Tuesday, March 24, 2020

The time is now** - Start date for an attorney’s powers

View Legal blogpost 'The time is now** - Start date for an attorney’s powers ' by Matthew Burgess

One of the questions that arose following last week’s post, that is often raised in estate planning is the timing for powers of attorney to commence operation.

In particular, often a donor will suggest that an attorney’s powers should not commence until some future date, for example ‘on loss of capacity’.

On a number of levels, perhaps counterintuitively, we usually recommend immediate commencement of attorney powers where permitted by law (typically in relation to financial appointments).

In some instances, powers are prohibited at law from commencing until the donor has lost capacity.

The reasons we recommend this approach include:
  1. The likelihood the documents may need to be used in other scenarios (such as during overseas travel, or during periods of short term, relatively minor incapacity such as routine surgery) – the effectiveness of the document is significantly compromised if only triggered by ‘complete, absolute and permanent mental incapacity’.
  2. Avoiding a debate as to exactly when the document has come into force – particularly in an emergency situation it can significantly undermine the utility of the document if there needs to be an analysis of whether a pre-condition to commencement has in fact been satisfied.
  3. As an easy rule of thumb test as to whether there should be (say) a co-attorney appointed – that is, if there are concerns about the powers starting immediately. This can often be at least partly due to concerns about the skills or trustworthiness of the persons nominated.
  4. There are a number of practical steps that can be taken to guard against inappropriate attorney conduct – for example, placing the original enduring powers of attorney in secured storage so that the attorneys are required to request copies before they can exercise their powers.
  5. Another practical protection is ensuring that the appointed attorneys do not sign to accept their appointment until they need to rely on it - the powers under an enduring power of attorney cannot be used unless the appointed attorney has signed their acceptance.
  6. Practically a further easy work around is appointing one or more additional co-attorneys – typically another family member, friend or trusted adviser to act jointly with the clients’ attorneys. This prevents a single ‘rogue’ attorney from acting inappropriately as all decisions would require two or more attorneys to act together.
  7. If there are still concerns about the attorneys acting inappropriately in light of the above points, the harsh reality is that this says more about the persons being considered than it does about the document commencing immediately – in other words the issue should be addressed by reconsidering who is being appointed to the role.
  8. Indeed, if there remain concerns about the integrity of the nominated attorney acting inappropriately, there may be in fact be wider concerns that need to be addressed – such as the attorney acting inappropriately after the donor has lost capacity or even fraudulently creating documentation to allow themselves to act, regardless of the donor’s intention.
** for the trainspotters, the title here is riffed from Moloko, ‘The Time is Now’.

Tuesday, March 17, 2020

Enduring powers of attorney – a hopefully not (failed) reminder **

View Legal blogpost 'Enduring powers of attorney – a hopefully not (failed) reminder ** ' by Matthew Burgess

While each state has different legislation in relation to enduring powers of attorney, one issue that has come up over the last few days, which is common to the rules in virtually every state, is the ability to appoint different people for financial related matters as compared to personal (or ‘guardianship’) matters.

Previous posts have considered various aspects of an advanced health directive (which is effectively the 3rd main component of the areas where you can appoint someone else to make decisions on your behalf).

Often, it will be the case that the people a client is wanting to entrust with their financial affairs will be different to those they wish to have make decisions in relation to personal healthcare matters.

Providing the documentation is crafted appropriately, there is no legal reason that different people cannot be appointed.

One practical issue that needs to be kept in mind however is that many of the personal health related issues will have at least a partial financial aspect to them.

For example, the decision as to the standard of nursing home care to be provided is ultimately as much a financial decision as it is a personal health care decision.

Unless there are compelling reasons to have different people appointed, therefore our default recommendation is that the same people are nominated in all roles.

** for the trainspotters, the title here is riffed from the New Order song, ‘Senses’.


Tuesday, March 10, 2020

Appointor (and a life of) succession **

View Legal blogpost 'Appointor (and a life of) succession **' by Matthew Burgess

Previous posts (including last week), have considered various aspects of an appointor or principal power under a trust deed.

In almost every estate plan involving a trust, it is necessary to consider the best way to appoint a successor appointor.

Predictably, the starting point in this process was to review the trust deed.

Often, the deed will permit the incumbent appointor to have their successor nominated under the will.

Generally, if available, a nomination under the will is the easiest and most commercially sensitive approach to take.

