Tuesday, March 19, 2019

Let Love Rule - Specific Requirements of Binding Nominations **



Previous posts have considered various aspects of superannuation nominations, including binding death benefit nominations (BDBN). Some of the previous posts are available below:

1) Superannuation death benefits

2) Superannuation and binding death benefit nominations (BDBN)

3) Double entrenching binding nominations

As with many other aspects of estate planning, whenever considering a BDBN, the starting point should always be the requirements set out under the trust deed. Indeed, a BDBN can only be used where the deed allows one to be made.

Below is an example of some of the requirements that are generally set out in trust deeds before a nomination will be held to be binding, the first three of which are generally required by legislation:

1) must be in writing;

2) must be signed, and dated, by the Member in the presence of 2 witnesses, each of whom has turned 18 and neither of whom is a person mentioned in the notice;

3) must contain a declaration signed and dated by the witnesses stating that the notice was signed by the Member in their presence;

4) will not lapse by the passing of time;

5) may be revoked by the Member by written notice to the Trustee at any time;

6) must contain sufficient details to identify the Member; and

7) must contain sufficient details to identify one or more Beneficiaries for each category of benefits selected.

While almost all trust deeds that allow BDBNs will have provisions along the lines outlined above, at times there will be additional provisions that are not necessarily expected. Some examples in this regard include:

1) a requirement that the trust deed for the superannuation fund cannot be amended in a way that impacts on any BDBN without the consent of each member who has made one;

2) a provision that empowers the trustee to accept amended BDBNs from the financial attorney of a member;

3) the trustee may be required to consider and accept a BDBN before it is valid; and

4) there may be a particular table or form that is required to be embedded into the BDBN, which sets out the percentage entitlement of each beneficiary.


** For the trainspotters, ‘Let Love Rule’ is a song by Lenny Kravitz from 1989.


   




Tuesday, March 12, 2019

BFA’s - What does the High Court decision mean (to me)**?




As mentioned in last week’s post, the key issues undermining the validity of the BFA in this matter related to the conduct of the husband and the existence of unconscionable conduct and (by majority) undue influence.

Unconscionable conduct was summarised as follows:

‘a special disadvantage may also be discerned from the relationship between parties to a transaction; for instance, where there is ‘a strong emotional dependence or attachment’ … Whichever matters are relevant to a given case, it is not sufficient that they give rise to inequality of bargaining power: a special disadvantage is one that 'seriously affects' the weaker party’s ability to safeguard their interests.’

Undue influence is said to occur when a party is deprived of ‘free agency’ in entering into an arrangement. In other words, when there is something so strong that the influenced party is under the belief that while the document is not what they want, they feel compelled to sign it anyway.

The High Court listed the following six factors (noting that they are however not exclusive) relevant in assessing whether there has been undue influence in the context of BFAs:

1) Whether the agreement was offered on a basis that it was not subject to negotiation.

2) The emotional circumstances in which the agreement was entered, including any explicit or implicit threat to end a marriage or to end an engagement.

3) Whether there was any time for careful reflection.

4) The nature of the parties’ relationship.

5) The relative financial positions of the parties.

6) The independent advice that was received and whether there was time to reflect on that advice.

Admittedly, with the benefit of hindsight, arguably, the case does not significantly change the position in relation to the effectiveness of BFAs.

Indeed, the agreement may well have been held to be valid if some of the basic recommendations featured regularly in these posts were embraced.

In particular, if the arrangements had been put in place earlier in the relationship or at least not so approximate to the wedding, that would have increased the robustness of the agreement.

Similarly, if steps were taken to ensure that the independent lawyer was able to endorse the appropriateness of the agreement by way of a collaborative negotiation, then it would have almost certainly been the case that the arrangements would have been upheld.

This said, BFAs remain a stark reminder of a key asset protection mantra, that being the need to 'measure twice and cut once' if there is a desire for the arrangement to be enforceable.

  ** for the trainspotters the title of the post today is riffed from 1986 and Crowded House’s Mean to Me   




Tuesday, March 5, 2019

BFAs - The High Court's (Greatest) View**




In late 2017, there was further guidance from the High Court in relation to the manner in which parties to the BFA must conduct themselves if they are wanting the agreement to be binding. As usual, if you would like a copy of the decision please contact me.

