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.

Tuesday, May 7, 2019

Is death (not) the end**; or can a will be varied after death?


One of the significant distinctions between a family trust and a testamentary trust is that the ability to vary a testamentary trust is generally very limited after the testamentary trust comes into effect.

Obviously while the testamentary trust is incorporated into a will, where the will maker has yet to die, then this document may be varied at any time.

In contrast, once the will maker has died, the general position is that it cannot be amended without court consent.

One potential exception to this general position is that if the will allows variations to be made and if the variation relates only to administrative type issues (as opposed to the substantive provisions in the will), then there may in fact be the ability to vary the document.

** For the trainspotters, the title today is riffed from Bob Dylan’s song of the same name, arguably made famous by Nick Cave and the Bad Seeds, listen hear (sic):

Tuesday, April 30, 2019

Unit trusts and excluding trustee Liability**


When establishing a unit trust structure, it is important to ensure the deed is properly crafted to expressly limit liability of the unitholders for debts of the trust.

As is well known, in a corporate structure, shareholders are not liable for the debts of the company.

Similarly, there is generally no right of indemnity for a trustee of a discretionary trust from the beneficiaries of the trust as they are not absolutely entitled to the trust assets.

In relation to unit trusts however there is a general principle that unless specifically excluded by the trust deed, the trustee will have a right of indemnity for the liabilities of the trust against both the trust assets and the unitholders.

Failing to exclude this right of indemnity against the unitholders can therefore significantly undermine the asset protection advantages offered by structuring the investment through a unit trust.

The position in relation to unit trusts was confirmed in the decision in JW Broomhead (Vic) Pty Ltd (in liq) v JW Broomhead Pty Ltd & Anor (1985) 3 ACLC 355. As usual, if you would like a copy of the case please contact me.

In this case a liquidator of a trustee company of a unit trust was able to force the unitholders to make good the deficiency of trust liabilities over its assets. The unitholders would have not been liable however if the trust deed had contained the relevant exclusion.

Including this type of exclusion expressly in a unit trust deed has been a relatively standard practice by most deed providers since this decision, for firms that do specialise in the area.

Where the exclusion does not exist in a current deed it is normally possible to implement the provisions by a deed of variation, so long as there are no potential issues on foot.

** For the trainspotters, the title today is riffed from Lorde’s song of the same name from 2017 listen hear (sic):

Tuesday, April 23, 2019

Oops! … I did it again**: amending existing agreements


An issue that often arises is the desire to amend an existing agreement, with effect from a particular date – regularly that date will be on and from the day the original agreement was entered into.

It is generally accepted that, as between the parties, an agreement can be effective and binding on whatever basis is desired. This does not mean however that an agreement can be changed such that it is binding retrospectively on third parties, such as revenue authorities.

Arguably the leading case in this area is Davis v Commissioner of Taxation; Sirise Pty Ltd v Commissioner of Taxation 2000 ATC 4201. As usual, if you would like a copy of the case please contact me.

In this case the parties purported to have an agreement entered into that caused adverse tax consequences amended some time later, with effect from the date of the original document.

In rejecting the effectiveness of the amended agreement in binding the Tax Office it was confirmed that a rectification by a court or by deed between the parties is the only approach that binds third parties. Such an approach however is only available where the parties are under a mutual mistake that the document they signed recorded the terms of their bargain, when in fact it did not.

Rectification does not operate to ‘alter the past’, rather it simply recognises what had in fact always been the case, namely that the true agreement between the parties was not correctly recorded in the document that was mistakenly signed.

Critically, rectification requires that there must have been a mutual mistake. In other words, ‘a common intention between the parties as to the effect that the instrument they signed would have had which was inconsistent with the effect which the instrument which they executed in fact had’.

A mistake or misunderstanding, for example, as to the revenue consequences of an agreement is not a mutual mistake allowing rectification.

** For the trainspotters, the title today is riffed from Britney Spears song of the same name from 2000 see hear (sic):


Tuesday, April 16, 2019

How does it feel** - when a deed of rectification causes a resettlement?





Recently we revisited a Tax Office private ruling in relation to a decision by the trustee of a discretionary trust to rectify a trust deed so it correctly reflected the intentions of the settlor at the time of establishing the trust some years earlier.

The exact ruling is Authorisation Number 37630. As usual if you would like a copy please contact me.

Critically, the ruling is based on the assumption that a court would in fact approve the rectification – a rectification requires a court to make an order to correct a trust instrument that, due to mistake, does not reflect the true intention of the parties. 

The specific issue of concern was whether the rectification would create a new trust, or in other words, a resettlement, to be triggered.

