Succession Laws: Report

Executive summary

Need for reform

1 This report contains 78 recommendations to reform the law and related practices that affect what happens to the assets of Victorians after they die. The need for reform has long been recognised. More than 20 years ago, the Standing Committee of Attorneys-General initiated a project to develop uniform succession law and practice across Australia. The project was led by a National Committee for Uniform Succession Laws. By 2009, the project had produced a series of reports and model legislation.

2 Victoria’s legislation on wills was reviewed shortly before the national project began and the Wills Act 1997 (Vic) closely aligns with the national model. The Administration and Probate Act 1958 (Vic), which regulates the administration and distribution of estates, has never been comprehensively reviewed.

3 Of course, a law that has not been reviewed does not necessarily need reform, and there may be good reason not to adopt a provision contained in the model legislation. Although requiring the Commission to have regard to the national uniform succession laws project, the terms of reference for this review make clear that any reforms should have a sound policy basis:

The purpose of this reference is to:

(a)

ensure that Victorian law operates justly, fairly and in accordance with community expectations in relation to the way property is dealt with after a person dies

(b)

ensure that the processes to resolve disputes about the distribution of such property are efficient, effective and accessible

(c)

identify practical solutions to problems that may still be outstanding in Victorian law and practice following the recommendations of the National Committee for Uniform Succession Laws established by the Standing Committee of Attorneys-General.

4 In conducting the review, the Commission has been mindful of changes in community expectations arising from increasingly complex family structures, longer life spans and a more accessible legal system. These changes have affected the operation of succession laws and influenced the Commission’s recommendations.

Terms of reference

5 The Attorney-General asked the Commission to review a number of disparate topics, which are listed in the terms of reference under six headings: wills, family provision, intestacy, legal practitioner executors, administration of estates and operation of the jurisdiction.

6 This report broadly follows the order and categorisation of topics as set out in the terms of reference. The Commission’s findings and recommendations are summarised below in the order in which they are discussed in the report.

7 Most of the law under review is contained in the Administration and Probate Act and the Commission’s recommendations, if implemented, would require substantial amendments to that legislation. In considering the provisions of the Administration and Probate Act that fall within the terms of reference, the Commission noticed that other parts of the Act require revision to correct errors and ambiguities. Ideally, the whole Act should be revised and re-enacted.

Wills

8 The terms of reference set out three topics under the heading ‘wills’. They concern witnessing requirements, statutory wills, and ademption.

Witnessing requirements and undue influence

9 The first topic is whether the current requirements for witnessing wills should be revised to better protect older and vulnerable will-makers. While the Commission found widespread concern about potential beneficiaries improperly prevailing upon vulnerable will-makers to make wills that do not reflect their wishes, there was little support for the view that changing the witnessing requirements would deal with this problem.

10 Proving undue influence in probate matters has traditionally been difficult. Fortunately, recent developments in the common law test applied by the court suggest that it is becoming easier to prove. However, the Canadian province of British Columbia has recently passed legislation that introduces the more flexible equitable doctrine of undue influence into the probate context. The Commission recommends that the Attorney-General cause a report to be prepared on the operation of the new legislation after it has been in force for four years. It also recommends that the Law Institute of Victoria develop best practice guidelines on detecting and preventing undue influence when preparing a will.

Statutory wills

11 The second topic on wills concerns the Supreme Court’s power under the Wills Act to authorise a will for a person lacking testamentary capacity, known as a statutory will. Similar schemes exist in all other jurisdictions and the model uniform legislation. The Commission’s consultations on this topic revealed that no major changes to Victoria’s scheme are necessary. However, there was support for reinforcing the Court’s ability to take into account the incapacitated person’s views, where they can be expressed, and for streamlining the application procedures. The Commission agrees and has recommended accordingly.

Ademption

12 The third topic on wills is about what happens when something that was left as a gift in a will is no longer owned by the will-maker when they die. If the subject of the gift does not exist in the same form within the estate, the gift is said to have been adeemed and the beneficiary receives nothing in its place. This is a particularly significant issue when a person acting under an enduring power of attorney (financial) sells an asset during the will-maker’s lifetime and the will-maker is unaware of the sale or no longer has the mental capacity to change their will. A common example is when the family home, which may be gifted under the will, is sold to fund the will-maker’s aged care.

