Category: Asset Planning

The Law Reform (Testamentary Promises) Act 1949 (TPA) allows you to claim against the estate of the deceased person if they promised to leave you something under their Will but they don’t. The promise must be in exchange for services. Mowing lawns, driving them to the shops, working on a farm without pay, companionship and home cleaning are all examples of “services” that have been recognised under the TPA. The “promise” can be express, usually orally or in writing, or implied. The value can be explicit in dollar terms, but if not, the Court needs to assess the amount that should be awarded.  “Property” can be money, real estate or any other property.

Test

To make an award the Court needs to be satisfied:

• The applicant carried out services or performed work for the deceased during the deceased’s lifetime;
• The deceased either expressly or impliedly promised to reward the applicant;
• There is a connection between the services rendered or work performed and the promise; and
• The deceased failed to keep the promise in their Will or to otherwise pay the applicant.

Award

The award size must be reasonable in all the circumstances including the:

• Particular circumstances in which the promise was made, the services were carried out or the work was performed;
• Value of the services or work;
• Amount promised;
• Estate size;
• The nature and amounts of the claims of other persons in the estate, whether as creditors, beneficiaries, wife, husband, civil union partner, children, next-of-kin or others.

Example

Kevin Lock is a builder working in Hamilton.  He is asked to help Mrs Sand, a housebound elderly lady, by fixing her roof, which he does and is paid for.  Mr Lock gets along really well with Mrs Sand.  He lets her know he can help with any other tasks she needs and leaves his business card.  Mrs Sand calls up Mr Lock about once a month to do “odd jobs” around the house such as cleaning windows, fixing her TV and feeding her cat.  Occasionally he also stays for a cup of tea and a chat.  One day Mrs Sands says to Mr Lock “You are so helpful. What would I do without you? I’ll be sure to look after you in my will”.

After a year Mrs Sands needs to move to a rest home. Mr Lock helps coordinate with the rest home, move Mrs Sands into the rest home and ensures her house is secure.  He continues to visit her in the rest home, taking her for garden walks and talking with her.  The visits normally last for 1 to 2 hours.  Mrs Sands becomes frail and passes away peacefully with Mr Lock by her side.  At the funeral Mr Lock gives a eulogy.  Afterwards he talks to the lawyer for the estate who mentions Mrs Sands’ will left everything – her $900,000 house, KiwiSaver and share portfolio – to two charities.  Under the TPA Mr Lock was made a promise to be “looked after” in the will.  Because Mrs Sands did not specify the amount of the gift, the task for the Court is defining and valuing the  “services”:

• Roof fixing: Paid for during the deceased’s lifetime does not qualify;
• Domestic services: Odd jobs and window fixing are a valid claim;
• Feeding the cat: An intangible service.  The value depends on how much Mrs Sands appreciated this;
• Having a cup of tea with Mrs Sands: Companionship is a valid intangible service but it blurs into friendship;
• Helping Mrs Sands move to a rest home: Valid service;
• Companionship in the rest home: Again, potentially valid companionship service or alternatively friendly;
• Eulogy at funeral: Services done after Mrs Sands passed are not valid.

Comment

Because Mrs Sands did not specify the amount she would leave Mr Lock the Court can assess the value of the services by comparing the work to commercial rates for the same services, the value the deceased put on the services and what the Court considers just in the circumstances.

If you have questions about enforcing a promise of someone who has died, our Disputes Resolution Team are able to assist you.

If you would like further information, please contact Daniel Shore on 07 958 7477.

A spouse, child, grandchild, stepchild or parent of the Will maker can bring a claim if they consider they did not receive enough under the Will.

How much you receive depends on a number of factors, including the needs of the claimant.  For someone without significant needs, acknowledging the claimant as a family member (and short of disentitling conduct) Courts have previously awarded about 10%-15% of the estate.  However, the Court of Appeal has confirmed that an award is not limited to this range.  For claimants with greater maintenance and support needs, Courts have discretion to increase awards.

