Re Estate Miletic; Strbik v Strbik

THE DECEASED'S REAL ESTATE

1. For probate purposes the family home had an estimated value of $1.5 million and the investment property had an estimated value of $1 million.
2. In the course of administration of the deceased's estate Josie caused renovations to be undertaken to the investment property, such that, according to a market appraisal of the properties undertaken for the purpose of these proceedings in June 2020, each property had an achievable sales price in the vicinity of $1.7 million.
3. The significance of this is said by Josie to be that, as the deceased's primary beneficiaries, she and Pauline anticipated that they would each acquire one of the properties. Josie herself anticipated that she would acquire the family home and Pauline would acquire the investment property despite the fact that Pauline was living in the family home and had done so, on and off, for several years before the deceased's death.
4. As events transpired, Pauline chose to acquire the family home, a choice that was accepted by Josie, Dana and Daniel in a "Deed of Settlement and Release" dated September 2022 (Pauline's counterpart of which is dated 15 September 2022) which resolved disputation between Pauline, the deceased's estate and Josie's side of the family. All parties accept that, by reason of the deed, Pauline is beneficially entitled to the family home; and Josie is entitled to the investment property, subject to Dana's claim against her in these proceedings.

THE CONTEST IN PROCEDURAL CONTEXT

1. In substance, the contest in these proceedings is about whether, upon the proper construction of the deceased's will, Josie's share of the estate passed to her for her own use and benefit, or whether, upon Dana's attainment of the age of majority, Josie's share of the estate passed, in whole or part, to her children, Dana and Daniel under clause 6.5 of the will.
2. The vehicle for this contest is a cross claim filed by Dana in proceedings initially brought by Pauline against Josie (to which Dana and Daniel were joined as defendants) resolved on terms set out in the Deed of Settlement. Pauline was named in the cross claim as a cross-defendant but, upon settlement of her claims against the estate of the deceased, she ceased to be an active party.
3. Daniel, also a cross-defendant, filed a submitting appearance, leaving the field of battle to Dana and Josie. Nevertheless, it is common ground that the entitlements of Dana and Daniel are similar so that a determination of her entitlements, or lack thereof, will determine his.
4. The procedural history of these proceedings, of marginal significance (if any), is that at one point, after she realised the threat to her interests of Dana's claim, Josie belatedly commenced proceedings for family provision relief under Chapter 3 of the Succession Act 2006 NSW. In due course, those proceedings were discontinued with the consent of all affected parties.

