Will Clause Forgiving a $2.4 Million Trust Loan Cannot Defeat a Pending Property Claim: The Debt Stays in the Estate

In Musaev & Musaev [2026] FedCFamC1F 641, Jarrett J decided a separate question in property proceedings that a wife had started against her husband, who died before the case was finished ([1], [5]). His will said it forgave and released any loans his trusts owed him at his death. A family trust's accounts recorded $2,412,344 as owing to him ([4], [13]). If that debt had been wiped out, the parties accepted, the estate would not have enough left to support the property adjustment she was seeking ([4]). The Court held that the clause did not forgive or discharge the debt. At most, it operated as a legacy to the trust. The debt vested in the estate, and her continuing claim under s 79AA(8) of the Family Law Act 1975 (Cth) has priority over that legacy. The Court declared that the $2,412,344 is owing and payable to the estate ([35], [37]–[38]). All paragraph references below are to the judgment.

Why it matters: Wills often "forgive" loans owed by family trusts and companies, and that can hollow out an estate. This case shows that such a clause does not make the debt vanish. In law it is a gift of the debt to the debtor, and like any gift under a will it takes effect only in the due administration of the estate ([24]–[25]). A spouse's property claim that was on foot when the other party died and is continued against the estate comes first. The claimant does not need to be a creditor or to hold an interest in the asset ([32]–[34]). It also shows why it mattered that the proceedings were already on foot when the husband died ([28]).

🧩 Facts and Issues

The marriage, the proceedings and the death

The parties married in 2003 and separated on 13 April 2024. The wife (the applicant) started property proceedings on 10 December 2024. The husband died in 2025 before they were finished ([1]).
His will was made on 13 December 2021. His executors are his two sons, who are not the applicant's children. They were substituted as parties in January and April 2026 and were granted probate that year ([3]).
The second respondent is the trustee of a family trust. The trust was set up under the will of the husband's father, and the husband was a primary beneficiary ([4], [9]).

The trust loan

For many years the trust's financial statements recorded amounts owing to the husband. The trust's accountant gave unchallenged evidence that the amount owing at his death was an unpaid loan, not unpaid present entitlements as a beneficiary ([10]).
In September 2024 the trust's historical accounts were revised to include a unit it had owned since 2007 but had left out of its statements. That revision increased the recorded loan by $1,346,949 ([11]).
The applicant questioned the accounting and the lack of primary loan documents. However, no party disputed for the separate question that the accounts recorded a liability of $2,412,344 just before death, and the Court found that the trust owed him that sum ([12]).

The will clause

Clause 9.1 of the will forgave and released any trusts the husband controlled or had an interest in "from the payment of any loans or debts (together with any interest) which may be owing to me at the date of my death" ([13]). Read literally, the words did what the executors said they did. The question was whether that was their effect at law ([14]).

The separate question and the orders sought

Because the answer could decide whether the property case was worth running, the parties agreed it should be decided first. The Court ordered under r 10.11(1)(d) of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) that it decide whether the $2,412,344 was owing and payable to the estate, or not owing because of cl 9.1 ([5]). The applicant sought a declaration that it was owing ([7]). The executors and the trustee sought a declaration that it was not ([8]).

Issues

Did cl 9.1 extinguish the trust's debt on the husband's death, or did the debt vest in his estate?
If the clause operated only as a legacy, did the applicant's pending claim under s 79AA(8) have priority over it, even though she is not a creditor of the estate and has no interest in the debt?

⚖️ Applicable Law – Legislation, Regulations, Rules

Family Law Act 1975 (Cth) s 79AA(8) — property proceedings started before a party's death may continue against the deceased's legal personal representative. If the Court is satisfied it would have made a property order had the party not died, and that it is still appropriate to make one, it may make such order as it considers appropriate, enforceable by or against the estate ([2], [28]–[29]).
Family Law Act 1975 (Cth) s 79(1) — the original basis of the applicant's claim for a property adjustment order ([27], [30]).
Succession Act 1981 (Qld) — the vesting of a deceased person's property in the legal personal representatives and the administration of the estate, relied on by both sides ([15], [21]).
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) r 10.11(1)(d) — the power to decide an issue separately from all other issues ([5]).

