Attwood Marshall Lawyers Estate Litigation Senior Associate, Martin Mallon, joins Robyn Hyland for “Law Talks” on Radio 4CRB to discuss what happens when someone is left out of a Will due to concerns about their profligate spending habits or if they have a gambling or drug addiction.
Protecting your estate from a spendthrift
When a Will-maker is crafting their estate plan, they are focussed on ensuring that their hard-earned assets are distributed wisely among their loved ones. Often, as they delve into the complexities of family dynamics, troubling issues can emerge. It can be a challenge faced by many trying to understand how to protect their estate from potential ‘spendthrift’ heirs. A spendthrift is usually someone who can’t be trusted to manage money and would spend any money they had indiscriminately. It could be an addiction to the ‘pokies’, betting on the ‘dish lickers’, or just plain compulsive buying.
The factors that lead someone down the path of spendthrift behaviour are multifaceted and deeply rooted in psychology, emotions, and behaviour. These complexities range from a lack of financial education to compulsive buying disorders, addictive tendencies, and mental health issues.
In Australia, issues like gambling, substance abuse, and addiction have far-reaching consequences, affecting millions of individuals and their communities. Astonishingly, Australians lost an estimated $25 billion on legal forms of gambling between 2018-2019, representing the largest per capita losses in the world (according to the Australian Institute of Health and Welfare).
With these issues and other spendthrift behaviours at play, the potential for financial instability, debt, and strained relationships is significant. It is no wonder that Will-makers often seek ways to safeguard their estates from being eroded by those with spendthrift tendencies.
However, if an eligible applicant exhibits these traits, they still have legal rights to a share of an estate, even if excluded from the Will, by way of a Family Provision Application.
Can being a spendthrift affect a beneficiary’s right to seek further provision from an estate?
While a Will-maker may choose to leave someone who is a spendthrift out of their Will due to concerns about their spending habits; this does not automatically disqualify the individual from seeking further provision from the estate for their proper maintenance and support.
Numerous cases have dealt with spendthrift scenarios, and it is widely accepted that merely being a spendthrift is not sufficient grounds to dismiss an order to an applicant seeking further provision from an estate (see Howarth v Reed (Powell J, 15 April 1991, unreported), Close v Close  NSWSC 668 and Carroll v Cowburn  NSWSC 248). However, an applicant’s financial habits may influence the type of order made in their favour if they do bring a claim against the estate.
When someone is intentionally excluded from a Will due to doubts about their ability to manage an inheritance responsibly or due to a strained relationship caused by their spending habits, they still have legal options to contest the Will.
Legislation in each state and territory defines who is an “eligible person” to make a Family Provision Application.
In Queensland, an eligible person can be:
- The deceased person’s spouse, including a de facto partner and/or civil partner;
- The deceased person’s child, including step and adopted children; or
- Any person who was wholly or substantially maintained or supported by the deceased person at the time of their death who was either the deceased’s parent, the parent of a surviving child of the deceased who is under the age of 18 years old, or a person under the age of 18 years.
In New South Wales, the category of eligible persons is broader and includes but is not limited to:
- Current or former spouse;
- A grandchild, or person who was a member of the deceased’s household at any time and was wholly or partially dependent on the deceased;
- A person in a close personal relationship with the deceased (e.g. a carer or friend).
In Victoria, eligible persons includes but is not limited to:
- A former or current spouse or domestic partner;
- A carer who was in a registered caring relationship with the deceased;
- A child (including stepchildren and adopted children) under 18 years of age, or who was studying full time and aged between 18 and 25 years;
- A child with a disability;
- An adult child who has difficult supporting themselves financially;
- An assumed child;
- Grandchild of the deceased.
How does the court view spendthrifts in estate disputes?
Among families, it’s frequently believed that a spendthrift should have limited or no right to inherit from a loved one’s estate. However, all estate litigation cases are determined on their own facts and merit.
There is case law that gives some insight into how these types of matters are viewed by the court.