The case itself received a significant amount of media attention, however with the aid of hindsight it is perhaps most objectively summarised by the publication released by the High Court at the time of them releasing their judgement, which is set out below.

High Court summary

Today the High Court unanimously allowed an appeal from the Full Court of the Family Court of Australia in the case of Thorne v Kennedy [2017] HCA 49.

The High Court held that two substantially identical financial agreements, a pre-nuptial agreement and a post-nuptial agreement, made under Pt VIIIA of the Family Law Act 1975 (Cth) should be set aside.

Mr Kennedy and Ms Thorne (both pseudonyms) met online in 2006.

Ms Thorne, an Eastern European woman then aged 36, was living overseas. She had no substantial assets.

Mr Kennedy, then aged 67 and a divorcee with three adult children, was an Australian property developer with assets worth over $18 million.

Shortly after they met online, Mr Kennedy told Ms Thorne that, if they married, "you will have to sign paper. My money is for my children".

Seven months after they met, Ms Thorne moved to Australia to live with Mr Kennedy with the intention of getting married.

About 11 days before their wedding, Mr Kennedy told Ms Thorne that they were going to see solicitors about signing an agreement.

He told her that if she did not sign it then the wedding would not go ahead.

An independent solicitor advised Ms Thorne that the agreement was drawn solely to protect Mr Kennedy's interests and that she should not sign it.

Ms Thorne understood the advice to be that the agreement was the worst agreement that the solicitor had ever seen. She relied on Mr Kennedy for all things and believed that she had no choice but to enter the agreement.

On 26 September 2007, four days before their wedding, Ms Thorne and Mr Kennedy signed the agreement. The agreement contained a provision that, within 30 days of signing, another agreement would be entered into in similar terms.

In November 2007, the foreshadowed second agreement was signed. The couple separated in August 2011.

In April 2012, Ms Thorne commenced proceedings in the Federal Circuit Court of Australia seeking orders setting aside both agreements, an adjustment of property order and a lump sum spousal maintenance order. One of the issues before the primary judge was whether the agreements were voidable for duress, undue influence, or unconscionable conduct. The primary judge set aside both agreements for "duress".

Mr Kennedy’s representatives appealed to the Full Court of the Family Court, which allowed the appeal. The Full Court concluded that the agreements should not be set aside because of duress, undue influence, or unconscionable conduct.

By grant of special leave, Ms Thorne appealed to the High Court. The High Court unanimously allowed the appeal on the basis that the agreements should be set aside for unconscionable conduct and that the primary judge's reasons were not inadequate.

A majority of the Court also held that the agreements should be set aside for undue influence. The majority considered that although the primary judge described her reasons for setting aside the agreements as being based upon "duress", the better characterisation of her findings was that the agreements were set aside for undue influence.

The primary judge's conclusion of undue influence was open on the evidence and it was unnecessary to decide whether the agreements could also have been set aside for duress.
Ms Thorne's application for property adjustment and lump sum maintenance orders remains to be determined by the Federal Circuit Court. 


 ** for the trainspotters the title of the post today is riffed from 2002 and Silverchair’s ‘The Greatest View


Tuesday, February 26, 2019

Full names in wills – do the right thing**


Over the last few days, we have had some difficulties in progressing with the administration of an estate for a client where the deceased will did not set out his full name.

Although it sounds like a very pedantic issue, the courts are reluctant to allow wills to be granted probate unless there is complete certainty around a person’s name.

Some of the issues that need to be considered in this regard include:

1) If there is a nickname that someone uses all the time, this should ideally be mentioned in the will.

2) Ideally, the name in the will should exactly match government records (for example, on the birth certificate or marriage certificate for the will maker, and thus in turn, what the death certificate will state).

3) To the extent there is any inconsistency between government records, this should ideally be explained or clarified in the will itself.

4) If the government records do not match the will and this is known at the time of lodging probate, look to explain the inconsistencies proactively with the court when making the application.