THE WILL

1. The text of the deceased's will is in the following terms (with emphasis added): "THIS IS THE LAST WILL AND TESTAMENT of me JOSPEH MILETIC of 11 Elizabeth Street, Kingsgrove NSW 2208. 1. Revocation of Previous Wills 1.1 I HEREBY REVOKE all wills and other testamentary dispositions previously made by me AND DECLARE this to be my last will and testament. 2. Appointment of Executor 2.1 I APPOINT as Executor of my Will my daughter JOSEPHINE STRBIK. 3. General 3.1 My Executor shall also be the Trustee of any trusts created by my Will. 3.2 The terms "Executor" "Trustee" Child" and "Beneficiary'' shall include the plural forms of those words. 3.3 The term "assets" shall include both real and personal property of whatever nature or kind. 3.4 The masculine gender of any word shall be deemed to include the feminine gender of that word and vice versa. 3.5 The nominated age shall be deemed to be twenty-one years. 3.6 A Primary Beneficiary shall be deemed under a disability if: 3.6.1 under the nominated age; 3.6.2 a bankrupt; 3.6.3 subject to a Guardianship or Financial Management Order made by the Guardianship Tribunal or any other competent authority; 4 Gift or Whole Estate 4.1 I GIVE all my assets to my wife KATARINA MILETIC. 4.2 IN THE EVENT my said wife predeceases me, then the following provisions of my Will shall apply, but not otherwise. 5 Substitutional Provisions 5.1 I DIRECT that should my said wife predecease me, then all my assets shall pass to my Executor UPON TRUST for such of my children JOSEPHINE STRBIK and PAULINE MILETIC as shall survive me ("the Primary Beneficiaries") and if more than one in equal shares, BUT SUBJECT TO the provisions of clause 6 of my will. 5.2 I DIRECT that should any child of mine predecease me leaving a child or children who attains the nominated age (whether before or after my death) then such child or children shall take in equal shares the gift that their parent would otherwise have taken. 5.3 I DIRECT that if the trusts of any share under my Will shall fail then that share shall be added to the other shares in the proportion which those shares bear to each other and this provision shall apply to both the original shares and to shares which have increased as a result of the application this provision. 6 Discretionary Trust for Primary Beneficiaries 6.1 My Executor shall set up a fund for each Primary Beneficiary comprising that Primary Beneficiary's share of my estate; 6.2 Subject to clause 6.3, my Executor may pay all or any part of the income or capital of the Primary Beneficiary's Fund to any one or more of the Primary Beneficiary's children or grandchildren in such shares and in such amounts as the Primary Beneficiary (provided that he or she is not deemed under a disability) directs, or failing direction, as my Executor thinks fit, without obligation to make payments to all of those children or grandchildren or to make payments equally among those to whom payment is made; 6.3 If so directed by any Primary Beneficiary who is not under a disability, my Executor shall, from time to time: 6.3.1 Lend the Primary Beneficiary all or any part of the Primary Beneficiary's Fund, at interest or free of interest, and unsecured, for such period as the Primary Beneficiary directs; 6.3.2 pay to the Primary Beneficiary all or any part of the Primary Beneficiary's Fund for the Primary Beneficiary's own use. 6.4 My Executor may, in relation to each Primary Beneficiary's Fund, exercise any powers given by law or by this Will and may, in addition: 6.4.1 accumulate income, and if thought fit, add all or part of any accumulated income to the Primary Beneficiary's Fund; 6.4.2 establish and record a category or categories of the Primary Beneficiary's Fund's income or capital, having distinctive characteristics, and deal separately with the whole or part of the income or capital of a category so that it may be paid to, or used to the benefit of any one or more of the children or grandchildren of the Primary Beneficiary, exclusive to the other or others; 6.4.3 determine in my Executor's discretion (in the event of my Executor having disposed of, or having been deemed disposed of an asset of the Primary Beneficiary's Fund) what part or parts of the capital or income will be resorted to in any income tax liability flowing from the disposal or deemed disposal; 6.5 Subject to clauses 6.2, 6.6 and 6.7, when all living children of the Primary Beneficiary have attained the age of 21 years (the distribution date) my Executor shall divide the Fund or the balance of it equally among them without regard to payments previously made to or in respect of those children; 6.6 If any child of the Primary Beneficiary dies before or after me leaving children living at the distribution date, those children shall take equally the share which their, his or her parent would otherwise have taken; 6.7 If no child or grandchild of the Primary Beneficiary takes a beneficial interest in the Primary Beneficiary's Fund under clause 6.5 then the Fund shall form part of my residuary estate. 