Tuesday, March 19, 2024

When you dream** of a better trust deed; however the court refuses to assist

View Legal blog - When you dream** of a better trust deed; however the court refuses to assist by Matthew Burgess

Last week's post considered the issues about varying a trust that has no power to vary, under the regime in New South Wales.

While in other states, for example Queensland, it is generally accepted there is a relatively wide power available to the courts to assist with amending trust deeds that do not have robust provisions, the rules in New South Wales are far more restrictive.

One further example in this regard is the decision in Application of Country Road Services Pty Ltd (In the matter of the Browne Family Trust) [2019] NSWSC 779.

In this case a desired amendment to a trust deed to appoint a related trust (that had losses) to allow distributions to it was rejected as not being 'expedient' (as required by the legislation in New South Wales).

The court confirmed that:
  1. The variation of the terms of a trust (including by way of conferral of some new power on the trustee) is not something within the ordinary and natural province of a trustee’s powers (unless the trust deed otherwise grants the relevant power).
  2. It is neither something that is ‘expedient’ that a trustee should do nor, fundamentally, something that is done ‘in management or administration of’ trust property.
  3. Rather, a trustee’s function is to take the trusts as it finds them and to administer them as they stand.
  4. A trustee should not be concerned to question the terms of the trust or seek to improve them.
  5. Thus, even where the trust instrument itself gives the trustee a power of variation, exercise of that power is not something that occurs “in the management or administration of” trust property. It occurs in order that the scheme of fiduciary administration of the property may somehow be reshaped.
  6. Ultimately, the Court’s power to amend a trust deed in New South Wales cannot be used to subvert the beneficial disposition in the trust instrument.
Similarly therefore, a request to amend a trust deed to extend the perpetuity period was held to be another example of the kind of order not authorised by legislation in New South Wales (see Cisera v Cisera Holdings Pty Ltd [2018] NSWCA 286), even though the trust was due to vest in around 7 years and would likely trigger significant capital gains tax costs at that point.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Simple Minds song ‘New Gold Dream’.

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Tuesday, March 12, 2024

Salvation!** - Varying a trust deed when there is no power of variation

View Legal blog - Salvation!** - Varying a trust deed when there is no power of variation by Matthew Burgess

Pursuant to the Trusts Acts (and similar legislation) in most Australian states, there is an inherent power for a court to make variations to trust instruments.

This power can be extremely important where there is no, or a very narrow, power of variation in a trust instrument.

One of the leading cases in this area is Re Dion Investments Pty Ltd [2013] NSWSC 1941.

In broad terms, the case involved a trust deed setup in 1973, which the trustee was wanting to amend so as to be able to better manage the trust property. The relevant legislative provision in New South Wales gave the court the power to amend a trust instrument so long as it was ‘expedient' for the management or administration of trust property.

In rejecting a request to amend the deed by inserting a comprehensive variation power (which in turn would have allowed the trustee to make such changes to the trust deed as it deemed appropriate from time to time), the court confirmed:
  1. The legislative provisions did not allow the court to simply insert into the deed a comprehensive power of variation.
  2. Only specific powers (in contrast to wide discretionary powers) with respect to a particular dealing will be granted under the legislation.
  3. It was however permissible for the court to confer particular and limited powers in relation to certain issues such as how to account for income and capital gains and related tax driven provisions.
  4. Despite not originally crafting its variation request along the lines that the court said was permissible, the trustee was permitted to make further submissions in accordance with the court’s recommendations for immediate approval.
Interestingly, in the subsequent decision of Re Dion Investments Pty Limited [2020] NSWSC 1661, the court authorised a further variation to ensure the ‘foreign person’ land tax surcharge could be avoided. This was in light of the fact that the trust deed did not give the trustee the ability to exclude foreign persons as beneficiaries. In particular, the relevant power of variation was limited to 'trusts' (granted to persons who had all died and therefore had lapsed), not the ‘powers’ – a distinction explored in many previous View posts.

The court confirmed that the requirements in the legislation were all met, namely:
  1. There needs to be a 'proposed dealing', being a 'sale, lease, mortgage, surrender, release, or disposition, or any purchase, investment, acquisition, expenditure, or transaction'.
  2. The dealing must be in the Court’s opinion 'expedient'.
  3. The dealing must be incapable of being effected because of an absence of power.
Relevantly the court confirmed that the existence of a tax advantage can form the basis of the ‘expediency’ in the management and administration of trust property requirement; here the land tax saving was over $100,000. This conclusion was reached notwithstanding that the order would adjust or even destroy the rights of some (potential) beneficiaries to the extent that they met the definition of a 'foreign person'.

