Wills & Estates Law Update - case law on disputed wills & news on prescribed private funds

NSW Court of Appeal Decide Disputed Will is Valid - But is it Over?

In September 2006, the Bartier Wills & Estates Bulletin reported on the case of Becker -v- Public Trustee & 2 Ors [2006] NSWSC 743 which dealt with alleged suspicious circumstances surrounding the last Will of an elderly spinster.

There were two relevant Wills. The first made with the Public Trustee on 23 January 2002 left the estate to The Royal Flying Doctor Service and The Salvation Army (the Charities).

The second dated 21 February 2002 was the one alleged to have been signed in suspicious circumstances (the Disputed Will). The Disputed Will left the deceased's home to Sandra Abel. The balance of the deceased's estate was left in equal shares to the executor, Ms Abel and the Charities.

The trial judge, Justice Nicholas, found that the deceased did know and approve the contents of the Disputed Will and there was no undue influence.

The Charities appealed to the NSW Court of Appeal in Trustee for the Salvation Army (NSW) Property Trust & Anor v Becker & Anor [2007] NSWCA 136.

The Court looked at the distinction between fraud and undue influence in probate, noting that probate undue influence is different from the equitable doctrine of undue influence. The Court made it clear that if a party seeks to rely on fraud in a probate case the fraud should be separately and properly pleaded, including particulars of the alleged fraud.

The Court stressed that probate undue influence and fraud were two fundamentally different concepts. Probate undue influence can be described as "the overpowering of the volition without convincing the judgment" so that a person signs a will which is not a will that they wanted or intended to sign. It was said in respect of fraud that "...fraud sufficient to result in the invalidation of a testamentary instrument, is concerned with misleading or deceptive conduct". It was said there is no coercion with fraud. Undue influence coerces a willmaker whereas fraud misleads the willmaker.

The Court of Appeal reviewed the evidence and the approach and findings of the trial judge. The Court accepted the trial judge was correct in his approach and findings and rejected the various arguments put forward on behalf of the Charities.

The Court of Appeal dismissed the appeal. The Court ordered that the Charities pay the costs of the appeal, that being the usual rule where a party unsuccessfully alleges fraud and undue influence.

It is not over yet. The Charities have sought leave to appeal to the High Court of Australia.

Charitable Trusts Widen Scope of Distributions

A prescribed private fund (PPF) is a private charitable trust approved by the Treasurer in the Income Tax Assessment Regulations 1997. Guidelines to assist with establishing PPFs can be found on the ATO website. Generally speaking, the closer the PPF provisions to the provisions of the model trust deed, the more likely the PPF will be approved.

An ancillary fund is another form of charitable trust. It is a type of public charitable trust that essentially acts as a conduit or intermediary between members of the public who make tax deductible donations to it and deductible gift recipients (DGRs) to whom, in its discretion, it passes on the funds or makes donations from time to time.

The Australian Government made a policy decision in about 1999 to encourage both public and private philanthropy. The Australian philanthropic sector is becoming increasingly important to the Government as the sector is estimated to distribute up to $500 million a year to charities.

The ITAA 1997 originally only allowed income tax exemption where a PPF or an ancillary fund made gifts to DGRs that were charities. This meant that organisations such as public ambulance services and the Powerhouse Museum did not receive gifts from PPFs and ancillary funds as they were not charities at law (due to their connection with government) and the funds wanted to retain their income tax exemption and other benefits.

In 2005, the Commonwealth Government amended the ITAA 1997 to allow a PPF and an ancillary fund to donate to any DGR, regardless of whether or not the DGR was a charity and still retain income tax exemption status.

The ITAA 1997 now provides that a fund can be endorsed as tax exempt if established for public charitable purposes or also (for ancillary funds and PPFs) if it is a fund that complies with the Act. The ITAA 1997 was amended in 2005 to require only that a recipient DGR be an exempt entity (being an entity whose ordinary income and statutory income are exempt from income tax).

However, the trust deeds of most existing PPFs and ancillary funds did not allow for distributions (donations) to non-charitable DGRs. If the trustees made distributions to non-charitable DGRs, then the trustees were technically in breach of their trust deeds. Also, trustees were generally unable to alter the trust deeds to widen the list of potential donees to reflect the new tax arrangements. In view of these difficulties, the NSW Government amended the NSW Charitable Trusts Act 1993 (by the NSW Charitable Trusts Amendment Act 2006) to allow existing and future PPFs and ancillary funds to give to any DGR (charitable or non-charitable).

The changes mean that charitable trusts have wider scope to make distributions to benefit both recognised charities and organisations associated with government that provide valued services to the community.

Author: Gerard Basha