6.8 Provided that the Primary Beneficiary is not deemed under a disability, my Executor may in the administration of that Primary Beneficiary's Fund, with the consent of the Primary Beneficiary of that Fund: 6.8.1 exercise any powers given by law; 6.8.2 determine whether receipts or outgoings are capital or income, or partly income or capital, so as to bind the beneficiaries, even though the receipts are from a company or corporation that has made a decision on the matter; 6.8.3 invest in any form of investment notwithstanding that such investment may not be an investment which a prudent person would invest in; 6.8.4 without limiting the generality of the preceding sub-clause, invest or reinvest in, or acquire for the purpose of receiving income, interest, profit or capital gain, any of the following: (i) shares, stock units, debentures, debenture stock, notes including convertible notes, or other securities of a company whether listed on any stock exchange or not; (ii) land of any tenure including leasehold and land held by company title; (iii) mortgages, including contributory mortgages; (iv) the units or interests of, or in, a trust, including a fixed or flexible trust; (v) mutual funds; (vi) friendly society investments; (vii) insurance bonds; (viii) bank accepted or endorsed bills of exchange; (ix) deposits in the authorised short term money market; (x) deposits with any public company, bank, credit union or building society being: (i) secured or unsecured; (ii) on interest or interest free; and (iii) on whatever terms; 6.8.5 acquire or lease assets for occupation, use or enjoyment by beneficiary (whether alone or with some other person or persons; 6.8.6 do either or both of the following: (i) vote in; or (ii) apply for and accept directorship of any company or corporation in which my estate may be interested or concerned; 6.8.7 apply for, accept or take up bonus shares or other rights or benefits made available by a company or corporation in which my estate may be interested or concerned; 6.8.8 borrow money either with or without giving security and enter into any mortgage, charge, bill of sale, lien or security over any part of the Primary Beneficiary's Fund; 6.8.9 lease any part of the Primary Beneficiary's Fund: (i) for the periods and upon and subject to the covenants and conditions which my Executor thinks fit; and (ii) either with or without provisions for renewal or otherwise; and (iii) accept surrenders of leases or tenancies of my estate or any part of it; 6.8.10 maintain, repair, improve, develop, alter, renovate, pull down, erect or re-erect any part of the Primary Beneficiary's Fund; 6.8.11 enter, participate in, enter and participate in, take out, maintain or take out and maintain any one or more of the following: (i) any insurance policy against risks affecting the Primary Beneficiary's Fund; (ii) any life insurance policy in respect of any person; (iii) any policy or contract of health or accident insurance or benefit in respect of any person; (iv) any friendly society, trade union or association of employee's benefits scheme in respect of any person; (v) any superannuation or pension scheme in relation to any person; and (vi) any funeral benefit or payment scheme in relation to any person; 6.8.12 use income, capital or both income and capital, to pay capital gains tax levied on the disposal of any asset, and apportion liability for that tax; for that purpose they may determine what is capital and what is income; 6.8.13 I express the wish that my Trustees make available to those of my beneficiaries who inherit any asset on which capital gains tax is or may be assessable any documents which are relevant to the determination of the costs base of that asset; 7. Powers of Executor and Trustee I GIVE to my Executor the following directions and powers: 7.1 to sell any part of my assets or postpone without being responsible for loss the sale calling in and conversion of the whole or any part of my assets for such period as my Executor in my Executor's absolute discretion may think fit and notwithstanding that it may not be a form of investment that prudent Executor would choose; 7.2 to postpone the repayment of any debt or liability owing by me for such period as my Executor in my Executor's absolute discretion may think fit; 7.3 to apply the whole or any part of the capital or income of the vested expectant or contingent interest of any person or persons taking under this my Will while such person shall be under the nominated age as my Executor in my Executor's absolute discretion may think fit to or for the maintenance education advancement preferment or benefit of such person and the receipt of the guardian or guardians for the time being of such person whilst under the nominated age shall be a sufficient discharge to my Trustee who shall not be bound to see to the application thereof. 7.4 Without the consent of any beneficiary, to partition or appropriate any asset of my estate in or towards the satisfaction of a legacy or a share of any person or persons in my estate, and in doing so the following provisions apply: 7.4.1 the value of any such asset is to be agreed by those of my beneficiaries affected, or if my Executor is satisfied that no Value can be agreed in this way, the value is to be determined by an independent Valuer appointed by my Executor for the purpose; 7.4.2 my Executor need not take into account any differences in value of particular assets to particular beneficiaries other than the value of the asset as decided in the preceding sub-paragraph. 7.5 I request that my Executor consult with Ipac Securities Limited to obtain advice regarding the investment of any assets representing part or all of my Estate."

