Even if you are prepared and have an estate plan in place, there are still ways for things to go awry in your finances – thanks to the fact that we’re all living longer.
Australian males used to retire at 65 and die at 70, but now half of all 65-year-old males will still be alive at the age of 89. With people living longer, there is more scope and time for problems to occur with your estate plan, even before you pass away. This includes family members attempting to intervene to secure a greater share of your own or your parents’ estate or to lock out other beneficiaries.
Let’s look at the example of Frank and his adult daughters Laura, Tina and Bianca. This example is based on a real case of mine from a few years ago and demonstrates not just the importance of having a carefully considered estate plan and communicating with loved ones about that plan, but also of being aware of elderly family members and their financial interactions, even when those interactions involved with other close members of the family.
Frank is an Italian immigrant in his 70s, with limited English skills, little formal education and little or no business skills. Laura believed that Frank intended to divide his estate equally between all three of his daughters. She stated that he had always said that that was his intention. However, when Laura visited Frank, she noticed a mortgagee sale sign on the front lawn. Without Laura knowing, Frank had signed a mortgage over his home and a guarantee to support the debts of the business of his daughter Tina.
Tina’s business was in a precarious state of affairs, so Tina had asked Frank to sign a guarantee for the business’ debts and a mortgage to secure the guarantee. She had told her father that the mortgage was for $50,000 with a six-month term but it was not limited in that way at all.
The documents were signed and Tina’s business further deteriorated. Eventually the company went into liquidation. The bank made a demand under the guarantee and then sought to sell Frank’s home under the mortgage. The house was all that Frank had.
What could Frank do? What could Laura do? The horse had already bolted. The documents had already been signed.
Frank, with Laura’s help and that of a lawyer, applied to have the mortgage and guarantee set aside. The lawyer relied on the High Court decision in 1983 in a case called Amadio, in which the High Court had talked about unconscionable conduct and what it means.
The court considering Frank’s application followed the Amadio case and held that given Frank was an immigrant with limited English skills, little formal education and little or no business skills, he was at a special disadvantage. The court held that it was unconscientious for Tina to use her superior position and bargaining power to the detriment of her father.
If you are in a similar position to Frank and need to challenge such a contract, the first step should be to engage a lawyer and write to the offending party listing the facts of the case. In some cases, the threat of future legal action may be enough to scare off the offending person.
In Frank’s case, he (with the help of his lawyer and daughter Laura) wrote to Tina as a first step to ask that the mortgage and guarantee be set aside. When Tina failed to respond, they took additional steps.
Of course, any action you can take will depend on how much time has passed. If, for example, the money has already been spent, it can be very hard to claw it back without taking additional legal action.
The costs of seeking legal recourse should things go wrong with your or a loved one’s estate plan – either before or after the subject passes away – can be extremely expensive; a ballpark figure is around $100,000. In some cases, the costs can exceed $500,000!
These high costs are generally because any claim will most likely be defended by the offending person. If that person defends it aggressively, the costs go up. This is why it is extremely important to take care with estate planning and intervene early if you suspect something is awry with a family member’s plan, as otherwise you may be facing significant legal costs down the track.
Generally, should your claim be successful in court, you should be able to recover 75 per cent to 80 per cent of your legal costs. However, it’s important to remember this can take months or years to recoup and you will be out of pocket for the remaining 20 per cent to 25 per cent.
If your claim is unsuccessful, you will likely be liable for the defendant’s legal costs. While it is a lawyer’s duty to only take your case if there are reasonable prospects of success (at a minimum 50/50), nothing is guaranteed.
However, if your lawyer states that your prospects of success are reasonable, when the reality is that they are not, then your lawyer may be personally liable for your legal costs. So you can expect your lawyer to not leave any stone unturned when they receive your instructions and explore your prospects of success.
In my experience, there are several red flags that may indicate something untoward is going on or that a family member may intend on doing something nefarious down the track.