📌 Precedents Relied On

Commissioner of Stamp Duties (NSW) v Bone (1976) 135 CLR 223 and Bone v Commissioner of Stamp Duties (NSW) (1974) 132 CLR 38 — a will clause that "forgives" or "releases" a debt does not extinguish it as an estate asset. It operates as a legacy of the value of the debt to the debtor, because a debt can only truly be released by agreement for valuable consideration or under seal ([16], [20], [24]–[25]).
Fisher v Fisher (1986) 161 CLR 438 — a continued claim creates no legal or equitable interest in the estate until an order is made (at 448). Brennan J (at 458) described the then s 79(8) as machinery for discharging a spouse's moral obligations in priority to rights arising by testamentary disposition ([28], [30]).
In the Marriage of North (1987) 11 Fam LR 735, In the Marriage of Love 17 Fam LR 263, In the Marriage of Mason 17 Fam LR 269, Flanagan v Sobek (dec'd) [2014] FamCA 696 and Grace v Grace [2012] NSWSC 976 — cases applying Brennan J's priority statement ([17], [31]).
Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306 — a family law order, once made, creates a new and independent obligation. The executors relied on the difference between an order and a pending claim ([17], [22], [33]).
Re Chemaisse; Federal Commissioner of Taxation (Intervener) (1990) FLC 92-133 and B Pty Ltd & Anker (2025) 71 Fam LR 358 — filing a property application creates no interest in the other party's property, only a personal right to pursue the claim ([27]).
Vitzdamm-Jones v Vitzdamm-Jones (1981) 148 CLR 383, D'Este v D'Este [1973] Fam 55 and Sims v Sims (1981) FLC 91-072 — without a statutory continuation provision, property proceedings abate on death ([28]).
Stanford v Stanford (2012) 247 CLR 108 — continued proceedings keep the character they had when they were started ([28]).
In the Marriage of Streyls (1988) 12 Fam LR 437 — an order made after death adjusts the parties' interests in the whole of their property in a way that is just and equitable ([29]).

🧠 Analysis

Issue

Can a will clause that "forgives and releases" a trust's debt to the testator take that debt out of reach of a spouse's property claim that was started before the testator died and has been continued against his estate?

Rule

A will clause cannot truly release a debt. A debt can only be released by agreement for valuable consideration or under seal. However it is worded, a testamentary "forgiveness" operates as a legacy of the debt to the debtor, and the debt is property of the estate ([24]).
Such a legacy takes effect subject to the due administration of the estate and to claims and obligations that have priority over testamentary benefits ([25], [35]).
Under s 79AA(8), property proceedings started before death continue against the legal personal representative. The continued claim creates no interest in the estate. Only an order under s 79AA(8)(b) does that ([28]).
Claims by separated spouses for property orders have long had priority over the claims of beneficiaries under a will ([30]–[31]).

Application

The words worked on paper, but not at law

The Court accepted that, read literally, cl 9.1 did what the executors said: it forgave the trust's debt at the date of death ([14]). But the Privy Council in Bone held that a clause purporting to "forgive and release" a debt does not extinguish it as an asset of the estate. Whatever word the will uses ("give", "forgive" or "release"), the debtor's benefit can arise only through the will. So the debt is estate property, and the debtor takes it as a legatee ([24]). Clause 9.1 was not materially different from the clauses in Bone ([25]). The Court concluded that "as a release it is ineffective at law" and takes effect "at most, as a legacy" to the trustee ([35]).

The executors' best point: she is not a creditor

The executors accepted the Bone principle but argued it helped them. On their case, the debtor under a forgiven debt can refuse to pay except where the money is needed for creditors, administration expenses or others entitled under the will or on intestacy. The applicant was none of those ([20]). She held no debt, judgment or enforceable obligation, only a contingent statutory claim that depends on the Court first being satisfied of the s 79AA(8)(b) matters ([21]). They also argued that Schultz concerns orders already made, not pending claims ([22]), and that the question was the debt's status now, after death, not just before it ([18]–[19]).

The Court accepted that the applicant is not a creditor of the estate, but rejected the rest of the argument ([26]).