PRINCIPLES GOVERNING CONSTRUCTION OF A WILL

1. For the purpose of these proceedings, the principles governing construction of a will can be summarised in the following terms: 1. As confirmed by Bryson J in Hatzantonis v Lawrence Cox [2003] NSWSC 914 at [6]-[8], the starting point is the following statement in Perrin v Morgan [1943] AC 399 at 406: "… the fundamental rule in construing the language of a will is to put on the words used the meaning which, having regard to the terms of the will, the testator intended. The question is not, of course, what the testator meant to do when he made his will, but what the written words he uses mean in the particular case - what are the "expressed intentions" of the testator." 1. As remarked by Powell J in Coorey v Coorey (NSW Supreme Court, 22 February 1986, unreported), repeated by Bryson J in Perpetual Trustee Co Limited v Wright (1987) 9 NSWLR 18 at 33 and adopted in subsequent cases (as illustrated by Hatzantonis v Lawrence Cox [2003] NSWSC 914 at [10] and Lockrey v Ferris [2011] NSWSC 179; 8 ASTLR 529 at [44]-[45]), the Court's "task is, first, if it be possible, to ascertain what was the basic scheme which the deceased had conceived for dealing with his estate and then, so to construe the will as, if it be possible, to give effect to the scheme so revealed". 2. Evidence of the circumstances surrounding the deceased is admissible to assist in construction of his will so that the Court can place itself in his "arm-chair" when he made the will: Boyes v Cook (1880) 14 ChD 53 at 56. The Court is entitled to put itself in the position of the deceased, and to consider all material facts and circumstances known to him with reference to which he is to be taken to have used the words used by him in his will: Allgood v Blake (1873) LR 8 Exch 160 at 162. Accordingly, the Court may admit evidence of the deceased's habits and knowledge of persons or things: Parry v Haisma [2012] NSWSC 290 at [11]. 3. The will must be construed as a whole: Fell v Fell (1922) 31 CLR 268 at 273-274.
2. Section 32 of the Succession Act 2006 NSW has no application in the present proceedings because the will of the deceased was made before the section commenced operation. In a case in which it has operation the section permits evidence extrinsic to a will to be admitted to assist in interpretation of the language used in the will if that language makes the will, or any part of it, meaningless, ambiguous on the face of the will, or ambiguous in the light of the surrounding circumstances.

SURROUNDING CIRCUMSTANCES

1. Upon an application of the "armchair principle", at the time the deceased made his will on 26 October 2001 he can objectively be taken to have known the following facts: 1. He had two daughters, then aged respectively 38 and 33 years. 2. Josie, the elder of the two daughters, herself had two children, his grandchildren. 3. Pauline had no children. 4. Josie's children were respectively aged five and one or thereabouts. 5. He and his wife were registered proprietors, as joint tenants, of two parcels of land in the same street (No. 11 and No. 14A), both of which were purchased in the last quarter of 1997. 6. He and his wife were living in No. 11 as the family home. 7. The other parcel of land (No. 14A) was an investment property. 8. As a joint tenant with his wife, if he survived her he would take title to their co-owned land by survivorship. 9. His daughter Pauline had a disability (a bipolar disorder) that rendered her in need of assistance from time to time. 10. Having left home, Pauline had returned to live with her parents at the family home from time to time on account of her disability. 11. Although Pauline had a disability she had not been made the subject of a guardianship order or a financial management order.
2. The evidence before the Court does not disclose whether the deceased, at the time he made the will, had a substantial, or any, sum standing to his credit in a bank account or accounts. It is nevertheless common ground that he is likely to have had some funds in a bank.
3. It can be taken also that he owned a car of a modest type, although no party to these proceedings attaches importance to his ownership of a car.
4. The parties accept that the nature of the deceased's estate at the time he made his will was substantially the same as it was at the time of his death.
5. Given that Pauline was known to the deceased to have a disability and that she was from time to time in need of assistance, a reasonable inference from the form of the will is that the deceased, at the time he made the will, had a concern that his testamentary arrangements include a scheme that could operate as a protective regime to safeguard Pauline's welfare. Such an inference is supported by the absence of any suggestion that Josie has ever suffered a disability other than the legal incapacity of a minor.
6. The form of the will also supports an inference that, at the time he made his will, the deceased was confident that Josie had the acumen required to perform the role of executor, an office that he contemplated required supervision by the executor of testamentary provision made for Pauline and his grandchildren. Such an inference is supported by the fact that he nominated Josie as his executor even though his wife was then living.

