Hodge v De Pasquale [2014] VSC 413 dealt with an estate valued in the inventory of assets and liabilities at $4,564,220.36, which was comprised primarily of 3 properties. Under the deceased’s Will, the 3 properties were to be provided to the deceased’s 2nd wife (being the Executor and Trustee appointed under the Will), 1st daughter from his previous marriage and 2nd daughter from his previous marriage.

The deceased’s 3rd daughter from his previous marriage was to receive a lump sum of $500,000 or such lesser amount as remained once the estate expenses had been paid. If the sum remaining exceeded $500,000, such additional amount was to be divided equally between the Trustee and the deceased’s 3 daughters.

Following the grant of probate, the 2nd daughter made a Part IV claim seeking further provision. The Trustee notified the 3rd daughter of this and invited her to attend the mediation. However, the 3rd daughter simply requested that, if her share of the estate should fall below $500,000, she would require all document that affected that amount.

As a result of the mediation (which was not attended by the 3rd daughter), terms of settlement of were agreed where the 2nd daughter would be paid a further $250,000 (inclusive of legal costs and interest). The terms did not specify which part of the estate the sum would be paid from. The Trustee informed the 3rd daughter of the settlement and, several weeks later, paid a total of $250,000 from the estate to the 2nd daughter.

The 3rd daughter objected to the terms of settlement and the payment of the $250,000 to the 2nd daughter.

Having considered the authorities and circumstances of the case, the Court held that:

  • A trustee may settle a Part IV claim, however, the trustee must then either seek consent from any affected beneficiaries, or otherwise seek orders from the Court to give effect to that settlement;
  • The 2nd daughter was not liable to repay to the estate the amount of $250,000 that she received because she could not have known and did not know of the 3rd daughter’s position on the settlement at the time of mediation. Further she was not an overpaid beneficiary or a volunteer, rather, she received that sum in her capacity as a third party claimant.
  • It would not exercise its discretion to excuse the liability of the Trustee. Although the Trustee acted honestly in her decision to compromise the Part IV claim, she did not act in good faith. The Trustee acted in a position of conflict, and without properly considering the 3rd daughter’s interests as a beneficiary of the trust.

The Court ordered that the Trustee was personally liable to reimburse the estate the amount of $250,000.

To find out how Armstrong Lawyers may assist you in relation to Estate Planning or Will Disputes, feel free to browse our Wills and Estates page.