Edmonds Judd

Family Protection Act

Providing for your family in your will

Estate, Kids, Property, Relationships, Retirement
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You have some legal obligations

We all want to look after our families – both during our lives and after we die. One way you can make sure that your family is looked after when you die is by leaving behind a clear, well-drafted will.

 

In New Zealand, we have considerable ‘testamentary freedom,’ meaning we can generally choose how we want to distribute our personal assets after our deaths. Testamentary freedom has been a fundamental feature of New Zealand law for many years. There are, however, limits to testamentary freedom. We see these limits in action when claims are made against a family member’s estate.

 

Claims against an estate

Claims against estates can be made under the Family Protection Act 1955 which provides that you have  a moral duty to provide adequate maintenance and support for certain family members after your death. They include your spouse, children and sometimes grandchildren. Even if you have family members with whom you have had a poor relationship during your lifetime, if you do not adequately provide for their maintenance and support in your will, there is a risk they could make a claim against your estate.

 

If you want to leave unequal shares of your estate to your family members, or leave a close family member out of your will entirely, it is important to state this expressly in your will and to provide your reasons for doing so. This can reduce the likelihood of a successful claim being made against your estate.

 

Protecting beneficiaries from their own folly

If you are concerned about how a particular family member (a beneficiary) may use (or misuse) their share of your estate, you should discuss this with us before your will is drafted. Leaving your family members with a significant lump-sum of cash is not the only way to provide them with their share of your estate. There are options such as establishing a protective trust for their share or appointing trustees to manage money on their behalf. These options may ease your concerns.

 

Family members having different needs

If your family members have different needs, you may want to consider adjusting their share of your estate. With family members who have significant health issues or support needs, your obligation to provide for them may be greater.

 

Earlier this year, the High Court made a decision in a case,[1] upholding an earlier decision of the Family Court. That decision increased the proportion of a father’s estate that was awarded to his unwell son by a small amount. His son had been unable to work for several years due to his illness, and incurred costs associated with managing his illness. When his father awarded him a smaller share of his estate than his sister, the court decided this had breached his father’s duty to him. The duty to provide adequately for maintenance and support applied, even though the relationship with his father had been strained and dysfunctional over several years before his father’s death.

 

Repercussions of not providing for your family

If any of your family members have been left out of your will or have not been adequately provided for, they could make a claim against your estate.

 

When such a claim is made, the court can review the circumstances and make an award from the estate to remedy failure to provide adequate maintenance and support. This is why it’s important to talk with us about the drafting of your will. We can help you adjust your will to minimise the possibility of a successful claim against your estate.

 

Estate claims can cause increased distress, conflict and delays during an already challenging time for your family. The legal costs associated with defending such a claim can also significantly reduce the value of your estate.

 

Important to think this through

If you’re tempted to write your wayward son, estranged daughter or irresponsible spouse out of your will, it’s well worth getting advice first. This may spare your family a claim against your estate, and the stress and expense that goes along with such claims.

 

 

[1] Emeny v Mattsen [2024] NZHC 291.

 

 

 

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Decision in ‘Alphabet case’ could change succession landscape

Kids, Property, Relationships, Trusts
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Significant issues raised

In June 2023, the Supreme Court heard the ‘Alphabet case.’ To understand the significance of what is at stake in this case, it is worth considering the facts that gave rise to the litigation and the High Court’s decision.

 

Abuse of A, B and C by Mr Z

Mr Z and Ms J married in 1958 and separated in 1981. They had four children: G (1960-2015), A (b 1961), B (b 1963) and C (b 1971).

Mr Z severely abused Ms J and the children physically, psychologically and sexually. A was repeatedly raped between the ages of seven and 13, but she did not disclose the abuse to anyone until 1983. She did not tell her mother until 1991. A was unable to face taking action against Mr Z.

Mr Z died in 2016 leaving an estate valued at $46,839. He had, however, settled a trust two years previously for the express purpose of preventing his family from “chasing” his assets, to which he had gifted his home and investments worth $700,000. The children were not beneficiaries of Mr Z’s estate or the trust; rather, the trust’s beneficiaries were the children of Mr Z’s former partner.

 

Children’s claims

That should have been the end of the matter because the Family Protection Act 1955 (FPA), that allows children to challenge their parents’ wills, only applies to assets a deceased owned in their personal names; it doesn’t apply to trust assets.

However, the children argued that their father owed them a fiduciary duty and, that because of the abuse, he continued to have obligations to them even after they became adults. They said that Mr Z had breached that duty when he gifted his home and shares to the trust in order to prevent his children from claiming against those assets under the FPA.

 

In the High Court

In the High Court,[1] Justice Gwyn agreed with the children and said they could bring claims under the FPA against the assets that had been transferred to the trust.

The trustees of Mr Z’s estate and trust appealed to the Court of Appeal.

 

Court of Appeal divided over case

The Court of Appeal[2] accepted that Mr Z owed a fiduciary duty to his children and that he breached that duty when he abused them. The issue was whether Mr Z continued to owe those fiduciary duties to his adult children at the time he gifted his assets to the trust.