In many cases, a family member may prevent their elderly parent or family member from seeing other family members, so effectively keeping them isolated. Another indicator could be where small items such as jewellery may go missing from the home. This could be a sign that the family member is testing the waters to see what they can get away with without other family members noticing or intervening.
Alternatively, you may find that the family member may be cozying up to the elderly family member in a way they hadn’t previously; a warning sign can be where they are suddenly ‘the favourite’.
The best recourse is to intervene early. Keep a close eye on what is going on, remain in contact with your loved one through all means necessary, and be persistent – even pushy. Many people I deal with are reluctant to damage the relationship with the family member whom they suspect is behaving inappropriately. They feel awkward about calling them out. It flies against the family culture.
However, the sad truth is that if this family member is willing to behave in the way you suspect, then the relationship is already irrevocably damaged. The family member intent on wrongdoing is, in fact, relying on you to give them the benefit of the doubt or to feel too awkward about confronting them, in order to get what they want.
If, in particularly, you suspect untoward financial transactions may be taking place without your knowledge, the best course of action is to write to the offending family member. This usually works better with the help of a lawyer. The letter/email should request access to the relevant financial information and answers to any questions you may have. The letter may also reference what the court considers to be unconscionable conduct (or misleading and deceptive conduct, if that is the appropriate description) and the nature of the acts of the offending party that indicate that the offending party appears to be conducting themselves in that manner.
This communication gives you an avenue to pursue them, even if your loved one is deemed to have capacity. You can read more about what capacity is and why it is important in legal matters here. This was the case for Frank; whilst he had capacity, he was still at a disadvantage due to other factors.
If you are concerned that your loved one is being taken advantage of, you can also seek to have them medically assessed to determine whether they still have capacity. This will help down the track if it is found that the offending family member has encouraged financial transactions not in the best interests of the elderly family member at a time when the elderly family member didn’t have capacity. As a minimum, it may serve as a disincentive to the family member to attempt to get away with that kind of behaviour in the first place.
If the offending party has power of attorney, another avenue to consider is applying to the appropriate body in your state (for New South Wales, it is the NSW Civil and Administrative Tribunal) to cancel the power of attorney on the grounds that your family member is not acting in the best interests of your loved one. It’s best to work with a lawyer to expedite this process and maximise your chances of success.
Once the loved one passes away, any assets will go to their estate to be divided according to the wishes set out in their will. That includes any assets that are discovered after death as forming part of the estate but which were previously undisclosed or unknown.
If you believe the terms set out in the will are unfair (for example, where the will has been changed at the last minute to give everything to one person), you may challenge the will. Keep in mind that superannuation is dealt with separately so if you want to make a claim for superannuation entitlements, this is a separate process.
If financial irregularities are discovered after the elderly family member has passed away, such as the sale or gift of assets to a family member shortly before the death of the elderly family member, you should discuss your options with a lawyer. If you are able to prove that the elderly family member didn’t have capacity to make such decisions, or that the offending family member behaved unconscionably or that the offending family member didn’t meet their duty as an executor, self-managed super fund trustee or as attorney under a power of attorney, then you may have legal recourse.
There is more that can be done beyond focussing on claw back rights after the fact. It’s much better to intervene early before the problem snowballs out of control. There are several things to consider. Why did Frank give Tina the mortgage and guarantee? How did that happen? How did Tina manoeuvre herself into that outcome?
Laura should have been asking herself several questions early on. Why is Tina seeing so much of Dad recently? Is Tina verballing or gaslighting our father? What is Tina saying to Dad about me? Had Laura begun her enquiries as soon as she felt something was not right, then she may have discovered Tina’s plan and she may have been able to thwart it.
The lesson is to ask questions. Be involved. Make enquiries. Look out for yourself and for your family members. Family culture is hard to change. Some family members count on you not upsetting the status quo but if you don’t, then you may end up much worse off.