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Family Provision Act and Overseas Assets A PAPER BY PAUL ANDERSON DECEMBER 2009


Family Provision Act and Overseas Assets

Summary The recent case of Taylor v Farrugia deals with the application of the family provision legislation where a deceased dies domiciled overseas but owning assets in New South Wales and overseas.

Who Does This Impact? Any person who owns assets in two jurisdictions and his or her potential beneďŹ ciaries.

What Action Should Be Taken? Any person making a Will who owns assets in more than one jurisdiction should be aware of the implications of the decision. The recent Supreme Court decision of Taylor v Farrugia considered the operation of the Family Provision Act 1984 (now found in Chapter 3 of the Succession Act 2006) where the deceased died domiciled overseas owning assets both in New South Wales and the overseas country.

Contents:

TURKSLEGAL

Facts

2

Maltese Law

2

Application of the Act

3

Adult Children

3

Pension Benefits

3

Reserved Portion of Maltese Assets

4

Orders of the Court

4

Conclusion

5

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Family Provision Act and Overseas Assets by Paul Anderson

Facts Salvatore Farrugia died in Malta on 27 February 2003, leaving assets in Malta and New South Wales. By his Will dated 23 January 1997, Salvatore left all of his estate to his widow, Emanuela, who also died in Malta on 21 August 2004. By her Will dated 10 July 2003, she left the whole of her estate to her youngest son, John, who also resided with her in Malta. Both Salvatore and Emanuela were domiciled in Malta. Salvatore was born in 1919 and Emanuela in 1924. They married in 1941. Their six surviving children were respectively born in 1942 (Joseph), 1947 (Josephine), 1949 (Mary), 1951 (George), 1956 (Teresa) and 1961 (John). The family migrated to Australia in August 1950. Although both parents and children were described as ‘unsophisticated and little educated’, the parents were notably successful in purchasing real estate that appreciated in value. In 1991 Salvatore, Emanuela and John returned to Malta where they remained thereafter except for two subsequent visits to New South Wales by Salvatore. Emanuela’s net estate in New South Wales was worth approximately $2 million and in Malta another $400,000. Salvatore’s estate in New South Wales was worth approximately $140,000 and in Malta, $520,000. The five adult children, apart from John, instituted legal proceedings against the estates of Salvatore and Emanuela under the Family Provision Act 1984, claiming that they had been left without adequate provision for his or her proper maintenance, education and advancement in life. The financial circumstances of the adult children, who were by the time of hearing aged between 67 and 53, could to varying degrees be described as difficult.

Maltese Law The evidence of a Maltese lawyer established the following propositions as far as Maltese Law was concerned: •

Maltese Law does not recognise survivorship in respect of jointly owned property, i.e. jointly owned property is regarded as owned half by the deceased and half by the survivor. This is in contrast to NSW Law where the survivor is deemed to own the whole property.

Maltese Law of succession contains enforced hereditary provisions by which portions of the estate are reserved for a surviving spouse and children. Where there are five or more surviving children, the reserved portion for children is one half which they share equally. The reserved portion for a surviving spouse, where there are also surviving children, is one quarter of the estate.

In this case, because there were six children, each was entitled to one-twelfth of the estate. John was entitled to the balance of the Maltese estate under Emanuela’s Will. The result was that John received seven-twelfths of the estate and the other five children, one-twelfth each.

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Family Provision Act and Overseas Assets by Paul Anderson

Application of the Act Both Salvatore and Emanuela died domiciled in Malta, leaving real and personal property both in New South Wales and Malta. Following precedent, Brereton J, set out the following principles: Firstly, the Courts of the domicile alone can exercise jurisdiction under the family provision legislation of the domicile in respect of moveable and immoveable property in the place of domicile. Secondly, the Courts of the domicile alone can exercise such jurisdiction in respect of moveable property of the deceased outside the place of domicile. Thirdly, Courts of the situs alone can exercise jurisdiction in respect of immoveable property out of the place of domicile and courts of the place of domicile cannot exercise such jurisdiction.

It followed that any order of the Supreme Court under the family provision legislation could only affect immoveable property of the deceased in New South Wales. It cannot affect moveable property in New South Wales, or any property outside New South Wales. However, in deciding what order should be made affecting immoveable property in New South Wales, the Court is entitled nonetheless to take into account assets beyond the reach of the jurisdiction which inform the extent to which eligible persons and beneficiaries and others having claims on the deceased’s testamentary bounty have and will receive provision.

