What are superannuation proceeds trusts?

Recently, an adviser contacted me in relation to an estate planning exercise they were assisting with.

The lawyer advising the client recommended against establishing testamentary trusts until both the husband and wife had passed away.

The financial adviser was therefore exploring whether it would be possible to establish a 'superannuation proceeds trust' to effectively 'sidestep' the lawyer's recommendations.

For those not familiar with the superannuation proceeds trust structure, it is very similar to an estate proceeds trust (which was profiled in the post from 19 May 2010: http://blog.viewlegal.com.au/2010/05/testamentary-trusts-is-it-ever-too-late.html).

A summary of estate proceeds trusts is available on the View Legal website (www.viewlegal.com.au) via the core services section.

Until next week.

Image credit: Truthout.org cc

Cases that have considered Richstar

As set out in many earlier posts, the Richstar case was decided in 2006, and yet, it continues to receive significant attention.

Interestingly, there has not been a substantive case that has accepted the conclusions in Richstar, and indeed, there are now many cases that have effectively rejected the core aspects of the decision in Richstar.

A selection of the subsequent cases is summarised below. If you would like access to the full copies of the decision, please email me:

1. Tibben & Tibben [2013] FamCAFC 145 - The only ‘entitlement’ of the beneficiaries under the Deed of Settlement was a right to consideration and due administration of the trust: Gartside v Inland Revenue Commissioners;
2. Deputy Commissioner of Taxation v Ekelmans [2013] VSC 346 - The applicant relied on the decision in Richstar to contend that the cumulative effect of the role and entitlement of Leopold Ekelmans under the trust instruments amounted to a contingent interest in all of the assets of the trust, making those assets amenable to a freezing order as if the assets of Leopold Ekelmans. The Court found that the applicant could not in this matter rely on Richstar;
3. Hja Holdings Pty Ltd and Ors & Act Revenue Office (Administrative Review) [2011] ACAT 91 – notwithstanding that beneficiaries under a ... discretionary trust have some rights, such as the right to have the trust duly and properly administered, generally a beneficiary of a discretionary trust, who is at arm's length from the trustee, only has an expectancy or a mere possibility of a distribution. This is not an equitable interest which constitutes "property" as defined;
4. Donovan v Sheahan as Trustee of the Bankrupt Estate of Donovan [2013] FCA 437 - a beneficiary of a non-exhaustive discretionary trust has no assignable right to demand payment of the trust fund to them (and nor have all of the beneficiaries acting collectively) and that the essential right of the individual beneficiary of a non-exhaustive discretionary trust is to compel the due administration of the trust;
5. Simmons and Anor & Simmons [2008] FamCA 1088 – the court and parties referred to Richstar on a number of occasions and confirmed that a beneficiary has nothing more than an expectancy.

Until next week.

Future of TDTs Post Richstar

As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of ‘Future of TDTs Post Richstar’ at the following link - http://youtu.be/fUe8aX5DghI

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

The reality is that even despite decisions such as Richstar, testamentary trusts have always been a very strong vehicle from asset protection perspective.  

They're not a recent vehicle - they go right back into early English law, over hundreds of years.  While there has undoubtedly been an amount of white noise around them in recent times, the reality is that they are by far and away the most robust structure from an asset protection perspective. 

Importantly, they also ‘tick the box’ in terms of issues such as flexibility, tax planning and overall estate and succession planning objectives can almost always be achieved via a tailored testamentary trust.  

Ultimately, despite the Richstar decision, it is absolutely the case that testamentary trusts remain the choice structure for most estate planning exercises.

Until next week.

Important considerations when establishing a TDT

As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of ‘Important considerations when establishing a TDT’ at the following link - http://youtu.be/D8HwIGVu8kk

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

Probably the two main components, although there's a myriad of things to be taken into account, but the two main components in light of Richstar would be firstly around control issues.

Particularly looking at things like who the trustee is of the trust, if there's going to be a corporate trustee, which is not unusual nowadays in relation to testamentary trusts, who will be the directors of the corporate trustee, who will be the shareholders of it, will there be  any restrictions or prohibitions on who can fulfil those roles. 

Similarly in that control context, exactly who will have ultimate control if there's going to be an appointor power?  So that would be the first main category and obviously there's a range of issues that sit around that.

The second category is exactly how regulated the trust is going to be in a mechanical sense in terms of the provisions of the will.  The particular things that advisers should be focusing on are issues like:

(a)         are there automatic disqualifications for particular roles;

(b)         if there are automatic disqualifications, do they apply permanently, or is it just during a period where a particular beneficiary or a particular appointor is in strife from creditors. 

Combining these two core components and there’s obviously a range of issues in between them, but generally as long as you can get those two broad silos right, that will set a good framework for a very strong structure. 

Until next week.

Cascading testamentary trusts and stamp duty risks

With thanks to co-director View Legal Patrick Ellwood, today’s post looks at an estate planning approach that is often raised, namely the use of ‘cascading’ testamentary trusts.  The structure usually involves a single testamentary trust being established upon the death of one spouse, which then ends and ‘cascades’ into multiple testamentary trusts (usually one for each child) upon the death of the surviving spouse.

This strategy is intended to avoid the issues that can arise where clients ultimately want their children to receive control of separate shares of their estate, while minimising the potential burden for their spouse with the administration of multiple trusts while they are alive.
Previous posts confirm that there should be no tax consequences of the cascading trust approach, for example see Do ‘cascading’ testamentary trusts cause a tax problem and Taxation consequences of testamentary trust distributions - Part II.

Although the ‘cascading’ trust structure can be useful in some circumstances, it is vital to consider the risk that stamp duty will normally apply on the transfer of assets from the original testamentary trust to the separate trusts for the children. The stamp duty rules are different in each jurisdiction, however will usually be around 5% of the value of the assets being transferred.

An alternative approach is to establish a single trust on the death of the first spouse, and ensure the terms of that trust are broad enough to allow capital distributions to be made to other trusts.  This means that, if the stamp duty cost can otherwise be managed, the trustees can ‘split’ the assets of the trust into separate trusts at the appropriate juncture by way of a capital distribution.

A further alternative is to simply establish multiple testamentary trusts on the death of the first spouse and ensure the trustee of each trust (normally the surviving spouse) is empowered to administer all trusts as if they were a single trust.  This approach generally provides the most flexibility and ensures there will be no unnecessary stamp duty costs.

The perceived complexities of using multiple trust are normally not significant if the same trustee acts as trustee of each trust certainly no more complex than (say) 2 individuals owning a house, which is obviously very common.

Until next week.

Image credit: sarahgb cc