Before the Court is an application by the plaintiff, one of the beneficiaries of the Estate of Dorothy Margaret Steiner (the plaintiff's mother), that the defendant executors make further distributions of such amount of the plaintiff's pecuniary legacy as the Court thinks proper.
The application was originally foreshadowed to the Court at the time the plaintiff made an application for leave to serve on short notice a notice of motion seeking the order. That leave was granted and the notice of motion was made returnable on 28 January 2015. It appears, however, that the notice of motion, although served, was not filed. Nonetheless, there was an appearance for the defendants on 28 January 2015 and I proceeded to hear the application. The application was said to be urgent because of the financial position of the plaintiff.
Steiner v Strang [2015] NSWSC 14 | Case summary | Zoe
The application is made under s 84 of the Probate and Administration Act 1898 (NSW), which relevantly provides:
If the executor or administrator, after requesting in writing, neglects or refuses to:
(a) …
(b) …
(c) pay or hand over to the person entitled any legacy or residuary bequest,
the Court may, on the application of such devisee or person, make such order in the matter as it may think fit.
The notice of motion also sought an order for interim provision to the plaintiff pursuant to s 62(1) of the Succession Act 2006 (NSW). However, the plaintiff did not press that relief.
It is not disputed that the executors may have a duty to make interim distributions where it is prudent to do so: see Gonzales v Claridades [2003] NSWSC 508; (2003) 58 NSWLR 188 at [47]. Nor is it disputed that the plaintiff has requested in writing that the executors make a further interim distribution so as to satisfy the requirements of s 84 of the Probate and Administration Act.
The executors neither consented to nor opposed the plaintiff's application. However, Mr Ellison SC, the executors' counsel, submitted that, having regard to the financial position of the Estate and the distributions already made to the plaintiff, it would not be prudent to make a further distribution to him at this time. For the reasons which follow, I accept that submission. It follows that the application must be dismissed with costs.
The deceased was survived by three children: the plaintiff (John), two daughters (Robyn and Lesley) and a number of grandchildren and great-grandchildren. The deceased left legacies of $2 million to each of John and Robyn. She left further legacies totalling $3.8 million to her grandchildren and great-grandchildren with the result that she left pecuniary legacies totalling $7.8 million. The deceased also made a number of specific gifts to Lesley and to Lesley's husband and daughter, including the deceased's half interest in a house at East Killara and shares in two private companies. The deceased left the residue of her Estate to be divided equally between John and Robyn. She also provided that, if the pecuniary legacies totalling $7.8 million exceeded the available funds, then each beneficiary's share should be reduced proportionately.
Finally, in cl 10 of her will, the deceased drew her executors' attention to an acknowledgement of loan between herself and John dated 18 December 2007 and requested that the terms of that acknowledgement be implemented and observed. The loan was for $881,000. It is not disputed that, if the Estate is entitled to recover that loan, John is entitled to set off the loan against the legacy due to him.
8 John is involved in a number of court proceedings relating to the Estate. Relevantly, there are three. First, both John and Robyn have brought family provision proceedings under Pt 3 of the Succession Act. Second, the executors have filed a cross‑claim in the family provision proceedings brought by John seeking an order that they were entitled to set off the amount of the loan of $881,000 against the legacy payable to John. It was John's contention that he was not obliged to repay the sum of $881,000 to the Estate. The cross‑claim was heard separately by Sackar J and, on 12 September 2014, his Honour delivered judgment in favour of the executors: see John Steiner v Kenneth Ross Strang and Jason Tang [2014] NSWSC 1250. John has appealed that judgment. The appeal is yet to be heard.
Third, John has commenced proceedings against the executors, Lesley, her husband and daughter, and one of the companies in which the deceased held shares, claiming on behalf of the Estate long service leave, holiday pay and unpaid salary said to be payable by the company to the Estate in respect of the deceased's employment by the company. Those proceedings are currently before Slattery J. Evidence is complete, but his Honour is yet to hear final submissions, following a delay resulting from the Martin Place siege on 15 December 2014. The executors have filed a submitting appearance in those proceedings. The only significance of the proceedings to the present application is that, if they are successful, that will increase the assets of the Estate.
The executors have made interim distributions to John of $788,872 and to Robyn of $1,335,000.
The evidence is that the executors have or expect to have the following amounts from which to pay the legacies totalling $7.8 million:
Cash held by executors $5,473,639.18
Expected tax refund $42,416.98
Total: $5,516,056.16
[4]
In determining the funds available to be distributed to each beneficiary, it is necessary to add to that amount the interim distributions that have been made to John and Robyn (totalling $2,123,872) together with the amount payable by John to the Estate ($881,000). It follows that the total amount that has been distributed or is available for distribution to the pecuniary legatees, before payment of other liabilities of the Estate, is $8,520,928.16.
