Tuesday, December 10, 2019

Always learning … Latest lesson: ‘Last Christmas’ ** by Wham is a break up song … Final Post for 2019 and Season's Greetings

View Legal blog Always learning … Latest lesson: ‘Last Christmas’ ** by Wham is a break up song … Final Post for 2019 and Season's Greetings

With the annual leave season starting in earnest over the next couple of weeks and many advisers taking either extended leave or alternatively taking the opportunity to catch up on things not progressed during the calendar year, last week’s post will be the final one until early 2020.

Similarly, the social media contributions by both the View and Matthew will also largely take a hiatus until the New Year as from today.

Thank you to all of those advisers who have read, and particularly those that have taken the time to provide feedback in relation to posts.

Additional thanks also to those who have purchased the ‘Inside Stories – the consolidated book of posts’.

The 2019 edition of this book, containing all posts over the last year, edited to ensure every post is current, indexed and organised into chapters for each key area should be available early in 2020.

Very best wishes for Christmas and the New Year period.

** for the trainspotters, ‘Last Christmas’ (riffed for the title of today’s post) is the Wham! hit from 1986, watch the quintessential 1980s video clip.

PS: & recently I learnt why my first ever girlfriend broke up with me in grade 5 at about this time of the year back in 1986 … at the time I had just spent weeks of pocket money on a 7 inch single (you can google what this is …) by her favourite band Wham and the aforementioned single … 

Not stopping to listen to the lyrics focused on the withdrawing of the giving of true love … she broke up with me the very next day … 

When sharing the breakup story with my daughters recently and musing how I never understood why she ‘dropped’ me they quickly pointed out the stupidity of my choice of gift. Samantha Curran of Flynn Primary School Canberra (who I have not seen or spoken with since that day in December 1986) – I am sorry.

Tuesday, December 3, 2019

Division 149 - some genuine examples**

View Legal blog Division 149 - some genuine examples**

Last week's post explored the framework around the application of Division 149 of the 1997 Tax Act to trust owned assets acquired before 20 September 1985.

In addition to Taxation Ruling IT 2340 (profiled last week), there are some examples of factual scenarios where the Tax Office has explained its views about the application of Division 149 in relation to family trusts, the main ones of which are summarised below. As usual, if you would like copies of any of the rulings please contact me.
  1. In Private Ruling Authorisation Number 1012801220820, it is confirmed that the issue of what constitutes 'one family' for the purposes of IT 2340 must be considered based on the facts of the particular case. Generally, what is described as an 'extended' family (that is, including grandparents, children, grandchildren and their spouses) will qualify as a 'family' for these purposes. Furthermore, if distributions are made to post-19 September 1985 additions to a family (for example, the birth of new family members and new persons joining a family through marriage), the 'family' distribution criteria would also ordinarily be satisfied.
  2. In Private Ruling Authorisation Number: 1012191260298, it is confirmed that where a bare trust had made all distributions of income to the same person when the trust vested to that same person, the beneficial interest was not taken to have changed. In other words, the vesting of the trust did not change the majority underlying interests in the company's assets.
  3. The above mentioned Private Ruling also confirmed that pursuant to subsection 149-30(4) of the 1997 Tax Act, if an ultimate owner has acquired an interest in an asset which is transferred to them as a result of the death of a person, the new owner is treated as having held the underlying interest of the former owner over the years. In other words, the new owner will 'stand in the shoes' of the former owner for the purposes of Division 149. 
  4. Finally, in ATO Interpretative Decision 2011/107, the allotment of a discretionary dividend only share in a pre-CGT company to a family trust was held to have triggered Division 149. In particular, the Tax Office argued it could not be satisfied, or find it reasonable to assume, that more than 50% of the beneficial interests in the income of the company (and therefore the majority underlying interests) would be held at all times by the same ultimate owners who held such interests immediately before 20 September 1985. Arguably the decision here is an outlier in that unless there was in fact a change of 50% or more in the underlying interests based on a tracing of distributions paid on the discretionary dividend only share and then distributed via the trust, Division 149 may not in fact have been triggered.
** For the trainspotters, ‘genuine example’ is a line from the Elton John song ‘Social Disease’ from 1973.

Tuesday, November 26, 2019

Losing it** over losing it ... pre capital gains tax assets owned by trusts

View Legal blog Losing it** over losing it ... pre capital gains tax assets owned by trusts

Division 149 of the 1997 Tax Act is an anti-avoidance provision aimed at preventing access to tax free disposals of assets otherwise assumed to have been acquired before 20 September 1985.

Broadly Division 149 applies most commonly where a company has acquired assets prior to 20 September 1985, however at a later date there is a change of 50% or more of the underlying ownership of the assets evidenced by a change of 50% or more of the shares in the company.

One aspect of Division 149 that is often overlooked is the application of the provisions to assets held by trustees of family discretionary trusts.

Arguably the clearest explanation of the way in which the rules operate in this regard is set out in Taxation Ruling IT 2340. As usual, if you would like a copy of the ruling please contact me.

While the IT was issued under the 1936 Tax Act version of Division 149 (namely, section 160ZZS) it continues to apply.

