Wills & Estates Law Update: Prescribed private funds, DNA & deceased estates & family provision changes

Major Prescribed Private Fund Established

A Prescribed Private Fund (PPF) is a private charitable trust prescribed by tax laws. It is a trust established by Will or trust instrument to which businesses, families and individuals can make tax deductible gifts.

Bartier Perry recently acted on the establishment of a major PPF for clients. The PPF has been approved for prescription in the Income Tax Assessment Regulations 1997. It will have a significant impact on philanthropy in Australia. If the funding of this PPF proceeds as planned, it is expected to have a capital base of $305 million making it the largest PPF established to date.

DNA and Deceased Estates

DNA (deoxyribonucleic acid) is the chemical compound that makes up genes within chromosomes and is the basic material of heredity. DNA issues can arise in deceased estates in different ways as shown by the following cases.

In one matter we were involved in, DNA testing was used with the consent of all family members to confirm that a child living in Thailand was the daughter of a person who died intestate in Queensland and was so entitled to share in his estate on intestacy.

Another case indirectly involving the result of DNA testing was Public Trustee-v-Arnold [2004] NSWSC 127. A person claiming to be the father of a child joined in registration of the birth of the child. The father later participated in DNA parentage testing which resulted in a report excluding him as a father with 100% certainty. The putative father died soon after testing. The Public Trustee on administering the putative father's small estate sought an order that the infant was not a child of the deceased so that the deceased's estate could pass to his parents. Justice Bryson ordered under section 45 of the Births Deaths and Marriages Registration Act 1995 (NSW) that the birth certificate and particulars in the registration of birth be corrected by the Registrar so as not to show the deceased as the father of the infant.

Costs in Family Provision Matters under the Civil Procedure Act and Uniform Civil Procedure Rules

The case of Sherborne Estate (No.2): Vanualen & Anor-v-Neaves & Anor; Gilroy-v-Neaves & Anor [2005] NSWSC 1003 (10 October 2005) involved the issue of legal costs in a family provision matter and whether an order capping legal costs should be made. It is a useful case because it contains comments about legal costs under the Civil Procedure Act (CPA) and the Uniform Civil Procedure Rules (UCPR).

The case involved family provision claims by three plaintiffs. Two were successful and the third plaintiff Julia Gilroy was unsuccessful. The matter was not straightforward. The two successful plaintiffs received further provision from the estate of $360,000. However, costs and disbursements in the legal proceedings for all parties amounted to about $600,000.

Although the legal proceedings had commenced prior to the introduction of the CPA and UCPR, transitional rules meant that they could be applied to this case.

The Court considered UCPR 42.4 which provided the Court with power to cap legal costs. In respect of that Rule, Justice Palmer said:

"I conclude that UCPR 42.4 is intended as a means whereby the Court may, if the need arises, curb the tendency of one or all parties to engage in disproportionate expenditure on legal costs by making it clear, at an early stage of the proceedings, that beyond a certain limit the parties will have to bear their own legal costs - win or lose.

Parties to disputes which are fuelled by personal animosity - FPA applications are a prime example - are sometimes carried away by the desire to vindicate their positions publicly in a court of justice. Such parties insist on marshalling every conceivable issue in support of their case and on rebutting with unnecessary particularity every passing suggestion made by the other side. Unfortunately, legal practitioners are not always resolute to rein in those desires on the part of their clients.

The result in some FPA cases is a multitude of lengthy affidavits filed on both sides in which family members recount, usually in inadmissible form, their ancient grievances against each other. Often this evidence is largely irrelevant to the issues which will decide the case....In my opinion the Court should not be reluctant to use UCPR 42.4 to prevent extravagant expenditure on legal costs in FPA cases, such as has occurred here. The time for its use is early in case management, whenever it appears that the parties' litigious fervour may be leading them to excessive expenditure of costs".

However, the Court did note that UCPR 42.4 could not be used to correct excessive expenditure at the time of making a final costs order - it needs to be used at an early stage in the proceedings.

The Court also considered whether a capping order could be made under section 98 of the CPA. It said that the power given by section 98(4) must be exercised judicially - the exercise of the power must have a proper factual foundation and must be in accordance with established legal principle.

Tax Ruling and Charities

Taxation Ruling TR 2005/21 - Income tax and fringe benefits tax: charities is a helpful ruling which sets out the Tax Commissioner's views on the meaning of "charitable institution" and "fund established for public charitable purposes" for income tax and FBT purposes. The ruling also provides reference to extensive case law in this area and can be acessed via the ATO website - www.ato.gov.au (under public rulings taxation).