Supreme Court New South Wales Medium Neutral Citation: Michelle Cooper v Ian Anthony McCormack as executor of the estate of the late Colin Windsor McCormick Wayne McCormick v Ian Anthony McCormick as Executor of the estate of the late Colin Windsor McCormick [2013] NSWSC 1207 Hearing dates: 16 August 2013 Decision date: 28 August 2013 Jurisdiction: Equity Division Before: Slattery J Decision: The advice of the Court is that the executor would not be justified in accepting the settlement offer. Catchwords: SUCCESSION - application for judicial advice by an executor under Trustee Act 1925 s 63 - proceedings against estate commenced by son and daughter of the deceased - son has intellectual disability and daughter is currently his primary carer - deceased's will provided a life tenancy in the deceased's property for his son subject to a right of limited occupation for his daughter - deceased's previous will gave the property to plaintiffs in equal shares - plaintiffs seek declaration that the executor holds the estate on constructive trust for them as tenants in common in equal shares - trust said to arise from conversations sister had with her parents before their death - in the alternative plaintiffs seek provisions out of the estate pursuant to Succession Act 2006 - plaintiffs made joint offer of compromise under which property passes to them as joint tenants and that joint tenancy cannot be severed during their lifetime - executor concerned that the offer does not sufficiently protect brother's future interests - small estate - significant legal costs of the proceedings incurred - executor's duties to uphold the will and compromise claims - executor not justified in accepting the offer in this form. Legislation Cited: Conveyancing Act 1919, s 66G Family Provision Act 1982 Succession Act 2006 Cases Cited: Application of Ferdinando Scali [2010] NSWSC 1254 Bartlett v Coomber [2008] NSWCA 100 In the Will of W.F. Lanfear (Deceased) (1940) 57 WN (NSW) McMahon v McMahon [1985] NSWSC (Unreported, Young J, 2 August 1985) Vasiljev v Public Trustee [1974] 2 NSWLR 497 Category: Principal judgment Parties: Plaintiff (2013/30300): Michelle Cooper Plaintiff (2013/114880): Wayne McCormick Defendant (2013/114880, 2013/30300): Ian Anthony McCormack as executor of the estate of the late Colin Windsor McCormick Representation: Counsel: Plaintiff (2013/114880): S K Hill Plaintiff (2013/30300): L Ellison SC Defendant: D Liebhold (2013/114880, 2013/30300) Solicitors: File Number(s): 2013/114880, 2013/30300 EX TEmpore Judgment 1By notice of motion dated 24 July 2013 Ian McCormick as executor of the estate of the late Colin Windsor McCormick seeks the judicial advice of the Court under Trustee Act 1925 s 63 in respect of the estate of the late Colin Windsor McCormick. The question on which advice is sought is whether or not the executor should accept a joint offer made to him as executor to settle certain legal proceedings brought by two children of the deceased, Michelle Cooper and Wayne McCormick. 2I will give the advice in more traditional form, which is whether or not the trustee would be justified in accepting the offer. It then becomes a question for the trustee ultimately as to whether he does or does not accept the offer. 3The essential facts of the matter are as follows. The deceased died on 7 February 2012 leaving a will dated 4 August 2011. The will provided a life tenancy, in certain realty in Adelaide Street, St Marys for Wayne, one of the children of the deceased. But the life tenancy was subject to a right of limited occupation of the residence for another child, Michelle Cooper. The will provided for the remainder of the estate to devolve to Ian McCormick, the executor, and to the children of the deceased, Michelle, Wayne and another son, Allan. Probate of the will was granted to the defendant on 5 April 2012. 4The estate is not a large one. And that provides some of the difficulty, which now confronts the executor and is the reason why he has sought the Court's advice. The estate comprises: the residence in St Marys with an estimated value of $410,000; a mobility scooter of a value $1,500; and, cash in the bank at a value of approximately $7,654. 5The executor's costs of Wayne and Michelle's proceedings are some $23,200 to date. The executor has also spent $9,662.20 in respect of testamentary and probate expenses. 6Wayne has a mild intellectual disability. Although classified as mild, it has nevertheless meant that he has never been able to retain a permanent paid job since leaving school. He attended a special school until 17 years of age. Since then, he undertook work experience at Franklin's on an unpaid basis and spent time at a sheltered workshop. But he has not otherwise worked for remuneration since leaving school. He suffers from Crohn's disease, Parkinson's disease and what he, in his affidavit describes as "intellectual delay". Since 6 June 2013 Wayne appears in his proceedings through a tutor, another family member - Mr Terry McCormick. Testamentary History 7Wayne and Michelle's parents, Mr Colin McCormick and Mrs Betty McCormick, attended in their testamentary affairs to ensuring Wayne's future welfare. This is self evident from their wills. Their understandable concern for Wayne's welfare is reflected in these documents. 