Moral Duty

Without being overly moralistic, every person owes a moral duty to provide proper maintenance and support to their family.  The degree of support depends on the nature of the relationship.  A parent-child relationship has a higher moral duty than an adult’s moral duty to their wealthy parents.  The key question is “did the deceased breach the moral duty owed to the claimant from the standard of a wise and just Will maker?” To answer this Courts look at:

• The relationship between the deceased and claimant;
• Any particular closeness or estrangement;
• The size of the estate (relative to other claims under it, such as other Will beneficiaries);
• The claimant’s circumstances and need of maintenance and support (i.e. sustaining and providing comfort). Special needs such as a disability may warrant a higher award;
• The Will maker’s wishes;
• Any gifts the Will maker gave the claimant during their life;
• Ethical, moral and social norms.

Award Size

Any award depends on the estate’s size and the facts of each case.  The Court of Appeal says Judges will be guided by the following principles:

• An unequal distribution is not enough to be a successful claim (because a Will maker can deal with their property as they like);
• An award should not be nominal nor overly generous;
• An award should be no more than is necessary to remedy the breach by making adequate provision for the claimant’s maintenance and support.

Process

A Family Protection Act Claim commences by filing a Statement of Claim in the Family Court.  The time limit is 12 months from the date of the grant of probate, however, ideally a claim is filed less than 6 months from the grant of probate.  All interested parties will be notified of the claim, and have the opportunity to oppose the application and provide evidence to counter it.  A Court timetable is then put in place, which may include a Judicial Settlement Conference to explore a negotiated settlement.  If the matter does not settle it proceeds to a trial with the Court determining if the duty has been breached and, if so, what is required to remedy that breach.

If you have questions regarding a claim against an Estate or defending a claim, our Dispute Resolution Team are able to assist you.

If you would like further information, please contact Daniel Shore on 07 958 7477.

A contract can be enforced against a deceased’s estate.  It is still a valid agreement even if the other party has died, provided they did not need to be alive to perform the contract (for example, an employment agreement).

In most cases you will have remedies under the contract and general law.

If, because of the death of the other party,:

• the contract cannot be performed: the contract may be frustrated by circumstances beyond the parties’ foresight and ability to control.  You should check the contract to see if it deals with such a situation.
• the contract is breached: there are potential remedies such as damages, specific performance or in some circumstances a Court ordered injunction.

You should have your lawyer find out who is acting for the deceased’s estate and see what your options are or whether the contract can still be performed.

Example

Mr Jones is selling his house.  Ms Mable makes a suitable offer to Mr Jones.

The offer is accepted and goes unconditional.  Unfortunately, Mr Jones dies of a heart attack before settlement.  Ms Mable really wants to buy the house.

Can the contract be performed?

Yes, but settlement will be delayed.  Mr Jones’ executors must obtain probate of his will before the property can be transferred to the executors and then to Ms Mable.  If Mr Jones did not have a valid will, then letters of administration will have to be granted before the property can be transferred to the administrators and then transferred to Ms Mable), which is a longer process. 

If you have questions about enforcing a contract against an estate, our Disputes Resolution Team are able to assist you.

If you would like further information, please contact Daniel Shore on 07 958 7477.

Trusts in New Zealand are incredibly common, particularly family trusts.  When relationships breakdown the Property (Relationships) Act 1976 has some limited provisions to address dispositions to trusts.

However, if you have been married or in a civil union, there is a much more powerful tool that may apply – Section 182 of the Family Proceedings Act 1980 (“Section 182”).

Section 182 has a wide application, which includes to family trusts.  This article focuses on this aspect of Section 182.

The Purpose

The purpose of Section 182 is to remedy the consequences of the failure of a trust’s premise of a continuing marriage/civil union.

This essentially means that when the trust was set up it was based on the relationship not ending.  If the relationship has ended then injustices may arise, such as one person benefiting over the other due to the change in circumstances, therefore Section 182 empowers the Court to look into the trust and make orders to ensure justice between the parties is achieved.

Requirements

For Section 182 to apply:

• Firstly, there must have been a marriage or civil union.  This explicitly excludes defacto couples, which differs from the position under the Property (Relationships) Act 1976.  There does not need to be children of the marriage/civil union however the interests of children, particularly dependent children, are especially important.
• Secondly, the Court must have made an order dissolving the marriage or civil union, which first requires the couple to have been living apart for two years.
• Thirdly, the order must have just been made or made within a “reasonable time”.  What constitutes a reasonable time will be highly fact specific, but it is important not to delay.
• Lastly, there must be the existence of “any agreement between the parties to the marriage or civil union for the payment of maintenance or relating to the property of the parties or either of them, or any ante-nuptial or post-nuptial settlement made on the parties,”.  This last element being the most complicated.

