Tuesday, October 29, 2013

Accelerating superannuation contributions

In recent times, particularly given the ongoing adjustments to the limits for concessional superannuation contributions, the way in which to maximise non-concessional contributions has been an area of focus.
The table that we often use, which summarises most of the main strategies available in this regard is set out below.

Member age
Financial year
Scenario 1
Scenario 2
Scenario 3
Scenario 4
Scenario 5
Scenario 6
  1. Assuming contributions are made prior to member’s 65th birthday or made after reaching age 65 and the member continues to satisfy the required gainful employment test. 
  2. Assuming contributions are made prior to member’s 65th birthday or the member was aged 65 at any time in the year and continues to satisfy the required gainful employment test of the contributions were made after the member’s 65th birthday. 
Until next week.

Tuesday, October 22, 2013

Adviser liability as a facilitator

Photo Credit: SalFalko cc
A recent post profiled a court decision where a lawyer was held liable for failing to have a client's estate planning instructions implemented within the space of a few days.

A number of advisers have made contact since the earlier post, concerned about their potential liability in similar circumstances.

While there does not appear to be any particular case exactly on point, we believe the broad position is as follows:
  1. advisers will potentially be liable for a failure to deliver to the standards that they promise, or alternatively, the standards expected of a competent adviser working in the area; 
  2. it is therefore important that advisers ensure that both their promotional material and their retainers clearly articulate the level of service being provided and then ensure that they perform at least to that standard; 
  3. in this regard, articulating what will not be done is often at least as important as setting out what will be done; 
  4. it should generally be relatively easy for most advisers to discharge their professional obligation in the estate planning space by simply ensuring that the law firm that they partner with is engaged early in the process, and that the relevant law firm accepts the client’s instructions; 
  5. certainly, a large part of the success of our wholesale platform via View Legal seems to have come from the fact that its entire foundation is built on a collaborative approach with the adviser facilitating the process and the deliberate accepting of all legal risks associated with the process - this is in direct contrast to virtually all other alternatives that advisers have, such as online will providers and ‘will kits’; 
  6. despite the above, there is an increasing amount of publicity about law firms marketing to disgruntled beneficiaries about their ability to sue advisers such as financial planners, accountants and risk advisers (in addition to suing other law firms), and in the vast majority of the promotional material, these law firms advertise their services on a 'no win no fee' basis – this trend would seem to suggest there will be increasing litigation in the area; and 
  7. in this context, the recent situation where the solicitor was sued for negligence is a timely reminder for all advisers to have a bias towards compliance, best practice and continual improvement of their service offering. 
Until next week.

Tuesday, October 15, 2013

One remedy where trust distributions prove problematic

For those that do not otherwise have access to the Weekly Tax Bulletin, the article from last week is extracted below.

A recent article in this Bulletin focused on the critical need to "read the deed" whenever making trust distributions (see 2013 WTB 38 [1642]).

Even where distributions are made validly to a potential beneficiary, they can prove extremely problematic from an asset protection perspective.

One scenario that seems to arise regularly in this regard is the distribution by a trust to a corporate beneficiary, the shares in which are owned personally by an at-risk individual.

Often, the difficulties with this ownership structure are not identified until after many years of distributions have been made to the bucket company, and anecdotally, the issue is often first identified at a point which is too late, for example, just before litigation proceedings are to commence against the relevant shareholder.

Where this ownership structure is identified and assessed to be inappropriate, the first critical step is to ensure that any future distributions to a corporate beneficiary are directed to a newly established company, the shares in which are owned by a non-risk entity (e.g. a passive family trust).

However, resolving the historical distributions is generally not as simple.

Depending on the circumstances, some form of dividend access share or discretionary dividend share may provide a pathway to remedy the historic distributions, although it will be important to consider the ATO's recent guidance in Draft Taxation Determination TD 2013/D5 (see 2013 WTB 24 [1092]) and Taxpayer Alert TA 2012/4 (see 2012 WTB 30 [1194]) which warned taxpayers of arrangements where accumulated profits of a private company are distributed substantially tax-free to an entity associated with the ordinary shareholders of the private company.

