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Testamentary Promises

The Law Reform (Testamentary Promises) Act 1949 (Testamentary Promises Act) makes provision for the enforcement of promises to make testamentary provision in return for services rendered to a deceased. If a Court is satisfied that the deceased promised to make testamentary provision as a reward for services and the promise has not been fulfilled, then s 3 of the Testamentary Promises Act enables the Court to order the executor or administrator of the estate to pay the claimant such amount as is reasonable having regard to a variety of circumstances.

Section 3(5) of the Testamentary Promises Act providing:

3 Estate of deceased person liable to remunerate persons for work done under promise of testamentary provision

(5)The incidence of any payment or payments so ordered shall, unless the Court otherwise determines, fall rateably upon the whole estate of the deceased, or, in cases where the authority of the Court does not extend or cannot directly or indirectly be made to extend to the whole estate, then to so much thereof as is situated in New Zealand.

Section 3(6) of the Testamentary Promises Act gives the Court the power to:

  • Exonerate any part of the estate from the incidence of any such payment awards under the Act
  • Determine priorities as between any benefit awarded to the claimant under the Act and the beneficial interests of any other person(s) in the deceased estate
  • Make such provision as it thinks fit as to the incidence of the whole or any part of the debts, and testamentary expenses, in respect of the estate.

Competing claims

In some cases there is a binding contract to leave property by will as well as a testamentary promise to reward services. There is then an awkward interface between an unfulfilled binding contract and a fulfilled or unfulfilled testamentary promise. Where the deceased has not fulfilled the contract to leave property by will, a claim can be made in contract that in the first instance is unaffected by any competing claim under the Testamentary Promises Act. This claim taking priority over a testamentary promises claim, like any other contractual debt. However, if the deceased carried out the contract by leaving the promised provision in the will, the provision in the will is vulnerable to competing claims under this Act.  See McCormack v Foley, where the Court held that it was implied by the Act and the nature of the jurisdiction that orders under the Act were to be made against the gross estate. Relying on a dictum in Schaefer v Schuhmann, that a contract to leave property by will created a beneficial interest in the estate, the Court concluded that the power to determine priorities in s 3(5) and (7) indicated that the incidence of an award. Also see Hamilton v Hamilton, where a testamentary promises award eroded the testamentary gift of a farm promised to one of the deceased’s grandsons in recognition of work and services. In that case the Court held that the fulfilled contract did not necessarily take priority over the unfulfilled testamentary promise.

Rules applying with respect to genuine debts of an estate 

As a general rule where there is competition between claims under a will by a beneficiary and claims under both the Family Protection and the Law Reform (Testamentary Promises) Act, no claim has any automatic preference over the other. This seems, with respect, to accord generally with modern judicial practice to do substantial justice without being hampered by a priori assumption as to which type of claim should be dealt with first…It should be noted that as the law presently stands it does not apply to a situation where there was also a claim founded in contract since that claim takes priority over the family protection claim (being one made against the net estate) though not against the testamentary promises claim (which is made against the gross estate). If such a case arose a Court would be likely to give priority to the contractual claim to provide a sensible resolution of the priority issue. However a Court might also reconsider in an appropriate case whether there is in fact priority to be afforded to contractual claims: Hamilton v Hamilton

Nevill’s Law of Trusts Will and Administration, 11th  Edition at paragraph 20.4.2(b), under the heading “Right to Pay Debts or Claims” says by s 26 of the Administration Act 1969, the whole of the deceased’s estate is available to the administrator for payment of the deceased’s debts in the ordinary course of administration, and may be sold, leased or mortgaged for that purpose.

Also see paragraph 15.6.2 under the heading “The Incidence of Uncharged Debts Generally – Abatement”, which says “Since debts must be paid before gifts by will are distributed to beneficiaries, if there is insufficient in the fund set aside for payment of debts then the gifts given by will must be resorted to in order to satisfy those debts.”

The question of what parts of the estate are charged with the payment of pecuniary legacies and in what order, is a problem of distribution and is altogether distinct from the administrative question of the order in which assets are to be applied in payment of debts and liabilities.

Section 4(2)(b) of the Testamentary Promises Act, which was introduced in 1961, clearly provides that for all purposes any award under the Act is deemed to be a bequest or devise by the deceased to the claimant. Thus, a successful claimant of a testamentary promises claim does not make the claimant a creditor of the estate.