8The testamentary history of the family is that in 2005 and 2008, Mr and Mrs McCormick made wills, which were close to a mirror image of one another. They gave their estates to one another. But if the other predeceased, each testator gave the residue to Michelle and Wayne in equal shares. Michelle by that stage was living in the St Marys property and spending much time caring for the day-to-day affairs of Wayne's life. 9Mrs McCormick died in 2011, before her husband. After her death Mr McCormick changed his will disturbing the mutual provisions in his and Mrs McCormick's 2005 and 2008 wills. In his new will he appointed Ian as his executor, giving to Wayne a life interest in the principal place of residence at St Marys, giving a right of residence in the front and middle bedrooms of the house, to Michelle, and distributing the balance of the estate to his children. 10What are Michelle and Wayne's two proceedings? As to Michelle's proceedings, they are of a dual kind. She brings proceedings seeking a declaration that Ian holds the deceased's estate, and alternatively the St Mary's residence on constructive trust for herself and Wayne as tenants in common in equal shares. In the alternative she seeks an order for provision out of the estate pursuant to Succession Act 2006. Wayne's proceedings seek an extension of time for him to commence proceedings under the Succession Act for an order for provision out of the deceased's estate. Executor's Relevant Duties 11The duty of an executor in a small estate when confronted with claims of this sort was long ago identified by Nicholas CJ in Eq and Williams J in In the Will of W.F. Lanfear (Deceased) (1940) 57 WN (NSW), cited with approval by Hutley JA in Vasiljev v Public Trustee [1974] 2 NSWLR 497. The duty is stated in the following terms: In an ordinary case, especially where the estate is a small one, it is the duty of the executors either to compromise the claim, or to contest it and seek to uphold the provisions of the will. For that purpose they should place all the relevant evidence before the Court relating, not only to the case generally, but to any particular circumstances which the Court should take into consideration relating to any particular gift in the will. 12The duty both to uphold the will, and compromise the claims has been constantly reaffirmed in the cases: of Application of Ferdinando Scali [2010] NSWSC 1254 per Brereton J; McMahon v McMahon [1985] NSWSC (Unreported, Young J, 2 August 1985); and Bartlett v Coomber [2008] NSWCA 100. 13The case has evolved in a constructive way with the intervention of the lawyers on all sides. They represent the parties, who have competing personal interests but yet common interests in the welfare of Wayne. 14The Court must consider the whole picture, including: the nature of the claims that are being brought against the estate, the prospects of extensive litigation against it and the competition that will exist in these two family provision claims against the estate. The Court also needs to look forward to what would happen if the Court were not to approve the trustee accepting the proposed offers, and what indeed would be likely to happen at the end of this litigation. Michelle's and Wayne's Proceedings 15Michelle's constructive trust case arises from a series of conversations. Her mother and her father said to her in early 2004: If you stay here to look after Mum and agree to look after Wayne for the rest of his life then me and your mother are willing to put in our Wills that you and Wayne will get the house. 16And on another occasion she claims that her father said to her: Well, I spoke to your Mum and we've decided that if you move in with us and so long as you look after your Mum and Wayne because you know he won't be able to live by himself, then Mum and I will give you and Wayne half the house each. 17She says she acted upon this understanding. She says she: moved into the house; applied much energy to looking after Wayne; and expended monies, between 2006 and 2011 to improving and painting the house, adding conveniences for Wayne and herself to it, restoring and painting surfaces and constructing a pool. 18Her case is that she took the matter further by preparing her mother and father's wills, the effect of which I have stated. According to her, after Mrs McCormick died, Mr McCormick changed his will without Michelle's consent. She makes clear in her affidavit that she disagreed with her father's decision, as inconsistent with her prior understanding of their arrangements. 19According to Michelle her father's last will was not only inconsistent with the promise she says she had acted on, but it set up a structure in which Ian was the trustee of the will administering funds on behalf of Wayne. According to her evidence, Wayne was not entirely happy about this structure. 