Have you missed out on a gift in a Will due to the sale or disposal of the Will maker’s assets during their lifetime by their attorney?
How Loss Can Occur
With an increasing ageing population, the following scenario is becoming more common. The elderly person (“the principal”) makes an Enduring Power of Attorney, usually appointing a family member or friend as one or more attorneys. The principal loses capacity and has to go into care, however their home needs to be sold to pay the accommodation bond. The attorney/s, acting in the principal’s best interests and completely within the scope of their duty as attorney, sells the home to pay the bond. The principal then dies and it is discovered that their Will provided for a gift of the home to one or more beneficiaries.
The legal outcome for estate administration purposes is that as the home was no longer owned by the deceased at the date of their death, the gift in the Will fails and the beneficiaries receive nothing. This is known as ademption and applies to any specifically gifted item in a Will that the deceased (or their attorney) may have disposed of after making the Will and before their death. The home has been used in the above scenario as it is the asset most commonly the subject of ademption and in many cases the most valuable asset.
Section 107 of the Powers of Attorney Act 1998 (Qld) (“the Act”) offers a remedy. This provision allows a person who has lost a benefit in an estate as a result of the attorney’s dealings with the principals property to apply for compensation from the principal’s estate. It does not matter if the beneficiary who has missed out on their gift, is also the attorney who sold or disposed of the asset. The Court has a discretion to order an appropriate amount of compensation, taking into account all the circumstances, but cannot order an amount greater than that of the value of the lost benefit.
Factors that a Court may consider will vary in each case but could include the value of the estate, what the position would have been if the property had not been sold, the effect on the position of other beneficiaries of the estate, the attorneys actions, whether there was any wrongdoing by the attorney, the costs outcome for the application and how that will affect all beneficiaries.
At present it is unclear whether the attorney’s knowledge of the contents of the principal’s Will would affect any compensation order, where the attorney who caused the loss is also the beneficiary who has missed out. However, in the writer’s view, if it is in the principal’s best interests to sell the home to prevent interest accruing on the balance of an unpaid bond, then the attorney could hardly be refused compensation, having properly carried out their duties as attorney.
What if the attorney was not acting properly?
Section 106 of the Act also offers a remedy where an attorney has caused loss to the principal (or to the principal’s estate) as a result of the attorney not complying with their duties as attorney. Common breaches of duty are where the attorney has used the principal’s monies for their own purposes, or where the attorney has sold the principal’s home at an under market value or to a friend or relative of the attorney. The Court may order that the attorney compensate the principal (or their estate).
In both cases, strict time limits apply and any application for compensation must be made within six months of the date of the principal’s death, and additionally in the case of section 106, if the attorney has died, within six months of the attorney’s death. The Court does have power to extend the time limit, on reasonable grounds. However, once six months has passed, it is possible that the estate will have been distributed and the claim will fail.
Attorneys may also be caught by the provisions of Section 87 of the Act. This section provides that where a transaction occurs between a principal and an attorney (or a relative, business associate or close friend of the attorneys) there is an automatic presumption that the attorney influenced the principal to enter into the transaction.
There have been several cases where the principal has made a gift to a child, (who also happens to be the attorney) of either a cash amount or an interest in a property. The Court can undo the transaction, and/or make orders as to compensation, unless the attorney is able to prove that the principal made the decision with full capacity, voluntarily, and with the benefit of proper independent legal and financial advice.
If you believe you have a claim for loss arising from an attorneys dealing with assets, you should seek legal advice as soon as possible from one of our experienced estate lawyers.
If you are an attorney and are unsure of your duties and obligations in administering the principal’s affairs, then you should carefully read Part 3 of the Enduring Power of Attorney form.
If you require any further information on your role as attorney or have concerns about the appropriateness of any transaction you propose to enter into either for or with the principal, you should contact us to obtain advice, before proceeding.