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Background:

The Deceased died on 16 February 2013 leaving a Will dated 21 March 2011. The Will contained a clause which provided that the “rest and residue” of the Deceased’s estate was to be divided equally between her four grandchildren, but that each grandchild would only be entitled to his or her share on their respective 45th birthdays. At the date of the Deceased’s death, the grandchildren were aged between 26 and 19 and the residue of the estate was approximately $4 million. The residue of the estate was to be held on trust by the Deceased’s son (the father of all grandchildren), until the grandchildren each turned 45.

There was no “gift over” clause in the Will. That is, there was no clause to say that should any grandchild die before turning 45, that his or her share would be given to any children of that deceased grandchild. 

There was, however, a clause in the Will which allowed the trustee to advance money to the grandchildren for “maintenance, education, advancement or benefit” out of the share to which that grandchild “is entitled or may in the future be entitled”. 

There was no dispute that, should none of the grandchildren live to the age of 45, then the Deceased’s son would become entitled to the residue of the estate under the Succession Act 2006.

Vested or Contingent Interest?

The issue in this case was whether each grandchild’s gift of one quarter of the rest and residue of the estate constituted an immediate vested interest, or whether it was contingent upon that grandchild reaching the age of 45 years.

The long established precedent set by the English case of Saunders v Vautier [1841] EWHC Ch J 82 is that where money or property is being held on trust for the benefit of a sole beneficiary, then that beneficiary may demand that the property be handed over to him or her.

His Honour cited CPT Custodian v Commissioner of State Revenue [2005] HCA 53 as the modern formulation of the rule in Saunders v Vautier. In that case the High Court stated:

“Under the rule in Sanders v Vautier, an adult beneficiary (or a number of adult beneficiaries acting together) who has (or between them have) an absolute, vested and indefeasible interest in the capital and income of property may at any time require the transfer of the property to him (or them).“

His Honour stated that a vested interest is “an interest in which the identity of the person who takes the interest is known and there is no condition precedent to the interest falling into possession other than determination of the prior particular estate”.

A contingent interest is “one that is subject to the prior happening of an event which may never happen, for example … the attainment of a certain age”.

His Honour considered the decision in Austin v Wells [2008] NSWSC 1266 in which it was held that “if the person’s interest depends upon a contingency which may or may not occur, he or she does not have a vested interest, but a contingent interest”.

On a plain reading of the Will, His Honour identified the wording that advancement of trust property can be made to a beneficiary who “is entitled or may in the future be entitled” as an indication that the grandchildrens’ interest in the residue of the estate did not vest immediately on the Deceased’s death, but rather was contingent upon each respective beneficiary reaching the age of 45.

Decision:

His Honour determined that the grandchildren’s interest in the rest and residue of the estate was contingent on them respectively attaining the age of 45 years. It was held that, aside from exercising the power of advancement provided in the Will, the trustees cannot divide and distribute the rest and residue of the estate between the grandchildren unless and until they turn 45.

This is a welcome decision for parents who, in the tragic circumstances that they pass away leaving minor children, do not wish that their children automatically become entitled to receive inheritance when they turn 18. This decision indicates that the Court will enforce a testator’s wish that inheritance should be held on trust for children until they reach the “age of majority” specified in the Will. 

A full copy of the decision is available here:
 
For any questions in relation to this topic or any other Estate Planning matter, please call us on 1300 727 813, or email us.

Related articles:
- Is It Time To Update Your Will?
- Your Will - Can It Be Disputed?

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