Adult Children Each of the plaintiffs was obviously an adult child of the deceased. His Honour had some interesting comments to make on the entitlement of adult children to claim under the legislation. Ordinarily the community expects parents to raise and educate their children to the very best of their ability while they remain children; probably to assist them with a tertiary education, where that is feasible; where funds allow, to provide them with a start in life – such as a deposit on a home, although it might well take a different form. The community does not expect a parent, in ordinary circumstances, to provide an unencumbered house, or to set their children up in the position where they can acquire a house unencumbered. Although in a particular case, where assets permit and the relationship between the parties is such to justify it, there might be such an obligation….. Generally speaking, the community does not expect a parent to look after his or her children for the rest of their lives and into retirement, especially when there is someone else, such as a spouse, who has a primary obligation to do so. Plainly, if an adult child remains a dependant of a parent, the community usually expects the parent to make provision to fulfil that ongoing dependency after death. But where a child, even an adult child, falls on hard times, and where there are assets available, then the community may expect parents to provide a buffer against contingencies; where a child has been unable to accumulate superannuation or make other provision for their retirement , something to assist in retirement where otherwise they would be left destitute. It is no longer the case, if it ever was, that an adult child has to establish a special need before obtaining provision from the Estate of a deceased parent.

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Family Provision Act and Overseas Assets by Paul Anderson

Pension Benefits Some of the plaintiffs were either on a pension or entitled to one. His Honour also had some interesting comments to make upon the extent to which this was a relevant factor in exercising his discretion under the legislation. The Court’s attitude to the eligibility for means tested pension benefits of eligible persons and beneficiaries varies, depending on the circumstances of the case. Ordinarily, a testator makes a Will and provides for those who have a claim on the testator without regard to the claimant’s eligibility for a pension. However, in a smaller estate where there are competing claims, a testator, and this Court on an application under the Act, may take into account the eligibility of a claimant for a pension as a means of deciding how such limited benefits as are available from the estate should be shared between claimants, and how those benefits might be structured. But this qualification to the principle that the burden of support should be borne in the first instance by an estate rather than by social security arises mainly, if not exclusively in smaller estates…. In this case, therefore it was possible to make ample provision for the prime object of the testatrix’s bounty, without treating social security as a sufficient resort for the others who had a claim to testamentary recognition. A wise and just testatrix would have provided for the other children, to the extent that she was able to, and they had relevant needs, rather than leaving them to resort to social security for that purpose. In this case, I am satisfied that provision ought to have been made for the claimants without regard to their receipts of means tested pensions.

Reserved Portion of Maltese Assets The plaintiffs were entitled to a reserved portion of the Maltese assets. Is this adequate provision? His Honour thought not. Provision which can only be accessed through protracted litigation against a recalcitrant executor in a remote part of the world at prohibitive cost is practically no provision at all and, is therefore not proper provision.

Orders of the Court His Honour went on to examine in detail the financial circumstances of each of the five plaintiffs. He then required each plaintiff to give an undertaking to assign, release and transfer to John their respective reserved portions of the estates of Salvatore and Emanuela. On the basis of such undertakings, His Honour then ordered that in lieu of the provisions made for the plaintiffs under Emanuela’s Will, her real estate in NSW should be sold and the proceeds divided as follows: Josephine 25%; George 12.5%; Teresa 25%; Mary 25%; and Joseph 12.5%. This was designed to effectively give the plaintiffs the following amounts after costs – Joseph $180,000, Josephine $375,000, George $70,000, Teresa $388,000 and Mary $388,000.

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Family Provision Act and Overseas Assets by Paul Anderson

Conclusion The ownership by a deceased person domiciled overseas of assets both overseas and in New South Wales creates a significant problem for New South Wales Courts when applying the family provision legislation. In appropriate cases, as in Taylor v Farrugia, the Court can handle the issue by making any necessary adjustment through New South Wales real estate. A much harder and probably insurmountable problem is where New South Wales real estate is insufficient to accommodate any necessary adjustment. The beneficiaries are then left to pursue their rights, if any, under the laws of the overseas country.

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Family Provision Act and Overseas Assets by Paul Anderson

For more information, please contact: Paul Anderson Partner T: 02 8257 5742 paul.anderson@turkslegal.com.au

Sydney | Level 29, Angel Place, 123 Pitt Street, Sydney, NSW 2000 | T: 02 8257 5700 | F: 02 9239 0922 Melbourne | Level 10 (North Tower) 459 Collins Street , Melbourne, VIC 3000 | T: 03 8600 5000 | F: 03 8600 5099 Insurance & Financial Services | Commercial Disputes | Workers Compensation | Business & Property

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Family Provision Act and Overseas Assets  

The recent case of Taylor v Farrugia deals with the application of the family provision legislation where a deceased dies domiciled overseas...

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