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This article was originally published in LexisNexis' Retirement & Estate Planning Bulletin (2025) 25(2) REP 14.
Trustees tasked with administering long-standing life estates frequently encounter the challenge of reconciling rigid testamentary language with evolving beneficiary needs, particularly where aged care and residential transitions are involved. The Supreme Court's recent decision in Estate of Chaddock (Deceased) [2025] NSWSC 463 delivers timely and helpful guidance to trustees faced with the administration of life interests under aging testamentary instruments. The judgment is notable not only for its careful construction of the will but also for its pragmatic engagement with statutory trustee powers, particularly section 14DA of the Trustee Act 1925 (NSW) ("Trustee Act"), in the context of modern residential aged care arrangements.
Background
Dorothy Chaddock died in 1996, leaving a will dated 10 July 1989. The primary asset was the deceased's home at Merrylands (the "Merrylands Property"). The operative clauses of the will were clauses 3(a) and 4.
Clause 3(a) provided that the Merrylands Property was to be held (emphasis added):
"...for my daughter AUDREY FLORENCE CHADDOCK for and during her lifetime she maintaining the premises in tenantable repair keeping the same insured to the full insurable value paying all rates taxes and other outgoings affecting the same...and from and after her death UPON TRUST for such of my daughters as shall survive me and Audrey Florence Chaddock if more than one as tenants in common in equal shares PROVIDED ALWAYS AND I DECLARE that if any of my daughters shall have died in my lifetime or the lifetime of the said Audrey Florence Chaddock leaving a child or children surviving me and the said Audrey Florence Chaddock such child or children shall take and if more than one equally between them the share which his her or their deceased parent would have taken under this my Will had she so survived me and attained a vested interest.
Clause 4 stated:
"I DECLARE that my Trustees may upon a request in writing from my daughter ... sell my premises ... and out of the proceeds purchase another dwelling house or residence to be held by them together with any surplus moneys arising out of such sale and purchase upon the same powers and trusts and for the same persons as are hereinbefore declared in Clause 3 of the Will."
Audrey had lived in the Merrylands Property since birth and remained there into old age. By 2020, (then age 88) she was no longer able to live there independently and moved into a residential aged care facility. Audrey's attorney subsequently directed the trustee to sell the Merrylands Property pursuant to clause 4 of the will. The trustee sold the property and then entered into a deed of loan with Audrey (through her attorney) which provided for a loan to Audrey of $300,000 for the purpose of paying the balance of Audrey's RAD.
Issues
The dispositive intention of the deceased was plainly to provide Audrey with secure accommodation for life, but the deceased had not foreseen the practicalities of aged care in the 21st century. The legal questions that followed centred on the scope of the trustee's power and the proper treatment of the sale proceeds. The Court considered three central issues:
- whether clause 3(a) conferred on Audrey an equitable life estate or merely a personal right of occupation;
- whether clause 4 authorised the trustee to sell the Merrylands Property and the loan arrangement undertaken to apply proceeds to the RAD;
- whether the surplus moneys from the sale were held on trust for Audrey, as the life tenant, during her lifetime.
Was the interest a life estate or a mere personal right of occupation?
The Court found that clause 3(a) created an equitable life estate, not merely a personal right to occupy the Merrylands Property:
"[31] Clause 3(a) of the will requires the trustee to hold the Merrylands property 'upon trust ... for [Audrey] for and during her lifetime' subject to an obligation to maintain the property...The words 'upon... trust for [Audrey] for and during her lifetime' clearly indicate an intention to create an equitable life estate in the trust property in her favour."
Accordingly, Audrey, as the life tenant, had a proprietary interest which entitled her to occupy the property or derive income from it during her life, subject to certain obligations (repairs, insurance, rates). This distinction from a mere right to occupy was significant, as it informed the court's decision in relation to Audrey's entitlement to income from any replacement trust asset or surplus proceeds.
Was the RAD loan transaction authorised under the will?
Clause 4 of the will authorised the trustee to sell the Merrylands Property and "...out of the proceeds purchase another dwelling house or residence...". The Court found that this power did not authorise the trustee's loan of funds for the RAD:
"[35]...what this power authorises is the purchase by the trustee of another dwelling house or residence and not the transaction which was actually undertaken here, which involved the plaintiff making a loan or $300,000 to Audrey...funded from the proceeds of sale to enable her to pay the balance of the RAD.It was Audrey who acquired a right to occupy a unit in the retirement village pursuant to the R&A Agreement. The plaintiff acquired only the right to repayment of the loan under the Deed."
The important distinction was that it was Audrey, not the trustee, who acquired the right to occupy the unit in the retirement village. The trustee had instead entered into a different transaction entirely: a loan to Audrey, who then secured accommodation rights independently.
