The Inheritance (Family Provision) Act

In South Australia, the Inheritance (Family Provision) Act 1972 gives standing to various persons, including the children of a deceased, to make a claim against the estate of the deceased if the claimant has been left without adequate provision for his or her proper maintenance, education or advancement in life. Such claims are commonly called inheritance, or testator’s family maintenance ("TFM") claims.

TFM claims are made to the Supreme Court which can re-write the will to make provision out of the estate for someone left out or inadequately provided for. Because the Court’s order makes provision out of the estate of the deceased, attempts to circumvent the Act have sometimes been based on arrangements to deal with assets in such a way as to leave nothing in the estate at death and consequently nothing that a court order can operate upon. This frustrates claimants wishing to obtain the benefit of the Act.

Barns v Barns

In June 2001 Judge Burley of the Supreme Court of South Australia struck down such a plan, which was based on a contract to make wills, in the case of Barns v Barns.

The facts

The parents had an adult son and daughter. The daughter was bankrupt. The parents had financially assisted the daughter and, apparently, were prepared to continue to do so. In consequence, they wished to ensure that she would not benefit under their wills. They intended that the whole of their estates should go to their son.

The parents entered into a contract with their son agreeing that the surviving parent would leave everything to the son upon the death of the survivor. The parents entered into a deed to give effect to the contract and made wills accordingly.

The intended effect of these arrangements was to cause a constructive trust to arise in favour of the son.

The father died and the daughter made a claim against his estate. Did the father’s assets form part of his estate, or did he die without an estate because of the crystallisation of the floating trust over the assets at his death?

The estate defended the daughter’s claim on the basis that at his death, the father’s property was impressed with the trust in favour of the son. The estate argued that the father’s property did not form part of his estate and, consequently, that the Court had no jurisdiction to make an order in favour of the daughter under the Inheritance (Family Provision) Act.

The first judgment

Judge Burley held that the purpose of the deed was to prevent the daughter from making a claim under the Act. It followed that the deed was contrary to public policy and therefore void. That meant that the constructive trust relied on by the estate to resist the daughter’s claim failed, and her father’s estate was vulnerable to her claim.

An appeal

The estate appealed. The Full Court of the Supreme Court of South Australia unanimously upheld its appeal in October 2001.

It ruled that where there was no attempt to oust the jurisdiction of the courts in the course of the arrangement of a testator’s affairs during his lifetime, the courts should not interfere with testamentary dispositions made in pursuance of bona fide contracts unless the power to do so was distinctly accorded by Parliament. In some jurisdictions Parliament had given the courts that power, but not in South Australia. In this State, agreements to make mutual wills have the effect of disentitling any other person who is not provided for in the will from making a claim under the Act.

The deed in question had exactly the intended effect. A contractual promise to make mutual wills created a debt due by the estate of each party to the contract. It was not testamentary. The deed in question was not contrary to public policy and, therefore, it was not void.

A further appeal

The daughter appealed to the High Court of Australia which upheld her appeal in March 2003.

By a four to one majority, the High Court held that private agreements cannot override the laws affecting testamentary succession. The Court allowed that there was nothing to stop a person from giving away much if not all of his or her property before death and leaving nothing in the estate that the Act and, therefore, that any claim could operate over. That remained an effective way of defeating an inheritance claim because a court cannot make provision out of an estate if, at death, there is nothing in the estate.

However, where, as in Barns v Barns, things were so structured that it was a will (as opposed to gifts made during life) that purported to trigger an alteration of property interests, the property was held not to have been alienated but remained in the estate and, therefore, vulnerable to a disaffected claimant under the Inheritance (Family Provision) Act.

Barns v Barns arrangements are no longer effective in South Australia.

Elsewhere, the New South Wales Parliament has passed legislation allowing courts to designate property subject to such contracts as notional estate of the deceased out of which provision could be made to a TFM claimant.

The English Parliament has also legislated in relation to dispositions which are intended to defeat TFM claims.

A cautionary note