In summary the Tax Office confirms:
  1. As the trustees of discretionary trusts have wide powers as to the distribution of trust income or property to beneficiaries, the question of whether majority underlying interests have been maintained in the assets of the trust will depend on the way in which the discretionary powers of the trustee are in fact exercised.
  2. If a trustee continues to administer a trust for the benefit of members of a particular family, it will not trigger Division 149 merely because (for example) distributions to family members who are beneficiaries are made in such amounts and to such of those beneficiaries as the trustee determines in the exercise of its discretion.
  3. However, if due to the exercise of a trustee's discretionary powers to appoint beneficiaries or by amendment of the trust deed, there is in practical effect a change of 50% or more in the underlying interests in the trust assets Division 149 will be triggered. In other words, if it is the case that the members of a new family are substituted as recipients of distributions from the trust in place of persons who were formerly the object of such distributions then the assets will be deemed to have become post CGT assets. 
** For the trainspotters, ‘losing it’ is the key line from The Alabama Shakes song ‘Dunes’ from 2015.

Tuesday, November 19, 2019

Post death super trusts; a fine time in a time of need **

View Legal blog post Post death super trusts; a fine time in a time of need **

Previous posts have explored the approach to superannuation proceeds trusts (SPT) for infant beneficiaries by the Tax Office (see for examples - Superannuation and skirting the shoals of bankruptcy, Don't Stop Believin' - Tax Office & superannuation proceeds trusts and Just Can't Get Enough tax wins).

As explained in previous posts, the factual matrix for where SPTs are relevant are generally tragic - infant children who lose a parent who had not implemented a competent estate plan that was fully funded and incorporated testamentary trusts.

A regularly posed question in relation to establishing a SPT however is whether the payment of superannuation death benefits to the trust is in fact permitted under the relevant legislation.

In this regard, under section 307-15(2) of the Tax Act a payment can be made 'for the benefit' of the intended beneficiary, including to another person or entity.

Where a death benefit payment is made to the trustee of an SPT, this can satisfy the requirements in section 307 where, for example:
  1. the only beneficiaries of the SPT are infant children of the deceased;
  2. those children have an absolute beneficial entitlement to any amounts held in the SPT;
  3. the trustee of the SPT cannot amend the trust deed to vary or defeat the beneficial interest of any child. 

In this type of situation then, in accordance with section 302-60 of the Tax Act, the death benefits payment made from a superannuation fund to the trustee of the SPT is not assessable income.

The above conclusions are confirmed in Tax Office Private Ruling Authorisation Number 1013007176699. As usual if you would like a copy of the Private Ruling please contact me.

** For the trainspotters, the title of today's post is riffed from New Order's song 'Fine Time'.

Tuesday, November 12, 2019

Automatic** disqualification clauses for trustees and appointors

With thanks to the Television Education Network, today’s post considers the above mentioned topic in a ‘vidcast’.

As usual, an edited transcript of the presentation is below -

Question: How do ‘automatic disqualification’ clauses work and are they effective from a family law perspective?

Answer: This is an interesting question.

Many of the trusts that we (and other law firms) establish contain a provision in them that we call an ‘automatic disqualification’ provision.

The provision is drafted to ensure that anybody in a key role, such as an appointor or trustee, will get automatically removed from that role upon certain events happening to them.

The most common disqualification scenario is death or incapacity.

If you’ve got a trustee who becomes incapacitated or dies, then obviously they need to be removed and someone else needs to step into that role to manage the trust.

However, those triggering events can also include a family law breakdown. We can have a clause in our trust deed or our will saying that if the appointor or the trustee separates from their spouse, then they are automatically disqualified from that role and somebody else steps in in their place.

I’m not aware of any instances where the effectiveness of that type of clause has been tested before a Court, but I think it has reasonable grounds of being successful if it is tested.

As a general rule we include this type of provision in all of our documents on the basis it gives our client a fighting chance of retaining the trust if anything goes wrong for them personally, since they didn’t actually make that change to the control of the structure themselves.

** For the trainspotters, ‘Automatic’ is a song by The Pointer Sisters from 1983.

Tuesday, November 5, 2019

Seems like all that is ever wanted is (no) markings on wills**

View Legal blog Seems like all that is ever wanted is (no) markings on wills**

Following last week’s post concerning codicils, an adviser contacted me about why we were so pedantic concerning wills, for example, wanting to ensure that no paperclips or other markings are made on an original will.

This question follows neatly from the codicil discussion.

In particular, where there are markings on a will, that might indicate something else has been attached to the will, then the law creates a number of obligations to investigate this potential issue.

For example, it could be assumed that a paperclip may have attached a codicil to a will.

Obviously, in many instances, the paperclip will in fact have only attached, say, a 'with compliments' slip.

This therefore can create a significant amount of wasted resources, hence our very strong recommendation that nothing be attached in any way, shape or form to a will (or codicil).

** For the trainspotters, the title of the post today is riffed from a line from The Foo Fighters song ‘This is a call’ from 1995.

Tuesday, October 29, 2019

How does it (feel)** to be using a codicil

View Legal blog How does it (feel)** to be using a codicil

Historically, when a will maker wanted to change their will, a codicil was quite often the document used to achieve this change.

Codicils were often used where there were only relatively minor changes to a will. The reason for codicils existing was largely driven by technology in days gone by.

In particular where wills had to be physically typed, an amendment by way of codicil was a much easier process, rather than completely re-typing the entire will.

With the advent of computer technology, it is often significantly easier to simply amend an existing will in its entirety, rather than producing a codicil.

This technology evolution also avoids one of the significant difficulties with codicils – i.e. they could often be 'misplaced' and there was always the concern if one codicil had been done, whether there were any other additional further codicils that should also be searched for.

** For the trainspotters, ‘how does it feel’ is a line from The Chemical Brothers song ‘Let Forever Be’ from 1999.


Tuesday, October 22, 2019

We got the (mere) power**

View Legal blog We got the (mere) power**

The concept of a mere power as compared to a trust power under a family trust can be relatively complex.