13 Section 53 of the Guardianship and Administration Act 1986 (Vic) provides an exception to the ademption rule if the subject of the gift is sold by an administrator appointed by the Victorian Civil and Administration Tribunal (VCAT). In this case, the beneficiary who would have received nothing under the rule may instead receive the remaining proceeds of the sale.

14 The Commission recommends a similar statutory exception for a person acting under an enduring power of attorney (financial), and a similar right to apply to VCAT for access to some or all of the person’s will. However, as the administrator or attorney should aim to deploy all assets in the best interests of the person they represent during that person’s lifetime, the Commission recommends against requiring that separate accounts and records of sale proceeds be kept, or that the proceeds be quarantined from other assets.

15 Clearly, it is difficult to produce rules that accommodate all possible scenarios. Redistributing some of the estate’s assets to a beneficiary who otherwise would receive nothing may unfairly deplete a gift to someone else. Therefore, the Commission recommends that a beneficiary should be able to challenge an outcome that would result in a beneficiary gaining an unjust and disproportionate advantage, or suffering an unjust and disproportionate disadvantage, of a kind not contemplated in the will. They would be able to challenge the outcome whether or not the exception to the ademption rule applies.

Intestacy

16 In 2012, 36,328 deaths were registered in Victoria.^[1] Many of those who died did not leave a valid will setting out how they wanted their property to be distributed. Property that is not disposed of by a valid will is distributed under a statutory intestacy scheme contained in the Administration and Probate Act.

17 In some areas, Victoria’s intestacy laws are unnecessarily complex and out of step with the laws in other jurisdictions. Recommendations by the National Committee for Uniform Succession Laws regarding intestacy have largely been implemented in New South Wales and Tasmania. Adoption of these recommendations in Victoria would promote national consistency, modernise and clarify the law and simplify the administration of intestate estates.

18 The Commission found general support for the recommendations and has recommended that Victoria adopt most of them as well. The basic framework of the intestacy scheme in Victoria would remain the same but there would be many refinements. In particular, the changes would strengthen the position and entitlements of the deceased person’s partner and allow for a more tailored distribution to multiple partners.

19 However, simply grafting the changes onto the existing provisions in the Administration and Probate Act would make Victoria’s law unnecessarily complex and confusing. For this reason, the Commission considers that all of the provisions concerning the intestacy scheme should be rewritten, incorporating the recommendations in this report.

20 The Commission’s recommendations depart significantly from those of the National Committee for Uniform Succession laws in two respects: how an intestate estate is shared among multiple partners and children, and how the law provides for an alternative system of distributing the intestate estate of an Indigenous person.

21 The National Committee’s recommendation concerning distribution of the estate where multiple partners and children are entitled to a share of the estate could unfairly favour the partners at the expense of the children. The Commission prefers the approach taken in New South Wales and recommends accordingly.

22 Noting that the current law on intestacy reflects English law and society and may be inappropriate for the distribution of some Indigenous people’s estates, the National Committee recommended an alternative scheme, based on Northern Territory law. The Northern Territory law is rarely used. The Commission’s consultations identified concerns that, compared to the existing scheme in Victoria, the National Committee’s alternative is not necessarily more accessible or able to accommodate traditional law. The Commission concluded that adopting the National Committee’s recommendation would not greatly assist Indigenous communities in Victoria and recommends that the Attorney-General have the Department of Justice prepare a report about the distribution of the intestate estates of Indigenous people in Victoria, building on the work of the National Committee and the Commission, and based on further community consultation.

Family provision

Eligibility to apply

23 Victoria’s family provision law, set out in Part IV of the Administration and Probate Act, allows any person who believes that a deceased person had a responsibility to provide for them, and did not do so, to apply for a court order to redistribute the estate in their favour. Each case is determined on its merits, which ensures that no worthy claim is ever excluded.

24 However, this open-ended approach to eligibility has had the unintended effect of making it difficult for legal practitioners to advise their clients about whether or not they have a claim. Almost all family provision claims settle at mediation, including those that might not have succeeded at trial, commonly in order to contain the legal costs that are often borne by the estate. There is widespread concern that the current law allows opportunistic and non-genuine claims.

