Tuesday, August 20, 2019

Financial Advisers to become qualified witnesses - Young Guns (do not necessarily) go for it **

Very positive to see the announcement last week that financial advisers will be granted the status to witness a Commonwealth statutory declaration.  

A step that sees advisers become the ''equal'' of medical practitioners, justices of the peace and lawyers.  

And arguably a long overdue iteration to provide an easy and far more cost effective way for customers to have documents witnessed. And yet it must be asked, when will all states follow this lead?  

Particularly in the (state regulated) estate planning space, one of the single biggest roadblocks we see is the witnessing of attorney documents. Particularly in Victoria, New South Wales and (to a lesser extent) Queensland the existing witnessing requirements appear to remain unchanged.  

Thus, especially in NSW, you essentially need a lawyer to do the witnessing (kudos to the NSW lawyers union for achieving this position).  

In other words, simply because a person (ie a financial adviser) is eligible to witness statutory declarations is not sufficient to make them qualified for the purpose of witnessing attorney documents.  

** For the trainspotters, an oldie and a goodie, Wham's 'Young Guns' is the inspiration for the title to the post today.

Legal privilege (on privilege)** and estate planning

Often one of the most important aspects of advice provided by lawyers is the ability for that advice to remain private and confidential to the client on the basis of legal professional privilege.

Particularly in relation to tax planning and asset protection, the ability to maintain confidentiality can often be very important and the case of Nolan v Nolan [2013] QSC140 is an important example of this principle. As usual, if you would like a copy of the decision please contact me.

In summary, the situation in this case was as follows:
  1. a wife and husband had been married for some years;
  2. following a breakdown in their relationship, the wife claimed an interest in the farming property of the husband's parents;
  3. because the husband's parents were still alive, the wife tried to gain access to their estate planning documentation; and
  4. the parents of the husband sought to deny access to the documents on the basis of legal professional privilege.
In deciding the case, the court confirmed:
  1. the dominant purpose for the creation of various estate planning documents including letters of advice and handwritten notes, both by the estate planning lawyer and the parents, was to obtain legal advice;
  2. on this basis, legal professional privilege could apply to deny the wife the ability to access the documents; 
  3. unfortunately, because the lawyers for the parents did not raise the issue of privilege until after the relevant documents had been disclosed, the court held that notwithstanding the documents could have otherwise retained their confidentiality, the disclosure of them had waived the protection of privilege; and
  4. importantly, it was also confirmed that it is not necessarily automatically the case that wills and related files are protected by legal professional privilege.
** For the trainspotters, ‘privilege on privilege’ is a line from one of my favourite privilege related songs, from the Church and their 1986 album Heyday, namely ‘Myrrh’.

Tuesday, August 13, 2019

Family Court: ‘I’ve Got the Power’** to make orders against third parties

The powers of the family court in relation to structures such as trusts are potentially extensive.

At a simplistic level, there is the specific power to force the change of a trustee of a trust.

Potentially, there is also the ability to bring forward the vesting date of a trust to require it to end immediately and thereby crystallise the interests of a party to the relationship.

One leading case in this regard is the decision in AC and ORS & VC and ANOR [2013] 93 FLC 540 FamCAFC 60. As usual, if you would like a copy of the decision please contact me.

Briefly in that case:
  1. The husband’s mother was in control of the corporate trustee and the trust at the relevant times.
  2. The husband and his former wife had a fixed entitlement to the capital of the trust on its vesting, which, at the time of the property settlement, was still 50 years in the future. That is, the trust was not a traditional discretionary trust where there are no fixed entitlements.
  3. The court found that the entitlement was rightly considered property of the parties and therefore ordered the trustee to vest the trust.
  4. The Attorney General intervened in the proceedings, given that the practical result of the decision was that the property entitlements of a third party were substantially altered.
  5. Critically, it was held that the husband and wife did in fact have an interest in the trust property despite the fact that it was accepted that the control of the trust was with the husband’s mother. 
  6. In other words, the ability to alter the structure of trusts can be made even where a party to the marriage is not in control of the trust.
  7. In a more traditional discretionary trust however there may not be the required nexus between the trust assets and the parties to the marriage.
  8. For completeness however, in this particular case, the forced vesting of the trust ultimately failed due to the appeal court’s conclusion that procedural fairness had not been given to the husband’s mother, particularly given that the parties to the marriage had other assets that could have likely achieved financial closure between the parties without the need to impose orders on a third party.
** For the trainspotters, ‘I’ve Got the Power’ is a song by Snap! from 1990.