In basic terms, a mere power relates to the more administrative and mechanical aspects of the trust. It is discretionary in nature which a trustee can choose whether they exercise. In contrast trust powers go to the very heart of the trust instrument and the trustee is required to exercise.

Often, the distinction between a mere power and a trust power is of no particular practical importance, however last week we had a situation where a purported variation to a trust deed was being challenged by a disgruntled beneficiary.

One of their lines of argument related to the trustee not having the power to make the offending variation because they were acting outside the scope of the variation power.

In particular, it was being argued that the variation power only permitted changes to the mere power (i.e. in relation to administrative issues) and not in relation to more substantive terms of the trust.

Arguably the leading case in this area is Re Gulbenkian's Settlements (1970) AC 580. As usual, please let me know if you would like a copy of the decision.

The key quote commenting on the difference between a ‘mere power’ and a ‘trust power’ is as follows:

‘The basic difference between a mere power and a trust power is that in the first case, trustees owe no duty to exercise it and the relevant fund or income falls to be dealt with in accordance with the trusts in default of the exercise, whereas in the second case the trustee must exercise a power and in default the court will.’

** For the trainspotters, ‘We got the power’ is a song by Gorillaz from 2017.

Tuesday, October 15, 2019

Is too much ain’t enough** value to justify a testamentary trust?

With thanks to the Television Education Network, today’s post considers the above mentioned topic in a ‘vidcast’.

As usual, an edited transcript of the presentation is below -

Question: Do you usually set a minimum amount in the pool of assets that would suggest that a testamentary discretionary trust is worthwhile?

Answer: My thinking on this has evolved a bit over the last couple of years.

Historically, I used to say about a million dollars’ worth of assets is usually the threshold where the tax benefits of having a testamentary trust start to offset the ongoing compliance costs.

Now I'm coming down a bit and think the threshold is more like $500,000, because while the tax calculations are important, we've seen so many instances over the last few years where the tax is actually a secondary consideration where there is a child that’s going through a divorce, is getting sued for something that happened in their business, or there is a child who’s got a gambling problem.

When we have clients who know that their children have (or is likely to have) one of these problems, then there’s almost no minimum.

If the alternative to a testamentary trust is losing 50% of the inheritance to a spouse or 100% of the inheritance to a creditor, even if it’s a $100,000 pool of assets, that may well still justify setting up a testamentary trust for a period of time, in the context that these trusts can usually be wound up at any time that the trustee determines.

While we would typically structure the testamentary trust in a way that allows it to last for 80 years, if there’s a specific risk we’re trying to deal with today because the child is going through a matrimonial breakdown or one of the other problems mentioned above, regardless of the value of the assets that are involved, we might still have it go into the testamentary trust where it is protected and preserved for that child. We would then look to wind up that testamentary trust and extract the assets once that issue is resolved.

** For the trainspotters, ‘Too much ain’t enough (love)’ is a song by Jimmy Barnes from 1987.

Tuesday, October 8, 2019

Storing up an inheritance** against family law claims

With thanks to the Television Education Network, today’s post considers the above mentioned topic in a ‘vidcast’.

As usual, an edited transcript of the presentation is below -

Bonnici v Bonnici was a family law case involving a 20-year marriage, where there was an inheritance received by the husband about six months prior to the separation.

The couple were together for 20 years, 19.5 years in, the husband receives a significant inheritance in his personal name and six months later he separated from his wife.

The wife argued that that inheritance that he received should be included in the pool of matrimonial assets available for division between the two of them.

The husband tried to argue the inheritance should be a financial resource only, because it was an amount that he received from his parents and wasn’t an amount that he and his wife had built up during the relationship.

The court held that an inheritance is not protected from family law proceedings just because it is an inheritance.

They said there might be instances where an inheritance is protected and is not available as a matrimonial property, but there would need to be some exceptional circumstances in order for that to be the case.

Therefore in Bonnici, that entire inheritance was included in the matrimonial pool, subject to the parties then making submissions about their respective contributions.

One of the factors which was relevant in Bonnici was that the wife argued (and the Court accepted) that she had actually contributed to the value of the wealth that was inherited by the husband, because the husband and wife had been actively involved in a restaurant business owned by the parents and she had made contributions to the success of that business for remuneration which was less than market value.

Her argument was that she had done unpaid work in the business and had also had homemaking duties while her husband contributed to the business.

One of the factors that the court considered when deciding that inheritance was matrimonial property was the fact that the wife had contributed to the overall value of the parents’ estate that passed to the husband and as a result, the inheritance was exposed in the family law proceedings.

** For the trainspotters, ‘storing up inheritance’ is a line from the Johnny Cash song ‘What is Man’.

Tuesday, October 1, 2019

Are there no limits** to an Attorney’s Powers?

Previous posts have looked at various aspects of powers of attorney, see for example:
  1. EPAs and conflicts of interest; and
  2. Incapacity and SMSF control.
A validly appointed financial attorney has extremely wide powers in relation to what they may do on behalf of the donor.

Following on from last week’s post there were questions raised about the limitations imposed on attorneys.

While the rules in each state are slightly different, generally speaking, an attorney is prohibited from doing any of the following on behalf of a donor:
  1. acting as a director in place of the donor – a directorship is a personal role and cannot be delegated;
  2. voting in government elections;
  3. signing affidavits in relation to information that is known only to the donor;
  4. marrying or divorcing a spouse;
  5. making a will on behalf of the donor; and
  6. entering into transactions where the donor’s interests conflict with the attorney's, unless the document appointing the attorney waives potential conflicts of interests. 
While most of the prohibitions on attorney conduct are clear, there remains some confusion about the ability of an attorney to implement or change a binding death benefit nomination for the donor’s superannuation entitlements.

