Tuesday, August 23, 2016

The continuing saga of how many powers of attorney it takes to create authority


In one of the LinkedIn discussion groups I am a member of, the issue was raised recently about what documents are required when someone has assets or spends time in more than one state around the country.

The issue is particularly prevalent in communities near state borders. However it can potentially arise in any situation. Indeed, the issue can also arise across international borders.

Our view, which seems to align with the general consensus of those regularly advising in this area, is captured succinctly in my earlier post – see How many powers of attorney does it take to create authority?

Interestingly, the post from 2011 flags the ‘ongoing push' to have uniform succession laws across Australia. In the five years that have passed since that post, most would agree no progress at all has been made in this area.

In adopting the approach recommended in the earlier post of preparing a document in each jurisdiction that a person has significant assets or spends significant time, it is generally seen as best practice to include ‘duplication acknowledgement' wording.

Some example base wording in this regard is as follows:
  1. For the avoidance of doubt I confirm that I have executed an Instrument Appointing an [#Name of medical EPA in relevant jurisdiction eg Enduring Guardian] pursuant to the [#insert relevant state act] ('the [#insert state acronym eg NSW] [#Name of medical EPA in relevant jurisdiction eg Enduring Guardian]’) for any matter that requires signing by an [#Name of medical EPA in relevant jurisdiction eg Enduring Guardian] duly appointed by the laws of [#Insert state eg New South Wales].

  2. By this Power of Attorney for personal and health matters ('the [#insert state acronym eg QLD] [#Name of medical EPA in relevant jurisdiction eg Power of Attorney for personal and health matters]) I appoint my Attorneys in respect of any personal or health matter not strictly required to be signed by an [#Name of medical EPA in relevant jurisdiction eg Enduring Guardian] appointed by the laws of [#Insert state eg New South Wales].

  3. To the extent there is any inconsistency or overlap between the [#insert state acronym eg QLD] [#Name of medical EPA in relevant jurisdiction eg Power of Attorney for personal and health matters] and the [#insert state acronym eg NSW] [#Name of medical EPA in relevant jurisdiction eg Enduring Guardian], the [#insert state acronym eg NSW] [#Name of medical EPA in relevant jurisdiction] is to prevail and the [#insert state acronym eg QLD] [#Name of medical EPA in relevant jurisdiction eg Power of Attorney for personal and health matters] is to be modified (and its operation suspended to that extent only) for such time as the [#insert state acronym eg NSW] [#Name of medical EPA in relevant jurisdiction eg Enduring Guardian] remains in existence.

  4. In all other respects the [#insert state acronym eg QLD] [#Name of medical EPA in relevant jurisdiction eg Power of Attorney for personal and health matters] shall apply and remain in force.
Image courtesy of Shutterstock

Tuesday, August 16, 2016

ASIC Records and Trust Ownership


In the early 2000’s, the ASIC started requiring shareholders to disclose whether they owned their shares on trust.

The particular question on the ASIC records is 'are the shares owned beneficially?'

We regularly see situations where the ASIC records do not reflect wider accounting, tax and trust records.

Strictly, the inaccurate ASIC records are a breach of the law. More problematically however, where ASIC records do not reflect what is otherwise being argued for tax or asset protection purposes, it can place clients in an unnecessarily difficult position.

There are a number of mechanisms to correct ASIC records, in some cases without any penalty, so whenever inconsistencies are identified, we recommend proactive steps be taken to update ASIC records immediately.

It is important to note however that there can often be a trade off between adopting the simplest alternative to making ASIC records accurate and the best practice approach in relation to tax planning and asset protection. Similarly, the late fees of a best practice approach can also be prohibitive.

Image courtesy of Shutterstock

Tuesday, August 9, 2016

A Practical Perspective on Resettlements


Earlier posts have looked at various aspects of the Clark decision and trust resettlements – see -

Statement of principles to be (finally) amended (?)