The majority of the Court of Appeal judges disagreed; they said that the appropriate remedy for the breach of fiduciary duty was equitable compensation (and the children had run out of time to make that claim).

However, one judge said that in some circumstances the inherently fiduciary relationship between a parent and a child may continue after a child becomes an adult (for example, in the case of a severely disabled child).

The judge (who was in the minority, so their views don’t affect the final outcome) decided that A’s position, owing to the abuse she suffered, was analogous to that of a disabled child. Mr Z therefore had a continuing duty to take steps to remedy, as best he could, the enormous harm he inflicted on A, not only when she was living in his care, but also during her adult life. This meant he was required to protect her interests when considering gifting his principal assets to the trust, and failed to do so.

 

Decision awaited

The Supreme Court will tell us whether Mr Z owed a continuing fiduciary duty to A into her adult life because of the abuse he perpetrated on her. Many commentators believe that it is stretching the concept of a child/parent fiduciary duty too far.

If legal principles cannot evolve, however, a situation may emerge where extraordinarily meritorious claimants are left with no effective relief, simply because too much time has passed, and/or because their parent transferred their assets into a trust to prevent claims after they have died.

That raises two questions:

  1. Should time count against people such as A, who have been so seriously abused by a parent?
  2. Should parents be allowed to transfer their assets into a trust in order to prevent their children making claims after their death?

[1] [2021] NZHC 2997.

[2] [2022] NZCA 430.

 

 

DISCLAIMER: All the information published in Trust eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Trust eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Estate laws due for a shake-up

Estate
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Law Commission proposals

The laws about the administration of estates are being reviewed by the Law Commission. Much of what has been proposed so far is uncontroversial but there are some recommendations that may prove unpopular, although they are likely to be refined during the Parliamentary process.

The Law Commission has called this project Succession Law — that is the system of rules that governs who gets a person’s property when they die and rights to make a claim against an estate. There are two main laws that govern this area of the law: the Administration Act 1969 that rules the way estates are administered and the Family Protection Act 1955 that is the law about claims against estates. Both these statutes are out of date.

Other laws under review include:

  • Rules about who gets what if a person dies without a will (intestacy)[1]
  • Part of the relationship property law concerning the right to bring a claim after one spouse/partner has died[2], and
  • Testamentary promises legislation (bringing a claim against an estate for work or assistance for the deceased in reliance on a promise to reward them in the will)[3].

Intestacy

At present, if someone dies without a will, leaving a spouse/partner and children, the spouse or partner receives the household and personal items, $155,000 (with interest) and one-third of the rest of their estate. The children share the other two-thirds. This can mean that the surviving spouse or partner does not even get to keep the house unless it is jointly owned.

One option being considered is that the surviving spouse/partner would inherit the entire estate if the deceased’s children are all from that relationship. In other situations, the spouse/partner would get half and the children would get the other half.

Family protection

Probably the most controversial proposals concern the Family Protection Act. This legislation allows a spouse or partner, or the children or grandchildren (and sometimes dependent stepchildren), to bring a claim against the estate. Over the last 20 or so years, judges have become quite cautious about allowing such claims. A spouse/partner or dependent children will usually have a good claim, especially if there is a genuine need. An adult child who is self-supporting may, at best, have a ‘recognition claim’ that is usually a small percentage of the estate that acknowledges them as a member of the family.

The Law Commission proposes that adult children who are not in any need should not be able to claim or should get only a small item, or taonga in some cases, from a parent’s estate. In theory this may sound fine. If asked however, “Should your family be allowed to contest your will?” most people would say “No”. But, if they were asked, “Should you be allowed to contest your parent’s will if you’ve been left out completely?” most people would say “Yes”. The reality is human beings make mistakes sometimes and their wills are no exception. Being able to fix up an unreasonable will is an important safeguard for families.

Blended family issues

One issue not fully considered by the Law Commission is second marriages/relationships and the rights of stepchildren. A typical example would be:

  • John and Mary get together later in life. They each have children by a previous marriage.
  • They share all of their property and money, and they each make a will leaving everything to each other.
  • When John dies his children are in a difficult position. They hope Mary will include them in her will along with her own children. After all Mary has inherited everything John worked for, but they can’t be sure she won’t change her mind and leave her estate only to her own children.
  • John’s children can bring a claim under the Family Protection Act but this may wreck their relationship with Mary. If they don’t bring a claim now, they will have no right to claim after Mary dies.

There is also a proposal to include some ‘claw back’ rules in the Family Protection Act. This could mean that anything you put in your trust, or give away shortly before your death, could be treated as part of the estate in order that a claim could be made.

Looking ahead

If you are concerned about family disputes after you die, you could consider ringfencing your property by putting it into a trust, for example. It is by no means certain that claw back rules will come into law at some stage but, if they do, anything put into the trust years before is unlikely to be caught by a possible claw back rule.

Above all, make sure you have a will or make sure your current will is up-to-date. The default intestacy rules may not fit your circumstances; if you have a will, you get to decide who will benefit.

[1] Ss77 to 79 Administration Act 1969.

[2] S 88 Property (Relationships) Act 1976.

[3] Law Reform (Testamentary Promises) Act 1949.