Some of the key issues in this regard were also explored in an earlier post.

** For the trainspotters, ‘no limits’ is a line from the Bjork song from 2007, namely ‘Hope’.

Tuesday, September 24, 2019

The firm of ‘now’ – 5 things about the way you do the things you do**

Following on from recent posts, to give some insight to what we believe a ‘firm of the future now' looks like, 5 examples from our business that we have abandoned as compared to a traditional model are as follows:
  1. Guaranteed fixed pricing – the definition of a competent service provider is someone who can devise a scope of work and provide an upfront fixed price that they are willing to refund in full if the customer is not satisfied with the performance.
  2. ROWE – if you do not know what this is for, Google it or click here and join the movement.
  3.  Solution choreographed teams – we work with whomever and on whatever terms are best to achieve the client’s objectives.
  4. AAR – again, if you do not know what it is, Google it or click here, and embed it into your business today.
  5. Diversity of thought – when two people in business are constantly of the same opinion, one or more is irrelevant. It raises diversity in every sense of the word and arbitrary politically correct percentages become irrelevant.
** For the trainspotters, ‘The way you do the things you do’ is a song by the Temptations from 1965, The version I first heard was by Hall & Oates.

Tuesday, September 17, 2019

The time is now** for the firm of ‘now’ – 5 things not to do

Following on from recent posts, to give some insight to what we believe a ‘firm of the future now' looks like, 5 examples from our business that we have abandoned as compared to a traditional model are as follows:
  1. No Timesheets – with timesheets, all we ever focused on was what was chargeable – without timesheets, we now focus on what is valuable.
  2. No leave policies – leave policies are a hangover from the industrial age – it is time to move on.
  3. No individual budgets – while we certainly have team goals, these are never broken down into individual monetary targets. Our targets are aligned around our performance in the eyes of customers. If we get those right, everything else flows (including money).
  4. No performance reviews – again, a very poor hangover from the industrial age.
  5. No diversity goals – seeking to mandate minimum percentages of certain genders, cultures, religious beliefs or sexuality disguise much bigger problems with the underlying business model.
** For the trainspotters, ‘Time is Now’ is a song by Moloko from 2000.

Tuesday, September 10, 2019

What’s Your Story?** … Tax Sharing & Funding Agreements

Though originally designed to primarily assist 'the big end of town', the tax consolidations regime is available to any Australian company and often can be very useful for small to medium size business operators.

One of the key consequences of forming a tax consolidated group is that all of the members of the group are jointly and severally liable for the tax liabilities of the group as a whole.

If however, each member of the group signs a valid tax sharing agreement (TSA), then it is possible for each member of the group to only be responsible for a 'reasonable' portion of the Group's tax liability.

A TSA is generally seen as a document that should be in place whenever a tax consolidated group is formed.

Generally, a TSA will also set out how any member of the group can make a 'clean exit', ensuring that it will not bear any future liability in relation to taxes that arise once the entity has left the group, even where they relate to a period where the entity was in fact a member.

Often, a TSA will be implemented in conjunction with a tax funding agreement (TFA).

Due to the way in which the tax consolidations regime is structured, the head entity of a consolidated group is the one that is ultimately liable for the tax of the group as a whole.

In order to ensure that the head company has the funds to meet the tax liability, a TFA can be utilised to regulate the manner in which that funding is to occur, particularly with reference to relevant accounting standards.

While most consolidated groups in the small to medium enterprise space will (or at least should) implement a TSA, often TFAs are only utilised by larger tax consolidated groups, given that they are more mechanical and technical in nature.

** For the trainspotters, ‘what’s your story’ is a line from the Red Hot Chili Peppers’ song from their 1986 album Stadium Arcadium, namely ‘Tell Me Baby’.

Tuesday, September 3, 2019

2+2 made 5** … adding testamentary trusts by Court Order – a family law perspective

With thanks to the Television Education Network, today’s post considers the above mentioned topic in a ‘vidcast’.

As usual, an edited transcript of the presentation is below -

One very interesting decision was originally published as ADT v LRT and then the appeal, the appeal decision was released as GAU v GVT.

The case involved a mother who had a will that she’d signed giving a significant number of assets to her son in his personal name.

The son was going through divorce proceedings and the mother had lost capacity and was unable to change her will.

The Court was asked by the son to incorporate a testamentary trust into her will for the express purpose of protecting the son’s future inheritance from his matrimonial proceedings.

The inheritance was estimated to be about $5 million, which was significant in terms of the matrimonial proceedings if it was successfully excluded.

In the first instance (ADT v LRT), the Court said that they agreed the testator would have made the change if she still had capacity, but then concluded that it was inappropriate to interfere with Family Court proceedings and therefore refused to grant the order.

On appeal (GAU v GVT), the son was successful and the Court said that the will maker’s intentions were the critical test and there was no doubt she would have made the change if she still had capacity.

The Court said the Family Court proceedings were only relevant at the margins and it agreed to grant the order incorporating the testamentary trust into the mother’s will.

** For the trainspotters, ‘Two and two made five’ is a song by Ned’s Atomic Dustbin from 1992.

Tuesday, August 27, 2019

Legal Professional Privilege** in adviser facilitated estate planning

A question came up recently from a financial planning licensee about whether an adviser attending an estate planning meeting between a client and their lawyer inadvertently waives the client’s legal professional privilege over those estate planning discussions.