20Michelle's alternative claim is for provision under the Succession Act. The substance of the claim for provision is that these promises were made but she only received a share of residue and a right of residence of two rooms in the house. Given her overall financial position hers would be a reasonably arguable claim for provision. The current will provides very little portable financial provision for Michelle. 21Wayne's case is based on his intellectual disability. He refers to conversations he had with his parents about living with Michelle and the house being left to them both. Again, the material suggests that he would have a reasonably arguable claim for provision out of the estate. The will arguably does not provide enough flexibility for his circumstances either. 22Michelle's constructive trust claim, if successful, is consistent with her receiving relief by way of a tenancy in common in the St Marys property, rather than a joint tenancy. This is relevant to one of the issues upon which judicial advice is sought. Estate Assets and Costs Incurred 23I now come to the current settlement proposals. The property where Wayne and Michelle are living, if it were sold, would generate net proceeds of about $350,000. But as a result of the litigation a number of legal costs have been incurred; costs that will need to be met. If the litigation were to proceed the following costs would probably come out of the estate: (1)Executor's legal costs so far of $23,000; (2)Further legal costs of another $4,000; (3)Legal costs for Wayne and his current tutor Terry of $20,000; (4)Legal costs of Michelle of $30,000; (5)Further possible legal costs of Wayne of $1,000; (6)Further possible legal costs of Michelle $1,000; (7)Legal costs on sale of the property $2,000; (8)Wayne's removalist's expenses of $2,000; (9)Real estate Commission of $10,500. 24These costs sum to $93,700 and must be met from somewhere. A balance of $256,300 would remain upon a sale of the St Mary's property at $350,000. The parties cannot mortgage the property to cover this amount of costs. But a smaller amount of debt over the property might be able to be managed. 25Wayne's tutor, Terry McCormick ("Terry") believes another property could be purchased for Wayne and Michelle. After purchase expenses he believes a property of the market value of between $220,000 and $250,000 could be purchased and that Wayne and Michelle may be able to borrow up to $50,000, secured by mortgage, to help improve such a place. 26Terry believes this is the best alternative for Wayne. It can be compared with the other alternatives. The first is attempting to rent. If the St Mary's property were sold, and the $256,000 realised and divided between Michelle and Wayne, his researches shows that rental of equivalent premises would be about $20,000 a year. The capital would last five or six years. If he took the whole of the estate it would last only about 12 or 13 years. This is clearly unsatisfactory. 27If the estate was held on trust and turned into cash, that cash is likely to run out in meeting the costs of care and accommodation throughout Wayne's life. The estate certainly is not large enough to fund private care for Wayne for very long. 28Considering the contest between the parties, considering the amount in this estate, the likely outcome of the Family Provision Act proceedings, and their available resources, a proposal structured generally along the lines that are proposed in the joint offer is one which accords most closely with the probable outcome. It is therefore one that the executors would be less justified in opposing. However, some of the details of the proposal are of residual concern to the Court. Michelle and Wayne's Joint Offer of Compromise 29In his Statement of Facts filed in relation to the judicial advice application Ian set out Michelle's and Wayne's joint offer in the following terms: On 28 June 2013 and 5 July 2013 each of the plaintiffs by their respective solicitors served an open offer of settlement in the following terms (collectively, the joint offer): 1. In lieu of the provision made for Michelle Cooper and Wayne McCormick under clauses 1.6, 1.7 and 1.8 and the provision made for the Ian McCormick and Alan McCormick under clause 1.8 of the Will, the Plaintiffs Michelle Cooper and Wayne McCormick receive the whole of estate realty as joint tenants. 2. Each of Ian McCormick and Alan McCormick to have a legacy of $2,000, such amount to be charged over the estate realty. 3. The joint tenancy referred to in paragraph 1 above is not to be severed whilst both Michelle and Wayne are alive. 4. The costs of the Defendant on the indemnity basis are to be paid out of the residuary Estate of the Deceased. 5. To the extent there is a shortfall in residuary Estate satisfying the Costs Order in paragraph 4 herein, the Plaintiffs to pay the balance of the Defendant's costs. 6. No order as to the costs of the Plaintiffs, Michelle Cooper and Wayne McCormick, to the intent that each bear his or her own costs. 