The private ruling remains a very useful reminder of the usefulness of rectifications, even though it is from 2004 and therefore predates the substantial changes in approach about resettlements in 2012 of the Tax Office (see the following posts Statement of principles to be finally amended, ATO releases draft determination on trust resettlements, and More comments on ATO resettlements determination).

The ruling confirms that where a trust deed fails to accurately express the true agreement between the parties, equity will allow rectification of the document.

In particular, it was confirmed that:

‘The object of rectification is not to make a new contract for the parties or to alter the terms of an agreement, nor to rescind the existing contract it does not create new rights but to rectify the erroneous expression of agreements in documents' (see GE Dal Pont, DRC Chalmers - Equity and trusts in Australia and New Zealand).

Importantly, a rectification also has retrospective effect.

That is, a rectification is 'to be read as if it had been originally drawn in its rectified form' (see Craddock Bros v. Hunt [1923] 2 Ch 136.

As there is no change in the intended beneficial interest of the beneficiaries there are also no changes to the terms and conditions of the trust. Therefore, a rectification does not result in the creation of a new trust.

** For the trainspotters, ‘how does it feel’ is a line from the New Order song from 1983 ‘Blue Monday’ listen hear (sic):


Tuesday, April 9, 2019

Have you got time to rectify?**




Previous posts have looked at various aspects of deeds of variation, and in particular, the critical need to 'read the deed' before implementing any variation (see more here).

Where a purported deed of variation later proves to be ineffective due to a failure to follow the provisions of the trust deed, one approach that can provide a solution is a deed of rectification and clarification.

Generally, this approach will be a valid way to address previous inconsistencies, without the need for court approval.

Critically however, any attempt to rectify or clarify historical issues with a trust deed cannot do something that is beyond what was originally contemplated by the parties involved.

One example in this regard that we reviewed recently, involved a situation where a trustee was incorrectly inserted under a deed of variation as a beneficiary, in direct conflict with another provision of the trust instrument.

On discovery of the conflict some years after the deed of variation, it was clear that the only way to rectify the error would be to change the trustee with retrospective effect to a new entity. The deed of rectification approach was unavailable as the deed could not ignore the clear intention of the parties, which at the time was that the trustee should remain in its role and a rectification workaround would have ignored that fact.

** For the trainspotters, ‘time to rectify’ is a line from the Beatles song from 1965’s Rubber Soul ‘Think for Yourself’ listen hear (sic):


Tuesday, April 2, 2019

I can see clearly now ** – how to use a deed of clarification




Last week’s post, explored the difficulties that can arise when steps are taken (for example to change a trustee of a family trust) without having reviewed the trust deed.

Over the last few weeks, we have been working with an adviser where this type of situation had arisen and a third party financier was refusing to complete a transaction until steps were taken to resolve the issue.

In this particular instance, the only pathway we had been able to develop (and which the bank has accepted) has been to prepare a detailed 'deed of clarification'.

In many respects, this document is a self serving one, however in very general terms, it:

1) provides a summary of the purported changes;

2) confirms that the purported changes did not in fact comply with the deed;

3) restates the changes in a way that does in fact comply with the deed; and

4) has the trustee, appointor and some of the main beneficiaries of the trust all consenting to the changes, effectively with retrospective application.

** For the trainspotters, ‘I can see clearly now’ is a song by The Hothouse Flowers from 1990.

Tuesday, March 26, 2019

Take it easy** but get it right with changes of trusteeship




This blog regularly highlights the critical importance of reading the ‘Read the Deed’ mantra before taking any step of substance in relation to a trust.

Last week, I had another example of this in relation to a purported change of trusteeship.

The documentation in relation to changing the trustee of the family trust appeared on its face to be relatively standard.

The difficulty was that the particular trust deed had some quite bespoke provisions concerning how the trustee could be changed, and unfortunately, those provisions had not been followed.

The further difficulty with this particular case was that no one had discovered this error until some years later (when the bank was refusing to complete on a property transaction).

We are now working with the bank to try and resolve the issue that simply would not have arisen if the time had been taken to have read the trust deed in the first place.

** For the trainspotters, ‘Take it Easy’ is a song by The Eagles from 1972. See a live rendition from 1977.

 

Tuesday, March 19, 2019

Let Love Rule - Specific Requirements of Binding Nominations **



Previous posts have considered various aspects of superannuation nominations, including binding death benefit nominations (BDBN). Some of the previous posts are available below:

1) Superannuation death benefits

2) Superannuation and binding death benefit nominations (BDBN)

3) Double entrenching binding nominations

As with many other aspects of estate planning, whenever considering a BDBN, the starting point should always be the requirements set out under the trust deed. Indeed, a BDBN can only be used where the deed allows one to be made.