CONTRUCTION OF THE DECEASED'S WILL

1. Care needs to be taken in construction of the deceased's will not to attribute meaning to it informed by events subsequent to its execution or, still less, steps taken, or not taken, in administration of the deceased's estate by Josie as his executor.
2. Disputes between Josie and Dana, about the proper construction of the will focus particular attention on: 1. the curious heading "Discretionary Trust for Primary Beneficiaries" which does not fit a trust which contemplates, not discretionary objects, but primary beneficiaries with a vested interest and others with a contingent interest; 2. tension between clauses 5.1, 6.1, 6.3 and 6.5 in light of the definition of "assets" in clause 3.3, use of the word "comprising" in clause 6.1, reference to liquid assets as the subject matter of clause 6.3, and reference to the "balance" of a fund in clause 6.5; 3. the lack of any specific definition of the concept of a "fund" other than its description in clause 6.1 as "comprising [each] Primary Beneficiary's share of my estate". 4. ambiguity about the word "comprising" in clause 6.1 in the context of the words "Primary Beneficiary's share of my estate" in clause 6.1, identification of such a share in clause 5.1 by reference to the deceased's "assets" and the definition in clause 3.3 of the term "assets" as including "both real and personal property". Must a "fund" be identical with the whole of a Primary Beneficiary's "share" of the deceased's estate or does the word "comprise" simply require the establishment of a "fund" for each Primary Beneficiary funded from her "share" of the estate?
3. In my opinion, the primary provision of the deceased's will is clause 5.1 which conferred on each of Josie and Pauline a vested interest in a one half share of all the deceased's assets (including both real and personal property of whatever nature or kind), "subject to the provisions of clause 6".
4. Clause 6, alone of the provisions of the deceased's will, speaks (in clause 6.1) of "setting up a fund" and (in other subclauses of clause 6) a "Primary Beneficiary's Fund". Clause 7 speaks not of dealings with a "fund" of any description but of dealings with the deceased's "assets".
5. Although some provisions of clause 6 are consistent with the Fund of a Primary Beneficiary taking the form of real estate (eg clauses 6.4.2, 6.8.8, 6.8.9 and 6.8.10), and the will conferred on the Executor investment powers that contemplated changes in the form of estate property (eg clauses 6.8.3, 6.8.4 and 6.8.5), primary provisions of clause 6 (clauses 6.3.1, 6.3.2, 6.4.2 and 6.5) contemplated a "fund" taking the form of a liquid asset.
6. By its use of the imperative "shall", clause 6.1 ostensibly mandated that Josie "set up a fund" but if (as is the case in my opinion) the word "comprising" in that sub-clause did not necessarily mean the whole of a Primary Beneficiary's "share" of the deceased's "estate" (assets), the will left the make up of the "fund" to be set up to the discretion of Josie as executor. Hence the heading of clause 6, "Discretionary Trust for Primary Beneficiaries".
7. In my opinion, the word "comprising" in clause 6.1 identified the source of property for the setting up of a "fund" and is not to be read as requiring that "a fund" necessarily constitute the whole of a Primary Beneficiary's "share of [the deceased's] estate" or that it include an interest in real estate. To construe it as requiring an identity between each "fund" and a Primary Beneficiary's share of the estate would be to make insufficient allowance for the definition of the term "assets" as including both real and personal property and the emphasis in the primary provisions of clause 6 on liquid assets. It could also negate the primary gift made to each of Josie and Pauline in clause 5.1. I do not infer from clauses 5.1 and 6 an intention on the part of the deceased that the whole of the entitlements of his daughters necessarily be held in a "Discretionary Trust" for which clause 6 provided.
8. Although clause 6.1 implicitly conferred upon Josie as the deceased's executor a discretion in setting up "a fund" for each of Pauline and herself, clauses 6.3 and 6.8 contemplated co-operation between the sisters. Clause 6.3 contemplated a transfer of money from a Fund to a Primary Beneficiary at the direction of a Primary Beneficiary not under a disability. Clause 6.8 empowered the Executor to exercise specific powers "in the administration of [the Fund of a Primary Beneficiary not deemed under a disability] with the consent of the Primary Beneficiary of that Fund".
9. This contrasts with clause 7 which conferred various powers on Josie as executor, in dealing with "assets" of the deceased unqualified by a need to act only at the direction or with the consent of an affected Primary Beneficiary.
10. In my opinion, tension between clauses 5.1, 6.1, 6.3 and 6.5 (in particular) can and should be resolved by recognition that "a fund" set up as contemplated by clause 6.1 was not necessarily identical with the whole of a Primary Beneficiary's share of the deceased's estate.
11. Although implicit in the reference to clause 6 in clause 5.1 and in the use of the word "shall" in clause 6.1 may have been an obligation upon Josie as executor to "set up a fund for each Primary Beneficiary", and clauses 6.3 and 6.8 (if not also clause 6.1) contemplated co-operation between Josie and Pauline as "Primary Beneficiaries", I do not read into clause 6.1 (or any other part of clause 6) a requirement (for which Dana contends) that "a fund" can be taken to have been "set up" if and only if, and when, Josie communicated to Pauline the fact of her having "set up a fund" or funds.
12. A requirement for such a communication was not necessary to the operation of clause 6 and it would have been destructive of the scheme of clause 6 if at a material time after the death of the deceased Pauline was under a disability, "deemed" or otherwise.
13. In my opinion, what was required for the "setting up of a fund for each Primary Beneficiary" was no more than the identification by Josie, as executor, of an identifiable fund of money for each of herself and Pauline, to be held for their separate benefit. There was no requirement for a distribution or appropriation of the deceased's real estate as a precondition or integral part of the "setting up of a fund".
14. Although clause 6.1 may be construed (as a condition on the gift contained in clause 5.1) as imposing on Josie, as both a beneficiary and an executor, an obligation to "set up a fund" for the benefit of herself and (contingently) her children, the content of any such obligation was largely left to her discretion. She was under no obligation to identify any fund with the whole of any beneficiary's entitlements under the deceased's will. She was under no obligation to maintain or supplement any fund set up by her. She was under no obligation to replenish or recreate a fund if and when it was reduced to a "nil balance". And (as recognised by clause 6.3.2) she was free at any time to "pay" the whole of any fund "set up" for her to herself for her own use. Read as a whole, the will offered Josie an opportunity to provide for herself and her children in the form of an idiosyncratic "discretionary trust". In substance, clauses 5 and 6 might be read as requiring little more of Josie in the conduct of her own affairs than to turn her mind to whether she wanted to utilise a "protective trust" regime for her family.
15. The testator's scheme of a "discretionary trust" regime for his daughters appears, on the face of the will and with knowledge of Pauline's disability, to have been directed principally to the protection of Pauline and the recognition in Josie of a familial obligation to protect Pauline. In that sense, the nature of the provision made by the deceased for his two daughters was, or was potentially, implicitly different.
16. Upon an assumption that a "fund" was set up by Josie for herself and her children, clause 6.5 could operate in favour of Josie's children only in respect of that fund or the balance of it, not in respect of assets not part of the fund.
17. Upon construction of the deceased's will it may not be strictly necessary to consider the implications of clause 6 if, contrary to her obligations as executor, Josie did not "set up a fund for each Primary Beneficiary".
18. I do not exclude the possibility that, in such an eventuality, a "fund" might have been identified in fact with each "Primary Beneficiary's share" of the deceased's estate as a matter of inference. However, I incline to the view that a failure on the part of Josie to "set up a fund" would not have attracted an intervention of equity before Dana's attainment of her majority because, despite use of the word "shall" in clause 6.1, the width of the discretions conferred on Josie as executor and the ability of the Primary Beneficiaries to call for their respective "Fund" (expressly under clause 6.3.2), mean that the existence and application of each Primary Beneficiary's "Fund" was within her own control, absent an operative disability.
19. Any interest of Josie's children under the will was contingent upon Josie setting up, and maintaining, a "Fund" for herself and (contingently) her children. I do not infer from clause 6.5 an obligation on the part of Josie to maintain her "Fund" but, if she did for the requisite time, her children would acquire a vested interest in it.

