Rights to Occupy

Today's post looks at the creation of a life interest in a residential property under a will.

Traditionally, life estates were created where a will maker wanted to allow a particular beneficiary the right to reside in a property without gifting them it directly. 

For a myriad of reasons, the creation of a life interest is rarely appropriate as part of a modern day estate plan, and we generally see the use of either a specially crafted testamentary trust, or alternatively, a right to occupy as the appropriate approaches to use. 

Some of the reasons that life estates are no longer of particular use include:

1. A traditional life estate is very inflexible, particularly if the life tenant no longer wishes to reside in the property. 
2. Some of the reasons that the original property may no longer be appropriate include its size, geographic location or because of the level of care required for the individual (for example, they need to move to a nursing home). 
3. Often, will makers look to craft the life estate so that it ends on the life tenant entering into a new spousal relationship – the courts have been clear that such a restriction is likely to be struck down as void. 
4. There are a number of inflexibilities in relation to the way in which the life tenant and remainderman can interrelate – ultimately, it is often very difficult to end the arrangements other than on the death of the life tenant. 
5. There are significant adverse revenue consequences, both from a tax and stamp duty perspective, that can arise in relation to life estates. These difficulties are particularly detrimental if there is a desire to end the life estate before the death of the life tenant. 

Until next week.

When can an attorney accept their position?

Photo Credit: Robin Hutton cc

Today’s post considers when an attorney may accept their position under an enduring power of attorney (EPA).

This issue was recently considered in DC [2013] QCAT 108. As usual, a full copy of the case is available here - http://www.austlii.edu.au/au/cases/qld/QCAT/2013/108.html.

In this case, DC had executed an EPA appointing his wife and his son as his attorneys. DC subsequently lost capacity, and his attorneys attempted to use the EPA. However it soon came to light that there were numerous errors in the document, and to remedy this, the attorneys applied to the Queensland Civil Administration Tribunal (QCAT) for a ruling that the EPA was valid.

While there were other issues with the EPA, a key concern was that the son had signed his acceptance as attorney before his father signed the document.

QCAT confirmed that an attorney cannot accept their appointment until an EPA has been executed by the principal who is granting the power in the first place. Here, QCAT found that given DC had not signed the EPA before his son, no grant of power had been made and therefore the son’s purported acceptance was invalid.

QCAT also confirmed however that the invalid acceptance could be remedied by the son simply re-executing the EPA to accept his appointment – and this was possible even though DC had already lost capacity.

Until next week.

Temporary wills

Photo Credit: SalFalko cc

Today’s post looks at a recent case in which a lawyer was successfully sued for failing to write up and sign a client’s will nine days before she died (as usual, a copy of the case can be found at the following link: http://www.caselaw.nsw.gov.au/action/PJUDG?jgmtid=164444).

The case involved a will maker (Mrs Fischer) who met with a lawyer shortly before Easter 2010 to change a gift of property she had made under her previous will in November 2009 (2009 will).  Under the 2009 will, 25% of the estate passed to Mrs Fischer’s son.  The updated will would have distributed 50% of the estate to the son. 

With Mrs Fischer’s permission, the lawyer delayed preparing the new will until the week after Easter.  Unfortunately, Mrs Fisher passed away before her new will was provided.

The son then claimed damages from the lawyer for the difference between the 50% he would have received and the 25% he actually received.

The Court held that the lawyer was negligent in failing to at least have an informal will signed at the initial meeting.  In particular, it was held that the lawyer should have realised that although Mrs Fischer was not at a risk of imminent death, she was by reason of her age, lack of mobility and need for care susceptible to a risk of losing testamentary capacity or dying in the period of a few days between the initial meeting and the agreed date for providing the updated document.

While the lawyer was ultimately found not liable on appeal, the case remains a timely reminder of best practice in the estate planning arena.

Until next week.

Trust distributions and 30 June

 

In the wash up of the passing of the financial year, an adviser contacted us last week with yet another reminder about the importance of reading trust deeds. 

In this particular instance, the adviser had taken over a client from another firm. One of the key items on the trust checklist completed for every client of this adviser's firm is confirming what date the trust deed requires income distributions to have been made by. 

The Tax Office has a long stated view that regardless of whatever concessions may be available under the tax legislation in terms of the due date for resolutions, these concessions are subject always to the trust instrument. 

The terms of the trust deed here required all resolutions to be made by no later than 12pm on 29 June in the relevant financial year. Unfortunately, the distributions for each of the previous years had all been dated 30 June, which meant they were invalid under the deed. 

The adviser was, therefore, required to begin the process for lodgement of amended returns, relying on the default provisions under the trust deed and sought our guidance on how to best address this. 

Needless to say that the income determination for the current financial year was made and passed by resolution dated 28 June, so as to at least comply with the deed this year. 

Until next week.

Buy sell deeds, family trusts and the deemed market value substitution rule

Click here for an overview of buy-sell arrangements

With thanks to co View Legal director Tara Lucke, today’s post considers an issue that has been raised with us by an adviser recently.

It is generally accepted that where a business succession plan is structured with self owned insurance policies and a buy sell deed using put and call options, the deemed market value substitution rules apply for taxation purposes.  This outcome occurs notwithstanding that the transfer has been funded (either wholly or partly) by insurance.

Given the recent changes to the rules relating to the taxation of trusts, some uncertainty has arisen in relation to the ability to effectively manage the taxation consequences of a deemed capital gain arising from a transfer under a buy sell deed.

Under the ‘interim’ taxation rules relating to trusts, there can be particular problems relating to distributions of capital gains arising under the deemed market value substitution rule.  In particular, it is generally not possible to create specific entitlement to a deemed capital gain, notwithstanding that there may be a streaming power in the trust deed. 

However, where $1 of consideration has been received (which is how we generally recommend buy sell deeds be crafted), provided a beneficiary is made specifically entitled to the $1 of consideration, the deemed gain should be distributed to that same trust beneficiary.

It will therefore be important in each case to consider the specific terms of the trust deed and the other income of the trust, and to craft the distribution minute correctly to ensure the gain can ultimately be distributed to individuals who can access the general 50% capital gains tax discount. 

Until next week.