advance some charitable purpose) be in respect of some subject matter. That requires that some proprietary interest in some specific asset be vested in the trustee.[7]

29 In Monty Financial Services Ltd v Delmo[8] Ashley J discussed the different roles of the executor and trustee appointed under a will. He cited with approval the following passage from Jacobs' Law of Trusts in Australia:[9]

The principal duties of an executor are to get in the assets of the deceased, to pay his debts, to pay the legacies given by the will, and to distribute the assets. If a testator appoints the same person his executor and his trustee, which is usual nowadays, then that person acts as executor when he performs executorial duties, and thereafter while he continues to hold the property he is a trustee thereof. However, even though he thus becomes a trustee, his capacity as executor still remains, in so far as he may be called upon at any future time to deal in his capacity as executor with any assets which may subsequently be discovered in the estate. He may thus be executor in respect of certain assets of the testator and trustee in respect of others. If the executor, while still performing his executorial duties, carries out an instruction in his testator's will to set aside a fund and to hold it on trust for certain beneficiaries, he will, upon him setting aside that fund, become a trustee thereof and in respect of that property his executorial duties will be at an end. [10]

30 I emphasise the learned author's observation that the executor will not become a trustee until the fund is set aside for that purpose.

31 Further, as mentioned above the named trustee will only become trustee if he accepts the appointment.[11] In this case, even if the trusts have come into effect, which I doubt, the evidence is unclear whether the defendant has accepted his appointment as trustee of either or both testamentary trusts.

32 As to exercising his powers as appointor under the terms of the prescribed trust, again, I do not consider he has such a power until at least probate is granted and probably not until the trust comes into effect.

33 Finally, the plaintiffs rely on the court's inherent jurisdiction to appoint new trustees.[12] Equity will not allow a trust to fail for want of a trustee.[13] Also the court has power under s 48(1) of the Trustee Act to appoint a new trustee. In my preliminary view, the exercise of such a power would require the existence of an existing trustee or the creation of a trust. In any event, where as here there is a power of appointment in the appointor in respect of the charitable trust, the court would not have jurisdiction to appoint new trustees under s 48(1).[14]

34 I have not heard sufficient submissions on these issues to consider granting the declaration sought and will give leave to the plaintiff to do so.

35 As mentioned above, the originating motion does not seek relief in relation to the trusts. Before making the declaration sought, I would require the originating motion to be amended and further submissions to be made on whether or not the trusts have come into effect, whether or not the defendant has accepted his appointment under the trusts and whether or not these or other steps are required before making the declaration sought.

36 I also wish to hear submissions on whether or not the beneficiaries of the prescribed trust should be given notice of this application and heard on the question of whether or not the first plaintiff should be appointed the trustee of that trust.

37 Accordingly, I decline to make the orders sought at this stage but will stand the originating motion over for further consideration.

[1] Williams, Mortimer and Sunnucks on Executors Administrators and Probate (19th ed, 2008) [30-01].

[2] For forms of renunciation, see Tristram and Coote's Probate Practice (13th ed) A6.194 and following.

[3] In the Will of Lyndon [1960] VicRp 17; [1960] VR 112 at 113 per Pape J.

[6] See generally Ford and Lee, Principles of the Law of Trusts [3370].

[8] Monty Financial Services Ltd v Delmo [1996] VicRp 7; [1996] 1 VR 65

[10] Jacobs' Law of Trusts in Australia, 5th ed, 1986, at 35-6

[11] Mallott v Wilson [1903] 2 Ch 494.

[12] Monty Financial Services Ltd v Delmo [1996] VicRp 7; [1996] 1 VR 65 at 76 per Ashley J

[13] Sinnott v Hockin [1882] VicLawRp 21; (1882) 8 VLR (E) 205 at 210 per Molesworth J

[14] Re Higginbottom [1892] 3 Ch 132 at 135; Principles of the Law of Trusts, [8280]

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