ATO releases draft determination on trust resettlements

As set out in earlier posts, and with thanks to the Television Education Network, today’s post considers some related practical issues in relation to resettlements in a ‘vidcast’ at the following link - https://vimeo.com/145339753

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

If you go back to Clark as a benchmark, that decision followed a whole thread of decisions starting right back to Commercial Nominees, which was a superannuation resettlement case.

There was significant white noise around that decision from the Tax Office’s perspective, because they were arguing that the principles about amending trust instruments out of Commercial Nominees were really only available for superannuation funds. Therefore while, a super fund could amend its deed significantly, that didn't apply to any other form of trust.

Clark, somewhat interestingly, was a case that involved a unit trust. But ultimately the Tax Office following that case was comfortable that the principles, as initially confirmed by the High Court in Commercial Nominees, did in fact apply to any form of trust.

Even though Clark involved a unit trust, there were really quite radical changes to the way in which the trust instrument was crafted. There were changes to the unitholders, the trusteeship, and the way in which the trust instrument actually worked.

Despite all of those changes, the court held that the trust was an ongoing trust and there had been no tax event, that is there had been no resettlement, which would have notionally meant that all of the assets of the trust were disposed of from the original trust and reacquired by the new trust, effectively creating a tax event.

What Clark in theory should allow in any trust splitting arrangement, is permit amendments to whatever trust instrument is involved, to allow whatever is desired to be achieved from a trust splitting perspective.

Tuesday, August 2, 2016

Tinder-isation of the law


For most likely readers of View posts, Tinder is not an app that features on their handheld device (see - https://www.gotinder.com/).

This said, Tinder's historical 'swipe right for yes; swipe left for no' has become ubiquitous.

As 'gamification' similarly becomes expected across all aspects of our lives we have relaunched each of our 7 apps on both Apple and Android.

You can now use the Tinder inspired 'swipe right' approach to narrow down some of the broad areas that might be relevant in relation to a range of estate planning related topics.

Each app generates a free white paper or template legal document.

The apps are as follows -

1. estate planning;

2. self managed superannuation funds;

3. estate admin;

4. business succession;

5. memorandum of directions;

6. directors duties;

7. binding death benefit nominations.

All 7 of the View apps can be downloaded via our website – see - http://viewlegal.com.au/download-our-latest-apps/

Tuesday, July 26, 2016

Bespoke Corporate Trustee Constitutions


As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses some of the key issues in relation to ‘bespoke’ corporate trustee constitutions’ and trust splitting in a ‘vidcast’ at the following link - https://vimeo.com/145236253

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

One of the things that we're spending a lot more time working with is what we loosely call a ‘de facto corporatisation’ or indeed a de facto trust splitting exercise.

In other words, tailoring what would otherwise be a constitution for a shelf company, so as to provide all of the same outcomes that you might otherwise see under a trust split, and embedding those arrangements at least into the company’s constitution, but may be also into the trust instrument itself.

As part of segregating particular assets sitting underneath the trust structure, you can put in place a bespoke or a tailored company constitution, and regulate the way in which directors are appointed to that company, regulate the way in which the shareholders can operate, regulate the way decisions are made in relation to particular assets sitting down inside the trust.

If you actually contractually go and put that into the terms of the constitution, what you can effectively have is, for example, if you're talking about this in an estate planning context, kid 1 controlling part of the trustee company, and giving kid 1 complete autonomy over decisions in relation to assets that are related to that part of the trustee company.

You can then have kid 2 likewise in relation to another control part of the structure and so on.

Alternatively, many people will only look to regulate control in relation to the trustee company.

So they’ll say look, we'll put in place voting requirements, we'll say that one kid has a super vote, or we'll actually appoint an independent board to that company and regulate how those decisions might be made, and this will be an overall strategy for the trust at the trustee company level.

Tuesday, July 19, 2016

Challenging a Will due to Existence of Mutual Wills


A recent post listed the five main ways in which a will can be challenged – see 'Ways to contest a will'

One of the aspects listed was that wills are always subject to any contractual arrangements that a will maker may have entered into before their death.

One particular approach that is used from time to time is the concept of creating 'mutual wills'.

Essentially, a mutual will is a contract whereby two people agree to make their wills in a certain way and to then not change the document without the express consent of the other party to the agreement.