Similarly, since the introduction of the Personal Property Securities Act 2009 (PPSA), steps can often be taken to grant a security interest over the at-risk shares to a low risk related entity.

Broadly, this solution can be achieved by a "gift and loan back" style arrangement, whereby:
  1. the at-risk individual gifts a cash amount equal to the gross value of the shares to a protected environment (e.g. a passive family trust);
  2. the family trust subsequently lends the gifted amount back to the at-risk individual; and
  3. the family trust simultaneously registers a security interest over the shares on the PPS register to secure repayment of the loan. Subject to certain conditions (such as the family trust establishing "control" over the shares) the family trust's interest in the shares should be protected under the PPSA.
The advantages of utilising a gift and loan back, compared to a straight transfer of the shares in the corporate beneficiary can include:
  1. the arrangement achieves broadly equivalent protection for the asset compared with a straight transfer; and
  2. as there is no change in the legal ownership of the shares, transfer duty (where applicable) and capital gains tax will generally not apply. The only transaction cost should be the PPSR registration fee.
The disadvantages of utilising a gift and loan back approach, compared to a straight transfer of the shares can include:
  1. the arrangement is more complex than a simple transfer, and involves the preparation of additional documentation (including a deed of gift, loan agreement and security documentation);
  2. it only protects the amount of net equity in the asset at the time of the gifting, however as mentioned above, there should not be any further distributions made to the inappropriately structured corporate beneficiary; and
  3. the arrangement is subject to the bankruptcy clawback rules and specialist advice should be obtained in relation to the operation of these provisions.
Until next week.

Tuesday, October 8, 2013

PPSA transitional arrangements end on 30 January 2014

Image Credit: Images Money cc via Flickr

A post from February 2012 considered the Personal Property Securities Act 2009 (Cth) (PPSA) which commenced some 18 months ago.

Today’s post focuses on one of the upcoming critical aspects of the regime.

The PPSA is the national system for personal property securities in Australia and replaced many state, territory and Commonwealth registers of personal property securities.

Central to this system is the Personal Property Securities Register (PPSR) where details of security interests in personal property can be registered and searched.

To give creditors an opportunity to adjust to the new regime, the PPSA included transitional provisions. The principal object of these provisions was to maintain priority between security interests that existed before the PPSA commenced on 30 January 2012 for two years. These interests are known as ‘transitional security interests’.

This two year transitional period ends on 30 January 2014.

To ensure transitional security interests continue to be protected they should be reviewed to ensure they are validly registered on the PPSR by 30 January 2014. There is no PPSR fee to register a transitional security interest.

Until next week.

Tuesday, October 1, 2013

Signing estate planning documents

sign here
Image Credit: Robin Hutton cc

We regularly review signed estate planning documentation that has been returned to us for secure storage on a daily basis.

As part of a recent quality control audit, we tracked the most regularly occurring reasons for documents being rejected for a failure to comply with the strict legal requirements in this area.

Set out below is a summary of the most common issues we identified, and it is a timely reminder for any adviser facilitating the estate planning process:
  1. attorneys signing the attorney documents before the principal has signed – an attorney can not accept their appointment before the principal has appointed them; 
  2. leaving documents undated - unlike many other formal documents (for example, tax returns) where clients are specifically told not to date the document, all estate planning documentation must be dated on the day that it is signed; 
  3. failing to sign (and date) in each and every place required; 
  4. having witnesses who are relatives, beneficiaries or appointed in roles of authority (such as executor or attorney), all of whom are largely prohibited from being a witness; 
  5. having unqualified witnesses witness attorney documents when specific qualifications are required; and 
  6. attaching anything to an original document, including by way of paper clip, bulldog clip or post-it note. 
If any of the above issues arise, it virtually guarantees that the relevant document must be reproduced and resigned in order to avoid substantial and unnecessary difficulties when the document ultimately needs to be relied upon.

Until next week.