25 The Victorian approach to eligibility is unique in Australia and effectively aligns with that recommended by the National Committee for Uniform Succession Laws. It is unlikely that any other jurisdiction will adopt this approach. In all other Australian states and territories, family provision legislation specifies categories of people who are eligible to apply. Following extensive consultations, the Commission recommends adopting the approach taken in New South Wales.

Costs

26 The Commission also makes several recommendations in response to concerns about estates being depleted by the costs of family provision claims. Costs rules operate differently in family provision proceedings compared to other civil proceedings, where the unsuccessful party pays their own costs and some of the costs of the other side. In family provision proceedings, the estate commonly bears its own costs regardless of the outcome. On occasion, the estate may even be required to pay the costs of an unsuccessful family provision applicant. A provision at section 97(7) of the Administration and Probate Act, empowering the court to make a costs order against the applicant if the application is made frivolously, vexatiously or with no reasonable prospect of success, has not deterred applicants from making unmeritorious claims and should be repealed.

27 Although most family provision claims settle, an applicant could be deterred from bringing or pursuing a weak claim if the Administration and Probate Act set out the costs orders that the court could make if the claim proceeds to trial. The Act should specify that the court may make any order as to costs in family provision proceedings that it considers just, and then set out a non-exhaustive list of the types of costs orders that the court may make. These would include orders that each party bear their own costs, the estate pay the applicant’s costs, or that the applicant pay the personal representative’s costs. The Commission also considers that the court’s power under the Civil Procedure Act 2010 (Vic) to cap costs should be specified in the Administration and Probate Act.

28 These measures are intended to deter opportunistic family provision applications being made, and to strengthen the position of the personal representative when determining how to respond to such claims.

Procedure

29 As the actual costs of proceedings largely depend on court practices and procedures, the Commission examined current and proposed initiatives in Victoria and other jurisdictions that expedite family provision applications and refine the evidence that the courts rely upon. The courts are best placed to determine how a case should proceed and the Commission puts forward a series of recommendations for their consideration. They include proposals to standardise and reduce the size of documents that the parties produce, to require disclosure of costs based on the relevant court scale, and to determine applications concerning smaller estates summarily.

30 Although both the County Court and Supreme Court have jurisdiction in family provision matters, only one in four proceedings is initiated in the County Court. In consultations, many people said that the County Court hears and determines family provision applications well and expeditiously. Some said that costs are often less in the County Court than in the Supreme Court. The Commission can see no reason why, in normal circumstances, a family provision claim concerning a smaller estate would need to be initiated in the higher court. The Commission recommends that the County Court have exclusive jurisdiction in family provision claims where the net value of the estate does not exceed $500,000.

Other reform

31 Finally, the Commission considered particular difficulties that arise when dealing with farm property under succession laws, as the property provides a livelihood as well as a residence and may not be easily divided among family members. To reduce the risk of disputation after the will-maker’s death and to encourage the making of mutually satisfactory arrangements before death, the Commission recommends introducing a provision that allows the recipients of gifts during the will-maker’s lifetime to sign, with the court’s approval, a binding release of their rights to make a family provision claim after the will-maker dies. Such a provision exists in New South Wales.

32 The Commission considered two other recommendations of the National Committee for Uniform Succession Laws concerning family provision applications but does not recommend that they be adopted in Victoria.

33 The first recommendation was to introduce notional estate provisions, as in New South Wales legislation. Notional estate provisions allow certain property that is not part of the deceased person’s estate to be used to satisfy a successful family provision claim or pay the costs of family provision proceedings. The National Committee recommended them to discourage will-makers from disposing of their property during their lifetime in order to frustrate the operation of family provision laws. However, in the absence of any evidence that notional estate provisions achieve this purpose in New South Wales, or that they are needed in Victoria, the Commission does not recommend their introduction.

34 The second National Committee recommendation that the Commission does not support is that an application for family provision should be able to be made up to 12 months after the date of the deceased person’s death. The time limit within Victoria is six months from the date of the grant of representation. Some submissions supported extending the time limit; others argued that it is already too long. On balance, the Commission considers that the current time limit strikes an appropriate balance between providing notice to interested persons and efficiency in distributing the estate.

