Introduction
A charitable bequest included in a will represents a vital source of funding that allows a charity to fulfil its long-term mission. However, these essential gifts are often at risk when an eligible family member decides to contest the will by filing a family provision claim, seeking provision from the estate.
For a charity’s board, the decision to defend a bequest is not merely about protecting a future asset; it is a core responsibility tied to their governance duties. This guide provides essential information on how to respond to a claim, work with the executor to uphold the will, and understand why consulting a not-for-profit lawyer is crucial to safeguarding the intended charitable provision.
Understanding the Family Provision Claim & Eligible Claimants in NSW
The Definition of a Family Provision Claim
A family provision claim arises when a person passes away and their will fails to make adequate provision for the proper maintenance, education, and advancement of a family member. In such cases, an eligible person can contest the will and ask the Supreme Court of NSW to alter its terms. If the claim is successful, the court can order a redistribution of the estate assets to provide for the applicant, which may affect a charitable bequest.
Identifying Eligible Persons Under the Succession Act 2006
In New South Wales, the law governing who can contest a will is the Succession Act 2006 (NSW). Under section 57 of this Act, only specific categories of people, referred to as “eligible persons,” have the legal standing to make a family provision claim.
These eligible persons include:
| Category | Description |
|---|---|
| Spouse | A spouse of the deceased at the time of their death. |
| De facto partner | A de facto partner living with the deceased at the time of their death. |
| Child | A child of the deceased. |
| Former spouse | A former spouse of the deceased. |
| Grandchild / Household Member | A grandchild or member of the household who was, at any point, wholly or partly dependent on the deceased. |
| Person in a close personal relationship | A person in a close personal relationship with the deceased at the time of their death. |
Assessing the Strength of Claims from Spouses & Children
While several categories of individuals can make a family provision claim, the court often gives significant weight to applications from spouses and children. This is because the law generally recognises that a deceased person has a moral obligation to provide for their immediate family members.
In contrast, a testator typically owes no such moral duty to a charity, which can make a charitable bequest more vulnerable to a contest.
The court will assess each family provision claim based on its individual circumstances, including:
- The applicant’s financial need
- Their relationship with the deceased
Even adult children, who may be expected to support themselves, can successfully contest a will if they can demonstrate a genuine need for provision.
For a charity facing such a claim, consulting a not-for-profit lawyer is essential to understand the strength of the claimant’s case and the best way to defend the bequest.
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The Fiduciary Duty of the Board & ACNC Governance Standards
Obligations of Responsible People Under Governance Standard 5
Under the Australian Charities and Not-for-profits Commission’s (ACNC) Governance Standard 5, individuals in leadership positions, known as “Responsible People,” are bound by specific legal duties. These obligations ensure they act with integrity and common sense, always prioritising the charity’s best interests. Failure to adhere to these duties can expose board members to personal liability.
The core duties that apply to a charity’s Responsible People include:
| Duty | Description |
|---|---|
| Act with reasonable care and diligence | Board members must be conscientious and careful when making decisions that affect the charity. |
| Act honestly and fairly | All actions should be in the best interests of the charity and aligned with its charitable purposes, placing the organisation’s needs above personal interests. |
| Not misuse position or information | Responsible People are prohibited from using their role or the information they gain from it for personal advantage or to cause harm to the charity. |
| Disclose conflicts of interest | Any actual or potential conflicts between personal interests and the charity’s interests must be formally disclosed and managed appropriately. |
| Ensure responsible financial management | The board is required to oversee the charity’s financial affairs to ensure they are handled responsibly. |
| Not allow the charity to operate while insolvent | Board members have a duty to prevent the charity from incurring debts it cannot pay. |
The Duty to Protect Charity Assets & Finances
A fundamental responsibility for a charity’s board is to ensure the organisation’s financial affairs are managed responsibly through strategic financial oversight. This duty is central to protecting the assets intended to fulfil its charitable purposes, including any charitable bequest left in a will.
Responsible People must implement structures and processes that guarantee accountability for all funds. To protect a charity’s assets and manage a bequest effectively, the board should establish strong financial controls. These systems are vital for preventing fraud or misuse of funds. Key controls include:
| Financial Control | Description |
|---|---|
| Multiple Signatories | Requiring more than one authorised person to approve payments and receipts adds a critical layer of oversight to financial transactions. |
| Budgets and Regular Reporting | The board should review up-to-date financial reports regularly to track performance against an annual budget and monitor the charity’s financial health. |
| Clear Spending Delegations | A formal policy should define spending limits for staff, ensuring that significant expenditures require board approval. |
| Secure Financial Information | Protecting access to bank accounts, passwords, and other sensitive financial data is essential to safeguard the charity’s resources. |
Understanding the Board’s Duty to Defend the Bequest
When a charitable bequest is challenged through a family provision claim, the board’s fiduciary duties require them to defend the will and protect the charity’s assets. This obligation stems directly from ACNC Governance Standard 5, which mandates that every board member personally understand and oversee the organisation’s finances.
