By Hayley Boud

In 2015 the High Court of New Zealand held two executors of a will personally liable for $335,000 even though the executors had distributed the deceased’s property in accordance with her will.

AB v RT [2015] NZHC 3174

Facts
In that case, the value of the estate was approximately $2.4 million. Under the will, the executors would receive approximately $999,000 and a trust set up for the deceased’s granddaughter would receive $864,000. The deceased’s daughter would receive only $25,000.

The deceased’s daughter was not advised of her mother’s death until six months following probate by a letter from the lawyers of her late mother’s estate. Believing she was entitled to more, the daughter commenced proceedings in the High Court under the Family Protection Act 1955 (the Act) against the executors. The daughter claimed that her late mother had failed in her moral duty to make adequate provision from her estate for her proper maintenance and support.

The daughter also claimed under section 49 (1) of the Administration Act 1969, asserting that the executors had distributed nearly all of the estate before notifying her of her mother’s death and part of the estate prior to six months from the date of probate. As such, she claimed the executors were personally liable to pay her any amount awarded by the court for her proper maintenance and support.

The executors claimed that they had only partially distributed the estate prior to six months from the date of probate and were therefore still protected under the Administration Act. The executors also felt that it was their duty as executors to distribute the estate in accordance with the deceased’s express wishes under the will.

Issues
The issues for determination were as follows:

Did the daughter’s bequest of $25,000 amount to a failure of the deceased of her moral duty to make adequate provision from her estate for the daughter’s proper maintenance and support?
If yes, what amount would sufficiently redress that breach of moral duty?
If an order is made in favour of the daughter, are the executors personally liable for such sum?

Relevant legal principles

Section 4(1) of the Act states that, “if any person…dies…and in terms of his/her will…adequate provision is not available from his/her estate for the proper maintenance and support of the persons by whom…application may be made under this Act, the court may, at its discretion…order that any provision the court thinks fit be made out of the deceased’s estate for…those persons”.

In Little v Angus [1981] 1 NZLR 126 (CA) at 127, the Court of Appeal established that the inquiry is as to whether there has been a breach of moral duty under s 4 of the Act is to be judged by the standards of a wise and just will-maker. The size of the estate and any moral claims on the deceased’s property are highly relevant.

In Re Leonard [1985] 2 NZLR 88 (CA) at 92, the Court of Appeal highlighted that the required breach must go beyond unfairness and it must be shown that the applicant is in need of maintenance and support. The question as to whether the will-maker breached their moral duty has to be determined in light of all the circumstances including social attitudes as to what should be expected of a wise and just will-maker in the particular circumstances.

In Williams v Aucutt [2000] 2 NZLR 479 (CA) at [52], the Court determined that “support” included sustaining and providing comfort and not merely financial. The court recognised that a child needs to feel recognised as belonging to the family and of having been an important part of the overall life of the deceased.

Case law has shown that courts take a conservative approach to awards under s 4 of the Act taking into account the will-maker’s wishes. Case law has also shown that where a moral duty has been established, the amount awarded involves a difficult value judgement. In each case the courts have considered the size of the estate and competing claims.

In Re Leonard [1985] 2 NZLR 88 (CA) at 93, the court stated it is unwise to attempt to state as a general principle where the line between duty and no duty is to be drawn. Each case in a sense calls for the making of a value judgment. The court further stated that there is difficulty in assessing the amount required to remedy to the breach of duty and is not a simple mathematical or scientific calculation but is ultimately a matter of judgement which could yield a claimant 33%, 29% or 10% of the estate. As such, the amount awarded must be justified not with reference to precedent, but with reference to principles relevant to the facts of the specific case.

It is also important to note that under section 5 of the Act, the court may consider the conduct of the applicant, “The court…may refuse to make such an order in favour of any person whose character/conduct is or has been such as in the opinion of the court to disentitle him to the benefit of such an order”.

As such, the nature of the relationship between the deceased and the claimant is relevant. It has been noted by courts that parent-child relationships occupy an important societal mantle. However, the Court of Appeal in Flathaug v Weaver (11) highlighted that for the purposes of claims under the Act, the actual nature of the relationship is more important than any abstract societal importance placed upon particular relationships. While the Act recognises that a parent’s obligation to provide for both the emotional and material needs of his/her children is ongoing, that obligation is largely defined by the relationship which exists between the parent and child during their lives.

Where the child and parent are estranged, the assessment of the moral duty owed by the deceased to the child becomes complicated. Although the nature of relationship has a bearing on the award, the need to provide proper maintenance and support is not extinguished due to estrangement. An estrangement serves to reduce the deceased’s moral duty but does not disqualify a claimant (unless there are other very strong claims on a relatively small estate or the applicant has been guilty of disentitling conduct).

However, Justice Blanchard in Williams v Aucutt warned that the courts must pay sufficient deference to the deceased's testamentary freedom, “the Court's power does not extend to rewriting a will because of a perception that it is unfair. Testators remain at liberty to do what they like with their assets and to treat their children differently or to benefit others once they have made such provisions as are necessary to discharge their moral duty to those entitled to bring claims under the Family Protection Act.”

Section 11 of the Act permits a generous inquiry to be made of a wide variety of sources to determine the will-makers wishes, “…the court may have regard to the deceased’s reasons…for making the dispositions made by his will, or for not making any provision…for any person; and the court may accept such evidence of those reasons as it considers sufficient”. This allows a court to take into consideration statutory declarations made by the will-maker explaining their reason for treating children differently.

