The $25m “little more than a rounding error” award – The Court’s approach to Family Provision claims against large estates

Last year, the Supreme Court of Western Australia awarded Olivia Mead, the 19 year old daughter of an iron ore magnate, the late Michael Wright, the astonishing cash sum of $25 million.

The decision is currently under appeal and is likely to be heard by the Court of Appeal in early 2017.

Ms Mead made an application for family provision from her late father’s estate on the basis that she had not been left with “adequate provision” for her proper maintenance, support, education or advancement in life.

The facts of Ms Mead’s application were unusual for several reasons, including:

  • The parties ultimately agreed that no attempt at valuation of the estate was necessary. It was speculated that the size of the estate may have been in excess of $1 billion.   The Judge described the estate as “colossal” and noted “it is difficult for most people to comprehend such wealth”.
  • Ms Mead had been left by her father’s will the sum of $3 million via a discretionary trust. However, the discretionary trust had harsh provisions which could exclude her from any money for reasons such as minor drug use or drink driving.  If Ms Mead was to convert to Islam or Buddhism, she would also be excluded from the trust.  The Judge commented that “Most Australians would regard freedom of religion as part of their birthright.”
  • The Judge found the actuarial evidence relied on by both parties of little assistance, describing it “of interest” but of “no real value” in determining the outcome of Ms Mead’s application.
  • Ms Mead had sought the more modest sum of $12 million and was ultimately awarded more than twice that.

The Judge noted that there are 3 common factors which a Court has to consider with Family Provision claims, and described them as a triangulation or balancing exercise:

  1. The size of the estate;
  2. The needs of the plaintiff; and
  3. The interests of other parties having a legitimate call on the bounty of the deceased (here, the 2 residuary beneficiaries were due to receive something in the order of $400 million each).

Faced with a “colossal” estate where the value was irrelevant, the Judge found no other individual would be prejudiced no matter what the award to Ms Mead.  In awarding Ms Mead $25 million (on the condition that she forfeit her interest in the trust), the Judge indicated that he was most influenced by the size of the estate.

The Judge noted his decision was “not about fairness. There is no test of fairness in the Act.”   Nor was it about compensating Ms Mead for the deceased’s limitation as a father.

 

Estate planning considerations

The Mead decision is also relevant for estate planning considerations in general.

The Judge considered the adequacy of the $3 million discretionary trust bequest.  The Judge decided that in considering whether Ms Mead had been left “adequate provision”, he also needed to consider whether the trust structure was “suitable” for a 19 year old.  The massive size of the estate, and the harsh terms of the discretionary trust, with the risk Ms Mead might not receive any distribution, led to the Judge to conclude that the structure in the will providing for Ms Mead was not a “suitable” or “adequate” provision to provide for her proper maintenance, support, education or advancement in life.

The lesson from the Mead case from an estate planning perspective is to properly consider matters such as:

  • The Court’s likely approach to the concept of “what a wise and just testator would do in the position of the deceased”;
  • The “community expectations” test;
  • Whether the adequacy of a gift to a beneficiary is undermined by including harsh testamentary trust terms, allowing a trustee excessive discretion or the selection of an unsuitable trustee.

In Mead for example, the Judge commented that it was unreasonable for Ms Mead to have her fate in the hands of a man she had never met and the trustee (a solicitor in Sydney) could not be expected to understand the wants and needs of a 19 year old girl living in Perth’s outer suburbs.

How we can help

Peter McLachlan, Partner, has 35 years’ experience, and Suzanne Young, Special Counsel, has extensive experience, in meeting clients’ complex estate planning needs and minimising the risk of successful family provision claims against the estate.

Peter, together with Samantha Peterson, Special Counsel, are currently representing a party in estate litigation involving an estate larger than in Mead.

 

Samantha Peterson

Special Counsel

speterson@mtpartners.com.au

 

McLachlan Thorpe communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.

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