Estate Planning Errors for Coonawarra Family Business in Reschke v Reschke

A recent article in The Weekend Australian (6 January 2018) described it as “Coonawarra’s great family feud” and “a tale of grapes, and wrath; and of brothers, grim”. A story of an inharmonious interaction between a Will and an established family trust involving a complicated set of circumstances that took years to sort out through the courts. As the court pointed out this was partly caused by the testator’s (will-maker’s) apparent misunderstanding “as to what was and was not legally possible”. This emphasises the importance of utilising lawyers of the experience of Szabo & Associates, Solicitors in matters of Wills and trusts.

Trevor Reschke, patriarch of the well-known wine-growing family in the Coonawarra, had three children with his wife Vivian: Burke, Joanne and Dru. The oldest son, Burke, expected to inherit the estate telling The Australian, “that’s the way it traditionally was: the eldest son is asked first, and if he has the passion, he inherits”.

Trevor had made his final Will in 2007 bequeathing some land to Burke and some to Dru, with the residue of his estate to his wife. However, long before this Will, he had established a family trust called the Rocky Castle Trust with interests in some of the family land and the trustee being a company called Fabriano Pty Ltd. Trevor and Vivian each had one share in the trust and both were directors of Fabriano.

According to the trust deed, Trevor Reschke had the power to remove and replace the trustee of the trust during his lifetime. In his Will he had appointed his wife as executor, meaning that the power of appointment would transfer to her on his death. However, there was also a separate provision stating that the power of appointment was to be passed to his accountant and solicitor as well as his wife. In effect, he attempted to transfer the power of appointment so as to become a joint responsibility among the three of them and his wife would not have sole control of the trust. There was also an instruction that the trust should vest land to his two sons while his wife would have a life interest in the land.

Trevor died in 2008. The subsequent legal case, a dispute about how trust assets held in a family trust were to be passed to the next generation, was decided by the South Australian Supreme Court in Reschke v Reschke (2017). Having not inherited the whole of the family land, Burke commenced a court action attempting to replace his mother as executor of his father’s Will and replace the trustee of the trust. The mother, in turn, was unhappy with just a life interest in some of the family properties.

Key issues

Burke Reschke hoped that the terms of the Will would be upheld so that his father’s accountant and solicitor could give effect to his father’s direction about distributing the land held in the family trust. He claimed that the provision placed in the Will was, in effect, the exercise by his father of the power of appointment during his lifetime as obviously he was alive when making the Will.

The Court, however, held that the Will was ineffective in this regard with the deceased only holding that power while he was alive. He could not transfer this power in his Will, resulting in his wife becoming the sole controller of the trust.

Also important to this case is an understanding of the essence of a trust. Because under trust law a family member does not own the assets placed in a trust, a testator cannot dictate how the trust assets can be dealt with. He or she may express a view as to what they would like to happen to the assets, but that would not be binding on the trustee. In the Supreme Court, Judge Blue said the role of the court was to place “itself, metaphorically, in (Trevor’s) armchair at the time of making the will” and try to “discern (his) true intentions”, which he felt were to allow Vivian to stay on the land until her death but he also noted that Vivian, in her role as family trustee, was not obliged to hand part of the contested property over to Burke.

What does it mean?

The decision in the Reschke case demonstrates the importance of the wording in the trust deed to the passing of control of a family business. Careful consideration of what can be dealt with in a Will, and what cannot, is critical to effective estate planning. It is important to distinguish what constitutes personal assets, which can be dealt with through a Will, and those assets held in family trusts, which cannot. Trevor Reschke had not understood that he could not direct the trustees to vest the land in the trust. The land did not belong to Trevor but rather the trustee, which was Fabriano Pty Ltd.

Passing family trust assets to the next generation, therefore, needs to be considered separately from the Will with, in particular, consideration being given to the power of appointment. It needs to be appreciated that it is only possible to exercise the power of appointment while alive and not through a Will. If a testator wants control of a family business to pass to a certain member of the family he or she needs to consider the power of appointment clause. The Will should bear in mind any relevant provisions in any trust deed. 

The case underscores the importance of seeking expert legal advice on such matters and, when consulting lawyers, ensuring that they are aware of all relevant documents if wishes are to be carried out as desired.

Contact our Wills and Estates Solicitors in Surry Hills, Sydney

Szabo & Associates, Solicitors can offer expert advice on a wide range of legal matters including estate planning, wills and trusts. Please call George Szabo on (02) 9281-5088 or fill in our online contact form.