Burden of secrets: Claim for secret trust within an FPA by grandchild (NSW)

Within a family dynamic, particularly as the elderly age and consider their demise, it’s common to hear of conversations being held between family members of “understandings” and benefits that may flow the next generation on the death of the elder. Promises made and, sometimes, others rely on those alleged promises. So what happens where there’s a secret of a promise and then that alleged promise doesn’t flow through into the Will of the deceased?

In the recent case of Misek v McBride [2017] NSWSC 406, the Court published reasons in a grandchild’s family provision claim on the estate of the late Mrs Stuart.  Mrs Stuart was 83 when she passed, having being survived by her only daughter and her four grandchildren; the children of her late son, Gregory.  The applicant in the matter was one of Gregory’s children, Kylie.  Mrs Stuart’s last Will left the entirety of her estate to her surviving daughter, Cheryl, and appointed her as executor.

As is the case in New South Wales, a grandchild can make a claim on the estate of their late grandparent where they are dependent upon that grandparent for a time: section 59, Succession Act 2006 (NSW). In this matter, Cheryl (as executor) did not contest that Kylie was eligible to bring her claim, as a partially dependent grandchild of Mrs Stuart.

In addition to the family provision claim, Kylie had alleged that part of Mrs Stuart’s estate was held on a “secret trust” for her benefit.  Kylie stated that her claim was based upon discussions held, at several “family meetings”, that Cheryl would hold 20% of the surviving grandparent’s estate on secret trust for her.  Kyle also alleged that Cheryl had accepted these obligations at those family meetings; an allegation Cheryl denied.

There was also a disagreement as to the value of the estate, with Kylie further alleging that Cheryl misused her power of attorney for Mrs Stuart, during Mrs Stuart’s lifetime, to purchase herself a property in Sanctuary Cove, Queensland, to the value of $642,000.00.

With her late father suffering difficult physical and psychological illness over the years, Kylie and her sister, Olivia, were abandoned when Kylie was just 12 years old when their father left for New York and did not return.  Mr & Mrs Stuart, Kylie’s grandparents, then became their nominated carers and she and Olivia began living with them. With such a shift in responsibilities for young children, the family resolved to have the girls boarded at a care centre during the week (which was paid for by their grandparents) and they lived with their grandparents over the weekends and during public holidays.  Kylie lived permanently with her grandparents whilst she attended high school.

Kylie and her grandparents shared a close relationship onwards and they shared in Kylie’s life and milestones.  Kylie married her husband at age 19 and had three children.  Kylie received much support from her grandparents over the years, including monetary gifts to support her and her family, financial support for the costs of her wedding, renovations to her house, gifts for special occasions, birthdays and Christmas. Kylie had received between $240,000.00-250,000.00 up until her grandfather passed away and received a distribution from his estate upon his death to the value of $150,000.00. A total of $400,000.00 had been received by Kylie.

In her last Will, Mrs Stuart had made a statement of the considerable support she had offered her grandchildren over the years, and accordingly explained this as the reason she had not left provision for them.

Secret Trust

Kylie alleged the secret trust came about from conversations held between 1999-2000, before Mrs Stuart made her last Will, and Cheryl denied that they ever took place.

Both Kylie and Cheryl had differing accounts of conversations had with Mr & Mrs Stuart over the course of the years.

In accepting Cheryl’s account of the conversations had between the family, the Court said:

  1. But contrary to the idea that an instruction was given to Cheryl that she should hold money on behalf of Donald and Patricia’s three grandchildren as to 20% each, Cheryl says that Donald had said to her something quite different in September 2011 before his death. I accept Cheryl’s account that in September 2011 Donald had an important conversation with her, in which he contemplated what might happen after his death to his property. He said to her, “All that is mine is yours. Hang onto it for a while and then do what you see fit. Make decisions that are fair”. She says, and I accept, that she remembers saying to Donald on this September 2011 occasion, “It would be appropriate to give some to Kylie, Michelle and Lachlan”. To this I accept that Donald responded “Yes, but use what you need first and the kids can have what is left afterwards”. Cheryl says that she asked her father, “Should I use mum’s money if any of the grandkids need it?” And Donald replied “By all means, especially if it could advance their prospects”.
  1. This is a key conversation. In my view Cheryl’s account of what Donald said to her in September 2011 contains an explanation of what in my view was ultimately a misunderstanding on Kylie’s part about her grandparents’ wishes but which has led to her becoming fixed upon an idea that a promise of a 20% portion of the estate was made to her. Both Donald’s generous conduct during his lifetime and this September 2011 conversation with Cheryl reaffirm his and Patricia’s generosity to their grandchildren. But his trust in his daughter Cheryl was paramount. It is not at all improbable in my view that at some stage in the latter part of his lifetime that Donald did communicate to Kylie something rather like what he communicated to Cheryl in September 2011 and that Kylie has misinterpreted this as a promise of 20% of the estate. The exact way that this might have occurred was not explored in the evidence and any further analysis would be speculative.

