Deed of Family Arrangement for an Australian Estate

Where there is an Estate there are Relatives, Dependents, Claimants & Creditors!

The following observation has been extracted from page 38 of the book "Old Law, New Law: A Second Australian Legal Miscellany" by Keith Mason.

Gallop J. once observed that [1]:

These appeals demonstrate the truth of the old aphorism that "where there is a Will, there's a relative".

We suggest the following extensions to this old aphorism:  

"Were there is an Estate, there are relatives, dependents, claimants & creditors (as well as lawyers, state revenue, and the tax office)!"

A compromise is in the best interests of all would-be beneficiaries

Continuing on from above on page 38:

Would-be beneficiaries are often disappointed or deluded in their expectations.

Burt CJ. [2] urged the parties to a probate suit to reach a compromise "otherwise the lawyers would make themselves heirs-by-law of the whole of the property".

Our Deed of Family Arrangement (a.k.a Family Deed of Arrangement) is a top-tier-quality legal document designed to be used for:

✅ An agreement between all interested parties (up to a maximum of 100 assuming they are acting with valid legal capacity) whether before or after the Estate Owner passes away) and if after passing, whether pursuant to a Will or Intestacy; and/or

✅ To effect the settlement and release of an Australian Will Dispute / Family Provision Claim between the estate and up to 100 claimant/s before proceedings have been commenced in the relevant Supreme Court.

The Family Arrangements provided for in the Deed can include any of the following:

⚖️ Lump Sum Payment (which may be set-off by various amounts);

⚖️ Periodic amounts at specified intervals;

⚖️ The transfer of an absolute or a limited interest (such as a % share, or Life Estate) in one or more existing or future properties;

⚖️ Hold the agreed distribution from the Estate in a new Trust;

⚖️ Transfer the agreed distribution to an existing or Testamentary Trust created by the Will (if any);

⚖️ Disclaimer or Renunciation of any claim to a benefit under a Will or Intestacy (including Partial Intestacy); and/or

⚖️ Variation of the terms of the Will (if any) / Statutory Intestacy Rules.

If Legal Proceedings have been commenced:

Our Embedded Lawyer-Logic™ automatically converts the document generated to DRAFT Settlement Consent Orders.

Family Provision Orders made by the Court take effect "as if" made by Will or Codicil to a Will

All Australian jurisdictions have legislation that enables Family Provision Orders made by the Court to take effect "as if" they are a Codicil to the Will, or "as if" they are contained within a Will if the deceased died intestate.

This legislative effect granted to Family Provision Orders made by the Court has important tax and stamp duty impacts (financial benefits) that depend upon the circumstances of the estate.

The financial benefits to the parties enabled by Family Provision Orders may be significant, and need to be viewed in contrast with a Deed of Family Arrangement +/or Deed of Settlement and Release entered into prior to the commencement of legal proceedings (which most likely would not qualify for any tax and stamp duty exemptions).

Each State or Territory sets out the Statutory Effect via their own legislation as follows:

VIC s.96 of the Administration and Probate Act (Vic) 1958 the Court may order that the orders have this effect.

NSW s.72 of the Succession Act (NSW) unless the Court orders otherwise the orders have this effect.

‍In all the other States and Territories the effect of the Court Orders are to automatically grant tax and stamp duty exemptions...

Qld  s.43 of the Succession Act (Qld)

ACT s.16 of the Family Provision Act (ACT) 1969 ...

NT s.16 of the Family Provision Act (NT) 1970 ...

WA s.10 of the Family Provision Act (WA) 1972 ...

‍SA  s.10 of the Inheritance (Family Provision) Act (SA) 1972 ...  

Tas. s.10B of the Testator's Family Maintenance Act (Tas.) 1912.

Document Overview:

1️⃣ Functions proactively as an Estate Planning tool, or reactively to document agreed arrangements / settlement terms regardless of whether or not court proceedings have commenced;

2️⃣ Comprehensively drafted to specifically deal with both the agreement of all interested parties in a present or potential future deceased estate, and/or the release of an Australian Will Dispute / Family Provision Claim;

3️⃣ Consent Orders or a Notice of Discontinuance can be attached;

4️⃣ Includes confidentiality and non-disparagement provisions;

5️⃣ Can optionally carve out claims where new information is received after the release that indicates fraud or dishonesty;

⚖️ To avoid any potential for subsequent disputes relating to misrepresentations of non-disclosure parties need to ensure they comply at all times with their legal obligation to provide full and updated disclosure of all relevant evidence;

6️⃣ Certificates of Independent Legal Advice for each party to the Deed; and

7️⃣ Acknowledgements by each party to the Deed that before signing they received Independent Legal Advice.

