Brother
was set against sisters in a dispute over who carried investment losses
incurred in their parents’ estates.
Emotions were coloured by their mother’s actions in the last year of her
life disinheriting her son.
The High Court ordered two sisters to pay
$93,126 plus accrued interest to their brother James McKeown as compensation
for an incorrect division of their father’s estate after investment losses in
South Canterbury Finance and Dominion Finance were wrongly apportioned.
Evidence was given that their parents signed
mutual wills in 2002 recording that their three children would ultimately share
their estates equally. Their father died
first. His widow died six years
later. In the interim she changed the terms
of her will with the effect of disinheriting son James. In an accompanying note she explained her
reason: James had received “help” when purchasing the family farm in the Totara
Valley near Timaru while her daughters had not received similar benefits.
James did not inherit from his mother’s estate
or receive any capital from a family trust set up by his parents. He did not challenge these outcomes but did
take issue with the way investment losses had been calculated when valuing his
father’s estate. Along with his two
sisters, he received a one third share of his father’s estate. These funds did not become available until after
his mother’s death in 2008. James
claimed his father’s estate was valued at $944,300; his sisters said it was
$661,500 – the difference being who bore investments losses in the six years
between each parent’s death. Rules
governing business partnerships were applied.
The court was told their parents had been in a
farming partnership called PS & HM McKeown.
While in partnership, they placed money with South Canterbury Finance
and Dominion Finance. Investors in these
companies were later to suffer substantial losses. Funds for these investments
came from the farming partnership.
Partnership law states that assets purchased with partnership money
belong to the partnership, unless partners agree otherwise. Partnership law also states that a
partnership ends automatically on the death of a partner unless the partnership
agreement provides otherwise. Justice
Gendall ruled that on death the father’s estate did continue in partnership
with his widow because his will specifically authorised his trustees to do so. This meant the failing investments continued to
be held by the partnership since it continued beyond his death. As a result, investment losses fell on the
partnership and ultimately on all three of the children who inherited.
Tax advisers acting for the estate had
contributed to the confusion by assuming the South Canterbury and Dominion
Finance investments had been the father’s personal investments. This led to the investment losses being incorrectly
allocated solely to the father’s estate, directly impacting on James’ limited
inheritance.
Justice Gendall was critical of accounting records
maintained for the partnership, especially given the oddity that the father was
recorded as receiving a salary for some time after his death.
McKeown
v. Small & Geary – High Court (18.05.15)
15.049