7. The Court notes the agreement (made in consideration of each consenting to the orders herein) of the parties: a. In the event the Estate realty is to be sold for any reason, a substitute property will be purchased by Michelle Cooper and Wayne McCormick to be used as their residence. b. Any property (or further property) bought pursuant to the agreement in paragraph 7(a) is to be purchased where possible by Michelle Cooper and Wayne McCormick as joint tenants. c. Any joint tenancy will not be severed during the lifetime of either Michelle Cooper and Wayne McCormick whilst both are alive. d. In respect of any property held as tenants in common, no application for statutory sale will be brought whilst both Michelle Cooper and Wayne McCormick are alive. e. If Michelle Cooper predeceases Wayne McCormick and Wayne McCormick becomes the sole registered proprietor of any property by virtue of it being held by joint tenancy, Wayne McCormick agrees to leave his interest in the estate realty (or any substitute realty) to Michelle Cooper, or if she predeceases him, to her children. f. In the event any interest in any property or further property is held by Wayne McCormick as a tenant in common, he agrees to leave his interest in that realty to Michelle Cooper or if she predeceases him, to her children. g. If the Estate realty (or any substitute realty) is held by way of tenancy in common, then each of Michelle Cooper and Wayne McCormick grant to the other a lifetime right of residence in that party's interest in the tenancy in common. h. This agreement binds not only Michelle Cooper and Wayne McCormick but their Executors, Administrators, Heirs and Assigns. 30Particular features of this offer stand out: that the joint tenancy provided for Wayne and Michelle is not to be severed; there is no protection against encumbering Wayne's interests; and Michelle is in de facto control of Wayne's financial affairs. 31Ian's reservations about accepting the joint offer are that it does not protect Wayne's security of accommodation in future years. Specifically, it does not provide for a situation in which Wayne and Michelle decide not to live together. Nor does it provide for Wayne's need to move into institutional or managed care. Nor does it allow Wayne to bequeath his interests away from Michelle or her children. The Issues and Concerns Raised at the Hearing 32The matter was argued on 16 August. The Court expressed concern on that occasion about two kinds of problems. One is the capacity of Michelle to encumber the property and, secondly, the incapacity of Wayne and Michelle to take their capital and leave one another if they fall out at some stage. This does not seem to be on the horizon at all but it is a possibility that must be taken account. Thirdly, there is the possibility that Wayne may need more intensive institutional care, which must be addressed. 33Due to the intervention of the legal advisors on both sides after 16 August, the first of those problems seems to me to have been largely overcome. It is now proposed that Michelle will apply to the NSW Guardianship Tribunal for appointment of herself as a financial manager for Wayne. She may or may not be appointed as financial manager. The Guardianship Tribunal may appoint someone else. At the end of the day if she is not a fit person to be a financial manager for reasons that are apparent to the Guardianship Tribunal, then she will not be appointed. Appointing a financial manager for Wayne as part of such a settlement seems to go a long way towards overcoming that concern. 34The other related concern about Michelle encumbering the property will be cured by an agreement that Michelle would agree to lodge a caveat to protect Wayne's interests in the realty through Wayne's financial manager. So Wayne's financial manager could lodge a caveat that protects Wayne's interest in the estate and a caveat will be lodged over Michelle's interests to protect Wayne's interests. And Michelle could be required to limit the circumstances in which she could encumber her interests in the estate only to paying costs associated with these proceedings or to financing the purchase and improvement of substitute realty. 35Such limitations seem to me, whether they are agreed upon, to be reasonable in the sense that if they were proposed in litigation, they are the kind of orders that the Court may well be likely to make to balance the interest of Wayne and Michelle. Therefore, this Court would now be justified on that subject in saying by way of judicial advice to the executor that the executor would be justified in accepting such terms. 36But I have remaining concern on the second and third issues: what happens if Wayne and Michelle fall out or he has to go into institutional care. But the proposal as it still stands from Michelle and Wayne is that in lieu of the provisions of their father's will, the property shall be given as joint tenants to Wayne and Michelle, or if not as joint tenants as tenants in common with a provision preventing severance. The Court's Advice and Comments 37I am not prepared to advise the trustee that he would be justified in entering into terms of settlement containing such provisions. I say so for several reasons. Looking at Michelle's claim for constructive trust first and then at the Succession Act family provision claim second, the reasons for this appear clearly. Even if Michelle's constructive trust claim were successful the minimum way that a Court would give relief would be to make a declaration that Wayne and Michelle had equitable interests as tenants in common in the property concerned. 