** for the trainspotters the title of the post today is riffed from the late 1980’s and ‘Redhead Kingpin


Tuesday, February 19, 2019

Guardianship appointment under wills – another application of The Vibe **


Last week, an adviser (on behalf of a client) questioned how binding the nomination of a guardian under a will for infant children is likely to be.

The simple answer is that in a practical sense our experience is that the nomination of a guardian is almost always followed. Arguably however this experience is nothing more than reliance on the well known legal principle ‘The Vibe’.

The strict legal answer is that the courts retain the final and absolute authority to determine who the guardian of an infant child should be with their only responsibility to determine what is in the best interest of the child.

Obviously, in a situation where both parents have died and there is a nomination of a guardian under their wills, the courts will normally put a significant amount of weight on this nomination. Despite the court’s inherent power, it is somewhat unusual to have a situation where the nomination under the will is not followed.

** for the trainspotters Dennis Denuto and his vibe legal principle need no introduction

Tuesday, February 12, 2019

Ensuring loans are loans and people are people


Following last week’s post, the case of Berghan & Anor v Berghan [2017] QCA 236 is a stark reminder. As usual, if you would like a copy of the decision please contact me.

Broadly, the factual matrix was as follows:

1) A son had borrowed (either directly or via related entities) a six-digit sum from his parents over an extended period.

2) The total amount lent was by way of instalments on a number of separate occasions.

3) On every occasion, there was a confirmation from the parents that they intended the amount to be a loan.

4) In saying this however, no formal agreement was ever entered into.

5) There was also an extended delay between the point in time at which the loans were made and when the parents ultimately sought recovery of the loans.

In the initial court decision, it was held that despite the reference to the loans, the conduct of the parents was more analogous to a gift, and on this basis, there was no obligation at law (ignoring any moral argument) that the son had to repay the amounts.

While on appeal, the parents were successful in having the court confirm that the amounts were actually loans repayable on demand, the fact that there was a protracted legal case to achieve this outcome is a stark reminder to ensure that comprehensive legal agreements are implemented.

The court focused on the factual matrix to determine whether the transactions had objectively demonstrated that the payments were made by way of an oral loan agreement and were not gifts. Once it was determined that the advances were loans, it was confirmed that at law, in the absence of anything to the contrary, such loans are deeded to be at call and repayable on demand.

Finally, independent legal advice should be obtained by each party to ensure that the prospects of, particularly the borrower, arguing that the arrangements were in fact a gift is unsustainable.

** for the trainspotters the title of the post today is riffed from 1984 and Depeche Mode’s ‘People are People





Tuesday, February 5, 2019

Ensuring a loan is a loan (or alone with you**) – part 1


Arguably, in relation to any form of loan arrangement, it is fundamentally important that there are documents confirming the exact terms that apply.

Purely from an asset protection perspective, ignoring wider issues such as the commercial arrangements, estate planning and tax, the importance of documenting loan arrangements in writing cannot be underemphasised.

Similarly, it is critical to consider:

1) Regular repayments, even if only nominal, to ensure that the terms of the agreement remain on foot and acknowledged by the parties. In this regard, as profiled elsewhere in these posts, government legislation can automatically cause loans to become unrecoverable and statute barred.

2) Possibly implementing security arrangements in relation to the loan, for example, by way of mortgage or registering an interest under the PPSR.

3) Ensuring that each party to the loan receives independent legal advice. Particularly in relation to arrangements between family members, the failure to ensure each party receives independent legal advice can cause a loan to become unrecoverable on the basis that a court decides that the loan was in fact a gift.

The requirement for independent advice is arguably the most important aspect in family situations, such as parents lending funds to a child and their spouse.

If the child and spouse have a relationship breakdown it is likely that the funds advanced will be argued to be a gift by the estranged spouse, even if a loan agreement has been signed.

If the amount is treated as a gift it will be an asset of the relationship (not the parents as lenders) and thus unrecoverable by the parents.

** for the trainspotters the title of the post today is riffed from the early 1980’s and The Sunnyboys ‘Alone With You’, see them perform live!