Simply accepting a settlement without assessing the merit of the family provision claim could be seen as a failure to manage financial affairs responsibly. The board must act reasonably to preserve the assets of the estate for the charity’s beneficiaries. This involves carefully evaluating the strength of the family provision claim rather than capitulating early to avoid a contest.
Given that succession law is a highly technical field, seeking advice from a lawyer experienced with not-for-profit organisations is crucial. An expert can help the board prepare its response and determine whether the claimant has provided sufficient evidence of financial need, ensuring any decision to defend or settle the claim is made in the charity’s best interests.
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Strategies to Defend a Bequest & Prove Adequate Provision
Proving the Testator Made Adequate Provision
When a family provision claim is made against a will, the court first assesses whether the deceased made adequate provision for the claimant’s proper maintenance, education, and advancement. To defend a charitable bequest, the primary strategy is to demonstrate that the provision made in the will was, in fact, adequate based on the circumstances.
The court has the authority to award further provision from the estate only if it determines the existing arrangements are insufficient. The strength of any claim is evaluated relative to:
- the size of the estate, and
- the competing needs of other beneficiaries, which includes the charity named in the will.
A court will weigh the claimant’s needs against the testator’s intentions to support charitable purposes.
Demanding Evidence of Financial Need from the Claimant
A crucial step to defend a bequest is to require the person contesting the will to provide clear evidence of their financial need. A simple assertion of need is not enough; the claimant has the responsibility to prove their financial circumstances to the court.
This involves making frank financial disclosures regarding:
- their assets,
- income,
- liabilities, and
- overall financial resources.
The court relies heavily on independent evidence to verify these claims, such as bank statements. If a claimant is financially dependent on a spouse or partner, information about that person’s finances may also be required.
For example, in the case of Stone v Stone [2019], a daughter’s family provision claim was dismissed because she failed to provide the court with sufficient details about her financial situation. This demonstrates that the onus of proof lies entirely with the claimant.
Factors the Supreme Court Considers Regarding the Estate
Under section 60 of the Succession Act 2006 (NSW), the Supreme Court may consider a wide range of matters when deciding whether to make a family provision order. Understanding these factors is essential for a charity to effectively defend a contested will.
As succession law is highly technical, it is advisable to consult a lawyer experienced in not-for-profit law to address these points.
Key factors the court examines include:
| Factor | Description |
|---|---|
| The relationship with the deceased | The nature and duration of the family or other relationship between the claimant and the person who passed away. |
| Obligations of the deceased | Any obligations or responsibilities the deceased had to the applicant or any other beneficiaries, including the charity. |
| The estate’s size and nature | The value of all assets and liabilities, including any property that could be designated as notional estate. |
| Financial resources and needs | The present and future financial needs and earning capacity of the claimant compared to those of other beneficiaries. |
| The claimant’s age and health | Any physical, intellectual, or mental disability of the applicant, along with their age at the time of the application. |
| Contributions to the estate | Any financial or non-financial contributions the claimant made to the deceased’s property or welfare. |
| The deceased’s intentions | Any evidence of the deceased’s testamentary intentions, including statements they made. |
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The Dangers of Negotiation & Settlement for Your Charity
Why Early Settlement May Not Be the Best Outcome
While most family provision claims are resolved through negotiation or mediation to avoid costly trials, an early settlement is not always in a charity’s best interests. The executor has a duty to assess whether a claim has merit before agreeing to a settlement.
Capitulating on a weak family provision claim simply to avoid a contest can unnecessarily reduce the value of the estate. This, in turn, means less funding is available to fulfil the charitable purposes intended by the person who made the will.
For a charity, defending the will is essential to:
- honouring the testator’s wishes, and
- protecting the assets designated for its beneficiaries.
Balancing Legal Costs Against the Value of the Bequest
When a will is contested, the board must carefully weigh the expense of litigation against the value of the charitable bequest, a decision that underscores the need for strengthening your charity board processes. The executor has a responsibility to preserve the assets of the estate, which includes avoiding drawn-out and expensive legal battles. However, this must be balanced with the duty to uphold the terms of the will.
There is a strong incentive for all parties to resolve a family provision claim early to minimise legal costs and preserve the estate. Seeking advice from a lawyer experienced in not-for-profit law is crucial to:
- assess the strength of the claim, and
- determine the most reasonable path forward.
This ensures any decision to defend or settle is made strategically, protecting the charity’s interests.
Ensuring Decisions Align with Federal Duties
The decision to settle or defend a bequest is directly tied to the board’s obligations under ACNC Governance Standard 5. Responsible People must ensure the charity’s financial affairs are managed responsibly and act in the organisation’s best interests.