Traditionally, mutual wills are made between spouses, often where one or both of the spouses are in their second or subsequent life relationship. Alternatively, mutual wills can be implemented where there are particular assets in the estate that both spouses want to ensure are dealt with in a particular way, regardless of when they may each die.

The creation of a mutual will, if crafted correctly, can allow a party who would otherwise have received a benefit, but for a person entering into a new will in breach of the mutual will, to sue on the basis of a breach of contract.

While in theory, litigation for the breach of contract should be easier to succeed in, there have been a number of cases that have seen attempted mutual will arrangements fail.

Furthermore, the significant inflexibility created by mutual wills mean that most specialist advisers caution against their use.

Tuesday, July 12, 2016

New Financial Year; new small business roll-over in play


With the new financial year underway, the roll-over provisions under subdivision 328-G are now available to small business entities to restructure without adverse capital gain tax (CGT) consequences.

The rules significantly increase the flexibility to restructure businesses, particularly as part of an estate planning exercise.

This post considers the eligibility requirements for accessing the roll-over. A previous post has considered in detail a number of the main opportunities available under the provisions, see - 'Tantalising opportunities for trust restructures under new Subdiv 328-G'

Unlike other CGT roll-overs, the provisions allow direct roll-over of non-CGT assets such as trading stock, depreciating assets and revenue assets. The provisions do not however provide any relief in relation to related transaction costs such as GST or stamp duty.

Eligibility

The concessions are available to small business entities being individuals, companies or trusts whose annual turnover is less than $2M.

In order for the roll-over to apply, the following criteria must also be met:
  1. the CGT asset must be an active asset; 
  2. an election must be made; 
  3. the transferor and transferee must be Australian residents; 
  4. the transactions must not change the ‘ultimate economic ownership’; and 
  5. the transferee cannot be an exempt entity (for example, a superannuation fund). 

The definition of active asset includes captures all assets used in a business except for company loans to shareholders and unpaid present entitlements which cannot be transferred under the provisions.

Ultimate Economic Ownership and Discretionary Trusts

The rules require that each relevant individual’s interest in the assets of the business remain in proportion after a restructure. Tracking economic ownership when using the provisions to transfer assets from an individual to a company, or from company to company is relatively easy.

Given the nature of a discretionary trust, where beneficiaries do not have a direct interest in the trust assets, the provisions set out how to determine whether ultimate economic ownership is maintained.

In particular, the rules create a ‘safety net’ test that allows access to roll-over relief if a trust has made (or makes) a family trust election. Where such an election is made, it effectively limits the range of potential beneficiaries who can receive a distribution without triggering a penal tax consequence (being the family trust distribution tax).

Integrity measures and the safe harbour rule

Given the very broad potential application of the provisions a discrete integrity measure has been included.

In particular, there is the requirement that any transaction is a 'genuine' restructure of an ongoing business.

While ‘genuine’ is not itself defined, a transaction will be deemed to fall within a safe harbour under the rules if for three years after the relevant restructure:
  1. there is no change in the ultimate economic ownership of significant assets; 
  2. the significant assets transferred continue to be active assets; and 
  3. the significant assets transferred are not used for personal purposes. 

Conclusion

The 328-G concessions are arguably the most comprehensive CGT roll-over provisions introduced since the commencement of CGT. The new rules will provide small business entities with a myriad of restructuring opportunities.

View Legal will be live streaming a webinar on 21 July 2016 covering everything you need to know about the new small business roll-over rules.

For more information about the webinar and your opportunity to register, see the link below - https://viewlegal.com.au/product/webinar-small-business-rollover-rules/

The webinar will explore all technical aspects of the provisions and use numerous case studies, including:
  1. what constitutes a ‘genuine restructure’; 
  2. using trust cloning and trust splitting as a restructuring method;
  3. restructuring heritage trusts with proximate vesting dates or limited variation powers; 
  4. how to restructure from a sole-trader to a company owned by a family trust; and 
  5. other planning opportunities.
Image courtesy of Shutterstock