Australia: Inheritance disputes – 5 important lessons from recent case law

Recent significant case law highlights important lessons that are learnt and relearnt in relation to inheritance disputes. This article will glean 5 important lessons from recent NSW Supreme Court (Court) cases and a recent High Court case.

1. Preventing the Court recognising an invalid Will

Inheritance disputes often relate to whether a deceased person's last Will was a valid Will.

The validity of a Will can be the subject of different legal challenges. These include, for example, a claim that the Willmaker lacked the required testamentary (legal) capacity, did not know and approve the entire contents of the Will or was subjected to undue pressure to favour particular people or organisations. There may also be suspicious circumstances surrounding the making and execution of the Will which need to be investigated to ensure the Will is valid. There may also be questions about whether the Will was correctly signed and witnessed.

The Court's inherent and statutory power to make grants in relation to a deceased person's estate has recognised that disputes do arise about the validity of a Will/testamentary document. The caveat procedure has long been used by the Court to delay or prevent possibly invalid Wills/testamentary documents being given legal recognition prior to a reasonable investigation about the validity of the document. A caveat is a legal document that when filed in Court is a warning to others that there are legal issues that require investigation. It can be considered to be a type of temporary injunction. There are three types of caveat and each type serves a different purpose. Filing a caveat is often one of the first steps taken by a person with legal standing to initiate legal proceedings in an inheritance dispute. A caveat can only be filed prior to the Court making a grant in an estate.

The legislative scheme and the statutory and procedural basis for caveats in the probate context was recently comprehensively reviewed by Justice Lindsay in Re Estate Capelin, deceased [2022] NSWSC 236. In an important development, Justice Lindsay clarified an earlier judicial comment about the effect of filing a "general caveat" pursuant to the Court's probate rules. Many earlier cases decided that a caveat could only be maintained when challenged by another person/party interested in the relevant deceased estate if the person that filed the caveat produced sufficient evidence to the Court to establish "a prima facie case" for opposing the Will being admitted to probate. It was interpreted in some cases to place a heavy burden of proof on caveators with a corresponding risk of an adverse costs order.

Justice Lindsay by reference to case law, especially recent case law decided by Justice Hallen, commented that the meaning of a prima facie case depended upon the context and purpose of its use. In the probate context, a prima facie case was simply a convenient way of referring to the matters set out in the Court probate rules, which require a person filing a caveat, if challenged, to provide evidence to the Court to show that there is a doubt as to whether the Court should make a grant in the estate. This means that the burden of proof is not as great as had previously been determined by cases focussing on the term "a prima facie" case.

2. Required legal capacity to make a Will

A Willmaker must have the required testamentary (legal) capacity at the time they give instructions for their Will and when they sign their Will. A recent NSW Court of Appeal (Court) decision Starr v Miller [2022] NSWCA 46 involved an appeal by a daughter against the decision at first instance by Justice Hallen ([2021] NSWSC 426) that the deceased had testamentary capacity at the required times.

The Court dismissed the appeal with the daughter being ordered to pay the estate's costs as well as her own costs. The Court approved the approach adopted by Justice Hallen. It was noted by Justice Hallen at [462] that:

The date of the Will that was challenged was 16 July 2012. The solicitor that drafted the Will was required to give evidence in 2020. The solicitor's evidence was inconsistent in cross-examination. However, the Court was satisfied that the contemporaneous records prepared by the solicitor at the time the Will was prepared and signed in 2012 supported his overall evidence of 'the required' capacity. The case again highlights the importance of good file notes, correspondence and even voice or video recordings where the Willmaker may be challenged on any grounds, especially on the grounds that the Willmaker did not have the required testamentary capacity.

3. Correct person to commence legal proceedings

Inheritance disputes often involve a need or desire to commence legal proceedings to recover assets for an estate that were disposed of by the deceased during their lifetime in circumstances where the named executor(s) refuse to commence the legal proceedings. A further complicating factor is that it is sometimes the case that the legal proceedings need to be commenced against the named executor(s) because of alleged wrongdoing by them during the deceased's lifetime.

The case of White v Tait [2022] NSWSC 460 considered who had the right to commence legal proceedings to recover assets for an estate. A deceased mother left her estate to two of her three children and named those two children as executors. The third child, a daughter named Anne, was left out of the Will.

Anne commenced family provision legal proceedings for a share of her mother's estate, the most common type of inheritance dispute. The basis of Anne's legal proceedings was that her mother's Will should be changed by the Court to provide for Anne.

Anne also commenced separate proceedings to be appointed the representative of her mother's estate so that she could continue legal proceedings on behalf of her mother's estate asking her two siblings (who were the executors and beneficiaries under her mother's Will) to repay moneys they had allegedly improperly received from their mother during their mother's lifetime.