As mentioned in last week’s post, legal professional privilege protects communications between a client and their lawyer from third parties, if the communications are brought into existence for the dominant purpose of obtaining legal advice. However, legal professional privilege over communications between a lawyer and a client can be waived if the information is disclosed to a third party.

Broadly we confirmed that we do not believe legal professional privilege is particularly relevant in the context of most estate planning discussions with clients. In particular, the advice generally provided to the client in a meeting is unlikely to be of the nature that legal professional privilege would need to be claimed. Furthermore, the legal documents (i.e. the final wills and powers of attorney) themselves are not generally privileged.

Indeed, in an adviser facilitated estate planning scenario, the client will have, in most cases, already disclosed most (if not all) of the information that will be discussed in the online meeting to the adviser as part of the initial fact finding process before the lawyer commences the legal aspects of the estate planning exercise.

We therefore believe that the risk of any implied waiver of legal professional privilege by having a client’s adviser sitting through the online meeting with the client is low and it would be an unnecessary step looking to avoid having the adviser attend the online meeting.

As most readers will be aware, our strong preference is to have the adviser attend the meeting as, generally speaking, their insights about the appropriateness of the estate planning strategy for the client’s family and financial circumstances is highly valuable.

** For the trainspotters, last week I mentioned that ‘privilege on privilege’ is a line from one of my favourite privilege related songs, from the Church and their 1986 album Heyday, namely ‘Myrrh’. Based on further research, this song is not simply one of my favourite privilege related songs, it is the only decent song I can find, thus listen again.

Tuesday, August 20, 2019

Financial Advisers to become qualified witnesses - Young Guns (do not necessarily) go for it **

Very positive to see the announcement that financial advisers will be granted the status to witness a Commonwealth statutory declaration.  

A step that sees advisers become the ''equal'' of medical practitioners, justices of the peace and lawyers.  

And arguably a long overdue iteration to provide an easy and far more cost effective way for customers to have documents witnessed. And yet it must be asked, when will all states follow this lead?  

Particularly in the (state regulated) estate planning space, one of the single biggest roadblocks we see is the witnessing of attorney documents. Particularly in Victoria, New South Wales and (to a lesser extent) Queensland the existing witnessing requirements appear to remain unchanged.  

Thus, especially in NSW, you essentially need a lawyer to do the witnessing (kudos to the NSW lawyers union for achieving this position).  

In other words, simply because a person (ie a financial adviser) is eligible to witness statutory declarations is not sufficient to make them qualified for the purpose of witnessing attorney documents.  

** For the trainspotters, an oldie and a goodie, Wham's 'Young Guns' is the inspiration for the title to the post today.

Legal privilege (on privilege)** and estate planning

Often one of the most important aspects of advice provided by lawyers is the ability for that advice to remain private and confidential to the client on the basis of legal professional privilege.

Particularly in relation to tax planning and asset protection, the ability to maintain confidentiality can often be very important and the case of Nolan v Nolan [2013] QSC140 is an important example of this principle. As usual, if you would like a copy of the decision please contact me.

In summary, the situation in this case was as follows:
  1. a wife and husband had been married for some years;
  2. following a breakdown in their relationship, the wife claimed an interest in the farming property of the husband's parents;
  3. because the husband's parents were still alive, the wife tried to gain access to their estate planning documentation; and
  4. the parents of the husband sought to deny access to the documents on the basis of legal professional privilege.
In deciding the case, the court confirmed:
  1. the dominant purpose for the creation of various estate planning documents including letters of advice and handwritten notes, both by the estate planning lawyer and the parents, was to obtain legal advice;
  2. on this basis, legal professional privilege could apply to deny the wife the ability to access the documents; 
  3. unfortunately, because the lawyers for the parents did not raise the issue of privilege until after the relevant documents had been disclosed, the court held that notwithstanding the documents could have otherwise retained their confidentiality, the disclosure of them had waived the protection of privilege; and
  4. importantly, it was also confirmed that it is not necessarily automatically the case that wills and related files are protected by legal professional privilege.
** For the trainspotters, ‘privilege on privilege’ is a line from one of my favourite privilege related songs, from the Church and their 1986 album Heyday, namely ‘Myrrh’.

Tuesday, August 13, 2019

Family Court: ‘I’ve Got the Power’** to make orders against third parties

The powers of the family court in relation to structures such as trusts are potentially extensive.

At a simplistic level, there is the specific power to force the change of a trustee of a trust.

Potentially, there is also the ability to bring forward the vesting date of a trust to require it to end immediately and thereby crystallise the interests of a party to the relationship.

One leading case in this regard is the decision in AC and ORS & VC and ANOR [2013] 93 FLC 540 FamCAFC 60. As usual, if you would like a copy of the decision please contact me.

Briefly in that case:
  1. The husband’s mother was in control of the corporate trustee and the trust at the relevant times.
  2. The husband and his former wife had a fixed entitlement to the capital of the trust on its vesting, which, at the time of the property settlement, was still 50 years in the future. That is, the trust was not a traditional discretionary trust where there are no fixed entitlements.
  3. The court found that the entitlement was rightly considered property of the parties and therefore ordered the trustee to vest the trust.
  4. The Attorney General intervened in the proceedings, given that the practical result of the decision was that the property entitlements of a third party were substantially altered.
  5. Critically, it was held that the husband and wife did in fact have an interest in the trust property despite the fact that it was accepted that the control of the trust was with the husband’s mother. 
  6. In other words, the ability to alter the structure of trusts can be made even where a party to the marriage is not in control of the trust.
  7. In a more traditional discretionary trust however there may not be the required nexus between the trust assets and the parties to the marriage.
  8. For completeness however, in this particular case, the forced vesting of the trust ultimately failed due to the appeal court’s conclusion that procedural fairness had not been given to the husband’s mother, particularly given that the parties to the marriage had other assets that could have likely achieved financial closure between the parties without the need to impose orders on a third party.
** For the trainspotters, ‘I’ve Got the Power’ is a song by Snap! from 1990.