Note: There may be significant stamp duty^ and/or capital gains tax implications.

We recommend you contact our legal team to obtain professional legal advice on this issue.

Important: A Family Provision Claim may still be filed with the Court

The High Court of Australia has held that it is contrary to public policy for a person to contract out of or release their right to an inheritance [3].

Therefore, even after a Deed of Family Arrangement has been validly executed and delivered it cannot be used to bar (or in plain English: avoid) an Australian Family Provision Claim for further and better ("adequate") provision.

Daebritz v Gandy [4] is an example of a case where court proceedings were allowed to proceed after a Deed of Family Arrangement had been validly executed.

An exception may apply to make the Deed of Family Arrangement binding if the relevant family provision legislation provides otherwise [5] or in NSW, the release included within the terms of the Deed of Family Arrangement has been been approved by the Court (refer to the discussion below re: NSW s. 95 application).

Good Deal v. Bad Deal

As a practical matter, if the Deed of Family Arrangement is actually a "Good Deal" which operates to remedy inadequate provision in the Will it is difficult to see what benefit seeking to change the deal by making a subsequent Family Provision Claim with the Court.

On the contrary, making a Family Provision Claim when it is not necessary (as the claimant already has a "Good Deal") would increase the risk of adverse costs orders due to the need to reimburse the estate's legal costs involved in defending an unnecessary claim.

The public policy appears to operate to prevent a claimant from signing a "Bad Deal" and then having no recourse to the Courts to rectify the matter and obtain "adequate" provision.

Making the Deed Binding in NSW?

An application can be made under section 95 of the Succession Act 2006 (NSW) to obtain the Court's approval of the release of the right to make a Family Provision Claim made within the terms of the Deed of Family Arrangement.

If Court approval for the release is granted, then the Deed of Family Arrangement effectively becomes binding.

Unless the Court finds under section 96 of the Succession Act 2006 (NSW) grounds to revoke the approval where there are circumstances of fraud or undue influence in the obtaining of the release or in the obtaining of the approval from the Court, or alternatively in a rare scenario where all interested parties consent.

s95 Application: Can be used as a proactive measure to minimise the possibility of litigation against the future estate

Both the Deed of Family Arrangement and this application to the Court can be made during the lifetime of the testator as a proactive measure to minimise the possibility of a Family Provision Claim being made against the future estate [6].

It is important to note that taking practive steps whilst the testator is alive to avoid litigation is a worthy goal, there is no guarantee that:

1️⃣ Potential future litigators will agree to the proposed terms of any Deed of Family Arrangement; or

2️⃣ The Court will agree; or

3️⃣ The circumstances of either the estate or the potential future litigators will not materially change between the time of entering the Deed of Family Arrangement and the time of the eventual distribution of the estate.

Footnotes

^ Some stamp duty concessions may apply, for example in NSW, stamp duty from the transfer of assets using a Deed of Family Arrangement will only be paid on the value of assets exceeding what the beneficiary would have received anyway based on the Will or Intestacy Rules. (s63 of the Duties Act 1997 (NSW).

[1] Re Herbert (1990) 101 FLR 279 at 281.

[2] JM Bennett, Sir Archibald Burt: First Chief Justice of Western Australia 1861-1879, Federation press, 2002, p. 56.

[3] Lieberman v Morris [1944] HCA 13

[4] [2001] WASC 45

[5] Historically, in NSW the old Testator's Family Maintenance and Guardianship of Infants Act NSW 1916-1938 ("TFM Act") allowed in section 5 (now repealed) a contracting out of the Act in the limited circumstances set out in that section.

[6] Mikhaiel v Breene [2022] NSWSC 102 involved a s. 95 application made whilst the testator was alive in order to proactively prevent a Family Provision Claim against the estate.