Introduction

1. The factual matrix for a determination of the effect of the deceased's will in operation can be identified by reference to a sequence of events, commencing with the death of the deceased in March 2015.

Events between Death and Distribution of Bank Account Proceeds

1. Probate of the deceased's will was granted to Josie on 20 August 2015.
2. In anticipation of an application for a grant of probate being made, the solicitor who acted for Josie in administration of the deceased's estate (Mr K C Thomas) wrote to Josie on 26 May 2015 a letter which attached a copy of the deceased's will and included observations to the following effect: "Pursuant to paragraphs 5 and 6 of the will, there is [sic] initial direction under clause 5.1 that the net estate is to be divided between [Josie and Pauline] in equal shares provided that both those beneficiaries survive the passing of your father and also that the provisions clause 6 [sic] are included for both of those respective beneficiaries. Clause 6 is an establishment of a Discretionary Trust which we refer you to be read over in detail. We understand that for yourself, [Josie] that your intention is to receive the one-half share of the benefit in your own name in due course without the establishment of a Discretionary Trust. Pursuant to clause 6.3 of the will, there is a direction that 'if so directed by any Primary Beneficiary who is not under a disability' then the Primary Beneficiary is able to give a direction to the executor to pay the Primary Beneficiary all or any part of the Primary Beneficiary's Fund for the Primary Beneficiary's own use. In our view, this will enable you in your role as Primary Beneficiary (as to a half share in the estate) to give a direction to the executor being yourself that you seek the beneficial interest in the estate due to be held for you in the Trust to be paid to yourself absolutely as beneficial owner. For this purpose, it may be and we advise to the effect that there should be a clear written direction given that as a Primary Beneficiary you direct the executor and the estate to pay the whole of the share of entitlement in the estate to yourself in your own name for your own use. We can certainly discuss this aspect further and prepare a draft of the direction in due course. For the second Primary Beneficiary being [Pauline], it is certainly open to [Pauline] (but only whilst she is not under a disability) that a direction can be given in similar terms under clause 6.3 to you as the executor and you will be bound to adhere to the direction. At the present stage, we are continuing with the steps necessary to prepare an application to be made to the Supreme Court of New South Wales for your appointment as the executor of the estate. We shall contact you further for additional information shortly."
3. On 26 August 2015, Mr Thomas wrote two separate but interrelated letters to Josie. The first informed her that a grant of probate of the deceased's will had been issued to her and enclosed a copy of the grant, together with a tax invoice for professional fees. The second drew attention to clauses 5, 6 and 7 of the will and included observations to the following effect: "We confirm our advices is to you that if you receive any instructions (by recommendation to be clearly written direction [sic]) by a Primary Beneficiary, then you may exercise the power under clause 6.3.2 which is to pay the Primary Beneficiary all or any part of the Primary Beneficiary's Fund for the Primary Beneficiary's own use. We confirm our advices is to you that if you receive a direction from any Primary Beneficiary (being yourself or your sister, [Pauline]) to the effect to pay the respective benefit to themselves, then in your role as executor for the estate and as Trustee under the Testamentary Discretionary Trust, you are to pay the amount to that specified Primary Beneficiary. For this effect, it is possible for you to give yourself a direction which should be in writing to request and direct that the benefit of your share as Primary Beneficiary be paid to yourself. It is also possible, or may in the future occur, that [Pauline] may give a direction that she also may direct you as the Trustee to distribute the funds due to her as she directs. Such a direction will only be effective if the person giving the direction as Primary Beneficiary is not under a disability and a disability would be a legal disability regarding their legal position or mental or physical health. We enclose a draft of Direction for your approval and wait your further instructions in relation to the administration of the estate."
4. A typed file note in the records of Mr Thomas' firm (dated 8 September 2015) includes the following: "Notes: Josie will give the Direction to herself as she wants her share to be given to herself then she can have one-half of the bank funds. Josie will need to open a trust account for her sister for her one-half of the bank funds ([Josie] ATF [Pauline]). The real estate to be drawn up as an Executor's Transmission Application for each property. NOTE: Need to discuss further regarding real estate because Josie is wanting one property for herself and the other for his sister. Under the Will, Josie and Pauline take jointly so it won't be possible to give one property solely to each child."
5. On or about 5 November 2015 Josie executed in the presence of Mr Thomas a document bearing that date which was in terms to the following effect: "DIRECTION TO EXECUTOR TO: [Josie] executor of the will dated 26 October 2001 of the late Joseph Miletic I, [Josie] … as beneficiary (called one of the Primary Beneficiaries) in the will dated 26 October 2001 of the late Joseph Miletic … hereby direct: 1. Pursuant to clause 6.3 of the will for my deceased father, I hereby direct you as executor in the estate pursuant to clause 6.3 of the will under subclause 6.3.2 to pay to me the whole of my Primary Beneficiary's Fund or entitlement for my use. 2. To this effect, I direct you as executor and the estate to release such assets as may be attributable to my share in the estate or the net proceeds (arising from any sale or collection of financial institution deposits) to be paid directly to me in my own right."
6. On 13 November 2015 the Registrar General registered Transmission Applications that caused the title of each of the deceased's two parcels of land, No. 11 and No. 14A, to be registered in the name of Josie as his executor. Mr Thomas advised Josie of that fact by a letter dated 25 November 2015.
7. On 14 December 2015 Mr Thomas wrote to Josie a letter which confirmed that proceeds of the deceased's Westpac bank accounts had been collected and placed in his firm's trust account and enclosed "an estate Reconciliation and Distribution Statement" which, as represented by the letter, "[set] out the details of monies received to-date for the estate, any payments to be made in the administration of the estate, and thereafter the intended distribution in accordance with the Will".
8. The letter concluded with paragraphs to the following effect: "If you are satisfied with the final distribution proposed as set out in the enclosed Statement, please sign the duplicate of the direction and authority as executor and return the same to our office at your early convenience. We will then arrange for our solicitors' trust account cheques to be made available to each of the beneficiaries in accordance with the Will of the late Joseph Miletic".
9. So far as is material, the "Reconciliation Statement" identified "Credits" and "Payments" leading to a "credit balance available for distribution" of $897,779.84, the primary source for which was the deceased's Westpac bank account.
10. The "Reconciliation Statement" was accompanied, as part of the same document, by a "Distribution Statement" which, so far as material, provided entries to the following effect: "[Josie] one-half share of estate $448,889.92 [Josie] ATF [Pauline] one-half share of estate $448,889.92 $897,779.84"
11. On 22 December 2015 Josie endorsed the "Reconciliation and Distribution Statement" with an entry which recorded that "as executor" she agreed with the "Statement".
12. On that date (22 December 2015) Mr Thomas delivered to Josie under cover of letter of that date, and she acknowledged receipt of, inter alia, two cheques drawn on the trust account of Mr Thomas's firm. Both were for the sum of $448,889.92. One was drawn in favour of Josie personally and without qualification. The other was drawn in favour of Josie expressly as trustee for Pauline.
13. On 12 January 2016 Mr Thomas wrote to the manager of the local branch of the Westpac Bank recording that administration of the deceased's estate was "nearing completion" and noting that the manager was assisting Josie to "set up relevant bank accounts to deal with the available funds which are constituted by our solicitors' cheque account in favour of [Josie] ATF [Pauline]" in the amount of $448,889.92.
14. At no time between the distribution of the deceased's bank account proceeds in December 2015 or thereabouts and Dana's 21st birthday in August 2021, or indeed at any time thereafter, did Josie take any step said by her, or alleged by Dana, to have constituted the "setting up of a fund" within the meaning of clause 6.1. If Josie "set up a fund" she did so between 8 September 2015 and 22 December 2015 or thereabouts when, in her personal capacity, she directed herself in her capacity as the deceased's executor, specifically by reference to clause 6.3.2 of the deceased's will, to pay to her (to quote the formal direction dated 5 November 2015) "the whole of my Primary Beneficiary's Fund or entitlement for my use".
15. Josie's evidence in cross examination was to the effect that she had, in substance, retained her share of the deceased's bank account proceeds ($448,889.92) in a separate account, as her own money, in case needed to assist Pauline or to account to Pauline for payments made for the benefit of herself or her family out of Pauline's trust account. She retained her share of the bank account proceeds in case required for her fulfilment of a perceived familial obligation to care for her sister.
16. In the context of the evidence as a whole, I do not characterise her separate, personal account as a "fund" within the meaning of clause 6.1. Under the pressure of cross examination, she informed the Court that her share of the bank account proceeds is still available as a separate fund (which I take to be a form of investment), if required. I do not regard that evidence as changing the legal character of the distribution made to her in or about December 2015. It was made to her, and it remains hers, on her own account, not as trustee for any person.

