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Family Protection Act, trust, Trustees, Trusts, Wills

Balancing philanthropy and moral duty

In Carson v Lane Thomas J explores the moral duty owed by a father to his estranged adult children balanced against the father’s wishes that his windfall wealth be utilised in the furtherance of research and development of the Galloway breed of cattle.   His final will, which was made in the face of strong legal advice regarding his moral duties towards his children, made modest bequests and left the substantial residue to a trust of which Lincoln University was a discretionary beneficiary.  Mr Carson also left clear wishes in the form of a memorandum of wishes regarding the research and development of the Galloway breed and how this could be done for the benefit of Lincoln University.

In a considered judgment that warrants reading, Thomas J after satisfying herself that there was a breach of the obligations owed under the Family Protection Act 1955,  militated against a percentage based approach noting at [94] that:

“My reading of the various cases suggests that a percentage approach is often taken in cases of small estates (the first category of cases discussed in Williams v Aucutt) and where there is a number of disadvantaged claimants. I cannot accept that the percentage approach is appropriate in the case of a large estate such as this one. That does not fit with the duty under the Act to assess what is adequate for the proper maintenance and support of the claimant. Reliance on percentages taken in other cases can also create a misleading impression – for example when there is a separate inter-vivos trust, as in the case of LAC v NJC discussed above. Percentages should neither be treated as placing some sort of cap on awards, nor used as a means to inflate an award in the case of a large estate.”

Legislation

Section 3(1) of the Family Protection Act 1955 (the Act) lists  who is entitled to apply for provision out of the estate of any deceased person. Children and the Grandchildren fall into this category.
Section 4(1) of the Act provides:

(1) If any person (referred to in this Act as the deceased) dies, whether testate or intestate, and in terms of his or her will or as a result of his or her intestacy adequate provision is not available from his or her estate for the proper maintenance and support of the persons by whom or on whose behalf application may be made under this Act, the court may, at its discretion on application so made, order that any provision the court thinks fit be made out of the deceased’s estate for all or any of those persons.

With respect to the grandchildren claimants Thomas J’s view was that “Where both grandchildren and their parents are claimants under the Act, and adequate provision can be made for the proper maintenance and support of all parent claimants, there should be some particular circumstance identified before it would be appropriate to grant provision directly to the grandchildren.”

As noted at [109] “… an award under the Act is not for the purpose of holding a deceased to account for unacceptable behaviour during his or her lifetime. It is certainly relevant that Mr Carson made no provision for the Children during his lifetime, it being the other side of the coin from cases such as Auckland City Mission v Brown where substantial support to a claimant during the deceased’s lifetime was a relevant consideration in deciding on the appropriate provision to be made for her.

The following passages from the judgment set out the reasoning for the award made to the children, why no award should be made to the grandchildren and how the will-maker’s wishes should still be respected to the extent possible – balancing the position of the different parties.

[110] Similarly, it is not for this Court to punish Mr Carson should it be found that he deliberately tried to prevent the Children claiming against the Estate. I have already discussed this evidence and am not satisfied it is established to the balance of probabilities in any event.

[111] What can fairly be said is that Mr Carson exhibited disinterest in the Children although, when prompted by contact from them, appeared interested and loving. What happened at the time of the separation and any dealings between Mr Carson and his first wife after separation is unknown. It appears unlikely that the Children’s mother actively sought to prevent contact, given she was evidently happy and supportive of the Children’s relationship with their paternal grandparents. The most likely situation is that Mr Carson moved on with his life, remarried and established a good emotional relationship with his step-children, particularly Raymond.

[112] The consequences for the Children, however, were understandably devastating and left them with feelings of abandonment. Quite naturally, the fact no provision was made for them in the Will exacerbates those feelings.

[113] Mr Carson was advised of his moral duty to the Children. He recognised that by the creation of the Trust, saying in the Memorandum that it was set up for “the general purpose of ensuring that members of my family are able to benefit from the capital and income of the Trust from time to time”. In effect, he abdicated his responsibilities to the Trustees. He made no attempt to establish the financial and physical health of his Children. He maintained that they had been “paid out” many years ago. There is some force in Mr Kelly’s submission that Mr Carson may well have assumed that his financial settlement with the Children’s mother absolved him of his duties. That is, of course, incorrect.

[114] Finally, neither Mr Carson nor Raymond are to be punished for the provision Mr Carson made for Raymond. Mr Carson was entitled to do so. He clearly had a good relationship with Raymond. It is not for a beneficiary to justify any bequest.

The Trust

[115] As discussed, I do not accept the submission that the Trust was for the purpose of defeating the Children’s claim. The Memorandum makes it clear the purpose is for members of Mr Carson’s family and in addition the retention of assets to further research and development of Galloway cattle. Given the Trustees’ obligations, it is inconceivable they would not take steps to locate the Children and provide for them in accordance with the Trust.

[116] That said, I am not persuaded that the position is as clear cut as Mr Kelly would have it. In his submission, the appropriate provision for the Children is $1 million each and that is on the basis they remain discretionary beneficiaries under the Trust and therefore their interests will be provided for on an ongoing basis. That might be the case were the Trust’s only purpose to provide for Mr Carson’s family, but it is not. The Memorandum in particular stresses the importance of the farm properties and Galloway cattle. The first of Mr Carson’s general wishes are that, as long as it is viable, the farm should continue with an emphasis on research and development. On the Trust’s winding up, Mr Carson’s preference is that the farm assets be transferred to Lincoln University. The Trustees are, of course, not bound to follow the Memorandum but trustees will generally act in accordance with a memorandum, provided it is not inconsistent with the trust.

