Dangers for solicitors acting on intra-family transactions
BY JEN MCMILLAN – APR 08, 2022 8:35 AM AEST
Snapshot
- Alarm bells should sound for solicitors instructed in intra-family transactions.
- Particular care needs to be taken when the transaction involves assets passing from an older person to a family member for less than full valuable consideration.
- Avoid conflicts and ensure that each party obtains independent legal advice.
Increasingly, solicitors find themselves uncomfortably in the frame when an older person enters into a transaction that benefits a family member, often an adult child. Where, in earlier times, a gift for the advancement of a child might not have raised an eyebrow, as awareness grows of the prevalence of elder abuse in the community, solicitors need to be alert to the potential issues with intra-family transactions.
Wardle v Wardle
The recent decision of Wardle v Wardle [2021] NSWSC 1529 highlights some of the pitfalls for solicitors. This case involved a daughter who moved into her mother’s house to care for her following a leg amputation. After five years, the mother’s care needs increased to the point where she needed to move into an aged care facility. At that time she had a number of physical ailments as well as a diagnosis of dementia. The mother and daughter agreed the mother’s house would be sold and the proceeds of sale used to acquire a house in the daughter’s name.
Mother and daughter engaged a solicitor to act in relation to the sale and purchase. The solicitor was advised that the mother had mild dementia and he arranged to visit her in hospital where she was at that time an inpatient. He assessed the mother’s capacity and was satisfied she had a clear appreciation and understanding of the Appointment of Enduring Guardian he had prepared for her to sign, and that she had good insight into her health conditions and the decisions she was making.
At the end of the meeting she told the solicitor she wanted her daughter to have the proceeds of sale of the property to buy a property for herself. She told the solicitor she had a son, and that he had been given a house by her late husband. The solicitor was conscious of the relationship between the mother and daughter and wanted to ensure that the decision to fund the purchase of the property by the daughter was the mother’s decision and did not result from undue influence. He therefore prepared a document setting out what he understood to be the mother’s wishes, for her to sign.
A few months after the sale and purchase were concluded, the mother died. Her will left her estate in equal shares to her daughter and her son. The son sought declarations that the daughter’s house was held on trust for the deceased’s estate, on the basis that its acquisition was a result of the daughter’s actual undue influence and unconscionable conduct exploiting the mother’s position of special disadvantage due to dementia and dependence on the daughter.
The son was unable to establish there was actual undue influence, and Slattery J was satisfied that the gift of the proceeds of sale was essentially founded in mutual gratitude between parent and child, and was a recognition by the mother of the daughter’s need for her own accommodation after she had given up her home to come and live with her.
An unconscionable transaction
Slattery J did, however, find that the transaction was unconscionable. The mother was in a position of special disadvantage, not because of dementia, but because of all her other physical ailments, her age and her presence in the nursing home. Slattery J held that it was ultimately unconscientious of the daughter to have taken the proceeds of sale in circumstances where the mother would be left without resources for her future medical or other needs, where the mother did not receive independent legal advice, and where no clearly documented arrangement was settled between mother and daughter to support the mother’s future medical care.
Criticism was levelled at the solicitor for acting for both the mother and the daughter without the mother’s informed consent, and for apparently failing to have regard to Conduct Rule 11 which requires a solicitor to avoid conflicts between the duties owed to two or more current clients. Slattery J referred the solicitor to the President of the Law Society for consideration of his conduct.
Avoiding the minefield
The decision highlights the minefield of issues for solicitors asked to act in intra-family transactions, particularly where the transaction involves a gift from an older person to a family member. Solicitors need to be aware of:- the capacity of the older person to enter into the transaction;
- the potential for undue influence or unconscionability;
- if the transaction is to be effected under a power of attorney, the need for the power of attorney instrument to explicitly authorise a gift of the type envisaged;
- the duty to avoid conflicts between the duties owed to two or more clients; and
- the importance of independent legal advice.
This article originally appeared on lsj.com.au