The Estate has the following known liabilities:
Debt due to Lesley's husband $280,254.47
PAYG instalments due $32,412.00
Legal fees $14,551.65
Total: $327,218.12
[5]
In addition, the Estate has a number of unquantified liabilities.
First, the executors (who are not beneficiaries under the will) intend to make a claim for commission. The evidence is that commission could range from 0.25 per cent to 2 per cent on capital realisations, 2 per cent to 4 per cent on income collections and 1 per cent to 2 per cent on assets transferred in specie. Using the higher range in each case, the executors have calculated that they would be entitled to commission of $214,953. Having regard to the number of court proceedings the executors have had to contend with, in my opinion, it is not beyond the bounds of possibility that they would be allowed commission at a higher range. Moreover, it is appropriate that the executors adopt a conservative approach in estimating future costs for the purpose of determining what interim distributions can be made. On that approach, it seems to me to be reasonable to allow the sum of $250,000 on account of commission.
Second, the figures set out above do not include tax on interest received since 1 July 2014. In my opinion, it is not necessary to allow any additional amount for this item. The amount of $32,412 in respect of PAYG instalments relates to the instalments due for the quarters ended 30 September 2014 and 31 December 2014. In my opinion, it would be double counting to allow for actual tax payable in respect of that period as well.
Third, there are the ongoing legal costs of the Estate. Those legal costs relate to the family provision claim and the appeal from the judgment of Sackar J. The executors have not sought to estimate those costs. Similarly, the executors will incur other expenses connected with the administration of the Estate, including ongoing accountancy fees. Again, the executors have not sought to estimate those costs. Any estimate would have to allow not only for the costs of the existing proceedings, but for any further appeals from them. Taking that into account, in my opinion, it would be reasonable for the executors to withhold several hundred thousand dollars on account of legal fees and other costs.
The plaintiff submits that the Court should also take into account the fact that the Estate is currently earning interest on the approximately $5.5 million it holds. However, in my opinion, it is not appropriate to take account of that interest except to the extent that it is actually earned. Tax will be payable on that interest. Interest rates may change. Moreover, the executors may make interim distributions to other pecuniary beneficiaries. Each of those factors could have a substantial effect on the income the Estate earns.
Similarly, it would not be appropriate to take account of the possibility that John may be successful in the proceedings before Slattery J. If John is successful and the Estate recovers a substantial sum of money as a result, that may affect the question whether an interim distribution should be made. But account cannot be taken of that possible recovery unless and until it is made.
It follows from what I have said that, approaching the matter conservatively, there may be no residual estate and it is at least possible that there will be a shortfall that could amount to several hundred thousand dollars, which would reduce the legacy to which the plaintiff is entitled.
As I have said, the Estate has already distributed $788,872 to the plaintiff. It is entitled to set off against the plaintiff's legacy the amount of $881,000 owed by the plaintiff subject to any successful appeal by the plaintiff from the judgment of Sackar J. In addition, the Estate has a costs order in its favour in the proceeding before Sackar J and may obtain other costs orders in its favour against the plaintiff in the appeal proceedings and the family provision proceedings.
It is apparent from the evidence filed by the plaintiff concerning his financial position that he will not be able to repay any amount distributed to him in the event of an over distribution and the likelihood is that the Estate will not be able to recover any costs order in its favour against him. Consequently, the only means by which the Estate could recover costs awarded in its favour is by setting off those costs against any further distribution to which the plaintiff is entitled. The executors have suggested that it is reasonable to allow $150,000.00 in respect of those costs. In the absence of any evidence on the issue, that does not seem to me to be unreasonable. On that basis, the residual amount available for distribution in respect of the plaintiff's pecuniary legacy is $2 million less $1,819,872 (that is, $788,872 plus $881,000 plus $150,000), leaving an amount of $180,128.
For the reasons I have explained, there may be no residual estate available for distribution to John and Robyn. In fact, there may be a shortfall in the amount available to pay the pecuniary legacies with the result that the remaining amount to be distributed to the plaintiff could be reduced further. In circumstances where the amount of that shortfall is not known, it seems to me that, as things currently stand, it would be prudent for the executors to retain the balance of the pecuniary legacy payable to the plaintiff until the remaining court proceedings are resolved and the precise liabilities of the Estate can be determined.
The order of the Court is that the plaintiff's application for an interim distribution pursuant to s 84 of the Probate and Administration Act be dismissed with costs.
[6]
Amendments
04 February 2015 - inserted tables to paragraphs 11 and 12
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Decision last updated: 04 February 2015