In a 1988 New South Wales Supreme Court case, Bondy v Vavros (Young J, 29 August 1988, unreported), a claim was made by the deceased’s surviving wife, who sought further provision from her late partner’s estate. The judge in this matter noted that the plaintiff had been accustomed to a certain lifestyle which was above her means when living with her husband and was now seeking provision to maintain that same standard of living. On the issue of applications by spendthrifts, his Honour Justice Young concluded that:
“in one sense it does not matter if I form the view that a plaintiff is a spendthrift. If a person is entitled to an order, what they do with the money that they receive is their business and it is none of my affair if I very much fear that the money may be wasted on wine, women, and song in a short period of time … On the other hand, when one is considering what a wise and just testator would have done, if one can see that a plaintiff is a spendthrift and the testator has arranged his Will in such a way as to limit the funds flowing to the plaintiff, then one may very well come to the conclusion that the plaintiff has failed to establish that there has been any breach of moral duty.”
Whilst being a spendthrift doesn’t automatically disqualify someone from benefiting from an estate, it can influence the type of order the court may issue, for instance, a protective order may be issued.
These orders are often utilised in situations where applicants suffer from conditions such as mental illness, brain damage, or a combination of physical and mental health challenges, rendering them susceptible to rapidly exhausting their financial resources.
Protective orders are also considered when applicants have gambling problems or when there’s a likelihood that the money awarded could be passed on to other relatives.
Whether a protective order is necessary depends on the specifics of each case and is ultimately at the judge’s discretion.
Stares v Public Trustee  NSWSC 37: an example case of a spendthrift being awarded further provision, with no protective order
In a notable 2005 case in the Supreme Court of New South Wales, Stares v Public Trustee, an order for further provision in the amount of $80,000 was awarded to the plaintiff, who was the deceased’s de facto partner. Due to the size of the estate, his Honour Justice Macready did not impose any limitations on this award, despite recognising that the plaintiff had likely already spent $38,0000 of the deceased’s superannuation on gambling machines. Additionally, his Honour acknowledged the ” real possibility that the plaintiff may waste any further inheritance by her addiction to gambling.”
It’s important to note that while the court has the authority to impose protective orders when granting further provision to spendthrift applicants, this case demonstrates that such protections are not automatically applied. Instead, each case is meticulously evaluated based on its unique set of facts and circumstances.
How does a protective order work?
One common protective measure that a court may order in cases where there are concerns about an applicant’s capacity to manage their finances, may involve the establishment of a trust to oversee and safeguard the assets allocated to the vulnerable individual.
A protective trust, tailored to the specific needs of the individual, can be ordered by the court. Its terms and conditions are determined to ensure the individual’s financial security and well-being.
To oversee and manage the trust, a trustee is appointed. This trustee typically serves as a responsible and impartial entity or individual, entrusted with the fiduciary duty of acting in the best interests of the vulnerable person.
The court has the authority to specify the precise terms governing the trust, which encompass how the assets are to be administered and distributed for the benefit of the individual. These terms often include restrictions designed to shield assets from potential mismanagement or depletion.
Ultimately, the primary objective behind establishing such a trust is to offer financial security and support while preventing the assets from being recklessly dissipated, ensuring the individual’s long-term financial stability.
Planning ahead: protective measures to safeguard your estate
When completing your estate plan, taking proactive measures can be the key to reducing the risk of posthumous disputes and ensuring those who you intend to benefit from your estate, ultimately will.
For Will-makers who harbour concerns about a beneficiary’s spending habits, or worry about the vulnerability of assets to creditors, there are several strategies that can be implemented to protect your hard-earned assets as well as a vulnerable family member, including establishing either a protective trust or discretionary trust.
Having these conversations with a professional is critical to help you explore and implement the best strategies to ensure your wishes can be fulfilled. By addressing these issues proactively, you can significantly mitigate the risk of disputes arising after you are gone.
Attwood Marshall Lawyers – experts in estate litigation
If you have been left out of someone’s Will and want to understand your rights to contest the Will, our experienced estate litigation lawyers can review your case and let you know your likelihood for making a successful claim.
We have experience in representing plaintiffs and defendants in estate litigation matters across all jurisdictions.
For expert legal advice and to find out where you stand, please contact our Estate Litigation Department Manager Amanda Heather on direct line 07 5506 8245, email firstname.lastname@example.org or call our 24/7 phone line on 1800 621 071.
Our team are available at any of our conveniently located offices at Robina Town Centre, Coolangatta, Southport, Kingscliff, Brisbane, Sydney, and Melbourne.
If you need to review your estate plan and want to explore what strategies will suit your family circumstances, our estate planning team are always available. For estate planning enquiries, please contact our Wills & Estates Department Manager, Donna Tolley, on direct line 07 5506 8241, or email email@example.com
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