In a difficult circumstance of evidence relating to verbal conversations, the Court preferred Cheryl’s reflection of the conversations held between the relevant parties and noted that Cheryl had conducted herself calmly, confident and “with the assuredness of a person convinced she was faithfully fulfilling what her parents expected of her” and had made frank concessions which “assisted the Court gaining confidence in Cheryl’s reliability“(para 13) . The Court noted that the account Kylie had provided had not seemed to fit well with Mr & Mrs Stuart’s personalities (para 88).

Noting the standard of proof for a secret trust was “demanding“, the Court said (at para 139):

The standard of proof required to make out a secret trust is demanding. The requirement was stated in McCormick v Grogan (1869) LR 4 HL 82, at 97 (per Lord Westbury), as “the clearest and most indisputable evidence” and “you must show distinctly that [the primary donee] knew that the testator …was beguiled and deceived by [the primary donee’s] conduct”. In Ottaway v Norman [1972] Ch 698, at 711 Brightman J interpreted Lord Westbury’s statement as meaning that if a will contains a gift in absolute terms that “clear evidence is needed before the Court will assume that the testator did not mean what he said” and the standard of proof “is analogous to that “which the court requires before it will rectify a written instrument, for there again a party is saying that neither meant what they have written”. As the deceased cannot give evidence in response to claims that he or she said things to create a constructive trust, a plaintiff must establish each of the required elements upon “clear and convincing proof”: In re Snowden [1979] Ch 528, at 536 per Megarry VC.

The Court determined that the claim for a secret trust could not succeed.

Power of Attorney

In relation to the allegations of misuse of the power of attorney given to Cheryl in 2001, Kylie had brought a claim in the NSW Civil and Administrative Tribunal in May 2014 in relation to transactions Cheryl had made with respect to her purchase of a property in Queensland with monies owned by Mrs Stuart.  After Mrs Stuart passed away in June 2014, Kylie did not continue with hose proceedings.

Cheryl stated that the monies were borrowed from Mrs Stuart, during her life, and that the power of attorney document authorised her to make such a loan.  The Power of Attorney specifically authorised Cheryl, by way of a “benefit clause”, to execute any document where she would receive a benefit.  Following the relevant jurisprudent, the Court was satisfied that the making the loan did not result in a breach of Chery’s fiduciary duties to her parents. Cheryl accepted that she owed the estate a laon of $644,000.00, plus interest, being reflective of the amount of the loan. The Court accepted this reasoning and reflects this amount in the estate assets and liabilities summary.

The net estate available for distribution was agreed as $783,381.26.  Other claims by two of Mrs Stuart’s other grandchildren had been settled by mediation.

FPA – Factor’s warranting and adequate provision

The Court accepted that Kylie was an eligible person to bring the claim and therefore the question became whether there were factor’s warranting the making of the claim.  The Court accepted that whilst Kylie was a natural object of Mrs Stuart’s testamentary disposition, it wasn’t such that she was an object of testamentary disposition analogous to a child. The Court determined this with reference to Mrs Stuart’s generosity over the years toward Kylie, but more so to Cheryl, in addition to the preference of Cheryl over Kylie (and the other grandchildren) in the terms of Mrs Stuart’s Will.  Further, the Court noted that Mrs Stuart’s appointment of Cheryl as her attorney went further to evidence this.

Citing the two-stage process of Singer v Berghouse (No 2) (1994) 181 CLR 201, and finding that Kylie was left without adequate provision, the Court considered her needs, taking into account necessary and significant renovations Kylie requires on her home, along with Kylie’s unfortunate recent diagnosis of Fowler’s Syndrome.  Kylie and her husband’s net worth was calculated as $742,813.31. The Court also considered Cheryl’s competing position noting that she had significant assets, but high levels of debt, leaving a net worth of $3,883,242.00.

Noting their struggles to date, particularly in relation to Kylie’s health, and their further struggles ahead, the Court determined to award Kylie further provision in the sum of $460,000.00 from her grandmother’s estate.

You can read the case here.

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