Secret Beneficiaries and their rights (Part 2) – Drafting a Will and what to look out for
by Michelle Chew Ai Phin ~ 29 June 2022
In our previous article “Secret Beneficiaries and their Rights (Part 1)", we explored the possible ways of providing for an individual in secret. In this article, we will be discussing a particular arrangement where privacy and secrecy between “secret individuals” and beneficiaries are no longer the primary concern.
Where both parties to this particular arrangement (i.e., Beneficiaries and “secret individuals”) are aware of each other, the situation is somewhat simpler. A will may be employed to issue provisions for the testator’s intentions and wishes. Yet, even with this conventional option, any flaring of tension could lead to the will being contested, causing great hardship in the situation at hand. We will be exploring both the manner in which a will may be employed, and the methods of dissuasion against a potential challenge.
Wills 101:
The first question one may ask is, what is a Will? The definition can be found within section 2 of the Wills Act 1959 which states:
"will" means a declaration intended to have legal effect of the intentions of a testator with respect to his property or other matters which he desires to be carried into effect after his death and includes a testament, a codicil and an appointment by will or by writing in the nature of a will in exercise of a power and also a disposition by will or testament of the guardianship, custody and tuition of any child.
The second question to be asked is, why use a Will? As Wills cost a rather substantial sum of capital, many may be deterred from making one. However, with regards to providing for a secret individual, it may be necessary. This is because death without a Will would subject your estate to the Distribution Act 1958 which gives priority to immediate family members such as a lawful spouse, or a lawful child. The effect of the Distribution Act is that, if a Will has not been made, or has not been made within the requirements of the Wills act, a secret individual that has not been named in the Will, will receive nothing.
Moreover, there are general disadvantages of not having a valid Will. Where a person dies without one, he or she would have died “intestate” and all assets would be frozen. To rectify this, letters of administration must be granted by the High Court to an administrator. This of course would add unneeded complexity in an already precarious situation. The use of a Will therefore avoids the issues which could arise in an intestacy and allows a testator to specifically allocate assets to whoever he or she chooses. This is absolutely necessary if one is to provide for a secret individual.
Challenging a will:
Where a 3rd party is involved (for example, a secret individual), it is most certain that disagreements will arise. Be it the family of the Deceased feeling dispossessed by the will, or the secret individual feeling underprovided for in his/her portion of the proceeds. In either case, there are methods of challenging the validity of a Will. For example, if there are allegations of alterations to the contents of the will , forgery of a signature, improper witnessing, or questions as to whether the testator was of unsound mind or if he / she was subject to undue influence at the time when the Will was made, or if there are other ambiguities or important omissions in the Will.
Preventing a will contest:
The simplest manner to avoid challenges is to ensure that the will is valid. As the validity of a will is based on the principles enunciated within the Wills Act, it is advisable to hire a lawyer, in order to ensure that it fulfills the requirements of the Act. Any suspicions of fraud or foul play will inhibit the process, thus proper observance is crucial.
Another method of contest prevention, though not recognised in Malaysia to-date, may be found in a “no contest clause”. No contest clauses, or forfeiture clauses, are provisions in Wills or trusts which seek to dissuade beneficiaries from challenging a will, as it may lead to the loss of interest in any allocated asset. The origins can be traced back to the privy council in Evanturel v Evanturel (1874) LR 6 PC 1 where, in approving Cooke v Turner (1846) 15 MW 727, the court held that there is no general rule against provisions preventing or discouraging beneficiaries from going to court to contest a Will.
In short, the clause effectively acts as an ouster clause, where those who would otherwise receive benefits under a will or trust, will forfeit those benefits if he or she takes certain actions. This clause is only effective if the contestant fails in the action. For example, if one were to prove that the testator lacked capacity in the making of the Will, the contender will not be disinherited. If the reverse was the case however, and it was found that the testator had sufficient capacity, the plaintiff would be disinherited. Frank Hinks QC explains that such clauses have existed for an extended time and, by reference to the highest authorities, there has not been any general policy objection to such clauses. Nevertheless, such a clause will fail for lack of certainty, or due to repugnancy (preventing a beneficiary from exercising, enforcing or protecting the rights necessarily attached to the interest given to him by the will or trust) or through an ouster of the court's jurisdiction (on similar grounds to repugnancy).
This clause is generally seen as controversial. While there is no principle against it in the UK, the Australian and Canadian courts have held against its application as they were seen as inconsistent with their inheritance family protection legislations (In the Will of Gaynor [1960] VR 640).
A relatively recent example of its use in the UK can be found in Nathan v Leonard and Others [2003] 4 All ER 198. In this case, the testator had a will professionally drafted which included gifts to the 1st and 2nd defendants, friends as well as gifts to family along with a discretionary trust in favour of her son, the claimant, and to a charity. After this, she personally made a codicil stating:
“As a safeguard to my wishes and to protect them from any parties be they family members or the charities, should they wish to contest or disagree with my will. Then, I want the following clause to override everything previously stated in my will. The following will become my will in its entirety. This I hope will prevent anyone from taking this case of action.