Her claim gives her no interest, but it still comes first

The Court was careful about what the applicant has. Her application under s 79(1) gave her no legal or equitable interest in the debt, only a personal right to pursue her claim ([27]). Without s 79AA(8), her proceedings would have abated on the husband's death. Continuing them against the executors still created no interest in the estate. Only an order can do that ([28]). Her claim remains contingent on the s 79AA(8)(b) conditions and the Court's discretion ([29]).

None of that let the executors administer the estate and ignore her ([30]). The Court relied on Brennan J's statement in Fisher that the provision is "machinery for the discharge of those moral obligations in priority to any rights in the property of a party to a marriage which arise by testamentary disposition" ([30]). That passage was obiter, but it has been applied in many later cases ([31]).

The key reasoning is at [32]. The applicant's priority "does not depend upon characterising her as a creditor of the estate or as the holder of a proprietary interest". The proceeding was started during the husband's lifetime and continues under s 79AA(8)(a). The statutory scheme "requires that the proceeding be determined before the deceased's property is administered in accordance with testamentary dispositions which would otherwise remove that property from the reach of any order the Court may make" ([32]).

Why the executors' other arguments failed

The distinction between an order made and a claim pending is "sound as far as it goes". But the applicant's priority does not rest on treating her claim as if an order had been made. It rests on s 79AA(8) itself ([33]). Looking at the debt's present status did not help the executors either. Its present status is "an asset vested in the executors", to which the trustee is entitled only as a legatee and only in the due course of administration ([33]).

What the executors cannot do now

The executors cannot presently assent to, or otherwise give effect to, the cl 9.1 benefit in a way that would defeat the continuing proceeding. Until the proceeding is decided, the debt remains an estate asset that the executors can recover, subject to the property orders and the later administration of the estate ([34]).

Solvency was left for later

The Court did not decide whether the trust or the estate is solvent. That may matter to the practical administration of the estate or to the final property orders, but it does not change the answer to the separate question ([36]).

Conclusion

The Court declared that the $2,412,344 recorded in the trust's 2024 financial statements as owing to the husband is owing and payable to his estate ([38], Order 1). The debt vested in the estate on death, remains available for its due administration, and remains property that can be considered under s 79AA(8), despite cl 9.1 ([37]).

This judgment does not decide the property case. The Court has not yet decided whether it would have made a property order had the husband lived, whether an order remains appropriate, or what any order should be ([29], [32]). It does not make the applicant a creditor of the estate or give her an interest in the debt ([26]–[28], [32]). It does not decide whether the trust can actually pay ([36]). The cl 9.1 legacy has not been held void. It is postponed to the property claim and may still operate in the later administration of the estate ([17], [34]–[35]).

🧠 Take-Home Lesson

"Forgive" in a will means "give". A will clause cannot truly release a debt. It operates as a legacy of the debt to the debtor, and the debt stays in the estate ([24], [35]).
A continued property claim comes before gifts under the will. A spouse's s 79AA(8) claim has priority over testamentary benefits even though the spouse is neither a creditor nor the owner of an interest in the asset ([30], [32]).
Executors must wait. Executors cannot give effect to a forgiveness clause in a way that would defeat a pending property case ([34]).
Timing matters. The applicant's position rested on proceedings started during the husband's lifetime and continued under s 79AA(8)(a) ([28], [32]).
Use a separate question when one issue decides whether the case is worth running. Here the parties agreed the estate had nothing else that could support the claim, so it made sense to decide the cl 9.1 point first ([4]–[5]).
Check the trust accounts. The loan account was the key asset, and a revision of the trust's historical accounts had increased it by more than $1.3 million ([11]–[12]).
Self-represented litigants and support workers: if the other party dies during a property case, the case does not automatically end. Get advice quickly about continuing it against the executors, and ask about any assets the will tries to give away, including loans forgiven to family trusts ([2], [28], [32]).

"A will can give a debt away, but it cannot make it disappear. The estate still owns it, and a pending property claim gets first call."

"You don't need to be a creditor to stand in line ahead of the beneficiaries. The pending s 79AA(8) claim puts you there."

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