Recent decision highlights risks for advisers with incapacity

Mr Maddock died in June 2020 and was survived by his wife, Shirley Maddock and two children, Norman Maddock and stepdaughter, Nellie Thelma O’Connor-Gunn.

In the 15 month period between October 2018 and January 2020, when the deceased was aged 95 or 96 years, his lawyer, Anthony Naughton, took instructions from the deceased, prepared and witnessed three wills, and prepared and witnessed an enduring power of attorney.

In the 2018 will, the deceased appointed his friends, Geoff Dixon, Jennifer Greenland, and the plaintiff as his executors. He left $25,000 to each of his executors, $180,000 to various charities, $600,000 to his wife and the residue in the percentages of 20 per cent to his son, 20 per cent to his stepdaughter, and 60 per cent to the Royal Children’s Hospital. 

In the 2019 will, a number of changes were made to the 2018 will. He appointed a friend, Marcia Bailey, as sole executor, bequeathed $75,000 to her and reduced the legacy to his wife from $600,000 to $300,000. 

The deceased’s last will was made on 14 January 2020. The 2020 will was identical terms to the 2019 will with the exception of property at Bentleigh East being devised to Marcia Bailey. A new clause was added stating that as his wife, Shirley Maddock had “advanced dementia and has very ample and sufficient monies for her needs”.

By writ filed on 17 December 2020 in proceeding S ECI 2020 04648, Ms Maddock sought a declaration that the Bentleigh East property was held on trust for her benefit.

Ms Maddock was represented by Australian Unity Trustees Limited prior to her death on 30 May 2022.

The children foreshadowed proceedings to seek a declaration that the deceased held assets registered in his name on trust for them, as well as applications pursuant to Part IV of the Administration and Probate Act 1958 (Vic).

By originating motion filed 30 July 2020, the plaintiff sought a grant of probate of the 2020 will.

The inventory of assets and liabilities disclosed an estate valued at $3,590,921 with the values of the Bentleigh East property being $1,000,000 and a holiday property in Rosebud being $350,000.

Australian Unity Trustees as administrator for Ms Maddock filed a caveat against the grant of probate of the 2020 will.

By grounds of objection filed 1 September 2020 the defendant alleged that the deceased lacked testamentary capacity during the period shortly before or at the time of execution of the 2020 will and that the will was made in suspicious circumstances.

Concerns were raised about the lack of contemporaneous medical reports that would confirm the deceased had testamentary capacity and there being no evidence of the steps taken by Mr Naughton to confirm the deceased had testamentary capacity at the time of making the will.

Evidence submitted by Australian Unity Trustees noted that the deceased had been admitted to hospital after having had multiple falls in September 2019 and was discharged to an aged care home in October 2019.

A comprehensive medical assessment of the deceased noted that the deceased had amongst other conditions, a principal diagnosis of cognitive impairment (2018), and noted his mood to be ‘variable’.

Justice Kate McMillan concluded that deceased did not have testamentary capacity on 13 January 2020 when the deceased gave instructions for the 2020 will and when he signed the 2020 will on 14 January 2020.

Justice McMillan stated that while the deceased had a general understanding of his assets, his understanding of the value of his assets was far beyond their actual value.

“He also failed to comprehend or appreciate the claims of the defendant and the two children on his estate on either 13 January 2020 when the deceased gave instructions for the 2020 will or 14 January 2020 when he signed the 2020 will,” she stated,

“Perhaps most significantly, given the deceased’s age and medical history, the medical evidence put forth by the plaintiff was insufficient to demonstrate on the balance of probabilities that the deceased had testamentary capacity.”

DBA Lawyers director Daniel Butler said this decision is highly relevant to the SMSF world.

“If we look at all the creative and flexible estate planning measures that are being encouraged in the marketplace and a lot of advisors are involved in doing this flexible and creative work, that really does land them in the realm of legal work,” said Mr Butler.

Mr Butler said it is therefore very important that advisers are on top of the risks relating to testamentary capacity.

He noted that the Court made reference to the fact that the solicitor, Mr Naughton, had failed to recognise the warning signs that the friend Marcia, had influenced the deceased at a very vulnerable time in his life.

Justice McMillan stated that Mr Naughton should have been more suspicious of the plaintiff and her involvement in the proposed inter vivos transfer of the Bentleigh East property and the subsequent major change in her favour in the 2020 will.

“The plaintiff appeared to be heavily involved with the deceased in circumstances where the deceased was likely to be vulnerable or impressionable as a result of his circumstances and became dependant on her,” she stated.

Mr Butler warned advisers that they could end up in a similar situation, where their work and file notes are “raked through the coals” in the court.

“Normally in these situations when you've got an elderly person or someone you feel might have cognitive difficulties, you need to go through a process where you start the conversation off but you give them time. You need [to be confident] that they have mentally digested the information and made logical answers,” he explained.

The Court also emphasised the importance of ensuring there is proof that a testator has testamentary capacity to approve the contents of the will at the time of execution.

“We really need to know [if they had capacity] at that critical time because some people can be lucid some moments and not others,” said Mr Butler.

The Court noted that where a testator is elderly, it is generally considered prudent that a medical opinion be obtained as to the medical condition and whether any such conditions may affect their capacity.

“When you’re considering testamentary capacity, whether as a solicitor or an adviser, the quality of the assessment made is very important. There needs be contemporaneous notes and records made. [They also need to consider] whether there are red flags suggesting a possible challenge to capacity,” said Mr Butler.

“Advisers therefore have a duty to dig deep, they can’t just accept it, particularly where there’s a risk of elder abuse.”