The case dealt with a testamentary grant of right to occupy property and whether the expenses to be paid for the property were payable by the deceased estate. It also dealt with the question of superannuation entitlements and whether superannuation withdrawn shortly before death was considered a separate gift of superannuation or estate residue.

The court proceedings considered the administration of the estate of the late John Sherwood Brown who died in January 2019 and the interpretation of the deceased’s will, which was executed shortly before his death.

The deceased was survived by three biological children, as well as his companion, Joanne Lee Fryer, and her son, Sebastien William Kladnig, who was treated in the will as one of the deceased’s children.

The deceased had assets including two properties, as well as superannuation interests of approximately $1.4 million.

He made a will when he was in the advanced stage of a terminal illness and died a few days later. The court heard that due to this fact, it was “reasonable to proceed on the basis that the deceased would have contemplated that the assets he held at the date of the will would form part of his estate”.

Before being admitted to the hospital at the end of his life, the deceased had been living at one of his properties with Fryer and Kladnig, which was valued at $2.2 million.

In a clause in his will, the deceased made the property available for the exclusive use of Fryer and Kladnig “until such time as he completes his formal education, vacates the said property or attains the age of 25 years, whereupon my Trustee will transfer the said property and aforementioned inclusions in equal shares to the beneficiaries”.

The will continued that “during any period of residence by [Sebastien] his mother [Ms Fryer] will also be entitled to reside with him subject to exclusive occupation by them, provided he/they keep the property clean and tidy, in a good state of repair and maintenance and to be liable for all periodic costs and expenses thereof; but my estate shall otherwise be liable for payment of council and water rates, insurance and any repair or replacement of capital items”.

The case revolved around the question of Kladnig’s occupation of the property (with his mother) under the specific clause of the will. He turned 18 in the course of the proceedings, finished his HSC at the end of 2023, and is now an undergraduate student at the University of Technology, Sydney. He will not attain the age of 25 until 2030.

The specific question arose out of the wording of the clause in the will regarding the provision by the deceased that, “my Estate” would be “liable” for certain types of expenditure, namely rates, insurance and capital works. There is a dispute about how such expenditure is to be borne between the beneficiaries.

Counsel for Fryer and Kladnig contended that the reference to “my Estate” was to the deceased’s estate, as administered by his executor, which they argued would not be completed until the trust established under the clause comes to an end, which will not occur until Kladnig completes his formal education, leaves the property, or attains the age of 25 years.

Counsel for the biological children disputed this interpretation stating the reference to “my Estate” was a reference to the Trustee in his capacity as trustee of the will trust established by the clause.

Hay-Bartlem said the issue in the case is the interpretation of the will and says it highlights the problems which can occur using a trust.

“There was confusion about who is paying the costs and it is fairly typical in cases with a blended family where the willmaker is trying to balance everything and to determine where different assets fit in,” he said.

“A formal testamentary trust can be a good way to deal with these situations as it can be easier in the sense of the division of the asset pool. In this case, the deceased had an informal testamentary trust which along with rights to reside and life interests can be quite inflexible and can have nasty tax consequences.”

He continued that the deceased left his superannuation specifically between the three children and his stepson, but one of the more interesting facts of the case is that he withdrew his superannuation before his death to save on death benefit tax.

“Some of the superannuation withdrawal was paid out before his death and some after, from two different funds, so the death benefits that were withdrawn first didn’t form part of his superannuation for the purposes of his will, and reverted to an estate asset, and was not covered by the clause in the will dealing with superannuation,” Hay-Bartlem said.

He continued that the will also dealt with superannuation entitlements specifically and as some had been paid out before death, problems arose in the will’s interpretation. A key question was whether superannuation withdrawn before death was still superannuation for the purposes of the will, and whether it mattered if the superannuation was paid by the time of death.

“At the time the will was done all his superannuation was sitting in the super system. What he should have done is gone back and looked at the will as super is only going to be super if still sitting in a fund at death. When it’s withdrawn and paid before death it is no longer clearly superannuation,” Hay-Bartlem said.

The court decided that the superannuation paid out before death was not superannuation and covered by the superannuation clause in the will. The superannuation paid after death was covered by the superannuation clause.

“This case highlights the importance of considering the impact that a deathbed withdrawal can have on the distribution of someone’s assets after death. Often we are so concerned with the tax implications we do not consider other issues, such as will the intended beneficiaries still receive the superannuation if it is withdrawn before death.”