Post-Distribution Receipts of Money by Josie

1. During her cross examination Josie was challenged about her receipt of two sums which might have required her to account to the estate of the deceased and, ultimately, Dana.
2. The first sum was $241,083.06 received on or about 30 April 2015. That sum was paid to Josie as the nominated beneficiary in a pension fund of the deceased.
3. The second sum was $1,707.13 received by Josie on or about 18 October 2019 as compensation payable to the estate of the deceased upon settlement of a class action for investors in a failed Brisbane Airport Link Toll Road. Josie signed a declaration on 16 September 2019 acknowledging that she would receive that sum in her capacity as the deceased's executor and directed that the payment be made to a personal account of her own, not an estate account.
4. Counsel for Dana accepted that Josie is not accountable to the estate of the deceased for the sum of $241,083.06 she received in 2015 as the beneficiary of the deceased's pension fund. It did not form part of the deceased's estate.
5. Counsel for Dana did, however, contend that Josie remains accountable to the estate and, through the estate, to her children for the sum of $1,707.13 received in 2019.
6. Accepting that that sum was received by Josie in her capacity as the deceased's executor, any entitlement her children may have to Josie's half share of that sum ($853.56) depends upon a finding that it formed part of a "fund" which was, or should have been, "set up" for Josie pursuant to clause 6.1 of the deceased's will.
7. Dana's contentions include a submission that, if it be found that Josie had set up a fund for herself in late 2015 and at about the same time reduced it to a "nil balance", the fund nevertheless continued to exist (with a nil balance) and attracted the estate's late receipt of the sum of $1,707.13 (with half due to each of Josie and Pauline) in 2019 despite the absence of any acknowledgment by Josie that it was part of her "Primary Beneficiary's Fund". I do not accept that submission. In my opinion, Josie was not under a continuing obligation to maintain a "Fund" for herself or her children.

THE DEED OF SETTLEMENT

1. The recitals to the Deed of Settlement include statements to the following effect: 1. Pauline, by a statement of claim filed in these proceedings ("Pauline's Claim"), sought declarations and orders, including but not limited to an order that an account be taken of the estate of the Deceased ("Estate"). 2. Pauline's Claim made allegations and sought relief against Josie in Josie's personal capacity and with respect to Josie's conduct as executor and trustee of the Estate; Josie denies each and every allegation made against her. 3. without admission, Josie and Pauline had agreed to settle Pauline's Claim and Dana and Daniel had consented to that settlement on the terms set out in the Deed.
2. In short, the Deed provided for: 1. an agreement between Pauline and Josie that No. 11 would be transferred to Pauline, that No. 14A would be transferred to Josie and that Josie would pay to Pauline the sum of $450,000 inclusive of interest and costs. 2. an agreement for mutual releases between Pauline and Josie, and between Dana and Daniel and Pauline. 3. a release granted by Dana and Daniel to Josie "from any and all Claims which they might have had in relation to the administration and distribution of the Estate by Josie with respect to Pauline, in any way whatsoever". 4. an agreement between Pauline, Josie, Dana and Daniel reserving their respective rights referable to "issues arising from Dana's Cross-claim".
3. No party contends that the Deed affects a determination of the dispute between Josie and Dana about the proper construction and operation of clauses 5.1 and 6 of the deceased's will.
4. That said, counsel for Dana cross-examined Josie to the effect that Josie had, in breach of her obligations to Pauline, kept from Pauline the existence of Pauline's "Primary Beneficiary's Fund" and intermingled her personal affairs with those of Pauline in administration of that Fund.
5. In light of the terms of the Deed, I take that cross examination really to have been directed to Josie's credit and Dana's contention that the two Primary Beneficiary Funds could not be "set up" under clause 6.1 of the Deed without communication of the fact to Pauline, which communication (contrary to Josie's evidence) Dana contended had never occurred.
6. In my view, the contention of Dana that Josie kept Pauline in the dark goes nowhere for two reasons. First, on my construction of the deceased's will the "Funds" could be "set up" without any requirement that the fact of their being set up be communicated to Pauline. Secondly, Josie's evidence is that she did communicate with Pauline about what she was doing in administration of the deceased's estate (particularly in developing No. 14A) and I accept her at her word. It should be borne in mind in this context that, in a familial sense particularly, Pauline was a person in need of protection (because of her bipolar disorder) and was under the protection of Josie in the management of property available for Pauline's enjoyment. Josie routinely paid living expenses of Pauline from estate funds, a fact Pauline might reasonably be taken to have known.