The same outcome was granted in the case of Cecil Investments Pty limited [2021] NSWSC 211, where the trust deed permitted only a variation to the 'powers' not 'trusts.

This case also confirmed that previous attempted variations to the trust deed were invalid as they breached the limitation set out in the power of variation against anything that purported to change beneficiaries who were takers-in-default of appointment.

As has been explained in numerous previous posts, a comprehensive power of variation is arguably one of the most important aspects of any trust deed.

It is important to keep in mind that the legislation is worded differently in each State, for example the Queensland Courts have a wider power than in NSW. Reference should therefore always be had to the specific wording of the legislation in the relevant jurisdiction.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Black Rebel Motor Cycle club song 'Salvation’.

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Tuesday, March 5, 2024

To avoid orphans** - you need to know who the parents are

View Legal blog - To avoid orphans** - you need to know who the parents are by Matthew Burgess

In theory, given modern science, the question of who is a parent of a child should be relatively easy to answer.

As the decision in Masson v Parsons [2019] HCA 21 highlights, the answering of this question is not always straight forward.

Briefly the factual matrix involved a female asking a male friend to be a sperm donor so she could carry and bare a child. The 'couple' each entered into longer term same sex relationships with other people, however the male friend was registered on the birth certificate of the father and was actively involved and helped finance raising of the child.

When a dispute arose in relation to living and caring arrangements for the child between the biological mother and father the court confirmed:
  1. There are at least three ways in which a person may be or may become a natural parent of a child depending on the circumstances of the particular case, namely genetically, gestationally and psychologically (see In re G (Children) [2006] 1 WLR 2305).
  2. The question of whether a person qualifies as a 'parent' is a question of fact and degree to be determined according to the ordinary, contemporary understanding of the word and the relevant circumstances of the case.
  3. To characterise the biological father of a child as a 'sperm donor' (and therefore not a 'parent') suggests that the man in question has relevantly done no more than provide his semen to facilitate an artificial conception procedure on the basis of an express or implied understanding that he is thereafter to have nothing to do with any child born as a result of the procedure.
  4. This said, it was unnecessary in this case to decide whether a man who relevantly does no more than provide his semen to facilitate an artificial conception procedure that results in the birth of a child falls within the ordinary accepted meaning of the word 'parent'.
  5. This was because in the circumstances of this case, the man provided his semen to facilitate the artificial conception of his daughter on the express or implied understanding that he would be the child's parent; that he would be registered on her birth certificate as her parent, as he was; and that he would, as her parent, support and care for her, which since her birth he had done.
As usual, if you would like access to any of the content mentioned in this post please make contact.

** For the trainspotters, the title of today's post is riffed from a line in the Beck song 'Orphans’.

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Tuesday, February 27, 2024

Backdating legal documents not possible ... without a time machine**

View Legal blog - Backdating legal documents not possible ... without a time machine** by Matthew Burgess

As explored in other View posts, backdating legal documents is never permissible, regardless of the phrase used to describe the approach (eg ‘retro dating’, ‘pre-dating’, ‘intended date’).

The decision in Edwards & Anor v Brougham [2022] SASC 8 provides another example of the rules in this regard.

Relevantly the factual matrix involved a dispute about the trusteeship of a discretionary trust where:
  1. a sole individual trustee purported to transfer an asset of the trust to themselves (as a potential beneficiary of the trust);
  2. there was evidence confirming the appointor of the trust had exercised their power to unilaterally remove the trustee before the purported transfer;
  3. the trustee, on advice from a lawyer, backdated a deed of transfer to a date that was before the appointor removed the trustee.
In relation to the backdating, the court simply confirmed that it was 'not in itself effective to make a retrospective determination for the purposes of the trust deed'. The decision also confirmed:
  1. it is not necessary for a trust deed to have a condition for effective removal of a trustee the giving of notice to the trustee being removed;
  2. the key reason for not requiring a removed trustee to be notified is that a former trustee, who continues to exercise powers honestly without notice of their removal, will be protected in several ways, for example they are indemnified by trust assets (assuming they have acted honestly);
  3. Where two or more appointors are nominated, unless there is unambiguous wording to the contrary, the assumption is that the surviving appointor may act solely, that is, the appointment of two or more persons to an office is both joint and several;
  4. similarly, unless there is clear wording preventing the outcome, a trustee may also act as appointor;
  5. the court acknowledged that having a trustee also acting as the appointor of a trust was a 'relatively unusual' situation and 'would naturally be expected only as a measure of last resort', given that under the trust deed (as is often the case) the appointor was structured as a checking mechanism on the powers of the trustee.
Similarly in the case of Jaken Properties Australia Pty Ltd v Naaman [2022] NSWSC 517, the confession of backdating cast a significant shadow over the claims of one of the parties.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Alicia Keys song 'Time Machine'.

