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Tying the will maker's hands – testamentary contracts explored

Tying the will maker’s hands – testamentary contracts explored

Published on August 23, 2016 by Patricia MonemvasitisPatricia Monemvasitis

It is commonplace in farming communities to hear stories of fathers saying to their sons, “one day all of this will be yours”. However, without considered and appropriate estate planning, this intended result is often not achieved.

In addition to having a Will, many farmers incorporate testamentary contracts into their estate plans. These contracts aim to provide certainty for children who farm on land owned by their parents that the land will one day pass to them. The agreements between parents and children in these contracts may include:

  • an agreement to make a Will;
  • an agreement to include specific provisions in a Will (including gifting provisions);
  • an agreement not to dispose with assets without the prior consent of all parties; or
  • an agreement not to revoke a Will without the prior consent of all parties.

Priestly v Priestly [2016] NSWSC 1096

The recent Supreme Court of New South Wales decision in Priestly v Priestly [2016] NSWSC 1096, highlights the key components of a valid testamentary contract.

In this case, Gordon and Beverley Priestly were farmers who had 3 children. Their son, Duncan, was the only child that worked on the farm. During a conversation in 1986, Gordon assured Duncan that the farm would one day be his.

Gordon and Beverly divorced in 2004 and after several family disputes, a settlement deed was entered into by all members of the family. Clause 1(a) of the settlement deed provided for various titles of land already in the sole names of Gordon and Duncan to remain with them and for Gordon and Duncan to agree between themselves whether to designate those properties differently.

In court, Duncan argued that when the settlement deed was made, it was his intention and the intention of his father that he would help his father re-establish himself on the farm by helping him maintain and run the farm and in recognition, Gordon would leave the farm to Duncan.

In 2007 Gordon made a will leaving his estate to Beverly and his 3 children equally. On 11 February 2012 he revoked his earlier will and left his estate to Beverly only.

Gordon died on 19 February 2012.

White J assessed whether clause 1(a) of the deed amounted to a testamentary contract. His assessment revealed that:

  • there was no agreement that Gordon would make a will in favour of Duncan;
  • there was no agreement that Gordon could not revoke a will without Duncan’s consent; and
  • there was no agreement that Duncan would receive the farming property held in Gordon’s name upon Gordon’s death in exchange for working on the farming property.

White J held that clause 1(a) prevented both Gordon and Duncan from disposing of land titles in their sole names without the consent of the other during Gordon’s lifetime. However, the clause did not go so far as to prevent the disposition of the farming property by Gordon in his Will.

Further, White J held that although other mutual promises might have been expressed between Gordon and Duncan, Gordon was not bound to not revoke his will. Gordon’s conduct in making later wills evidences that he did not believe that he was under any obligation to Duncan to not change his will.

What if a testamentary contract existed?

Priestly v Priestly demonstrates for the elements of a contract to apply in the formation of a legally binding testamentary contract there must be:

  • an offer and acceptance
  • intention to create a legally binding agreement
  • a price paid (not necessarily money)
  • a legal capacity to enter a contract; and
  • proper understanding and consent of what is involved.

If a testamentary contract existed, this would have prevailed even though probate had been granted over Gordon’s will. This would have lead the court to a decision that the farming land Gordon once promised to Duncan shall pass to him.

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