Accordingly, unless there is power within the Testamentary Promises Act for the Court to direct that the incidence of an award under the Act shall fall on funds that would otherwise be paid to creditors, the normal rules requiring payment of the debts of genuine creditors prior to payment of any gifts or bequests under the will are likely to apply.

The claims of creditors can be considered relevant to the amount of an award under s 3(1) of the Testamentary Promises Act only if the gross estate is to be taken into account. Section 3(1) gives no indication as to how these claims are to be taken into account. The direct step of ordering a reduction in the amount of the creditor’s debt does not seem to be contemplated by the section. However, an executor’s ability to meet creditors’ claims in full may nonetheless be affected by any order made in favour of a claimant under s 3(1)

Commenting on the decision in McCormack v Foley Bill Patterson notes in Law of Family Protection and Testamentary Promises that “where the claim was brought under the Law Reform (Testamentary Promises) Act 1949, the Court of Appeal held that the Court could make an award that affected the provisions made under the will. The Court noted that there were provisions in that Act not present in the Family Protection Act 1955 that lead to a conclusion that testamentary benefits, given in fulfilment of a contractual promise, were not immune from the Court’s jurisdiction. Principal points noted were:

(a) As s 3(1) of the Act provides that a claim is to be enforceable against the personal representative of the deceased in the same manner and to the same extent as if the promise were for payment by the deceased in his or her lifetime, this indicates that the claim is against the gross estate.

(b) The Court is directed, in determining whether to grant relief and to what extent, to take into account a number of circumstances including claims of creditors. In the Court’s view, this included those whose claims had been satisfied by the testamentary provision.

(c) The provisions of s 3(5) of the Act as to the incidence of an order also contain words suggesting that the subsection applies to assets making up the gross estate, a view which s 3(6) also appears to confirm.

(d) The Court discussed the decision of the Privy Council in Schaefer v Schumann, a decision on the New South Wales equivalent of the Family Protection Act. There it was held that even where a contract was performed by a testator, the rights of the party to the contract were not to be regarded as arising only under the will but as having arisen earlier, the contract creating a form of beneficial interest in the estate. The question there was whether the “estate” against which an order could be made was the gross estate or the net estate after satisfaction of valid contractual claims. The Privy Council there held, and the Court of Appeal in McCormack v Foley agreed, that for family protection claims it is the net estate that is relevant. However, under the Law Reform (Testamentary Promises) Act it is the gross estate.” 

As a general rule where there is competition between claims under a will by a beneficiary and claims under both the Family Protection and the Law Reform (Testamentary Promises) Act, no claim has any automatic preference over the other. This seems, with respect, to accord generally with modern judicial practice to do substantial justice without being hampered by a priori assumption as to which type of claim should be dealt with first…It should be noted that as the law presently stands it does not apply to a situation where there was also a claim founded in contract since that claim takes priority over the family protection claim (being one made against the net estate) though not against the testamentary promises claim (which is made against the gross estate). If such a case arose a Court would be likely to give priority to the contractual claim to provide a sensible resolution of the priority issue. However a Court might also reconsider in an appropriate case whether there is in fact priority to be afforded to contractual claims: Hamilton v Hamilton. 

Accordingly, in some circumstances a testamentary promises claim can be paid from an estate in priority to other creditors.  Where a testamentary promises claim is equal to or greater than the value of the estate this would mean that the creditor would receive nothing (rather than say a pro rata share of the estate): Bristow v Smith.

Caveatable interest

A promise in relation to property, may provide grounds for a Law Reform (Testamentary Promises) Act claim.  However, a promise will not form a basis to sustain a caveat: Yarrow v Tennent.

References:

  • Law Reform (Testamentary Promises) Act 1949
  • McCormack v Foley [1983] NZLR 57 (CA)
  • Re Estate Gubbins HC Wellington 31 July 1997 Gendall J at page 7 “– he has priority, and that is an end to the matter”
  • Re McCormackSchaefer v Schuhmann [1972] AC 572; [1972] 1 All ER 621 (PC)
  • Hamilton v Hamilton [2003] NZFLR 883
  • Law of Family Protection and Testamentary Promises 4th Ed, Lexis Nexis, 2013 at para 13.5
  • Bristow v Smith [2013] NZHC 2866
  • Yarrow v Tennent [2017] NZHC 1275

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