Tuesday, August 6, 2019

I’m gonna break into your heart** (and anything else you get): family law and post separation inheritances

One ongoing area of contention (admittedly amongst many others) in family law is how post-separation inheritances are treated on a matrimonial property settlement. 

In very broad terms, the Family Court is required to consider all relevant factors before distributing any share of one party’s inheritance to their former spouse.

Depending on the exact factual matrix, the Courts will, in broad terms, take one of the following approaches:
  1. Completely ignore the inheritance for all purposes in relation to the division of matrimonial property.
  2. Exclude the inheritance from the division of matrimonial property, however make an adjustment on the division of the matrimonial property to take into account the access to the inheritance that one spouse will have.
  3. Include the inheritance as part of the pool of property to be distributed between the parties, while making some adjustment to acknowledge the ‘contribution' that one party made to bringing the asset to the matrimonial pool.
  4. Simply including the inheritance as part of the matrimonial asset pool, with no specific adjustments. 
However, based on the published cases to date, it is important to note that it is very rare for the recipient of an inheritance or similar ‘windfall' to have those assets completely quarantined, regardless of when they are received up until the final date of the property settlement.

** For the trainspotters, ‘Break into your heart’ is a song by Iggy Pop from his album with Josh Homme (QOTSA) in 2016 ‘Post Pop Depression’.

Tuesday, July 30, 2019

Hallo Spaceboy** - Distributions ‘outside’ a family group

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’.

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

One strategy we are seeing implemented by an increasing number of clients is the amending of a trust instrument to reflect what the position is due to the family trust election that has been made for that particular trust.

See here for a visual of the family tree as it is defined under the legislation as to what forms part of the family when a family trust election has been made.

This can mean that following the mantra of reading the deed can be misleading. This is because if you have looked at the trust instrument and you have decided that a particular party is a potential beneficiary, then that should always be overlaid with what the family trust election permits.

In other words, simply because a party is a potential beneficiary under the trust instrument, this doesn't mean that it’s necessarily a smart idea to distribute to that entity. This is because if the distribution is outside the family group, then the tax is effectively at 50 cents in the dollar.

Indeed, even if the distribution is otherwise a discounted capital gain, the penal family trust distribution tax is triggered.

Historically, the concept of quite radically redrafting a trust deed to ensure that it reflects what the family trust election says has not been popular.

Now however, we see an increasing number of clients amending their trust deeds to minimise the risk of distributions outside the family group.

** For the trainspotters, 'Hallo Spaceboy' is the lead single from the David Bowie’s 1995 album ‘Outside’.

Tuesday, July 23, 2019

Presumption** of disclosure of beneficial share ownership

Recent posts have considered a number of aspects of the ASIC requirement that the beneficial ownership of shares in a private company be disclosed.
  1. (Stripped) Bare** trust share ownership;
  2. Updating ASIC records – Simple (Simon); and
  3. Relationships of share ownership and the ASIC.
One potential difficulty in relation to ASIC’s requirements in this regard involves situations where the legal owner holds the share on an undisclosed trust for another party or entity.

In this type of situation reading of the relevant ASIC provisions suggests that the company report should disclose the fact that the legal owner holds the share non beneficially.

This said, in a true undisclosed trust situation most advisers will recommend that the ASIC records in fact are completed in a way that shows the legal owner is also the beneficial owner.

If this approach is adopted then full supporting documentation should be retained by the legal owner to rebut the presumption created by the way in which the ASIC records are completed.

** For the trainspotters, ‘presumption’ is a key word from Midnight Oil’s song from 1998, ‘Blot’.

Tuesday, July 16, 2019

(Stripped) Bare** trust share ownership

Recent posts Updating ASIC records – Simple (Simon) and Relationships of share ownership and the ASIC have looked at the various issues in relation to notifying the ASIC of the beneficial ownership of shareholdings in a private company.

One aspect of this style of situation that arises relatively regularly relates to companies that were incorporated prior to 1997. Before this date, every private company was required to have at least two shareholders.

In order to provide a practical solution where a person was wanting to be the sole shareholder a practice developed whereby a second party would be listed as a legal shareholder, however they would simply hold that share on a bare trust for the intended sole shareholder.

Where such a structure exists, assuming that the articles of association or constitution have now been updated, it is generally possible to vest (or bring to an end) the bare trust arrangement and have the ASIC records updated to simply list the sole shareholder.

** For the trainspotters, ‘stripped bare’ is a line from the U2 song from 1983 ‘October’. 

Tuesday, July 9, 2019

Updating ASIC records – Simple (Simon)**

Last week’s post touched on some of the issues in relation to disclosure of beneficial ownership of shares on ASIC records.

In situations where the beneficial ownership is incorrectly recorded there are three broad alternatives available, namely:

1) Leaving the ASIC records unchanged. From a compliance perspective while this approach is possible, it is not recommended.

2) Simply lodging an annual return or ASIC form 484 that updates the ASIC records from that date. In many cases this approach will be pragmatically appropriate and is certainly the easiest and most cost effective approach. There is a risk however that there may be adverse revenue consequences or challenges from a third party (for example a trustee in bankruptcy).

3) The final approach involves effectively rectifying ASIC records from the date the error first occurred and then arranging for the annual returns for every subsequent year to also be amended. Obviously, this approach can be a significant exercise and is generally only adopted where there are concerns from a tax, stamp duty or asset protection perspective.

** For the trainspotters, the title today is riffed from INXS’ first ever single, from 1980.

Tuesday, July 2, 2019

Relationships of share ownership** and the ASIC

Up until the early 2000’s, the ASIC required only very basic information in relation to the share ownership in companies.

From around 2002, the ASIC began requiring that all private companies disclose the basis on which shares were owned, in particular whether shares were owned beneficially or non beneficially.

Broadly the distinction is as follows:

1) If a share is owned beneficially this means that the legal owner listed in the ASIC records also has full beneficial ownership.

2) If a share is owned non beneficially then the legal owner holds the share subject to the terms of some form of trust arrangement (often this trust will be a standard discretionary trust).

Unfortunately the disclosure of beneficial ownership is an area of significant confusion and often the confusion does not arise until resolution of the issue is time sensitive (for example in lead up to a sale transaction or as part of an asset protection audit).

Some of the issues that arise in this regard include:

 (a) anecdotally, it appears that when ASIC was first imputing this data following the change of approach, many companies had their notifications reversed during the data entry process (that is shares that were owned beneficially were noted on ASIC records as being owned non beneficially);

(b) similarly many companies were confused about the distinction and therefore provided incorrect notification to ASIC; and

(c) in some instances a full search of all company records was not performed (for example all aspects of the company register) so the company provided incorrect information to ASIC.

Next week’s post will consider the three main alternatives for rectification where the beneficial ownership of shares is incorrectly recorded on ASIC records. 

** For the trainspotters, ‘relationships of ownership’ is a line from the Bob Dylan song from ‘Gates of Eden’.

Tuesday, June 25, 2019

Tinder-isation + simplification of the law

As mentioned in a previous post 'gamification' has become expected across all aspects of our lives. This was part of the reason for us in ‘tinder-ising’ each of the View apps on both Apple and Android.

Based on adviser feedback, our latest app release now allows access to all 8 of the View apps, through a ‘master app’.

The 8 apps are as follows:

1) estate planning;

2) self managed superannuation funds;

3) estate admin;

4) business succession;

5) memorandum of directions;

6) directors duties;

7) binding death benefit nominations; and

8) adviser facilitated estate planning fixed pricing.

Each app generates a free white paper or template legal document.

The ‘View Apps’ App can be downloaded below:

1) Apple

2) Android

All View apps can also be accessed via our website.

Tuesday, June 18, 2019

Don’t ask me (why)** would a trust have made a family trust election?

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.

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

Why would a trust have made a family trust election?

Historically, primarily an election would be made because there are franking credits that are flowing through the trust.

In particular, if there are more than $5,000 worth of franking credits to be claimed, then you can't actually access them unless you've made a family trust election. This would be the main reason, and by far, in our experience, the most relevant one.

The other reasons include that there are losses or bad debts. It is infinitely easier to satisfy those rules with an election in place.

The last main reason is ‘because’ ... and that’s not a scientific term.

That's a term that ends with ‘because’.

There's nothing that actually comes after the because.

It is so easy to make these elections. You just tick the box and it's done. Our sense is that many accountants went through, particularly in the late 2000s, and made elections without any thought at all, and it was because.

When the election is then reviewed as part of an estate planning exercise, and we think this is going to come up more and more as part of the 328-G provisions, the conclusion will be ‘we don’t know why we've made that election and it's more restrictive than we need it to be’.

There might therefore be a planning opportunity for a trust that has made a family trust election that is later viewed as inappropriate.

In particular, under 328-G, it should be possible to transfer business assets across to a new trust that will not need to have made a family trust election.

** For the trainspotters, the title today is riffed from PiL’s song of the same name, from 1990.

Tuesday, June 11, 2019

Super death benefits and conflicts of interest: Guilt is a useless emotion**

As mentioned in last week’s post, arguably, the highest profile decision in relation to the obligation of a legal personal representative (LPR) to avoid creating a conflict of interest is the decision in MacIntosh.

The decision in Brine v Carter [2015] SASC 205 provides another example of the key issues that need to be considered by LPRs, who are also potential beneficiaries of a superannuation death benefit. As usual, a link to the decision is here.

In summary, the factual scenario was as follows:

1) The deceased appointed his de facto partner and three children from an earlier relationship as his LPR.

2) The de facto made an application for the superannuation death benefits to be paid to her directly, as opposed to the estate.

3) If the superannuation proceeds had been paid to the estate, the three children would have been entitled.

4) For a period of time prior to the death benefit being paid, the de facto partner withheld details of the superannuation death benefit from the three children.

5) Importantly however, by the time the super fund trustee exercised its discretion, the three children were aware of all relevant information concerning the death benefits and had themselves made an application for the death benefits to be paid to the estate.

6) It was held that this was a critical point, that is, the other LPRs had effectively consented to the de facto making her individual claim by themselves making a claim on behalf of the estate in full knowledge of all relevant circumstances.

While the decision of the superannuation fund to pay the entitlements to the de facto ultimately was upheld, a number of key principles were explained by the court, including:

1) Where an LPR seeks payment of a death benefit to themselves personally (i.e. not to the estate), they will be in a position of conflict, unless the will expressly permits the conduct.

2) Where there is no express provision waiving conflict, an LPR should renounce their position before taking any active steps to seek personal payment of the death benefit.

3) Alternatively, the LPR can seek the consent of all other LPRs (if any).

4) In seeking the consent of the other LPRs, there is no obligation to also receive consent from each beneficiary under the will.

5) Complications will likely arise where there is a sole LPR. In that instance, if they choose not to renounce their role, there would be an obligation to receive the informed consent of each potential beneficiary.

Ultimately, the decision is yet another reminder of the importance of a holistic approach to every estate plan.

** For the trainspotters, the title today is riffed from New Order’s song of the same name, from 2005.

Tuesday, June 4, 2019

The View** on workarounds to avoid the McIntosh decision

As mentioned last week, the McIntosh case was concerning given that the son’s apparent objective of providing for his mother was not achieved.

While there are obviously a number of issues in relation to this case, three critical steps that could have been taken are as follows:

1) To the extent that they were available, binding nominations could have been made to the mother personally (in this regard, non-binding nominations had in fact been made nominating the mother solely).

2) With the aid of hindsight, the mother should not have applied to administer the deceased estate. This would have relieved her of any duty to act in the best interests of the estate and therefore she could have proceeded to make the application for superannuation benefits to be paid to her personally without her actions being challenged.

3) The son should have made a will at least appointing his mother as executor (this would have potentially meant that she did not have any conflict of interest as the son would have been deemed to have been aware of the potential when making the nomination). Ideally, the will would have also nominated the mother as the sole beneficiary of the estate – thereby meaning that even if the funds were not paid to her directly, she should have ultimately received them in any event.

Next week’s post will consider another case which further informs the key issues in this regard.

** For the trainspotters, the title today is riffed from The Church’s song of the same name, from 1985 (and no, View was not named after this song …).

Tuesday, May 28, 2019

Superannuation nominations – here we go again**

Several previous posts have considered various aspects of superannuation nominations and the payment of death benefits

1) Double entrenching binding nominations

2) Receipt of superannuation death benefits

3) Superannuation and binding death benefit nominations (BDBN)

4) Superannuation death benefits

5) Death benefit nominations – read the deed

The decision of McIntosh vs. McIntosh [2014] QSC99 provides another reminder of the types of issues that advisers must be aware of.

As usual, if you would like a copy of the case please contact me.

The background to the case was that a son who had lived with his mother for most of his life (including at the time of his death) died without any other immediate family other than his father and without a valid will.

Although his mother and father had been estranged since he was a young child, pursuant to the intestacy rules, they were entitled to share the estate equally.

The mother sought approval from the court to administer the son’s estate, and as part of her application, confirmed her intention to collect all relevant assets and then divide them equally between herself and her former husband.

In relation to the superannuation entitlements, the mother applied in her own capacity (i.e. not on behalf of the estate) to have those entitlements (which represented the vast majority of the son’s wealth) paid to her directly on the basis of the interdependency between herself and her late son.

All superannuation entitlements were paid to the mother directly (reflecting the direction given by the son in non binding nominations) and the father successfully challenged this outcome on the basis that his former wife had a duty as the administrator of the son’s estate to actively do everything within her power to ensure the superannuation benefits were paid to the legal personal representative, and then in turn, be divided equally between the father and the mother.

Next week’s post will consider what steps, with the aid of hindsight, might have helped ensure the outcome that appeared to be the son’s objective.

** For the trainspotters, the title today is riffed from Whitesnake’s song of the same name, from 1982.

Tuesday, May 21, 2019

Is it the end of the trust as we know it?**

A critical aspect of every trust is the period for which a trust can last – often referred to as the perpetuity period or the vesting day of the trust.

As a rule of thumb, any review of a trust deed that we perform always starts with checking the exact vesting date. We have had countless situations where this review has in fact led to the discovery that the trust itself has ended (in one instance, almost 7 years earlier).

Generally, so long as steps are taken before a trust vests, it should be possible to extend the life of a trust to the maximum period allowed at law (ie the perpetuity period), which in most cases is 80 years – see the following posts for more comments in this regard –

Extensions to vesting dates – some lessons from Re Arthur Brady Family Trust; Re Trekmore Trading Trust

Fairytale of Canberra - The Tax Office plays Secret Santa as the long awaited guidance on trust vesting gets released

In some cases, it may also be possible to extend the life of the trust so that it complies with the laws of South Australia – as most people are aware, there is effectively an unlimited perpetuity period available via South Australian law.

** For the trainspotters, the title today is riffed from REM’s song of the same name, from 1987.

Tuesday, May 14, 2019

Sunny Afternoons - Counter-intuitive Tax Planning **

We had an adviser recently wanting to explore having a client make distributions from a family trust directly to a superannuation fund.

Historically (during the mid-1990s), this was a strategy that many were using until the government closed the loophole.

The way in which the loophole was closed was to treat all such income as 'special income' of the super fund or, as it was then renamed, 'non-arm’s length income'. This type of income is taxed at a flat rate to the fund of 45%.

Interestingly, what the adviser had realised however was that many trust distributions are now effectively taxed at 47% if they go to beneficiaries on the top marginal rate, given the increase in the Medicare levy.

Trust distributions to a superannuation fund may therefore be (marginally) tax effective initially and also a good way to ensure that superannuation savings are increased at a far greater rate than would otherwise be available if relying on the contributions within contribution caps.

** For the trainspotters, ‘Sunny Afternoon’ is one of the first tax referencing rock songs by the Kinks from 1966.