Judgement

Breach of moral duty The court determined that there was a relationship that naturally exists between mother and child. As such, there was a duty of deceased to provide for the proper maintenance and support of the daughter. The court concluded this duty had been breached. However, the relationship between mother and daughter had been estranged for many years. Therefore, the court had to take the estrangement into consideration when establishing the amount required to remedy the breach.

In this case the daughter had put forward medical evidence that showed she had been mistreated by her father during her childhood and that her parents had disapproved of her marriage, resulting in the estrangement. The court held the effect of this elevated the moral duty owed to the daughter by the deceased. A wise and just will-maker in the deceased’s position would not have effectively shut her daughter out on account of an estrangement caused by the deceased’s disapproval of her marriage, particularly given the daughter’s difficulties at the time of her youth.

Therefore, the court concluded that the extent of the moral duty owed to the daughter is slightly elevated compared to other instances of parent-child estrangement. However, the court also took into consideration that the estrangement had been vigorously maintained by the daughter and deceased for several decades. As such, the court decided that the elevation should be conservative.

Amount of award
The court considered not only the cause of the estrangement in determining the amount of award necessary to remedy the breach but also the size of the estate which amounted to approximately $2.4 million. The daughter received approximately $25,000 which amounted to just over 1% of the estate. The court held the view that in this case, 1% does not provide proper support in a manner consistent with the deceased’s moral duty towards her daughter, irrespective of the estrangement.

The court also took into consideration the fact that the timing of informing the daughter her mother’s death was to prevent the daughter bringing a claim against the estate. The court determined that the daughter was justified in feeling unfairly excluded from her mother’s estate.

Furthermore, the court considered the financial situation of the daughter. While she was asset rich, she was of modest cash means with more than half of her yearly income being derived from her husband’s work. The court considered the husband’s age will mean that he will not be able to support the daughter long-term through working.

The court considered Justice Simon France in Silbery v Silbery-Dee [2008] NZFLR 191 (HC), anything above 10% of the estate is unlikely to be awarded at the present time to a claimant whose claim is based only on “support”

However, the court held that the circumstances of this case justified an award greater than 10% and decided 15% ($360,000) was warranted. The court held the history of the relationship increased the moral duty owed to the daughter by the deceased, resulting in a claim that goes beyond “standard” support of an adult child who merely feels aggrieved by an insufficient legacy.

The court determined an uplift of only 5% was appropriate given that the main cause of the estranged relationship was due to the deceased’s husband rather than the deceased and as such, it would be inappropriate to compensate the father’s sins entirely through the estate of the mother.

The court also determined that there must be due deference for testamentary autonomy as far as possible. Although section 4(1) of the Act allows an intrusion into the testamentary autonomy, the courts powers do not allow a re-writing of the will. As the will made it clear that the deceased wished to limit her daughter’s legacy, the legacy must be corrected only to the extent of remedying the moral duty and no more.

Executors personally liable
Section 47 of the Administration Act 1969 protects an executor from liability for making distributions from an estate if the distributions were properly made. However, an executor cannot rely on the protection of section 47 if they improperly distributed some or all of the estate. A distribution is considered improper if it is:

not made in accordance with a trust, power or authority existing at the time the distribution is made;
before the expiry of six months from the date of grant of probate; and
after being served notice of a claim against the estate (or being made aware of the intention of a claim being brought against the estate).

In this case the executors partially distributed the estate nine days before the expiry of six months from the date of probate being granted. As such, the court held that the executors had lost the benefit of protection under section 47 of the Administration Act 1969.

A duty of even-handedness The daughter claimed that the executors were personally liable because they knew that there was a likelihood of a claim being made by her against the estate under the Act and they had deliberately waited for the six month period to almost expire before informing her of her mother’s death to prevent such a claim.

The court re-affirmed that there is no general duty on an executor to advertise the fact of death or to inform all potential claimants of the fact of the death. However, the court determined that there is a duty of even-handedness that extends to persons whose claims the executor ought to have anticipated. The court agreed that this case was precisely the sort in which the duty of even-handedness arose, given that the daughter was the deceased’s only daughter and she had received only 1% of the estate and the balance went to the granddaughter and to strangers.

The court held that it should have been abundantly plain that the daughter, as the deceased’s only surviving child and the recipient of 1% of the estate, would be entitled to make a claim, and further that that claim would likely be frustrated by distributing the assets prior to informing the plaintiff of her bequest. The court considered that a duty of even-handedness arose in the circumstances and the executors were in breach of such duty.

As a consequence of that breach, the court held the executors were personally liable for the amount of the award made in favour of the daughter.

Orders
The court held the daughter was entitled to $335,000 ($360,000 minus her $25,000 bequest) together with interest for 19 months to be paid by the executors personally or alternatively from the executors and the granddaughter’s trust.

Lessons learnt
Being an executor is not an easy task. If you have been appointed an executor of a will, we recommend you seek legal advice immediately upon the will-maker passing away so as to protect yourself from personal liability.

Courts are entitled to make provision out of the deceased’s estate where the deceased had a moral duty to provide for the applicant and the deceased failed in that duty. If you would like to intentionally keep an estranged family member out of your will, we recommend you seek legal advice on how to do that. This will not only ensure YOUR intentions are fulfilled upon your death but also prevent your family members fighting over your estate.

If you have been left out of a will (or you will receive less than expected) and you consider the deceased had a moral duty to provide for you, you may be entitled to bring a claim against the estate. We recommend you seek legal assistance immediately.

For further information, please call us on 07 838 0808 or email hayley@ghlaw.co.nz