Settling a family provision claim without a proper assessment could be viewed as a failure to protect the charity’s assets. Every board member has a duty to act with reasonable care and diligence when overseeing the charity’s finances.
This includes making informed decisions about a contested will to ensure that the charity receives the provision it is entitled to. Consulting a not-for-profit lawyer helps the board meet these federal duties and make a decision that withstands scrutiny.
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Case Studies on Balancing Family Claims & Charitable Bequests
Lessons from Flanagan v Fisher Regarding Moral Obligations
In the case of Flanagan v Fisher, the deceased left his entire estate, valued at $570,000, to the RSPCA. The will included a specific clause stating that his children should not receive any benefit. Despite this, his son contested the will by bringing a family provision claim.
The court ultimately upheld the son’s claim, awarding him a provision of $160,000 from the estate. This decision highlighted several key points:
- The son’s moral claim to a provision was recognised, even though the father-son relationship was limited and the son’s finances were relatively stable.
- The deceased had a connection to the charity through a friend, but there was no strong emotional attachment, which influenced the court’s balancing of interests in this family provision matter.
How the Court Viewed the Claim in Portis v Green
The case of Portis v Green involved an estate of $476,688, which was left entirely to the United Grand Lodge of NSW and ACT (the Masons). The deceased made no provision for his son, Paul, and cited personal disagreements in his will. Paul contested the will and was successful in his family provision claim, resulting in an award of $286,000.
In reaching its decision, the court acknowledged:
- The deceased’s significant and genuine connection to the charitable organisation.
- Paul’s moral claim on the estate, as well as his financial need, which included limited superannuation and uncertainty due to a pending divorce.
This case demonstrates that even a strong connection to a charity may not override the court’s duty to ensure adequate provision for an eligible family member.
The Outcome of Stejskal v Hely Regarding Charitable Affinity
In Stejskal v Hely, the deceased left a substantial estate of $1.8 million. Only a $50,000 legacy was left for his son, Tomas, while the residue was divided between two medical charities. Tomas filed a family provision claim, which the court upheld, awarding him an additional $650,000 from the charitable bequest.
The court found that:
- Despite the deceased’s demonstrated affinity for the charities during his lifetime, he still had a moral duty to make adequate provision for his son.
- This duty was amplified by the large size of the estate and Tomas’s limited financial prospects.
These cases underscore the complexities involved when a charity must defend a bequest. It is crucial to seek guidance from a not-for-profit lawyer to understand the strength of a claim.
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The Role of the Executor & the Importance of Legal Advice
What Executors Must Do When a Will Is Contested
When a will is contested through a family provision claim, the executor has a duty to uphold the terms of the will and preserve the assets of the estate. Executors must not distribute the estate until the claim is finalised. Additionally, they play a crucial role in assisting the court by providing all necessary information regarding the deceased’s assets and liabilities.
The executor’s responsibilities in defending a claim include:
| Executor’s Responsibility | Description |
|---|---|
| Assisting the Court | Executors must file an affidavit of executor, detailing all estate assets, including any property that could be considered “notional estate” by the court. |
| Acting Reasonably | Executors should not defend a claim at all costs, nor should they capitulate on a weak claim. Their duty is to assess the merit of the claim to preserve the estate. |
| Notifying Eligible Persons | After being served with a claim, the executor must provide notice of the proceedings to every other person who may be eligible to contest the will. |
The Importance of Consulting a NFP Lawyer
Succession law is a highly technical area, making it essential to seek specialised legal advice when a charitable bequest is subject to a family provision claim. An experienced lawyer can assist in preparing the detailed affidavit required by the court and ensure it addresses all the factors the court will consider when deciding on the provision.
For a charity, consulting a lawyer who specialises in not-for-profit law is particularly important. Such an expert can:
- Help the board and the executor determine the likely success of the family provision claim.
- Advise on the most effective way to resolve the matter.
This ensures that any action taken to defend the bequest aligns with the charity’s legal and fiduciary duties.
Managing Conflicts When the Executor Is Also a Beneficiary
The executor’s role can become complicated if they are also a beneficiary of the will. In this situation, their personal interest in the estate may clash with their fiduciary duty to act in the best interests of all beneficiaries, including the charity.
The executor must remain neutral and objective when assessing the merits of a family provision claim. They cannot use their position to unreasonably incur legal costs in an attempt to defend their own provision from the estate.
If an executor fails to act impartially, they risk being held personally liable for any legal costs incurred improperly.
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Conclusion
Defending a charitable bequest against a family provision claim requires the board to fulfil its fiduciary duties by working with the executor to uphold the will. This involves carefully assessing the claimant’s financial need to demonstrate that the testator made adequate provision for them.
To ensure your charity is prepared to defend a contested will, it is crucial to seek specialised legal advice. For trusted expertise in protecting your charity’s assets, contact the team of not-for-profit lawyers at LawBridge to discuss how we can help safeguard your charitable bequest and secure your organisation’s future.
