A recent case heard by the Queensland Supreme Court dealt with the estate of Mrs Permewan.  Mrs Permewan had three children, Scott, Donna and Marla.  Her estate was worth about $3,000,000.  Her Will appointed Scott as the executor of her estate.

Mrs Permewan wanted Scott to inherit all of her estate and also wanted to prevent Donna and Marla bringing a claim under the Family Provisions Act after she died.

Mrs Permewan held all of the shares in Zalerina Pty Ltd, the corporate trustee of the Lotus Trust, a discretionary family trust, of which her three children were the beneficiaries.  In her Will, Mrs Permewan bequeathed all of the shares in the corporate trustee to Scott, effectively giving Scott control of the Lotus Trust on her death.

Before she died, Mrs Permewan gifted the sum of $3,000,000 to the Lotus Trust pursuant to a Promissory Note.  The Lotus Trust then lent this money back to her.  The loan was secured by a mortgage and charged over all of Mrs Permewan’s assets.

The $3,000,000 was never paid to the Lotus Trust and the loan to the Lotus Trust was not paid back by Mrs Permewan.  Therefore, on her death, Mrs Permewan owed the Lotus Trust $3,000,000 and the Lotus Trust could call on the security for payment.  This meant that the value of the estate was zero leaving any potential family provision claim by Donna and Marla futile.

In Donna’s application to the Court to remove Scott as executor, the Court heard evidence of Scott’s statement in a telephone call with Marla when, in expletive ridden terms, Scott described Donna as vindictive and thieving and said he would make the legal action as hard and as expensive as possible for Donna.

The Court removed Scott as executor because he had no intention of investigating the validity of the transactions and he was in a situation of ‘hopeless conflict’ between his position as executor and his position as the beneficiary of the whole estate.  The Court was not confident that Scott would act honestly and in accordance with his obligations.

Whilst the Court is yet to conclude whether these transactions are valid, it appears at this stage that they will be upheld due to the binding effect of Promissory Notes.

We can assist if you require advice in respect of estate and Wills issues or estate planning generally.