Can it be done?
In New Zealand, people making wills have a great deal of freedom to dispose of their assets as they wish. If, however, a will-maker entirely excludes some close family members from their will, those people will often have claims against the will-maker’s estate.
In the recent case of what is known as the Alphabet case,[1] an abusive father tried to use a trust to disinherit his children on his death.
Family Protection Act 1955
The Family Protection Act 1955 is designed to protect family members who have been excluded from a will or left without adequate provision. It allows certain groups of people (including spouses, partners and children) to claim against an estate for further provision.
The court follows a two-step approach when evaluating claims under the Act. First, it must decide whether the will-maker owed a duty to the claimant and, if so, whether that duty has been breached. Second, the court must consider what is required to remedy the breach.
The court takes a conservative approach in making awards for further provision. It will do no more than the minimum that it believes is necessary to address any breach of duty. There is no presumption of equal sharing between children, and the court will not rewrite a will based on its own perception of fairness. There is no formula, however, for assessing what is required to remedy a breach; each case depends on its own facts.
Important factors will include the size of the estate, the claimant’s personal circumstances and other competing claims (such as from siblings or a parent/stepparent). In many cases, however, a financially stable adult child might expect to receive 10–15% of a parent’s estate. That could increase if a child is in poor circumstances or has suffered abuse at the hands of their parent.
Making a successful claim
When a successful claim is made under the Act, the award will be paid from the deceased’s estate. That necessarily means that claims are limited by the size of the estate. If a will-maker has gifted or transferred assets to a trust during their lifetime, or to other people, their estate may have little or nothing left in it. This has the effect of preventing estate claims because there is no estate available.
In the Alphabet case, an abusive father transferred his assets into a trust. His children wanted to bring claims against his estate, but there was nothing in it. They argued that they should effectively be able to unwind the transfer of assets to the trust, so that those assets went back into their father’s estate, and they could bring claims under the Act. This case went all the way to the Supreme Court.
Alphabet case
In the Alphabet case, the deceased father was referred to as Robert, and his children as Alice, Barry and Cliff. Alice, Barry and Cliff experienced egregious abuse at Robert’s hands and, understandably, did not have a relationship with him.
Robert took deliberate action during his lifetime to transfer most of his assets to a trust. None of his children were beneficiaries of that trust.
Alice, Barry and Cliff argued that Robert owed them fiduciary duties as a parent, and that he breached those duties when he abused them. They argued that the abuse created an ongoing fiduciary obligation which Robert breached when he transferred his assets into a trust. They argued that the transfer of assets could (and should) be unwound on this basis, and Robert’s assets returned to his estate; this would allow them to make claims under the Act.
Fiduciary duties are duties to put someone else’s interests before your own. They usually arise in relationships of particular trust and confidence. The Supreme Court acknowledged the existence of fiduciary duties between a parent and a minor child, but it found that these duties ended when the parent’s caregiving responsibilities ceased. It did not agree that there remained a fiduciary duty owing later on which would prevent Robert transferring his assets to a trust.
The court noted that the Act does not contain any mechanism to ‘claw back’ assets which have been put in a trust or transferred to another person in order to avoid estate claims. It noted that this might be the subject of future law reform but it was not existing law.
Robert’s three children therefore failed in their attempt to bring assets back into Robert’s estate, on which they could then have made Family Protection Act claims.
Law Commission
The Law Commission recently prepared a comprehensive review of succession law. It proposed that some form of anti-avoidance, or ‘claw back’ provision, be included in any law reform efforts that would address situations such as the Alphabet case.
While the government has considered the Law Commission’s report, it has not yet taken any steps to progress law reform efforts. For the time being, this means trusts may continue to be used in order to prevent some potential estate claims, particularly those brought by children.
[1] A, B and C v D and E Limited as Trustees of the Z Trust [2024] NZSC 161
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Copyright, NZ LAW Limited, 2022. Editor: Adrienne Olsen. E-mail: [email protected]. Ph: 029 286 3650
