In the case of the Estate
of Sullivan, Carroll & O'Dea assisted a beneficiary of
the estate in clarifying a Heads of Agreement that was settled by
the parties prior to Carroll & O'Dea being engaged.
The deceased died leaving an estate mostly comprising assets of
a "live" and ongoing nature.
The beneficiaries to the estate were proposed to receive
dividend distributions from a number of companies that formed part
of the Estate. The executor was also a director of these
A beneficiary commenced proceedings under the Succession
Act 2006 (NSW) to alter their testamentary entitlement.
Following a mediation ordered by the court (the family provision
phase of the proceedings) the parties recorded their agreement in a
Heads of Agreement.
Heads of Agreement
A dispute between the parties arose as to the meaning of certain
terms in the Heads of Agreement.
The Heads of Agreement were handwritten at the conclusion of the
mediation and compiled 2 pages of agreed terms that set out the
income that the beneficiary was to receive into a trust account set
up for his benefit. When preparing consent orders for the court the
proposed order setting out the Heads of Agreement was substantially
different in its wording. The main point of difference was
The beneficiary understood on the Heads of Agreement that the
settlement allowed for him to receive on trust 26% of the
income of a company that formed part of the estate;
The executor understood that the settlement allowed for 26%
of dividends declared by the company to be paid on trust
for the benefit of the beneficiary.
The issue relevant to these two alternative views is that by
receiving 26% of the income in the company in point 1, the
beneficiary was given certainty that he would receive income on an
ongoing basis. However, if he was to receive 26% of dividends
declared by the company as in point 2, then he could potentially
receive no income if the directors in the company decided not to
declare any dividends from the income the company received.
This question could not be resolved and the matter went to
At hearing, submissions were made by the beneficiary to adopt
clear and concise drafting, which was accepted, and further to
adopt wording that would ensure he was to receive 26% of the income
of the company that formed part of the estate, which was not
In circumstances where the beneficiary would not receive 26% of
the income in the estate a further argument was advanced by the
beneficiary to limit the discretionary power of the executor, in
his capacity as director, to ensure that dividends to the value of
26% of the company's income would be declared. The executor
disputed this on the basis that to place any restriction on his
discretion as a director would be contrary to the Corporations
Act 2001 and contrary to his obligations as a director of the
company that formed part of the estate.
Whilst this potentially gives rise to a conflict of interest in
that the executor has fiduciary obligations to the beneficiary,
that could be contrary to the obligations the executor would have
as a director of the company, the court accepted that there could
be no limitation placed on a director of a company in this way.
From a practical perspective, this could result in the executor not
declaring dividends of the company and therefore not paying any
income to the trust of the beneficiary but his honour was careful
to warn the parties that they must make this arrangement work in a
fair and equitable way or otherwise risk further litigation.
This case is a reminder that in an estate where there are
relevant and obvious complexities, including potential conflicts of
interests in executor's duties, any agreement reduced to a
Heads of Agreement be done with the necessary attention to detail
and without ambiguity.
Too often it is the domain of legal drafting that plain language
is set aside in favour of overly complicated and legalistic prose
which in this case led to significant dispute and required
clarification of the court. If simple language was preferred and
employed in the original drafting of documents, litigation could
have ultimately been avoided.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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There are several requirements that must be completed by an executor before the distribution of assets to beneficiaries.
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