Where parents believe that their children may not be responsible enough to manage their inheritance or are worried about the impact of outside influences, it is common to include special provisions in the parents’ Wills in order to try and safeguard their children’s inheritance. In the New South Wales decision of Jones v Krawczyk, Mrs Krawczyk tried to do just that.
She set up several testamentary trusts under her Will. Her daughter, Zofia, was a ‘primary beneficiary’ of three of them. Mrs Krawczyk’s Will made the ‘primary beneficiary’ (being Zofia) the trustee and controller of these trusts; except that while Zofia remained married to her current husband, she could not be a trustee.
This had the effect of denying Zofia the ability to control the three trusts. While Zofia was married to her current husband, she was entitled to receive distributions from the trust but was not guaranteed to receive anything at all.
Zofia contested the terms of the Will. She requested an order from the court that the condition preventing her from controlling the trusts while she remained married to her husband was invalid because it was against public policy.
Zofia’s application failed and the court decided that this particular provision was valid.
In this case, the judge said that he assumed Ms Krawczyk was trying to protect Zofia and may have suspected that if Zofia had control of the property in the trust, her husband might persuade her to deal with it in a way which was not in her best interests.
The judge also discussed the general principles surrounding special protection conditions in Wills and situations where they can be invalid. Where special protections conditions are invalid, beneficiaries may receive full control of trust property with no protection or safeguards whatsoever.
If Zofia had been successful in this case, she would have received full control of all the assets in the trusts, and the protection set up by Ms Krawczyk would have failed.
This case shows the importance of proper estate planning and establishing valid protections for the inheritances to your children. If these types of conditions are not property drafted and are successfully challenged, the assets that you pass on can be vulnerable.
For more information about these issues or to discuss your estate planning, please contact Hannah Kulaga on (07) 3231 2509 or Kate McQueeney on (07) 3231 2945.