Three siblings have been locked in a lengthy estate battle over whether a son influenced their parents into handing over their plastics company in an “unconscionable bargain” before they died.
Rotarua couple Ray and Joyce Lee died in 2003 and 2004 respectively, leaving behind assets worth about $800,000 for their four children. Of this total, their plastics company was worth about $330,000. Their son Greg was employed by the business as a workshop manager from 1985 and took control of the company in the 1990’s.
In 2000, he bought shares in the company for $200,000. It was this transaction that his brother, Robert and sister, Helen, have challenged. They claim in court documents that “improperly benefited from those transactions, which he procured by exercising undue influence over their parents and in breach of fiduciary duties. In doing so, he gained an unconscionable bargain.”
They claim that their parents from 1994 until their deaths deteriorated significantly in physical and mental health, and included consuming excessive amounts of alcohol. Joyce was diagnosed with bipolar disorder and alcohol abuse in 1994, and by early 2000, Ray Lee had such diminished capacity that he was living in a nursing facility.
Robert and Helen are pushing for profits from the company to be paid since 2000, and the difference between the $200,000 and the company’s true value. Greg has tried to strike out the court proceedings, labelling them as ‘frivolous’. He claims that the $200,000 purchase was simply “receiving his inheritance early.”
The Court of Appeal judgment delivered by Justice Clifford stated Ray and Joyce Lee understood their inheritance – a $195,000 Rotorua home, a $275,000 factory and the $333,000 business – would be divided evenly between their four children.
If Greg Lee was also to inherit the shares in the business, he would be required to pay his siblings the excess $133,000, Justice Clifford said. “The essence of the claim…is based on the family context, that is the relationship between elderly and weakening parents and the son who was (it is alleged) by himself running the family business in the last years of his parents’ lives,” he said.
The crux of the siblings challenge rest on whether the parents had testamentary capacity to understand the sale of shares to their son, and what that would mean for the other children’s inheritance.
What is Testamentary Capacity?
For someone to execute a valid will, they must:
- understand the nature and effect of a will – they must understand what a will is and what it is used for
- know the nature and extent of their property – they must know what assets they own
- comprehend and appreciate the claims to which they ought to give effect – they must know who they’re leaving their estate to, including who might have a legal claim to their estate
- are not affected by delusions that influence the disposal of their assets at the time they are making their will – they must not suffer from a disorder of their mind that influences the way they make their will.
In this area of the law, medical opinion and legal opinion merge and both will be considered by a court when making a decision. Other opinions might also be taken in account, such as those of social workers or allied health professionals.
It is considered best practice for the lawyer overseeing the completion and execution of the will to test for capacity. The lawyer should make sufficient inquiries and keep records of his or her knowledge, information and belief that the will-maker had testamentary capacity at the time of signing the will. Equally, the lawyer should make reference of any circumstances or suspicions in which he or she believes testamentary capacity might be diminished.
A specialist in Estate Planning will adhere to best practice and keep detailed notes. If you’d like to speak to a specialist, contact us today for your FREE, 10-minute phone consultation.