Executors’ costs and commission

Special rules for legal practitioner executors

35 There are cogent reasons why legal practitioners are appointed as executors, and it is in the community’s interest that they continue to provide executorial services. Most act in the best interests of will-makers and beneficiaries, as is their duty, but there is persistent concern that legal practitioner executors who also provide legal services to the estate are charging twice for some of the same services. The terms of reference ask the Commission to review whether there should be special rules for these executors.

36 Although a will-maker may select a legal practitioner as executor because of their legal skills and knowledge, the provision of executorial services is not regulated under the Legal Profession Act 2004 (Vic), which regulates the provision of legal services by legal practitioners to their clients. An executor has a duty to act in the interests of the beneficiaries, but a beneficiary is not the executor’s client. Most of the safeguards, rights and avenues for dispute resolution that are available to clients under the Legal Profession Act are not available to beneficiaries.

37 New uniform law for regulating the legal profession in New South Wales and Victoria is expected to be introduced in 2013. The Commission has not seen the new legislation but understands that the treatment of executorial services will be unchanged. The Commission makes a series of recommendations that would:

• require legal practitioner executors to disclose to beneficiaries an estimate of what they will charge the estate for executorial and legal services

• extend the jurisdiction of the Legal Services Commissioner to resolve disputes about services provided by legal practitioner executors and charges of $25,000 or less for executorial services

• allow a beneficiary to apply to the Costs Court for review of legal costs.

38 Some legal practitioner executors who are authorised by a will to be paid commission choose instead to charge a fee for their executorial services, which may be a smaller amount. The Commission has concluded that it would be useful for legal practitioners and beneficiaries alike if there were a statutory provision that clearly permitted them to do this, and has recommended accordingly.

39 The legal profession makes professional rules of conduct and associated guidelines. A failure to comply with the rules may amount to unsatisfactory professional conduct or professional misconduct. The current rules do not adequately address the need to obtain the informed consent of the will-maker or the beneficiaries in order to be paid commission, or to otherwise seek court authorisation. In any event, legal practitioners are not always referring to the rules when administering estates. The Commission recommends new provisions in the Administration and Probate Act to alert any professional executor (who may be a legal practitioner, accountant, or financial adviser or other professional) to this requirement.

40 The Commission also recommends that the legal profession revise the professional rules that apply when a legal practitioner drafts a will that appoints the legal practitioner as executor and authorises the payment of commission, or allows the legal practitioner to charge the estate for legal services. In addition, the Commission recommends that new professional rules, supported by guidelines, should clarify the duties of legal practitioners in providing executorial services and charging for those services.

Court review of costs and commission

41 The National Committee for Uniform Succession Laws recommended that the model legislation should include a provision like section 86A of the Probate and Administration Act 1898 (NSW). Section 86A allows the court to review and reduce commission, or an amount charged or proposed to be charged, in respect of any estate, even if the amount charged is authorised by the will. The review can be requested by an interested person or initiated by the court. The provision is rarely used in New South Wales but has served as an effective deterrent to the abuse of charging or commission clauses.

42 The Commission recommends that Victoria adopt a provision such as section 86A, except that there would be a time limit within which an interested person could apply for review. The time limit would be three months after the time that the interested person knew, or ought to have known, of all commission, charges and disbursements charged or proposed to be charged out of the estate. This additional requirement was proposed by the Law Institute of Victoria and was widely supported in submissions.

Community education for non-professional executors and beneficiaries

43 In response to submissions that drew attention to gaps in publicly available information on what happens to a person’s assets after they die, the Commission recommends that the Victorian Law Foundation should publish a guide, or series of guides, on making wills and the role of the executor.

Payment of debts

44 While not causing significant difficulties, Victoria’s current law in relation to the payment of debts is overly complex. In some areas, the relative simplicity of the law is obscured by inaccessible drafting.