The most common use of Section 182 is to nuptial settlements, with family trusts being the most common nuptial settlement.  To be considered a nuptial settlement requires a trust to make continuing provision for one or both of the parties, such as through their status as beneficiaries, and there must be a connection between the trust and the marriage/civil union.

Where a trust has been settled during a marriage/civil union, with one or both parties as beneficiaries, it will almost inevitably be considered a nuptial settlement.

Whether a trust settled prior to the marriage/civil union will be a nuptial settlement is more difficult to determine.  Where such a trust is not a nuptial settlement when it is settled, then dispositions to that trust of property during the marriage/civil union may make that trust a nuptial settlement in respect of that specific property.

What is clear however is that the Court is giving a generous approach to the meaning of nuptial settlement.

If all the four above elements are present an application can be made to the Family Court.  The Court then has a wide discretion to make orders under Section 182.

Exercising the Discretion

The Test – Whether the Court Should Exercise its Discretion

The Supreme Court has set out a test to apply (refer to Clayton v Clayton [2016] NZSC 30).  The Court will compare the position of the parties under the trust assuming a continuing marriage/civil union, with the position of the parties under a dissolved marriage/civil union.

Factors that are relevant to the exercise of the discretion are not exhaustive but can include the terms of the trust and how the trustees are exercising, or are likely to exercise, their powers in the changed circumstances.  The manner in which the trustees would have exercised their discretion assuming a continuing marriage/civil union is relevant.  It is significant who established the trust and the source and character of the trust’s assets.  Particular attention must be paid to dependent children.  While need is not a prerequisite it may also be taken into account, as well as the parties’ expectations. The length of the marriage/civil union can also be relevant, as is the existence of any other beneficiaries.

One matter to note is that Section 182 cannot be used to defeat or vary any agreement entered into under Part 6 of the Property (Relationships) Act 1976 – the contracting out provisions – unless the interests of the children of the relationship require it.  However, the mere existence of a contracting out agreement is not determinative as there must be a sufficient connection between the trust and the agreement.

The Remedy – How the Court Should Exercise its Discretion

Unlike the Property (Relationships) Act 1976, the starting point is not a 50/50 split.

In line with the purpose of Section 182 and the above test, an assessment of the likely position under the trust assuming the marriage/civil union had continued is undertaken and then compared with the likely position following the dissolution of the marriage/civil union.  A remedy that can best minimise the negative impact of the failure of the trust’s premise of a continuing marriage/civil union is then implemented.

Remedies can include the trust being split into two separate trusts, payment of a sum to one party, the trust purchasing property for the use of one party, the trust deed being varied, removal and appointment of trustees or a combination.  The Court has a wide discretion so the remedy can be appropriate to the specific circumstances.

Conclusion

Section 182 is a powerful tool, particularly in respect of family trusts settled during a marriage or civil union.

The experienced team at McCaw Lewis can help you navigate any aspect of your relationship property matters, including the application of Section 182, or answer any questions you may have.

Zane is an Associate in our Disputes Resolution Team and can be contacted on 07 958 7431.

When a spouse dies, it can be a challenging time for the one left behind. After the grieving, organising the funeral and saying goodbye, a surviving spouse or partner will normally turn to the will. Few people know the surviving spouse has a choice between taking their entitlement under the will or applying to the court for a division of the relationship property.

Current Law

What is s 61 Property (Relationships) Act 1976 (“PRA”) for?

Section 61 of PRA gives a surviving spouse two options:

• Option A: is to apply for a division of the relationship property, the starting point being a 50-50 split.
• Option B: to not choose to make a division of relationship property. This means:
  • If the deceased spouse had a will: to receive the inheritance from the deceased spouse or partner as under the will;
  • If the spouse did not have a will: to take their entitlement under the Administration Act 1969.

Who can apply?

A “surviving spouse or partner,” may apply. This covers:

• Married persons;
• Civil union partners;
• De facto partners (two adults persons living together in a relationship and are not married or in a civil union).