38I see nothing in the promises that were made, as deposed to by Michelle, to her by her parents which would justify as an integral part of what she is alleging that she is entitled to the house on Wayne's decease or to control the house to ensure that Wayne bequeath it to her children or indeed, to prevent, should she and Wayne fall out, them each going their separate ways if they were required to do that. 39To a large extent the conversations to which Michelle deposes fall short, as one might expect, of covering all those kinds of situations. To the extent that Michelle has an arguable claim in constructive trust, it is one that is far more arguable in respect of tenancies in common. 40Leaving all that aside, were Michelle and Wayne to be successful in their family provision claims a Court would need to fashion orders which would be satisfactory for the future of them both in substitution for the provisions of the will. Looking ahead to what a Court would be likely to do and therefore what a trustee would be justified in either accepting or opposing, it also seems to me that the provisions in the current offer which prevent severance of the joint tenancy and which would prevent Conveyancing Act 1919 66G proceedings being brought, would be provisions which the trustee would be justified in defending. 41Mr Ellison SC on behalf of Michelle and Ms Hill on behalf of Wayne have suggested that these particular proposals give security to both Wayne and Michelle. That is true. They do give some security to Wayne and Michelle in that Wayne and Michelle would be less exposed to interference by third parties, who may wish to persuade them to sell their share and disturb the current secure arrangement between them. However, it seems to me that the proposal put forward places too high a price upon that security. It may be able to be provided in other ways. 42The concern the Court has is that such clauses will become impossible future burdens upon Wayne, especially where he requires institutional care or where he and Michelle fall out, should that ever happen in the future. 43Wayne has to be in a position where he can in effect take and use his capital. Any provision, which prevents that occurring, is not one, which the Court should advise the trustee to accept. But it is not for the Court to re-fashion the parties' agreement. The Court is only here now indicating to the trustee whether the trustee would be justified in accepting these terms. The advice of the Court is the trustee would not for these reasons be justified in accepting those terms. 44However, the Court would add a number of observations. Wayne has now proposed by way of an amended offer that the joint tenancy would only be severed by Michelle or Wayne if Wayne needs to be moved into institutional care and requires the capital and income of his share in the estate, realty or substitute realty, to be applied to or paid for such institutional care and services, where both Michelle and Wayne agree. But it seems to me that even this is too limited. It does not encompass other situations that might arise including Wayne and Michelle falling out in circumstances where he does not need to go into institutional care, or if he simply would prefer some alternative accommodation arrangement, or if he for some reason needs to realise capital for some particular care or medical, or health need. 45An alternative approach may be simply to include a provision, accompanied by the appointment of a financial manager other than Michelle, which says that the joint tenancy may be severed in circumstances where a third party such as a financial manager agrees that it is in Wayne's best interests for it to be severed. The advantage of such a provision is that it allows a degree of flexibility to the consideration of the circumstances in which severance may occur, but it puts the decision beyond the pure control of either Wayne or Michelle. If that financial manager was someone other than Michelle, or was some person who they both agree they had confidence in, a satisfactory mechanism may be able to be achieved to allow capital portability for Wayne in many necessary situations. 46The parties are not far from reaching what seems to me to be an agreement that the Court could say the trustee is justified in accepting. But as they now stand for the reasons indicated, in my view the trustee would not be justified in accepting the present terms, and I so advise. 47But I will add a footnote for clarity. The competing proposed offer, which was made after oral argument on behalf of Ian, involved Michelle receiving a quarter share and Wayne a three-quarter share as tenants in common of the estate. In my view the trustee would be justified in accepting the offers that were made by Wayne and Michelle as they now stand in relation to the shares of the estate and that my concern is more about the mechanics of severance than it is about the shares. 