I GIVE DEVISE AND BEQUEATH My beneficial share in the Property known as Oakwood farm, to my beneficiaries to SALLY LEONARD and PAUL LEONARD. Free of any taxes, which will be covered by my estate. I also give to the above named persons all my real and personal property. This clause cannot be superseded, and will only come into being if at any time during the life of the Trust or up to 80 years has elapsed.”
The court was subsequently posed 3 questions; whether the condition was valid in law, whether there was a breach of that condition, and what was the effect of the gift over.
Towards the question of validity, John Martin QC plainly stated “[6] A condition to the effect that a beneficiary who challenges a will loses the benefits given to him by the will is in principle valid, at least where there is a gift over (see Cooke v Turner (1846) 15 M & W 727, approved by the Privy Council in Evanturel v Evanturel (1874) LR 6 PC 1).” Furthermore, the court unambiguously rejected the claim that such a clause was against public policy, stating “It does not seem to me necessarily correct to say that the state has the interest claimed, since the disposition of a deceased's estate is essentially a matter of private property; but in any event it is the policy of the law to uphold testamentary freedom”. Nevertheless, in Nathan, the clause in question was too uncertain to be enforced. It was seen, for instance, “it is not clear who it is who may trigger a forfeiture by contesting or disagreeing with the will. Do the words 'be they family members or the charities' qualify the words 'any parties’ and does the hope that the condition will prevent 'anyone' challenging the will broaden the class?”.
In regard to the 2nd question there was little doubt as to whether the claim was in breach of the condition in the codicil. Instead, there was an extended discussion on whether the forfeiture would only apply if the claim was unsuccessful. The court explained that there was some support for this contention:
“[24] In Evanturel v Evanturel (1874) LR 6 PC 1, where again the condition related to contesting the will, it was said (at 26): 'Upon principle, it is to be observed that the prohibition cannot be absolute, and can be invoked only where the validity of a will has been unsuccessfully contested.' In Adams v Adams [1892] 1 Ch 369, where the condition was that the beneficiary should not intermeddle with or interfere in the management of the estate, the Court of Appeal agreed with the trial judge that there would have been no forfeiture if an action had been brought bona fide in defence of the plaintiff's rights.”.
However, whilst these cases showed a trend, “It is not altogether easy to identify the underlying rationale of these cases”. It was due to this therefore, and a passage in Evanturel v Evanturel, that the court held that, in such cases, the correct approach must be to construe the condition.
“It may be possible to construe it as applying only to unsuccessful challenges; but if not, then (assuming it does not fail for repugnancy) the condition must take effect whether the challenge succeeds or fails. Nothing in the authorities mentioned at [24], above supports any suggestion that there is a rule of law that forfeiture conditions only apply to unsuccessful challenges.”
What may be seen therefore is a distinction between, on the one hand, a clause which would be triggered by a challenge to the validity of a will or trust and, on the other, a clause which would be triggered by a challenge to the acts or decisions of trustees:
“A clause of the latter type would have to be construed as applying only to unsuccessful and unjustified challenges or, if such a construction were impossible, be held invalid on the ground of repugnancy; but a clause of the former type would, unless it could properly be construed as applying only to unsuccessful and unjustified challenges, take effect according to its terms ie a no contest clause can be triggered by a successful or otherwise justifiable claim” (F. Hinks, ‘No Contest Clauses – Putting recent decisions in perspective’, Trust & Trustees (2015) 21).
Finally, towards the effect of the gift over, it was answered in short. As the codicil was expressly clear within the condition, the answer was that the entirety of Mrs Nathan's estate would pass to the Leonards. In doing otherwise would “involve doing real damage to Mrs Nathan's intentions”.
However, whilst its applicability in the UK is relatively certain, In Malaysia, matters are somewhat more complicated. It must be noted from the outset that there are no recent cases on the matter within Malaysia. In fact, all the cases of relevance originated in Singapore from the 30s-60s, and none of which deal with the specific cases of no-contest clauses. In any event, there are cases which hold similarities.
In the Matter of The Estate Of Tan Chin Boon Deceased; Tan Peng Yong v Ng Meow Lang (W) & 2 others [1940] 1 MLJ 185 is one such case. Here, the testator’s will provided that “Should any of my said sons Tan Peng Kway, Tan Peng Yong and Tan Peng Siang, entitled to a share in my residuary estate, allow the same to be attached or garnished, or mortgage or otherwise encumber his share or become bankrupt (hereinafter referred to as 'the said Acts') then his share shall revert to my estate as though such son had died over one year before the commission of any of the said acts by him, and such share shall at the date of distribution be distributed as hereinbefore directed etc". It can be noted from the onset that the forfeiture clause here is different from the matters discussed within the English context. Despite this, this core issue, whether such clauses are even permissible, is still the same.