Tuesday, August 6, 2019

I’m gonna break into your heart** (and anything else you get): family law and post separation inheritances

One ongoing area of contention (admittedly amongst many others) in family law is how post-separation inheritances are treated on a matrimonial property settlement. 

In very broad terms, the Family Court is required to consider all relevant factors before distributing any share of one party’s inheritance to their former spouse.

Depending on the exact factual matrix, the Courts will, in broad terms, take one of the following approaches:
  1. Completely ignore the inheritance for all purposes in relation to the division of matrimonial property.
  2. Exclude the inheritance from the division of matrimonial property, however make an adjustment on the division of the matrimonial property to take into account the access to the inheritance that one spouse will have.
  3. Include the inheritance as part of the pool of property to be distributed between the parties, while making some adjustment to acknowledge the ‘contribution' that one party made to bringing the asset to the matrimonial pool.
  4. Simply including the inheritance as part of the matrimonial asset pool, with no specific adjustments. 
However, based on the published cases to date, it is important to note that it is very rare for the recipient of an inheritance or similar ‘windfall' to have those assets completely quarantined, regardless of when they are received up until the final date of the property settlement.

** For the trainspotters, ‘Break into your heart’ is a song by Iggy Pop from his album with Josh Homme (QOTSA) in 2016 ‘Post Pop Depression’.

Tuesday, July 30, 2019

Hallo Spaceboy** - Distributions ‘outside’ a family group

As set out in earlier posts, and with thanks to the Television Education Network, today’s post considers the above mentioned topic in a ‘vidcast’.

As usual, an edited transcript of the presentation for those that cannot (or choose not) to view it is below –

One strategy we are seeing implemented by an increasing number of clients is the amending of a trust instrument to reflect what the position is due to the family trust election that has been made for that particular trust.

See here for a visual of the family tree as it is defined under the legislation as to what forms part of the family when a family trust election has been made.

This can mean that following the mantra of reading the deed can be misleading. This is because if you have looked at the trust instrument and you have decided that a particular party is a potential beneficiary, then that should always be overlaid with what the family trust election permits.

In other words, simply because a party is a potential beneficiary under the trust instrument, this doesn't mean that it’s necessarily a smart idea to distribute to that entity. This is because if the distribution is outside the family group, then the tax is effectively at 50 cents in the dollar.

Indeed, even if the distribution is otherwise a discounted capital gain, the penal family trust distribution tax is triggered.

Historically, the concept of quite radically redrafting a trust deed to ensure that it reflects what the family trust election says has not been popular.

Now however, we see an increasing number of clients amending their trust deeds to minimise the risk of distributions outside the family group.

** For the trainspotters, 'Hallo Spaceboy' is the lead single from the David Bowie’s 1995 album ‘Outside’.

Tuesday, July 23, 2019

Presumption** of disclosure of beneficial share ownership

Recent posts have considered a number of aspects of the ASIC requirement that the beneficial ownership of shares in a private company be disclosed.
  1. (Stripped) Bare** trust share ownership;
  2. Updating ASIC records – Simple (Simon); and
  3. Relationships of share ownership and the ASIC.
One potential difficulty in relation to ASIC’s requirements in this regard involves situations where the legal owner holds the share on an undisclosed trust for another party or entity.

In this type of situation reading of the relevant ASIC provisions suggests that the company report should disclose the fact that the legal owner holds the share non beneficially.

This said, in a true undisclosed trust situation most advisers will recommend that the ASIC records in fact are completed in a way that shows the legal owner is also the beneficial owner.

If this approach is adopted then full supporting documentation should be retained by the legal owner to rebut the presumption created by the way in which the ASIC records are completed.

** For the trainspotters, ‘presumption’ is a key word from Midnight Oil’s song from 1998, ‘Blot’.

Tuesday, July 16, 2019

(Stripped) Bare** trust share ownership

Recent posts Updating ASIC records – Simple (Simon) and Relationships of share ownership and the ASIC have looked at the various issues in relation to notifying the ASIC of the beneficial ownership of shareholdings in a private company.

One aspect of this style of situation that arises relatively regularly relates to companies that were incorporated prior to 1997. Before this date, every private company was required to have at least two shareholders.

In order to provide a practical solution where a person was wanting to be the sole shareholder a practice developed whereby a second party would be listed as a legal shareholder, however they would simply hold that share on a bare trust for the intended sole shareholder.

Where such a structure exists, assuming that the articles of association or constitution have now been updated, it is generally possible to vest (or bring to an end) the bare trust arrangement and have the ASIC records updated to simply list the sole shareholder.

** For the trainspotters, ‘stripped bare’ is a line from the U2 song from 1983 ‘October’.