Award

[117] The 20 per cent advocated by Mr Cooper would amount to $3 million for each of the Children and would clearly amount to a rewriting of the Will. It would leave only 20 per cent ($3 million) in the Trust. That would effectively defeat Mr Carson’s wish regarding the farm properties and Galloway cattle. The farm properties are valued at $5.685 million and would have to be sold were Mr Cooper’s proposal accepted. Such an award would not be in accordance with the Act.

[118] Except when they were very young, the Children received no financial support from Mr Carson during their lifetime. None of the Children is now in a particularly healthy financial position and retirement is not too far away. Neither Melanie nor Wayde own their own home and Toni and Keri have significant mortgages on their homes. Toni is in the best position with her and her husband having between them equity of around AUD500,000. All the Children have dependents (Keri having foster children). At least three of the Children have significant health issues and Wayde has decided not to investigate whether he is afflicted by the condition affecting Toni and Keri. Although most of these problems have manifested themselves after the date Mr Carson died, they are still to be taken into account when deciding on appropriate provision under the Act.

[119] In my assessment, a wise and just testator in Mr Carson’s position would have made provision of $1,250,000 for each of the Children in light of these circumstances. The Children will remain discretionary beneficiaries under the Trust. The Trustees must therefore assess the Children’s needs in the future and provide for them in accordance with their obligations as Trustees.

[120] That sum would be life-changing for the Children but would not defeat Mr Carson’s wishes. It would take a total of $5 million from the Estate, leaving just over $10 million, about half of which is tied up in the farm properties. However, leaving the Trust with other assets worth about $5 million would enable the Trustees to cover the annual operating loss of $22,000 on the farm properties as well as providing for Mr Carson’s family in accordance with the Trust and Memorandum. The Research Management Office at Lincoln University estimates that a research programme could cost $280,000 – $320,000 per annum. It will be for the Trustees to consider the level of research that the Trust is able properly to fund in accordance with its obligations and whether other grants might be available to offset that cost.

[121] Mr Kelly suggested that with assets valued at approximately $9–10 million to invest, and at an interest rate of five per cent over the long term, the Trustees may net approximately $300,000 per annum. Of course, the Estate includes the farm properties, which are valued at $5.685 million, so barring a sale of those properties, the Trust would only have around $5 million in liquid funds to invest. The Trustees would have to make decisions and cut the Trust’s cloth accordingly.

[122] The award would represent the minimum necessary to make adequate provision for the proper maintenance and support of the Children in accordance with the Act. While in percentage terms it amounts to slightly over seven per cent of the value of the estate at the time of Mr Carson’s death, as discussed, a percentage approach is inappropriate in an estate of this size and indeed the result demonstrates that proposition. It also happens to be consistent with the bequest to Raymond, which was valued at $1.22 million at the time of Mr Carson’s death.

The Grandchildren

[123] The award made to the Children must be taken into account in considering whether the Grandchildren should receive any provision. As may be evident from my comments above, I do not consider they should. While a loving grandfather might well make some provision for his grandchildren in his will, that does not mean he fails in his moral duty towards them if he does not do so.

[124] With each of the Children receiving $1.25 million, their financial positions will be significantly improved and they can be expected to provide for their own children. There is nothing to suggest the Grandchildren’s parents will not support and provide for the Grandchildren, indeed the evidence is to the contrary — two of the adult Grandchildren still live at home. Mollie is in the most need in terms of her health and earning capacity. She lives with her partner, about whom there is no evidence.

[125] While it is true that, despite what he said in cards, Mr Carson exhibited disinterest in the Grandchildren, it is putting it too high and ignoring wider contextual considerations to say he “abandoned” them. They are discretionary beneficiaries and final beneficiaries under the Trust. In that regard, I note Mr Carson’s wish in the Memorandum that, on winding up, the farm properties should, if possible, go to Lincoln University but those properties represent only about half of the Estate remaining after this award to the Children. There will, therefore, remain a significant pool of assets from which the Grandchildren might benefit.

[126] The Trustees suggested the sum of $1 million should be put in a separate trust for the Grandchildren, to be distributed equally on each attaining 20 years of age. To give over $160,000 to young adults who have no dependants, yet maintain that $1 million to each of the Children in their particular circumstances is generous (as the Trustees did) is, in my assessment, somewhat inconsistent. In any event, I disagree with the Trustees for the reasons given. That said, I agree with Mr Whiteside, that the older Grandchildren have commendably been focused on obtaining qualifications and working. I also note Mollie’s health issues. It would be entirely appropriate for the Trustees to make a distribution to the adult Grandchildren, at least, in the circumstances. That is a matter for the Trustees to decide in accordance with their duties.

Also see Four children each awarded $1.25m of dead dad’s lotto winnings

References:

  • Carson v Lane [2019] NZHC 3259
  • Moon v Carlin HC Auckland CIV-2010-404-5486, 23 February 2011
  • Williams v Aucutt [2000] 2 NZLR 47
  • Auckland City Mission v Brown [2002] 2 NZLR 650
  • LAC v NJC FC Auckland FAM-2007-004-773, 26 July 2010
  • Family Protection Act 1955, s 3

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