In a previous article, we have highlighted issues that can arise when a Will gifts specific property to a beneficiary.
A recent case of Wheatley v Lakshmanan [2022] NSWSC 583 provides another example of issues that can arise, particularly when the property is not owned by the individual Willmaker.
In that case, a company of which the Willmaker was sole director and shareholder owned the property that was purportedly gifted in the Will and a dispute arose as to the effect of the clause.
Gifting in a Will – General Principals
Generally, a Will can only pass down assets owned in that person’s sole personal name at date of death. The typical items tend to be:
- jewellery;
- artwork;
- cars;
- cash;
- shares; and
- property.
When choosing to gift a family member real property, the initial thought tends to be ‘I am providing a valuable asset that they can have the full use and enjoyment of’. However, it is important that consideration be given to the legal owner of the asset and potential tax consequences.
Wheatley v Lakshmanan [2022] NSWSC 583 – The Case and Judgement
The Will of the deceased gifted a specifically named property to one of her daughters, Alexis. This was the only provision provided for Alexis in the Will. The balance of the deceased’s assets were to pass to her other daughter, Erin.
The matter came before the Court because the property that the deceased purported to gift to Alexis was not owned by the deceased personally, but rather was owned by a company in which the deceased was sole shareholder. The deceased shareholdings in the company passed to her daughter, Erin, not Alexis.
There was argument in the Court about whether the Will could be interpreted to allow the property to pass to Alexis but that argument was unsuccessful based on this, the Court ruled that the clause gifting the property to Alexis in the Will failed, with the result being that Alexis received nothing under her mother’s Will. The Court touched on whether the Will had provided the executor with sufficient powers to deal with the shares in the company as if it were the beneficial owner, then this may have been sufficient to require the executor to ensure that the property passed in accordance with the Will (referring to the decision of O’Callaghan [1972] VR 248).
As a result of the gift failing, Alexis was granted provision of $820,000 from the Court (by way of a family provision claim). However, the gift of this particular property had significant unintended consequences for each beneficiary and the estate:
- there were high legal and accounting fees to resolve the issue;
- Alexis did not receive the value her mother intended (had she inherited the property);
- the estate was left with a significant tax burden, being a total of $1 million;
- the Court had to weigh up the tax liability when deciding what to grant Alexis as Erin’s inheritance in the estate was also impacted by the tax burden.
Key Takeaways & How We Can Help
The potential consequences of leaving a gift of property in a Will should not be underestimated, or ignored. Tax consequences, legal fees, accounting fees, and the burden of stress can be substantial where an intended gift of property fails.
From a Will drafting perspective, it is important to ensure that property ownership is determined from the outset and that the gift in the Will is carefully drafted to ensure that potential consequences are mitigated and the deceased’s wishes are given effect to as intended.
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