It was argued that the shares of the sons were vested and that accordingly the condition against alienation was repugnant and void. Terrell JA on the other hand, holding the clause to be valid, explained that:
“It appears to me that the forfeiture clause is clearly good, though it must be strictly limited to the happening of the actual events mentioned in clause 16. But on the happening of any of such events the forfeiture immediately operates (see In re Forder (1892) 3 Ch D 481 at p 488, per Hanworth M.R. at p. 310), and the question whether or not the share was unencumbered at the date of distribution, which was the case in White v Chitty LR 1 Eq 372, and similar cases, does not arise. All these cases are distinguished in Re Forder (1892) 3 Ch D 481 at p 488, and have no application where the testator has clearly stated that a forfeiture is to take place on the happening of one of several events.”
Whilst applicability is questionable, it does not mean that its use in preventing a will contest is limited. An interesting case from Hong Kong may be used as illustration for the fact that, whilst its applicability is none too clear, the inclusion of a no contest clause may be effective in preventing litigation.
Li Ka Sing, the executor of the estate of Kong Wing Hong (江永康), deceased v Kong Colin Chung Ping (江正平) & Anor [2017] HKCU 975, was noteworthy in that the parties in this case did not seek to challenge the validity of the will, and this fact was repeated like a mantra. Instead, this was an interlocutory appeal. As for the facts of the case, Mr Kong Wing Hong had died on the 9th of June 2003, leaving a will dated 11 March 1996 and a codicil dated 24 June 1997. Probate of the Will and Codicil was granted by the court on 6 March 2006. The defendants on the other hand were all respectively the Deceased’s grandchildren, life-long partner and brother. They were all beneficiaries under the Will and Codicil.
An issue arose as to the true meaning of clause 3 of the codicil. Particularly, the validity of two alienation restrictions in respect of a property called the “Windsor Park Property” comprised in the estate of the Deceased. The 1st and 2nd defendants took the view that the two restrictions were invalid because they infringed the rule against perpetuities or inalienability and had sent an opinion by counsel to the plaintiff in support of their view. On the other hand, the plaintiff’s own counsel had expressed the view that the restrictions may be valid subject to certain qualifications. More importantly however, the codicil also contained, by clause 2, a no contest clause where if any of the beneficiaries were to contest the will, such gifts would instead be distributed amongst the other beneficiaries who had not disputed the will.
On the 28th of November 2016, the 1st and 2nd defendants issued a summons seeking leave to appeal against the Order to the Court of Appeal. That application was dismissed by the Deputy Judge on 15 February 2017, who gave a detailed written decision. Subsequently, the 1st and 2nd defendants then made a further application, by a summons dated 23 February 2017, to the court seeking (i) leave to appeal against the Order, and (ii) a stay of execution of the Order pending the determination of the intended appeal. By paragraph 2 of the Originating Summons, the plaintiff asked the court to determine whether, in the events which “have” happened, any of the 1st, 2nd and 3rd defendants “had” disputed the Will and/or the Codicil thereby triggering the operation of Clause 2 of the Codicil. In short, the plaintiff apparently, asked the court to make a determination of the applicability of Clause 2 of the Codicil based on events which had already occurred prior to the date of the Originating Summons.
The apparent hesitancy of the plaintiffs to file a suit, and the general complications of the matter, demonstarted the effectiveness of the clause, this despite the lack of precedents of its use in Hong Kong. Nevertheless, the plaintiff, when pressed by the court to state his true case, in respect of paragraph 2 of the Originating Summons, explained that he was not making any positive allegations that the 1st and 2nd defendants had, prior to the issue of the Originating Summons, taken any steps which could be regarded as disputing the Will and/or the Codicil, and that the reference to the “events which have happened” in paragraph 2 of the Originating Summons was intended to be a reference to the 1st and 2nd defendants’ intention to challenge the validity of the alienation restrictions in Clause 3 of the Codicil.
Following this, the court unfortunately found it neither necessary nor appropriate to express any view on whether the Originating Summons could be amended, in order to seek the court’s determination of the applicability of Clause 2. Nor did the court discuss the general applicability of the no contest clause.
In summary, whilst it is unfortunate that the court could not expand on the matter in any detail, nor make remarks on its applicability, the hesitancy of the parties to make an appropriate or coherent filing shows the inherent effectiveness of no contest clauses, even where its applicability is uncertain.
Conclusion:
In conclusion, a Will may be employed to provide for a secret individual where the beneficiaries and 3rd parties to the families know of each other. This fact is undisputed. However, disputes may arise in due course thus, the simplest method of preventing future disputes is via a proper and valid will. A secondary, but more complicated method may be the inclusion of a no contest clause. While its use remains controversial, its use in England serves to show its applicability.