In a sensible and practical judgment, Justice Parker first looked at the circumstances in which the Court can authorise someone to bring legal proceedings on behalf of an estate. He then explained why in this estate he did not need to make such an order.

The Court noted the usual rule that only the executor or administrator of an estate could pursue legal proceedings for the benefit of the estate. However, it was noted at [12] that in exceptional circumstances the Court could authorise someone to commence legal proceedings on behalf of the estate.

In a case, such as the present, where Anne had no present interest in the estate but could obtain an interest if her family provision proceedings were successful, Justice Parker, on the basis of past case law authority, would impose two conditions before authorising Anne to commence proceedings on behalf of the estate. The conditions noted at [14] were:

• if Anne was authorised to commence proceedings for the estate, she would need to provide security for the defendant's costs of those proceedings; and
• Anne's lawyer would need to certify her claim "was a proper one with reasonable prospects of success."

In the particular circumstances of this estate, Justice Parker decided against authorising Anne to bring legal proceedings on behalf of the estate. His reasons included that some of Anne's claims could be dealt with by seeking to clawback assets as part of notional estate in her family provision legal proceedings.

4. High Court on de facto relationships

Inheritance disputes often involve a person claiming to be a de facto partner of the deceased at the date of the deceased's death.

Establishing a de facto relationship has significant benefits in the context of a deceased's estate. Essentially, where the relationship is established by evidence, the surviving de facto partner is treated the same as a married partner for the purposes of intestacy law (no Will or partial or completely invalid Will) and family provision law.

Under NSW intestacy law, the surviving de facto partner usually inherits the bulk if not the whole of the deceased's estate, depending on the size of the estate and the make-up of the deceased's family at the date of the death.

Under NSW family provision law, establishing a de facto relationship elevates the eligibility status of the surviving de facto partner. This means any family provision claim is less risky in terms of both the matters to be proved and the costs incurred by the de facto claimant. Whether there is a Will or an intestacy, the surviving de facto partner still needs to establish that they are in financial need of provision or further provision from their deceased de facto partner's estate.

Conversely, other close family members/beneficiaries are disadvantaged where a person establishes they were in a de facto relationship with the deceased at the date of the deceased's death.

A further complicating factor is that often de facto relationships are not registered or formalised. There is no document similar to a marriage certificate which can prove the existence of the de facto relationship. Therefore, establishing a de facto relationship involves providing detailed evidence about the nature of the relationship, including whether there was one common residence, whether there were joint finances, whether the parties to the relationship were viewed as a couple by family and friends, whether the parties to the relationship shared the same bedroom and had a sexual relationship. A number of the relevant factors which evidence a de facto relationship may only be known fully by the parties to the relationship and not by family and friends.

It is therefore not surprising that a significant number of inheritance disputes relate to whether or not a person was in a de facto relationship with the deceased at the date of the deceased's death.

In May 2022, the High Court handed down a decision in the case of Fairbairn v Radecki [2022] HCA 18. The case concerned the meaning of a 'breakdown of a de facto relationship' for the purposes of making a family law property settlement. The High Court was realistic about relationships in the modern world. It is not simply a matter of where the parties to the relationship lived. In order to determine whether a de facto relationship continued, one had to consider all the factual circumstances of the relationship to determine whether the parties to the relationship were committed to sharing a life together. In the family law context, a de facto relationship could exist if there was a shared lifetime commitment by the parties notwithstanding they were no longer living together, either voluntarily or involuntarily (for example, where one party was required to move to an aged care residence).

In the context of inheritance disputes, it is likely that the High Court decision in Fairbairn v Radecki will be the focus of some people either trying to prove or disprove the existence of a de facto relationship at the date of the deceased's death.'

5. Settlement agreement is a binding contract

The case of Fatseas v Fatseas bht Basha [2022] NSWSC 402 confirms that a settlement agreement (evidenced by a Heads of Agreement document) signed after a mediation of an inheritance dispute is binding on all parties to the agreement. However, even though a settlement agreement is a binding contract, interpretation issues in relation to the contract terms can still arise and did so in this case.

It is so often the case that a settlement is reached after a protracted and exhausting mediation. Documenting the settlement agreement so that it can be immediately signed by the parties is to ensure that no party attempts to later undo the settlement. To avoid further expense and delay, it is important that draft possible settlement terms are prepared prior to the mediation. This will ensure that the finalisation of the terms is not such a challenging and time-consuming exercise at the end of the mediation. The final settlement agreement should be carefully reviewed by the parties, the legal representatives, and the mediator to ensure it clearly reflects the agreement.

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.