45 The National Committee for Uniform Succession Laws made recommendations that, if adopted in Victoria, would modernise and clarify the law and simplify the administration of estates. Submissions to the Commission conveyed strong support for adopting these recommendations in Victoria, and the Commission recommends that they be adopted. The reforms would give primacy to the will-maker’s intentions when the estate is solvent, and clarify the application of the Bankruptcy Act 1966 (Cth) when the estate is insolvent.

Small estates

46 Victorian law and practice provide a number of measures that assist personal representatives of small estates to obtain a grant of probate or letters of administration at less than the usual cost, or to administer the estate without obtaining a grant. Some measures support non-professional personal representatives who administer small estates themselves, and others encourage trustee companies to obtain grants of representation for small estates. Each of these measures works without significant difficulty but could be more effective.

47 The Supreme Court’s Probate Office will prepare and file documents for a person applying for a grant of representation, if the value of the estate is $25,000 or less. If the only beneficiaries are the partner, children or sole surviving parent of the deceased person, assistance is available for an estate that is valued at $50,000 or less. In addition, there are two expedited processes for trustee companies that obtain grants of representation for estates valued at $50,000 or less.

48 These dollar figures have remained unchanged since 1995 and represent a dwindling proportion of deceased estates. Only 48 estates were assisted by the Probate Office’s small estates service in 2011–12, and one of the expedited processes for obtaining a grant of representation has been used only twice since 2006. The upper limit of $50,000 is lower than in other jurisdictions, and there was clear support in submissions and consultations for increasing it.

49 The Commission recommends that the assistance provided by the Probate Office, and expedited grants of representation, should be available in respect of estates valued at up to $100,000. The dual eligibility criteria for assistance from the Probate Office’s small estates service would be removed, and the upper value limit would be adjusted in accordance with movements in the Consumer Price Index.

50 The Commission also recommends combining the two expedited processes for obtaining a grant of representation into a single process to be availed of by State Trustees. Private trustee companies do not administer small estates for commercial reasons, whereas State Trustees receives a government subsidy to administer small estates. As noted above, one of the current processes is rarely used. The second process is simpler, cheaper and favoured by State Trustees but does not create searchable records that could ensure that only one grant is made in relation to each estate.

51 The Commission’s recommendations enable State Trustees to continue to use a streamlined process to obtain a grant of representation but improve the degree of transparency. The will would be filed with the Supreme Court and a notice of intention to administer the estate would be advertised on the Supreme Court’s website rather than in a daily newspaper.

52 While a grant of representation is always required when transferring certain types of property, for example land and shares, it is possible to transfer other assets without one. Gifted goods, for example, can simply be handed to the beneficiary; instead of a grant, a bank may accept a death certificate or other documentation as authority to release money in an account. In this way, many estates are fully or partially administered informally.

53 However, a person administering an estate informally is liable to be sued by a rightful personal representative, creditors or beneficiaries if they make payments that would not have been legitimate if they had obtained a grant of representation. This may occur where a more recent will is discovered after the estate has been informally administered according to an older will, or when the debts of the estate were not fully paid before the estate was distributed. In addition, a bank or other third party that transfers assets of the estate to a person without requiring a grant of representation is exposed to liability where payments are made incorrectly or a grant of representation is later taken out by another person.

54 The Commission makes recommendations to clarify and strengthen existing protections to people who administer estates informally, and to protect third parties transferring up to $25,000 without a grant of representation. This amount would be adjusted to reflect changes in the Consumer Price Index.

55 Although the Commission recognises that it is useful to be able to administer an estate informally, this course of action should not be taken simply because seeking a grant of representation seems too complex or costly. The valuable assistance provided by the Probate Office to small estates should be supplemented by more and better information to the public on the administration of estates. The Commission recommends that the Supreme Court produce a compilation of simply expressed and comprehensive information for potential applicants for a grant of representation, and make it available on its website.

Costs rules in succession proceedings

56 The Commission considered cost rules at a general level, as well as in the context of reviewing applications for statutory wills and family provision. It has concluded that, at the general level, the rules are working satisfactorily and do not require legislative amendment. No submissions expressed a contrary view.

1. Victorian Registry of Births Deaths and Marriages, Fast Facts (8 February 2013) <http://www.bdm.vic.gov.au/utility/about+us/fast+facts/>.

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