There is one exception where the surviving spouse cannot apply. If relationship property court proceedings have been started to divide relationship property while both spouses or partners were alive, the court proceedings continue and the surviving spouse or partner cannot choose option A or B. However, the surviving spouse can choose to discontinue court proceedings and then choose option A or B.

Why make a choice?

The surviving spouse or partner:

• Is entitled to 50% of the relationship property plus any other entitlements under the PRA;
• Could be entitled to more under the PRA than they receive under the will;
• Can choose not to make a choice, meaning their entitlement defaults to their entitlement under the will.

How long do you have to make an election?

There are two different time limits:

Small estates: A small estate (usually, one without significant assets):

• Within six months after the date of death;

Or

• Where administration/letters of probate are granted, no later than six months after the grant of administration/probate.

Whichever is the later.

All other estates: no later than six months after administration/probate of the estate of the deceased spouse or partner is granted in New Zealand.

Like all court rules, there is an exception. The surviving spouse can ask for permission to apply out of time. In the s 61 case, at any time before the final distribution of the deceased’s estate.

Proposed Changes

The Te Aka Matua O Te Ture Law Commissions’ Review of Succession Law: Rights to a Person’s Property on Death 2021 Issue paper 46 is proposing a new Act to bring together the various succession laws. Although these are only proposals and are not the current law, for s 61, it made the following recommendations:

• A surviving partner should keep whatever gifts they receive under the will plus their PRA entitlement;
• De facto relationships of less than three years will need to satisfy additional criteria to qualify;
• Where the partners have separated prior to the death, the survivor can claim up to two years after separation;
• Where there are multiple eligible surviving partners, the court would apportion contested relationship property between surviving partners depending on the purchase, maintenance and improvement of that property;
• A surviving partner’s relationship property entitlements should be based on the classification and division rules recommended in the PRA review that would apply when partners separate, including that:
  • Property acquired before the relationship or as a gift or inheritance should be separate property, including the family home;
  • The burden of proof of establishing if property is separate property should be on the party that is on the title to the property; and
  • The court should have discretion to order unequal division of relationship property where there are extraordinary circumstances that make equal sharing repugnant to justice.

The most significant proposed change is removing the family home (if purchased before the relationship) from the relationship property pool. The house is usually the most significant estate asset, so moving this out of the reach of the surviving spouse disadvantages them to the benefit of the will beneficiaries. It will be interesting to see if this proposal is adopted.

If you have questions about making a division under the PRA or challenging a will, our Dispute Resolution Team are ready to assist you.

If you would like further information, please contact Daniel Shore on 07 958 7477.

If you are appointed as an executor under a Will, a large amount of trust is placed in you. An executor has duties towards the beneficiaries, and beneficiaries have their own rights.  But what about when an executor is also a beneficiary under a Will? How do you balance those two roles and interests?

Executors have a number of duties:

• Act in the best interests of the Estate;
• Act impartially towards beneficiaries, and not be unfairly partial to one beneficiary or group of beneficiaries to the detriment of the others (although an executor is not required to treat all beneficiaries equally);
• Act unanimously (if more than one executor is named in the Will);
• Give basic information to beneficiaries when requested.

Executors have limits on their powers over and above the Will:

• Not to exercise a power either directly or indirectly for the executor’s own benefit;
• To actively and regularly consider whether the executor should be exercising one or more of the executor’s powers.

If you are the spouse, relative or close friend of a person making a Will, there is a good chance you will be appointed an executor, and possibly be named as a beneficiary under the Will.  Should that occur you will have two roles.  This can become difficult to manage when someone is challenging a Will such as a through a Family Protection Act claim (see Daniel Shore’s article Family Protection Act 1955 and the Concept of Moral Duty).  An executor has a duty to the Estate, whereas a beneficiary has a right to receive from the Estate.  In a Court proceeding, arbitration or mediation, an executor/beneficiary may have to switch between “hats”:

• As an executor: To act in the Estate’s best interest;
• As a beneficiary: To act in their personal interest.

The key distinction between the roles is that an executor will normally remain neutral (particularly if there are competing claims) and a beneficiary is an active participant.  The two roles interact simultaneously, but separate legal advice must be obtained for each role:

• As an executor: advised by the Estate’s lawyers;
• As a beneficiary: take independent legal advice.

The following diagram summarises the two roles and how they interact in a Family Protection Act claim when a claim is brought and opposed by another party: