Tuesday, May 30, 2017

Estate planning and the 2017 super reforms – the 11 things you must be aware of

Matthew Burgess Estate planning and the 2017 super reforms – the 11 things you must be aware of

The 2017 superannuation reforms are widely acknowledged as being the most fundamental changes to the superannuation landscape in over a decade.

While the reforms will have a significant impact across a range of areas, the consequences from an estate planning perspective are at risk of being overlooked.

In no particular order, the fundamental issues that must now be considered when managing superannuation entitlements from an estate planning perspective are as follows:
  1. Where an individual has a reversionary pension for an amount currently in excess of the $1.6 million balance transfer cap (which will be indexed for CPI), steps will need to be taken to manage how the amount which gets rolled back to their accumulation account is dealt with upon their death – for instance, via a binding death benefit nomination.
  2. While the exact factual matrix will always be critical, as a general comment, entitlements above the $1.6 million limit should be paid to tax death benefits dependants, ideally via a superannuation proceeds trust as part of a testamentary trust under a will (previous posts have explored various aspects of superannuation proceeds trusts, see Superannuation proceeds trusts, View Legal and superannuation proceeds trusts and Superannuation proceeds trusts: Tricks and traps).
  3. The utility of a superannuation proceeds trust is significantly undermined where there are no death benefit dependants for tax purposes. Where a person has superannuation entitlements and no tax dependants, the consequences of the ‘fast death tax’ remain critical to consider. The so-called ‘fast death tax’ arises where funds that could otherwise be withdrawn tax free by the member during their lifetime remain in the fund at the date of death of the member and are then subject to tax on the distribution from the fund. 
  4. The ability to make anti-detriment payments ends on 30 June 2017. Anti-detriment payments were beneficial in many situations, although had limited applications for self-managed superannuation funds. 
  5. Any estate planning strategy will continue to be ultimately dependent on the trust deed for the relevant fund and a detailed review of the deed should be undertaken before any succession strategies are implemented. 
  6. The conservative approach is that all trust deeds should be reviewed in light of the 2017 changes, with particular focus on the client’s estate planning objectives. Our experience to date is that in most cases, a deed update will be appropriate. 
  7. Regardless of whether a trust deed is updated, reviewing related estate planning documents to ensure that they align with the client’s objectives is critical. In particular, all death benefit nominations and reversionary pensions must be reviewed (for instance, in the context of the $1.6 million transfer balance cap mentioned above). To the extent that there are binding nominations in place, the structure of those nominations may need to be updated (again, previous posts have explored a number of relevant aspects in that regard, see Superannuation and binding death benefit nominations (BDBN), Death benefit nominations – read the deed and Double entrenching binding nominations).
  8. Similarly, the ability to make decisions, including potentially renewing or changing nominations in the event of a member’s incapacity, must be addressed by a comprehensive, superannuation compliant, enduring power of attorney. An appropriately crafted document in this regard will also provide a pathway to potentially avoid ‘fast death tax’ being triggered. 
  9. The utility of reversionary pensions will be significantly undermined if the consequence of the reversionary pension is that the recipient exceeds their transfer balance cap. 
  10. That said, in the right factual scenario, a child pension may provide planning opportunities as a child is entitled to access each of their parents transfer balance cap – in other words, if the two parents pass away, the children of the relationship can get access to up to $3.2 million. Unless a child has a permanent and significant disability however, any balance in a pension account on the child reaching the age of 25 must be commuted and paid to them as a lump sum. From an asset protection perspective, this has significant adverse consequences that need to be considered. 
  11. A carefully crafted testamentary trust will, which can provide tax benefits that are broadly similar to those that could be obtained by a child allocated pension, may be preferable to ensure that access to capital only takes place at appropriate junctures and not automatically at the age of 25. 
Next week’s post will consider some of the specific post-death consequences of the new rules.

The above post is based on the article we recently had published in the Weekly Tax Bulletin. Finally, many of the themes in this post were featured in our recent Estate Planning Roadshow.

Download the brochure to purchase a full recording of the event here - https://viewlegal.com.au/product/recorded-webinar-package/

Image courtesy of Shutterstock

Tuesday, May 23, 2017

Seven dwarves, pizzas for the homeless and pre-chopped broccoli florets** – taking the detail to a whole new level

Matthew Burgess Seven dwarves, pizzas for the homeless and pre-chopped broccoli florets** – taking the detail to a whole new level

Following last week’s post, where I mentioned that, particularly in New South Wales, it is often the case that trustees are expressly prohibited from being beneficiaries of discretionary trusts there were a number of questions relayed to me. Thank you also for the suggestions as to what hair product Van Halen would have likely demanded at the height of their fame in the mid 1980s (see – Brown M&Ms, invasion by aliens and when trust beneficiaries aren’t beneficiaries).

The key reason the ‘trustee can’t be a beneficiary’ prohibition is so prevalent in New South Wales is that under the stamp duty laws there, in order for a trustee to be permitted to be appointed (particularly where there is a change of trustee of a pre-existing trust), that trustee must not be a potential beneficiary of the trust.

Obviously, there are a range of asset protection related issues in this regard as well. At the centre of these issues is the fact that a trustee is directly liable for misadventures of the trust. As a general rule, the maximum value of a trustee company from time to time should never be more than a nominal amount – ie $2. A trustee company receiving distributions as a corporate beneficiary will breach this rule immediately.

Importantly however, many trust deed providers that offer deeds nationally, will incorporate the prohibition on a trustee being a potential beneficiary, even for trusts that do not otherwise have any connection with New South Wales.

This prohibition will often be weaved into a trust instrument in a less than obvious manner. Unless there is a pedantic approach to reviewing the terms of a trust deed the prohibition will be missed.

In summary – yet another example of the importance of the mantra ‘read the deed’.

As mentioned last week, our upcoming webinar ‘Trust Horror Stories’ will have many case study examples highlighting key issues to be aware of with managing trusts.

Find out more here - https://viewlegal.com.au/product/webinar-trust-horror-stories/

Watch the promo video below.

** for the trainspotters, the author of the theme song of ‘Trainspotting’, being ‘Lust for Life’ (see - https://www.youtube.com/watch?v=jQvUBf5l7Vw) Iggy Pop allegedly had a contract rider requiring seven dwarves, pizzas to give to the homeless, and pre-chopped broccoli florets (to make them easier to throw away). Again there is a prize for anyone who can share a more unique list of riders.

Tuesday, May 16, 2017

Brown M&Ms, invasion by aliens and when trust beneficiaries aren’t beneficiaries

Matthew Burgess Brown M&Ms, invasion by aliens and when trust beneficiaries aren’t beneficiaries

In preparing for the upcoming View webinar ‘Trust Horror Stories’ (see details below) we had a timely reminder of the mantra to ‘read the deed’.

The read the deed mantra is analogous to the famous contract rider of rock band Van Halen requiring M&Ms in their dressing room; with all the brown ones removed.

Originally thought to be the very definition of an outlandish group of prima donnas, the truth was all about the detail – if Van Halen ever saw brown M&Ms on arrival at a venue they were on notice that the venue operator did not sweat the detail.

On more than one occasion they used the existence of a brown M&M as cause for cancelling a gig; or perhaps more bluntly, telling the venue to go ‘Jump’**.

Contract lawyers have long been renowned for a similar technique when crafting ‘force majeure’ provisions and randomly including events such as inability to complete a contract due to invasion by aliens or abduction by unicorns to flush out those who are not checking every line.

In the trust deed example we had this week, a trustee company had been distributing income from a trust to itself as a corporate beneficiary (ie to cap the tax rate at 30%).

Aside from the asset protection issues that can arise from using a corporate trustee as a corporate beneficiary, the other main issue to consider was whether the company could in fact be a beneficiary of the trust – in other words did the deed include the trustee as a beneficiary.

As is quite often the case with trusts established in New South Wales (in particular), in this instance, the trustee was in fact expressly excluded as a potential beneficiary of the trust. See the following post for a more detailed analysis of this aspect of many trust deeds –

Read the deed - another reminder re invalid distributions.

The invalid distribution, which unfortunately had been made over a number of years, meant that a range of quite complex issues arose in relation to the trust, with a multitude of tax, trust law and accounting issues needing to be addressed. The solutions available for each issue were, at best, problematic.

As mentioned, our upcoming webinar ‘Trust Horror Stories’ will have many case study examples highlighting key issues to be aware of with managing trusts.

Find out more here - https://viewlegal.com.au/product/webinar-trust-horror-stories/

Watch the promo video below.

** for the trainspotters, one of Van Halen’s most popular songs is ‘Jump’ – see - https://www.youtube.com/watch?v=k8LdRJqjjRM and there is a prize for anyone who can confirm the list of contract riders for hair product.

Tuesday, May 9, 2017

Murphy’s Lew

As set out in earlier posts, and with thanks to the Television Education Network, today’s post considers the above mentioned topic in a ‘vidcast’ at the following link - https://youtu.be/SSpp06IM5j4

As usual, an edited transcript of the presentation for those that cannot (or choose not) to view it is below –
The case study here is a relatively famous case, or at least a case about a relatively famous person, being Solomon Lew, the high profile retailer.

The factual scenario involved a relatively standard family trust.

The initial catalyst for the difficulties was the so-called ‘entity taxation regime'. Under these rules, the idea was to effectively tax trusts as if they were companies.

Mr Lew received some strategic tax advice.

The strategic advice was to do this.

The first step was that the trust entered into an arrangement where an asset revaluation was done.

This basically uplifted the carrying value of all of the assets of the trust to market value and created a big gap, a dollar gap between the carrying cost and the actual market value. That ‘notional gain' was distributed as a capital distribution, down to relevantly one of the sons and one of the daughters of Mr and Mrs Lew, and their respective spouses.

Fast forward about 5 or 6 years, the relationships of both of the kids with their respective spouses ended at about the same point in time.

The former spouses and their lawyers looked at the documentation and argued based on the accounts, the amounts were at call loans made to the trust.

The Lews’ argued that the amounts were in fact gifted back into the trust.

If it was a loan, then that would have to be immediately repaid down into each couple’s hands and then those would immediately form part of the matrimonial pool.

Unfortunately, what the ‘correct' answer was is unknown because the matter settled out of court. In some respects however, it doesn’t even matter what the answer was.

The key point is that no one actually thought about the documentation with a lot of clarity.
The title of this post is a play on Murphy’s Law, which is an adage or epigram that is generally quoted as 'anything that can go wrong, will go wrong'.

Murphy’s Law is profiled together with over 100 other adages in my recently released business book 'Laws for Life'.

A link to your (free!) copy of this book is below -


Password: laws4life

Please delete any pre-populated password.

Separately, many of the themes in this post will be featured in our upcoming half and full day Estate Planning Roadshow being held in Brisbane, Sydney, Melbourne, Adelaide and Perth.

Download the brochure here.

Watch the promo video below.

Tuesday, May 2, 2017

Thank you + some context - #NowInfinity + #View

Matthew Burgess Thank you + some context  - #NowInfinity + #View

As has been circulated in a number of forums, we are very excited to confirm View’s strategic partnership with NowInfinity.

Thank you for the positive feedback received already.

View has been on a mission to revolutionise access to quality legal advice in a range of highly specialised areas - namely estate planning, structuring, tax, trusts, asset protection, superannuation and succession planning.

Amongst an array of innovations our platform was one of the first to provide 100% upfront fixed pricing with a service guarantee. We have passionately strived to develop products that provide collaborative pathways with other professionals, in the process creating over 90 online and automated legal solutions.

Leveraging technology has been the enabler in us creating a seamless ecosystem in these specialisations.

Indeed, it has allowed us to create an ‘and’, not ‘or’ platform. That is, we have been able to continue to deliver bespoke tailored solutions for high net worth individuals and business owners, while simultaneously using the knowledge we have gained to build a disruptive solution for the majority of the market.

The centrepiece of our success to date has been the support of the adviser network across the country, given that our entire model is founded on advisers facilitating each solution, only involving View where it is clear that we can add value on a wholesale or business to business basis.

Similarly, NowInfinity has been on a mission to profoundly change the way businesses are functioning, workflows are implemented and documents are created, stored, updated and managed across the entire financial services and related industries.

Founded at around the same time as View, NowInfinity already has an impressive track record of launching numerous cutting-edge products.

The opportunity to combine the two businesses and deliver holistic and integrated estate planning solutions we believe is compelling on a range of levels, particularly as it offers accountants, financial advisers and other lawyers a truly differentiated facilitated model.

More context about the combined platform will be provided in our upcoming half and full day Estate Planning Roadshow being held in Sydney, Melbourne, Adelaide and Perth (the Brisbane event was last week).

Download the brochure here.

Watch the promo video below.

Finally, for those who had not otherwise seen the press release confirming details of the combined group, under the heading ‘Powerhouse disruptors join forces: NowInfinity and View Legal’ it is set out in full below.

Two powerhouse disruptors – cloud-based document and entity management platform NowInfinity, headed up by fintech entrepreneur Amreeta Abbott, and groundbreaking law firm View Legal, headed up by innovator and recognised expert in estate planning and tax law, Matthew Burgess, have joined forces, merging the digital business units of each firm and forming a strategic partnership on legal services.

“The partnership and merger provide accountants and bookkeepers, financial advisers, SMSF specialists and adminstrators and legal firms with a whole new level of solutions,” said NowInfinity CEO, Amreeta Abbott. “It enhances the NowInfinity platform, enabling members to efficiently create, collaborate and manage specific governance and life events for their clients.”

Ms Abbott said View Legal is a well-recognised legal firm that truly understands what matters to end clients. “View Legal’s team of lawyers, their processes and their non-traditional approach will also make legal advice more accessible to NowInfinity members and inspire them with the confidence to offer cradle-to-grave advice.”

Over the past four years, NowInfinity has delivered huge cost efficiencies via data automation and systems integration. “This has been magnified by the recent release of the NowInfinity Entity Management Suite, which provides corporate compliance, including ASIC lodgements; trust management and SMSF Compliance.”

Similarly, View Legal has created a disruptive and innovative way to offer legal services, with a particular focus on tax and estate planning by, amongst other things, introducing a fixed pricing model, actively collaborating with other professionals and creating an array of online and automated solutions.

Ms Abbott said that together, NowInfinity and View Legal will continue to innovate with the objective of delivering technology and services that underpin the rapid and required change within the accounting, financial advice and legal industries.

“First cab off the rank will be a new estate planning solution designed to eliminate the traditional barriers that have previously limited end-to-end client advice between accountants, financial advisers and lawyers,” she said.

Director of View Legal, Matthew Burgess said, “Leveraging technology to allow advisers to facilitate client solutions is the centrepiece of the View platform. Our partnership and merger with NowInfinity, the leading provider in this space, is exceptionally exciting and exemplifies the true meaning of synergy.”

About NowInfinity
NowInfinity is a technology company with a progressive and dynamic cloud based documentation and entity management platform solution with features enabling rapid company formation with ASIC, compliance tools and legal document templates for entity establishment and management. The solution is used by accounting, bookkeeping, financial advice, SMSF specialist, super administration and legal firms. It provides users with legal templates, entity registers, corporate compliance administration and fee management, SMSF compliance, trust management, document collaboration and data integrity via its integrations with but not limited to, ASIC, XERO, Microsoft Dynamics, salesforce.com, Class and electronic signatures – DocuSign.

About View Legal
View Legal is built around the disruptive mantra of being a law firm that friends would choose. To achieve this vision, View Legal has fundamentally and radically revolutionised access to quality legal advice, in the highly specialised areas of structuring, tax, trusts, asset protection, business sales, estate and succession planning.
Using technology as an enabler, View Legal has taken each of the tenets of the traditional delivery model – and turned them on their heads, with guaranteed up front fixed pricing replacing timesheets, entirely virtual office space replacing fancy city premises and active collaboration with advisers nationwide replacing the incumbent silo mentality.