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In life and in death – Blended Families and Estate Planning

Catherine Henry Lawyers
Catherine Henry Lawyers

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In life and in death, blended families need to agree on the eventual financial outcome and ensure that actions under an Enduring Power of Attorney align with the Will

Smith v Smith [2017] NSWSC 408 is a recent case determined by the NSW Supreme Court, which reinforces the difficulties of blended families and estate planning.

The circumstances

This case involved two adult sons, who made a claim against their step-mother, in relation to the estate of their deceased father, and more importantly, their step-mother’s spending of their father’s wealth under an Enduring Power of Attorney while their father had dementia.

Underlying this, was the claim by the adult sons for family provision (a challenge to their father’s will) and the return of the inappropriately spent money back into their father’s estate.

The decision

The Court upheld that the step-mother’s operation of the Enduring Power of Attorney was inappropriate and the misspent funds (including the full value of a property purchased by the step-mother’s own daughter) were ordered to be returned to their father’s estate, which was then available to the adult sons under the will.

Reasonable delay

The adult sons only became aware of the extent of their step-mother’s misuse of their father’s wealth after he passed away and they were made aware that their father’s estate had all but been drained.  The misspending by the step-mother occurred up to four years before their father passed away.  Waiting that long to require an account of the spending is a delay which ought generally be explained to the Court.  However, on the basis that the sons’ only access to their father and their father’s financial information during his incapacity was through their step-mother, the court found that any delay was reasonable.

Diminished estate

Wills deal with the division of the estate once a person has passed away. However this case – and some other recent cases – highlight the importance of Enduring Powers of Attorney and the ability for Attorney’s to control and spend the estate during a testator’s lifetime  – so that the amount of the estate is diminished by the time the testator passes away and the will takes effect.

Blended families

The misuse of Enduring Powers of Attorney is not limited to blended families and there are many examples not involving blended families where similar issues have arisen.  However, the risk of the misuse of Enduring Powers of Attorney may increase in circumstances where there are blended families and competing interests and competing beneficiaries.  In blended families, it is critical that all the estate planning documentation – for life and death – work together.  The level of oversight by family members or advisors – or restrictions on an Enduring Power of Attorney – should be considered early before those documents take effect.

Family Provision Claims

Family provision claims, often known as ‘challenges to Wills’ may not necessarily be trying to rewrite a testator’s wishes, but, in cases like Smith v Smith, they can be used as a legal tool to bring an Attorney to account many years later if it becomes apparent that there has been a misuse of the trust granted to an Attorney during a testator’s lifetime.

NSW is an especially helpful jurisdiction where the Court has the power to consider ‘notional estate’ in that an attorney may have transferred assets outside the reach of the will to the detriment of other people who would benefit under the Will.

Estate planning

The need for diligent and well thought out estate planning documentation is amplified in the circumstances of a blended family.

Specialised assistance

Catherine Henry Lawyers recommend the involvement of a specialist solicitor from our Wills and Estate practice to ensure that your power of attorney is used as you intend. Call them today on 4929 3995.

For further information, read Empowering Powers of Attorney – ways of reducing the risk of financial abuse.

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