Statutory rescue: trustee powers under s 14DA of theTrustee Act
But all was not lost. Section 14DA(1)(b) of the Trustee Act came to the rescue. That section provides that (emphasis added):
"...a trustee may-
(a)purchase a dwelling-house for a beneficiary to use as a residence, or
(b)enter into any other agreement or arrangement to secure for a beneficiary a right to use a dwelling-house as a residence."
The Court endorsed a "liberal and beneficial construction" [37] of the section and found that it empowered the trustee to enter into the RAD loan arrangement:
"[39] In my view, the entry into and performance by the plaintiff of the Deed was authorised by s 14DA(1)(b), because the Deed is 'an agreement or arrangement to secure for [Audrey] a right to use a dwelling-house as a residence'. The word 'dwelling-house' is defined in subsection (5) to include part of a building designed for use as a residence and hence includes a unit in the retirement village. It is clear that it is not necessary for the trustee to acquire title to the relevant dwelling-house or the occupancy right, but rather it is sufficient that the trustee has entered into an agreement or arrangement to secure for the beneficiary that occupancy right. That is what has occurred in the present case. The payment of the balance of the RAD payable by Audrey under the R&A Agreement of $300,000 funded by the loan under the Deed secured to her the occupancy right to her room in the retirement village because it was a condition of obtaining that right that the RAD be paid in full."
Accordingly, the Court found that section 14DA(1)(b) covered exactly what the trustee had done. By lending Audrey money to pay her RAD, he had secured her the right to live in the aged care facility, a modern equivalent of a 'residence'.
Treatment of surplus sale proceeds
Post-sale, approximately $400,000 remained after partial funding of Audrey's RAD. The trustee proposed investing this sum for Audrey's benefit during her life, with capital preserved for the remaindermen. Some of the remainder beneficiaries had suggested that a proper construction of clauses 3 and 4 required the surplus proceeds be distributed to them.
The Court found that as the power in clause 4 had not been exercised, the concluding words of that clause (which required that any surplus moneys be held on the terms of clause 3), did not apply. This then led the Court to apply ordinary principles of trust tracing:
"[47] Nonetheless, on ordinary principles, where a trustee sells trust property and acquires other property with the proceeds of sale, pursuant to a power in the trust instrument or conferred by statute, the newly acquired property will form part of the trust fund to be held on the same trust as the property which was sold...so long as the trust property can be traced and followed into other property into which it has been converted, that remains subject to the trust..."
Thus, even though clause 4 did not apply, the surplus moneys and any investment income were subject to the same trust as clause 3: Audrey as the life tenant would receive the income for life, and the capital would pass to the remaindermen upon her death.
Key takeaways
Estate of Chaddockis an informative case for trustees grappling with outdated or rigid testamentary life estates. Key takeaways include:
- It is not always easy to identify whether a provision in a will confers a life estate in a property or a mere right of personal occupation. Words such as "upon trust for and during his/her lifetime" (as in this case) or "for his/her own use and benefit absolutely" or "use and occupy" will generally point to a life estate.
- The life tenant of a property is generally entitled to occupation of the property, or, if it is rented out, to the net income from doing so.
- Where the terms of the will are silent or constrained (e.g. permitting only the sale of the original property and the purchase of a substitute property), trustees should consider whether they can avail themselves of any of the statutory powers in the Trustee Act. As Estate of Chaddock demonstrates, for example, section 14DA can be utilised by the trustee to secure alternative accommodation – such as a loan arrangement to fund a RAD - even if that means the trustee does not acquire the legal title to the relevant dwelling-house.
- Trustees possessed of surplus proceeds arising from the sale of the original property subject to the life estate should keep in mind their obligation of prudence when investing the surplus moneys, and also the need when making investment decisions to preserve the proper balance of interests of the life tenant and remainderman.
- Trustees facing genuine uncertainty about the scope of their powers or the construction of the will can seek judicial advice under section 63 of the Trustee Act or declaratory relief. In Estate of Chaddock, the Court noted that the plaintiff-trustee had "...brought this proceeding reasonably, in order to clarify a question of construction of the trust instrument" and he received an order that his costs be paid from the life-estate trust on the indemnity basis.
Conclusion
Estate of Chaddock is a reminder that trustees are not necessarily confined to the provisions of a testamentary life estate, but can sometimes be assisted by the statutory powers in the Trustee Act. The Court endorsed the use of section 14DA(1)(b) of the Trustee Act to adapt a life estate trust to aged care funding regimes or refundable accommodation deposits that the testator did not or could not have foreseen.
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.
