The Effect of a Complex and Highly Conditional Will; From a possible zero inheritance, to $25 million to $6 million.
The Effect of a Complex and Highly Conditional Will; From a possible zero inheritance, to $25 million to $6 million.
Analysis of Lemon v Mead [2017] WASCA 215
Recently the Supreme Court overturned a previous decision that saw the youngest daughter of mining magnate Michael Wright go from inheriting $25 million from his estate to a much reduced $6 million. The case was complex and so was the Will. It highlights some important factors that Will makers should take heed of when making Wills.
Complexity
Mr Wright’s Will was complex. It had to be given his estate was valued at around one billion dollars (that’s a ‘b’). It distributed the majority of his estate to two of his children with them receiving approximately $400 million dollars each. The remainder was to be distributed in a very complex Testamentary Trust structure.
The distribution to the last beneficiary was to his youngest child Olivia. Her entitlement appeared to be capped at a maximum of $3,000,000 which she would not receive until she was 30 years old. At the time of Mr Wright’s death Olivia was 16. It also provided that if Olivia was to be involved in illegal drugs in any manner she would receive nothing. It also said Olivia would not receive anything if she was to become an alcoholic. Probably most controversially it said if Olivia was a ‘member of or in any other way involved with any religious body other than the Roman Catholic, Anglican, Presbyterian, Baptist, Uniting or other similar traditional faiths’ she would not receive any inheritance.
Ultimately it meant that Olivia was placed in a situation at a very young age that she may not receive any benefit of her father’s estate if she misbehaved in a way many young people do or wanted to observe Buddhism, Judaism or Islam.
Olivia to get $25,000,000
Olivia made an application under the Family Provision legislation which was initially heard before a Master of the Supreme Court. Her grounds included the Will did not provide for her adequately because the sum of $3,000,000 was not enough, that it had a real possibility that she would receive nothing and given the size of the estate there was more than enough capital to ensure the other beneficiaries would not be adversely affected by her receiving more.
The Master agreed with Olivia and using the legislative scheme effectively re-wrote the part of the Will that provided for her and awarded her $25,000,000 from the estate. The Master’s reasoning included the very real prospect she may ultimately receive nothing and described the restrictive provisions as ‘oppressive’. He also found given the size of the estate he had an unfettered discretion to provide Olivia with the upper limit of what had been asserted as being an ‘adequate’ provision for a (then) 19 year old woman with many years of life ahead of her.
When delivering his judgement the Master said:
When the $25 million is paid to [Olivia] the rest of the residuary estate will pass to the [other two daughters]. They will get about $10 million each less perhaps $1 million for costs. That is on top of the $400 million they already have; and they can rest easy in the knowledge their half-sister will be financially secure for the rest of her life
The Supreme Court on appeal stated that particular remark of the Master was ‘gratuitous’ but it may be an indication of his thought process at the time.
Olivia to get $6,000,000
The finding of the Master was appealed. The Court did find that Olivia had not been adequately provided for however determined the amount she should be given was a little over $6,000,000. The Court’s reasons included the finding that the Master did not have an ‘unfettered’ discretion and that the power to re-write the Will is limited to only that which does provide adequately for Olivia. Another primary reason for finding she had not been adequately provided for was the contingencies placed on the gift which had a possibility Olivia would receive nothing.
When determining the value that would provide adequately for Olivia the Court used numerous factors which included the expected lifestyle of a similarly placed child. Ultimately that figure was determined to be just over $6,000,000. At the time of the appeal Olivia had already received $3,000,000. Interestingly the Court held Mr Wright’s creation of a trust to vest when Olivia was 30 years old was able to be maintained albeit without the restrictions and limitations that could have seen her receive nothing. So Olivia will receive $3,172,000 plus the income earned on that sum when she turns 30 in addition to the $3,000,000 she has already received.
Children (and others) should benefit
Olivia had standing to make a claim because she was a child of Mr Wright. This is important for Will makers to take note of if they are looking at making gifts to children, spouses or dependants contingent on someone doing a particularly thing (for example graduating with a degree) or not doing something (for example not using drugs). In Mr Wright’s Will, he could have made adequate provision for Olivia that was not contingent and then have provided further for her using the contingencies he proposed. Looking at the decision of the Court it is likely such a proposal would have been held as legitimate.
It is very difficult to write a child out of a Will and care needs to be taken if a Will maker wants to do so. Professionally drafted Wills may help but ultimately if an estate fails to provide a child a benefit then that child has standing to make a claim. That is not to say they would be successful however often they are.
Dumb it down
Lawyers are often criticised for making things complicated and using legalese language. It is important to remember when making a Will the starting point for the lawyer is what a Will maker wants. It is part of the lawyer’s role to advise on the best way to provide for the Will maker’s wishes and sometime this is to be more generic and less specific. For example a Will that says ‘I give my son James my Harley Davidson’ might cause problems if the Harley Davidson is no longer owned at the time of death. A Will is interpreted as at the time of death. If the gift was of ‘a Harley Davidson’ the Estate would have to acquire one for James if one didn’t already exist in the estate. James may have an argument to seek property the equivalent value of what the Harley Davidson was depending on how the Will was written and what the estate is.
The law relating to Wills and Estates can be complex and even for estates of a modest value it is best to have a professionally prepared Will.