In other instances, for example, where there may be a challenge to the will, it may in fact be more appropriate to structure the appointor succession in a standalone document that sits outside the will.

Any approach is always subject to the deed, which are consistently inconsistent with the approaches available, for example:
  1. appointment via will;
  2. appointment via enduring power of attorney;
  3. automatic lapsing of the role;
  4. mandated succession embedded into the trust deed;
  5. no appointor or principal role in the first place;
  6. succession nominated by some other party (eg a ‘guardian’ or ‘nominator’);
  7. no provision in the deed at all as to what happens to the role and no rules as to how appointor might appoint a successor; and
  8. some combination of one or more of the above
** for the trainspotters, the title here is riffed from the Morrissey song, ‘My life is an endless succession of people saying goodbye’.

Tuesday, March 3, 2020

Appointor disqualification**

View Legal blogpost 'Appointor disqualification**' by Matthew Burgess

Last week, we had a situation where under the terms of a trust deed, the principal or appointor (ie the person with the right to unilaterally remove the trustee) had become automatically disqualified.

This type of provision is not unusual in a trust deed, however the exact mechanisms by which the disqualification took place were somewhat unique.

In this particular situation, the appointor was disqualified from acting if they left the jurisdiction that the trust was set up in (which was New South Wales).

The issue had never come up before until it was an issue, with the appointor now wanting to exercise its powers to remove the existing trustee; and the trustee wanting to resist their removal.

The trustee challenged the proposed unilateral removal by the appointor on the basis that the trust deed no longer gave the appointor the relevant power because the appointor was living in Victoria.

On a plain reading of the deed, the advice to the trustee was; yes, they were correct, and the appointor had been automatically disqualified.

Therefore, not only could the (former) appointor not remove the trustee, there was likely the ability for the trustee to proceed with a variation to appoint a new (friendly) appointor. An approach assisted by the fact that variations under the deed did not require appointor consent.

The situation is (yet) another reminder that before taking any step in relation to a trust; read the deed.

** for the trainspotters, the title here is riffed from the only song I could find with the word disqualification in it, ‘The Winner’ by Coolio.

Tuesday, February 25, 2020

Here we go again** - Another reminder - details do matter

View Legal blogpost 'Here we go again** - Another reminder - details do matter' by Matthew Burgess

Last week's post looked at the way in which the Corporations Act applies to the signing of documents.

A previous post has also considered the decision in the primarily superannuation related case of Re Narumon [2018] QSC 185.

This case also offers a related lesson, relevant for deeds of any form of trust, not simply super funds.

As mentioned last week, a sole director and secretary can bind a company where they sign and specifically note this capacity.

In the case here, a deed of variation was signed by the sole director and secretary of the corporate trustee, however the relevant capacity was noted simply as 'authorised representative'; and thus not in accordance with the Corporations Act.

Some years later the invalid execution of the deed of variation was identified by an adviser and a 'Deed of Ratification and Variation' was, validly, signed.

In apparently accepting that the approach that a deed of ratification can remedy errors in an earlier, ineffective, document the court also confirmed that care must be taken. In particular:
  1. Any variation of any invalid document will need to rely on a variation power in the last valid deed in existence;
  2. If no specific variation power is mentioned in the document purporting to amend the invalid document it should be possible to assume that the correct variation power is being relied on;
  3. In contrast, if the deed purporting to make a variation specifically seeks to rely on a power in the invalid document it will itself likely be invalid; and
  4. Practically, there would seem to be merit in retaining all previous versions of a trust deed, even if it is assumed they have been superseded by later variations.
As usual, if you would like access to any of the posts or the case mentioned in this post please contact me.

** for the trainspotters, the title here is riffed from the Whitesnake song, ‘Here I Go Again’.

Tuesday, February 18, 2020

How many (times) ** and directors does it take to bind a company?

View Legal blogpost 'How many (times) ** and directors does it take to bind a company?' by Matthew Burgess

As is generally well understood, section 127 of the Corporations Act confirms a company with 2 or more directors may execute a document by either:
  1. 2 directors signing; or
  2. a director and a company secretary signing.
Where a company has a sole director and secretary, that director can sign.

Perhaps less well known is section 126 of the Corporations Act that allows for a company to be bound by an individual acting with the company's express or implied authority.

In situations where section 126 is being relied on a company's constitution is also often relevant. For example, a constitution may provide that the directors can resolve that a specified director is authorised to execute documents.

