Does something need to be done about legal costs in claims for family provision, especially from modest estates?

 
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For more than a century, legislation has allowed courts to award part of a dead person’s estate to someone who didn’t originally receive any benefit, or who received insufficient benefit. Prior to then, and in the absence of this legislation it would be the situation still, freedom of testamentary disposition meant that a testator could not confer benefits after death on those for whom provision was most needed and deserved, and the deprived person would have no recourse.  A person’s spouse and young children are obvious examples of those who would normally need and deserve provision from the person’s deceased’s estate. The legislation allowed the court to remedy these injustices.

This is not the problem. Remedying a family injustice, so that those who were dependent on the deceased at his or her death receive family provision, should continue. But the legislation has been applied in ways which were not imagined a century ago. Children in their 30s, 40s and older, who have had ample opportunity to make their own way in life, have been able to access the legislation. If, as a society, we want children to inherit, no matter their age or opportunity, then we need to think about forced heirship, the situation where legislation guarantees certain members of the family a share in the deceased’s estate, no matter what. (I suspect that that system has its faults, too. So, very careful analysis would be needed before we made this change.)

A related problem is that undeserving members of the family who can bring an application for family provision, because the legislation allows it, bring an application as a bargaining tool to have the estate settle the claim to avoid the large legal costs that would be involved with a hearing. If the executor resists this form of blackmail, or the claimant is so greedy that the matter doesn’t settle, the application proceeds to a hearing. The costs can then be enormous and totally disproportionate to the size of the estate. Take these three examples:

Exhibit 1: Vella –v- Vella [2020] NSWSC 849. Laura Vella’s estate was $758,558. She left all but $5,000 to her daughter Vanessa. She had 4 other children. A son Vincent sought further provision of $70,000. His legal costs up to and including the 3 day hearing were $112,000. His and his partner’s net assets were $1,296,000. The application was dismissed.

Another daughter, Sandra, was single, suffered an intellectual disability and had physical health problems. She had no capacity to work. Her only source of income was a disability pension. She succeeded in her application for further family provision of $150,000. Her legal costs were $105,000. Vanesa spent $60,000 defending the claims. The total legal costs were more than a third of the value of the estate.

Exhibit 2: Brindley v Wade (No 2) [2020] NSWSC 882. Lilian Helen Brindley, a former spouse of Colin Wade, sought family provision of $150,000  from Wade’s estate of $460,000. Her indemnity costs up to and including a three day hearing were $104,000, part of which was on a contingency basis. The defendant’s costs of defending the proceedings was $77,000. The application failed and Brindley was ordered to pay the defendant’s costs.

Exhibit 3: Poche –v- Poche [2020] NSWSC 835. Brenda Poche’s estate was $2.3 million. Most of it was left to her son Wayne. The rest, about $129,000, was left to her only other child, Adam. Adam sought further family provision of $600,000. He spent $761,000 up to and including the 3 day hearing, part of which costs were related to probate proceedings. Wayne spent $298,000 defending the claim. The court observed that the legal costs were 40% of the value of the total distributable estate.

Adam was awarded $350,000 in lieu of his entitlement under the will. The court considered that “some heavy costs capping” was appropriate and capped his costs at $125,000. This suggests that Adam was $415,000 worse off after successfully obtaining further provision. The estate was $644,000 less by reason of the proceedings, but only about half of that was received by the deserving beneficiary.

I rest my case.

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