Post death testamentary trusts

Previous posts have touched on various forms of testamentary discretionary trusts, including 'post death' testamentary discretionary trusts http://blog.viewlegal.com.au/2010/05/testamentary-trusts-is-it-ever-too-late.html.

In very broad terms, these trusts are created so as to provide a pathway to access the excepted trust income rules under the Tax Act. In particular, they allow income to be distributed at adult rates to children under the age of 18.

While there are a number of rules that need to be complied with before setting up a post death testamentary trust, it is worth remembering that the structure is in fact available in a variety of circumstances, including:

1. Where the deceased dies with assets in their own name and a basic will (i.e. not incorporating a testamentary trust);
2. Where the deceased dies with assets in their name and has no will (i.e. they are intestate);
3. Where the deceased dies with superannuation entitlements (including insurance); or
4. Where the deceased dies with insurance entitlements.

Importantly, this type of trust is also available where the parties to a marriage separate and there are child support obligations that need to be satisfied.

View’s 90 minute webinar exploring the key issues in relation to post death trusts is available here - https://viewlegal.com.au/product/recorded-webinar-package/

Extracts of the webinar are also available via our podcast channel, see - https://viewlegal.com.au/view-podcasts/

Image credit: Markus Spiske cc

Gift and Loan Back Arrangements – A Practical Example

Earlier posts have looked at various aspects of ‘gift and loan back’ arrangements – see -

http://blog.viewlegal.com.au/2014/03/leading-gift-and-loan-back-case.html

http://blog.viewlegal.com.au/2014/04/how-gift-and-loan-back-arrangements-work.html

http://blog.viewlegal.com.au/2014/04/gift-and-loan-back-arrangements-some.html

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 gift and loan back arrangements in a ‘vidcast’ at the following link - https://youtu.be/hJy0OyOuLfE

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

Having done the trust split, what you might look at doing is a gift and loan back. That is to say the trustee that sits over a split trust will arrange for assets that are equal to the underlying interest in the asset to be gifted into a brand new trust.

The new trust will generally be a stock standard family trust that's controlled by the relevant beneficiary.

If the split trust makes a capital gift of the underlying capital value, not the interest in the asset itself, then what is being gifted is the dollar value of the asset as a cash gift. It can be a promissory note, round robin of cheques or whatever it needs to be.

The funds are gifted into a trust that’s controlled by the relevant beneficiary. What the beneficiary then does is lends that money back into the split trust.

That is step 1 is the gift.

Step 2 is the loan.

But at the same time as that new trust is making that loan, it will also take a mortgage out over the underlying assets in the split trust.

Thus you have effectively synthetically moved all of the equity out of the split trust into a brand new trust, which is absolutely controlled by the relevant beneficiary.

Furthermore, there's no mortgage duty on a gift and loan back arrangement. In other words, you can do all of the gift and loan back arrangement without any transaction costs.

The beauty of the strategy is that it still maintains the integrity of the initial trust split, but gives each of the ultimate family members, no matter what might go wrong between the family at that split trust level, the ultimate ability to call in that debt. While they might actually have to sell the underlying asset at that point, they will still ultimately have the underlying equity where it needs to be (that is in their sole control).

Pre-nups, pole dancers and PI insurance

The saga involving swimmer Grant Hackett suing two law firms for negligence is a high profile reminder of the difficulties in relation to 'pre-nups'.

Broadly the Hackett matter centred on allegations that the relevant law firms failed to properly advise him to create a binding financial agreement.

In particular, Hackett argued that the original agreement entered into before marriage failed to comply with the strict legal requirements under the Family Law Act. When the agreement was later updated after the birth of the couple's twin children the alleged difficulties with the agreement were not remedied.

In many respects the issues here are analogous to the relatively well known 'pole dancer' case of Wallace v Stelzer [2014] HCATrans 135 - so named because the husband met the wife at what was described as 'an adult entertainment venue' where the wife was working as a dancer. As usual, if you would like copies of the relevant decisions please email me.

At the heart of the pole dancer case was the husband's desire to avoid the terms of the binding financial agreement that saw him liable to pay $3million dollars to his former wife when their marriage ended after only 18 months.

Some of the arguments raised included that the lawyers failed to discharge their duty to properly explain the terms of the agreement - an allegation that would have seen the lawyers potentially liable in negligence if it had been held to be correct.

It was also argued that the agreement was void in relation to some technical aspects required to be complied with under the Family Law Act and that attempted legislative fixes to the rules were also invalid, in part because the changes purported to be retrospective. While it was ultimately held that the agreement was effective and the legislative changes were valid the extent of the litigation has seen many law firms, even those that specialise solely in family law, choose to no longer prepare binding financial agreements.

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All Care, No Liability

One of the questions that comes up regularly is who is responsible for providing the legal advice in the adviser facilitated (or wholesale) solutions offered by View.

View Legal provides complete support of its documentation by providing legal signoff.

This approach is one that we take extremely seriously, for obvious reasons.

Ultimately, via the View Legal platform, the adviser who facilitates the process is issued a compliance driven certificate that provides as follows –

‘View Legal Pty Ltd confirms it has provided independent legal advice to the client in relation to all legal documentation.’

There are no footnotes or disclaimers.

This one sentence certificate is issued without qualification.

Future posts will provide an interesting contrast by highlighting the style of disclaimers that most (if not all) other providers in this area rely on.

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