Third parties will of course not necessarily be aware of the internal resolutions of a company. The Corporations Act under sections 128 and 129 therefore provides some protection for third parties confirming that they may rely on certain statutory assumptions as to valid execution.

These assumptions have a number of limitations however, for example they cannot be relied on where:
  1. The person seeking to rely on the assumption knew or suspected that the assumption was incorrect.
  2. The document is being executed relying on section 126, as opposed to under section 127. In other words, if 2 directors (or one director and one secretary) sign then the assumption can be relied on. However, if one director only signs who is not the sole director and secretary then the protection of the valid execution assumption is unavailable.
Practically, therefore where a sole director signs a document third parties should ideally:
  1. obtain confirmation (for example by performing an ASIC search) that the person is the sole director and secretary;
  2. obtain an extract of the constitution for the company and a copy of the resolution appointing the director as an authorised sole signatory; or
  3. require the company to instead grant power of attorney to the relevant director. A copy of the power of attorney should then be produced at the time of signing.
** for the trainspotters, the title here is riffed from the Bob Dylan song, ‘Blowin’ in the Wind’.


Thursday, February 13, 2020

It’s alright** (trust splitting is coming back)


Previous posts have explored in detail the July 2018 release from the ATO and its views on trust splitting in TD 2018/D3.

As explored in previous posts, there were a range of concerns with TD 2018/D3 for all trust advisers.

These issues have only been partially addressed by the final ruling released in December 2019 as TD 2019/14 - a near Christmas release date that continues the (apparent) tradition of the “last ATO officer out the door has to issue an attack on trusts and then turn off the lights”.

Critically, TD 2018/D3 assumed a single factual matrix which is very specific, and it lists a number of line items that may, or may not, be a part of a trust splitting arrangement.

Many trust splitting arrangements involve a change of trustee in relation to specific assets and few (or indeed none) of the other features listed in TD 2018/D3 (for instance, no changes to the appointors, right of indemnity or range of beneficiaries).

Given the extended delays in finalising TD 2018/D3, there must be a legitimate question as to its correctness in relation to the one example included in the draft.

This is particularly the case given the ATO conveniently:
  1. ignores both High Court and Full Federal Court authority in decisions such as FCT v Commercial Nominees of Australia Ltd (2001) 47 ATR 220 and FCT v Clark (2011) 190 FCR 206 when making conclusions about trust resettlements;
  2. makes unsubstantiated and unexplained assumptions about how a trustee may or may not act following a trust split.
More positively TD 2019/14, does now include two key changes that address other serious issues in TD 2018/D3.

Namely:
  1. a second example has been included, which suggests how the ATO believes a form of trust split may be able to be implemented, without causing a resettlement.
  2. the ATO has effectively abandoned its previous attempt to make the TD retrospective by acknowledging that its “view of the potential CGT implications of the arrangement discussed in this Determination may have been subject to conjecture prior to the publication of TD 2018/D3 on 11 July 2018. The Commissioner will not devote compliance resources to apply the views expressed in this Determination to arrangements entered into before this date.”
The second example included in TD 2019/14 essentially confirms that a trust split will not be a resettlement, so long as:
  1. if each trustee keeps separate accounts in respect of the assets they hold, the results are consolidated for the entire trust fund and a single tax return is prepared for the trust as a whole;
  2. there is no attempt to apply for a separate tax file number;
  3. there is no amendment of beneficiary classes;
  4. there is no narrowing of the trustee’s right of indemnity (ie each trustee must continue to have recourse to all of the assets of the trust to satisfy its right of indemnity);
  5. there are no changes to the trustee who remains in control of assets not subject to the trust split; 
  6. the trustees of each 'split' trust must still act jointly in relation to issues such as choosing an accountant, incurring joint expenses, amending the trust deed and determining an earlier vesting date. 
Based on the second example, all other aspects of a trust split are permissible, for example:
  1. amending the trust deed to allow the trust split to occur (assuming there is an adequate power of variation);
  2. appointing a new trustee (and replacing the previous trustee) to certain assets that are to be subject to the trust split;
  3. changing the appointor or principal in relation to the assets the subject of the trust split;
  4. updating third party records (eg Land Titles Office, share registries etc) in relation to the change of trusteeship.

** For the trainspotters, today’s title is riffed from the Eurythmics and ‘It’s alright (baby’s coming back)’.

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