48I say this for two reasons. One, Michelle's case seems based upon a constructive trust of equal shares, it seems to me to be reasonably arguable that she would end up with a half share of the St Mary's property. Secondly, a not improbable outcome of Michelle and Wayne's competing family provision contests, where there is to be expected to be a considerable future care burden upon Michelle, is the Court recognising her having half share in the property. In my view, a trustee or executor in Ian's position would be quite justified in accepting that part of the offer as it now stands. 49The matters of the Court's precise concern should be identified in the current joint proposal. The issues of non severance of a joint tenancy and prevention of the bringing of an application for statutory sale under Conveyancing Act 1919 s 66G, are found in clauses 7(c) and (d) of the current proposal from Wayne and Michelle. Clause 7 provides as follows: 7. The Court notes the agreement (made in consideration of each consenting to the orders herein of the parties: a. In the event that the Estate realty is to be sold for any reason, a substitute property will be purchased by Michelle and Wayne to be used as their residence. b. Any property (or further property) bought pursuant to the agreement in paragraph 7(a) is to be purchased where possible by Michelle and Wayne as joint tenants. c. Any joint tenancy will only be severed during the lifetime of either Michelle or Wayne whilst both are alive if Wayne needs to move into institutional care and requires the capital and/or income of his share in the Estate realty or substitute realty to be applied to payment of such institutional care or services in which case both Michelle and Wayne agree to sign and do all things necessary to effect a severance of the joint tenancy and a sale of the Estate realty or substitute realty. d. In respect of any property held as tenants in common, no application for statutory sale will be brought whilst both Michelle and Wayne are alive, unless Wayne needs to move into institutional care and requires the capital and income of his share in the Estate realty or substitute realty to be applied to payment of such institutional care or services in which case both Michelle and Wayne agree to sign and do all things necessary to make such application. e. If Michelle predeceases Wayne and Wayne becomes the sole registered proprietor of any property by virtue of it being held by joint tenancy, Wayne agrees to leave his interest in the Estate realty (or substitute realty) to Michelle, or if she predeceases him, to her children. f. In the event any interest in Estate realty or substitute realty is held by Wayne as a tenant in common, he agrees to leave his interest in that realty to Michelle or if she predeceases him, to her children. g. If the Estate realty (or any substitute realty) is held by way of tenancy in common, then each of Michelle and Wayne grant to the other a lifetime right of residence in that party's interest in the tenancy in common. h. This agreement binds not only Michelle and Wayne but their executors, administrators, heirs and assigns. i. Within 4 weeks of the making of the orders herein, Michelle will make an application to the NSW Guardianship Tribunal for the appointment of herself as a financial manager for Wayne. j. Michelle consents to any financial manager of Wayne: i. lodging a caveat to protect Wayne's interest in the estate realty or any substitute realty purchased pursuant to paragraph 7(a) herein ("Wayne's interest"); and ii. lodging a caveat over Michelle's interest in the estate realty or any substitute realty such caveat intended to protect Wayne's interest under the agreement referred to in paragraph 7(k) herein. k. Michelle will not encumber her interest in the Estate realty (or any substitute realty) save as for security for a loan to pay for any costs associated with these proceedings or to finance the purchase of substitute realty. 50Clauses 7(c) and (d) are not acceptable to the Court for the reasons given. 51Additionally, clauses 7(e) and (f), may mean that Wayne may not be able to fully deal with the property during his lifetime. There is at least ambiguity about whether Wayne may be able to deal with the real estate in his life in a way inconsistently with giving the property to Michelle or Michelle's children on his death. It seems to me that these clauses must also be clarified to make it absolutely clear that Wayne is in a position to realise his share consistently with his rights under Conveyancing Act s 66G to realise his capital, turn the real estate into cash, and that such cash proceeds will be totally unencumbered by any obligation to Michelle or her children. 52Once that is done in satisfactory terms, the Court may well be content that its general concerns have been addressed. Amendments 21 October 2013 - Changed "disagreement" to "agreement" Amended paragraphs: 43 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 29 August 2013