ANALYSIS

1. Under the heading "Construction of the Deceased's Will" I have expressed my opinion about the proper construction of the deceased's will.
2. In that context, I draw the following findings to attention: 1. the primary provision of the deceased's will is clause 5.1, which conferred on each of Josie and Pauline a vested interest in a one half share of all the deceased's assets, "subject to the provisions of clause 6". 2. although clause 6.1 ostensibly mandated that Josie "set up a fund" for each of herself and Pauline it did not mandate that each Fund be identical with the whole of a Primary Beneficiary's "share" of the deceased's estate or that it include an interest in real estate. The will left the make up of each "fund" to be set up to the discretion of Josie as executor. 3. no part of clause 6 made the "setting up of a fund", or funds, pursuant to clause 6.1 conditional upon Josie communicating to Pauline the fact of her having "set up a fund". 4. what was required for the "setting up of a fund for each Primary Beneficiary" was no more than the identification by Josie, as executor, of an identifiable fund of money for each of herself and Pauline, to be held for their separate benefit. 5. although clause 6.1 may be construed (as a condition on the gift contained in clause 5.1) as imposing on Josie, as both a beneficiary and an executor, an obligation to "set up a fund" for the benefit of herself and (contingently) for her children, the content of any such obligation was largely left to her discretion; she was under no obligation to identify any fund with the whole of a beneficiary's entitlements under the deceased's will; she was under no obligation to maintain or supplement any fund set up by her; she was under no obligation to replenish or re-create a fund if and when it was reduced to a "nil balance"; and (as recognised by clause 6.3.2) she was free at any time to "pay" the whole of any fund "set up" for herself to herself for her own use. 6. if a fund set up for Josie pursuant to clause 6.1 was reduced to a "nil balance" by operation of clause 6.3.2, and that fund was not replenished or re-created by an appropriation of property to it, clause 6.5 could have no scope for operation upon Dana's attainment of the age of majority.
3. In my opinion, there was no obligation on Josie to include in a "fund" set up for the purpose of clause 6.1 of the deceased's will an interest in the deceased's real estate. Josie never did so. She was within her rights not to do so.
4. In my opinion, she did however "set up a fund" for each of herself and Pauline within the meaning of clause 6.1, between 8 September 2015 and 22 December 2015 or thereabouts, when she gave instructions to her solicitor, Mr Thomas (via the written direction dated 5 November 2015 and the written instructions dated 22 December 2015) to divide the "credit balance available for distribution" between herself personally and herself as trustee for Pauline.
5. Paragraph 1 of the written direction dated 5 November 2015 was expressly predicated upon the existence of Josie's "Primary Beneficiary's Fund", coupled with an exercise by Josie of a right conferred upon her by clause 6.3.2 of the will in respect of that Fund.
6. It was open to Josie to combine the setting up of her Fund and payment of it to herself in a common administrative process. It was not necessary for those two transactions to be effected administratively in two discrete processes.
7. Nor do I read the third paragraph of Mr Thomas' letter dated 26 May 2015 (recording an intention on the part of Josie to receive her share of the deceased's estate in her own name "in due course without the establishment of a Discretionary Trust") as an impediment to a finding that Josie did in fact "set up a fund" for herself. The course of events, including the documents dated 5 November 2015 and 22 December 2015, evidence the fact of Josie's Fund being "set up", coupled with her exercise of a right under clause 6.3.2 of the deceased's will (to reduce the Fund to a "nil balance") conditioned upon the existence of the Fund.
8. In my opinion, there was no property of any description to "divide" between Josie's children (within the meaning of clause 6.5 of the deceased's will) when Dana in August 2021 attained the age of 21 years.

CONCLUSION

1. Subject to allowing the parties an opportunity to be heard as to the form of orders to be made and costs, I propose to make orders to the following effect: 1. DECLARE that, on the proper construction of the will of the deceased and in the events that have happened, Dana and Daniel, jointly and severally, have no right, title or interest in any property that formed part of the deceased's estate. 2. ORDER that Dana's amended statement of cross claim filed 21 April 2022 otherwise be dismissed.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 14 April 2023