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Tuesday, February 20, 2024

Your digital footprint (part II) – some further comments on ‘stayin’ alive’**

View Legal blog - Your digital footprint (part II) – some further comments on ‘stayin’ alive’** by Matthew Burgess

Last week’s post considered 6 of the key areas we suggest be captured on any checklist relating to a person’s digital footprint.

As promised, this week’s post lists a further 7 areas to consider, namely:
  1. Inventory of all electronic devices (eg smart phones, tablet, laptops, computers, reading devices, watches, fitness bands, headphones, dvds, hard drives, USB sticks, digital cameras etc)
  2. Review all apps on smart phones and tablets
  3. Digital/virtual life games (eg Second Life, Kaneva, Virtual Life, School of Dragons, Twinity etc)
  4. Online shopping (including payment gateways, buy/sell/swap services, ebay, Craiglist etc)
  5. Online interactive gaming
  6. Online gambling accounts (including Lotto, TAB, casino style games)
  7. Online memberships (including discussion groups, home delivery, associations, clubs, libraries, professional associations, hobby groups, frequent usage/loyalty/rewards programs, work or student alumni associations, dating and introduction services)
** For the trainspotters, the title of today's post is riffed from the Bee Gees song 'Stayin’ alive’.

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Tuesday, February 13, 2024

Your digital footprint (part I) – a bit like stay(ing) alive**

View Legal blog - Your digital footprint (part I) – a bit like stay(ing) alive** by Matthew Burgess

A previous post has considered the key issues in relation to digital assets on death.

View also provides free access to a template memo of directions that has a section on digital assets.

One of the easiest ways to ensure a person’s digital footprint is identified and arguably the best way to achieve this is by using a checklist.

Where relevant the checklist should confirm contact details, user names, passwords, access codes, answers to security questions, log in pins, member numbers and payment arrangements.

Set out below are 6 of the areas we suggest be captured on any checklist – next week’s post will list a further 7.

In summary:
  1. Social media (including Facebook, Twitter, Linkedin, Instagram, Pinterest, Snapchat, Google hang out, Tumblr, Yammer)
  2. Digital platforms (including Skype, YouTube, App Stores, blogs, online music and movie streaming, education and information services [eg TED, Udemy, podcasting, books], news feeds, magazines, software providers, personal websites, domain names)
  3. Online storage (including documents, personal information, photos, videos, personal health and fitness, dictation, blogs, data storage, diaries, journals, Moleskins, Evernote, back up storage services, Dropbox)
  4. Digital financial assets (rewards points, prepaid services, Bitcoin etc)
  5. Email accounts (including work, gmail, Hotmail, Bigpond, personal), including any automated responses and mail lists subscribed to
  6. Instant messaging and SMS services
As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from Hamilton and the song 'Stay alive’.

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Tuesday, February 6, 2024

A cover is not the book** Taxation of executor’s commission

View Legal blog - A cover is not the book** Taxation of executor’s commission by Matthew Burgess

Generally, where a person acts as the executor of another’s estate, one of three approaches are adopted to financially recognise the time, energy and effort involved.

In summary, the approaches are:
  1. Reimbursement only – under this approach, all costs incurred by the executor (for example, engaging professional advisers) are reimbursed to the executor.
  2. Payment according to services performed – often, this will be calculated by reference to the number of hours spent, multiplied by an appropriate hourly rate.
  3. Commission.
The rules in relation to executor’s commission are relatively complex, largely based on case law that in some instances is hundreds of years old.

Importantly however, from a tax perspective, the Tax Office has confirmed that the payment of commission is essentially a reward for services rendered. This means that despite the fact that there is no formal employer/employee relationship, the income received by an executor must be included in their assessable income in the year it is derived and taxed at normal marginal rates.

This conclusion is explained in more detail in ATO ID2014/44.

Partly to counteract this outcome, and to provide a level of certainty as to the overall quantum of payment that is ultimately received by an executor, some will makers simply provide a specific cash gift to their executors under their will.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from Mary Poppins Returns and the song 'A cover is not the book’.

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