Below is an example of some of the requirements that are generally set out in trust deeds before a nomination will be held to be binding, the first three of which are generally required by legislation:

1) must be in writing;

2) must be signed, and dated, by the Member in the presence of 2 witnesses, each of whom has turned 18 and neither of whom is a person mentioned in the notice;

3) must contain a declaration signed and dated by the witnesses stating that the notice was signed by the Member in their presence;

4) will not lapse by the passing of time;

5) may be revoked by the Member by written notice to the Trustee at any time;

6) must contain sufficient details to identify the Member; and

7) must contain sufficient details to identify one or more Beneficiaries for each category of benefits selected.

While almost all trust deeds that allow BDBNs will have provisions along the lines outlined above, at times there will be additional provisions that are not necessarily expected. Some examples in this regard include:

1) a requirement that the trust deed for the superannuation fund cannot be amended in a way that impacts on any BDBN without the consent of each member who has made one;

2) a provision that empowers the trustee to accept amended BDBNs from the financial attorney of a member;

3) the trustee may be required to consider and accept a BDBN before it is valid; and

4) there may be a particular table or form that is required to be embedded into the BDBN, which sets out the percentage entitlement of each beneficiary.


** For the trainspotters, ‘Let Love Rule’ is a song by Lenny Kravitz from 1989.


   




Tuesday, March 12, 2019

BFA’s - What does the High Court decision mean (to me)**?




As mentioned in last week’s post, the key issues undermining the validity of the BFA in this matter related to the conduct of the husband and the existence of unconscionable conduct and (by majority) undue influence.

Unconscionable conduct was summarised as follows:

‘a special disadvantage may also be discerned from the relationship between parties to a transaction; for instance, where there is ‘a strong emotional dependence or attachment’ … Whichever matters are relevant to a given case, it is not sufficient that they give rise to inequality of bargaining power: a special disadvantage is one that 'seriously affects' the weaker party’s ability to safeguard their interests.’

Undue influence is said to occur when a party is deprived of ‘free agency’ in entering into an arrangement. In other words, when there is something so strong that the influenced party is under the belief that while the document is not what they want, they feel compelled to sign it anyway.

The High Court listed the following six factors (noting that they are however not exclusive) relevant in assessing whether there has been undue influence in the context of BFAs:

1) Whether the agreement was offered on a basis that it was not subject to negotiation.

2) The emotional circumstances in which the agreement was entered, including any explicit or implicit threat to end a marriage or to end an engagement.

3) Whether there was any time for careful reflection.

4) The nature of the parties’ relationship.

5) The relative financial positions of the parties.

6) The independent advice that was received and whether there was time to reflect on that advice.

Admittedly, with the benefit of hindsight, arguably, the case does not significantly change the position in relation to the effectiveness of BFAs.

Indeed, the agreement may well have been held to be valid if some of the basic recommendations featured regularly in these posts were embraced.

In particular, if the arrangements had been put in place earlier in the relationship or at least not so approximate to the wedding, that would have increased the robustness of the agreement.

Similarly, if steps were taken to ensure that the independent lawyer was able to endorse the appropriateness of the agreement by way of a collaborative negotiation, then it would have almost certainly been the case that the arrangements would have been upheld.

This said, BFAs remain a stark reminder of a key asset protection mantra, that being the need to 'measure twice and cut once' if there is a desire for the arrangement to be enforceable.

  ** for the trainspotters the title of the post today is riffed from 1986 and Crowded House’s Mean to Me   




Tuesday, March 5, 2019

BFAs - The High Court's (Greatest) View**




In late 2017, there was further guidance from the High Court in relation to the manner in which parties to the BFA must conduct themselves if they are wanting the agreement to be binding. As usual, if you would like a copy of the decision please contact me.

The case itself received a significant amount of media attention, however with the aid of hindsight it is perhaps most objectively summarised by the publication released by the High Court at the time of them releasing their judgement, which is set out below.

High Court summary

Today the High Court unanimously allowed an appeal from the Full Court of the Family Court of Australia in the case of Thorne v Kennedy [2017] HCA 49.

The High Court held that two substantially identical financial agreements, a pre-nuptial agreement and a post-nuptial agreement, made under Pt VIIIA of the Family Law Act 1975 (Cth) should be set aside.

Mr Kennedy and Ms Thorne (both pseudonyms) met online in 2006.

Ms Thorne, an Eastern European woman then aged 36, was living overseas. She had no substantial assets.

Mr Kennedy, then aged 67 and a divorcee with three adult children, was an Australian property developer with assets worth over $18 million.

Shortly after they met online, Mr Kennedy told Ms Thorne that, if they married, "you will have to sign paper. My money is for my children".

Seven months after they met, Ms Thorne moved to Australia to live with Mr Kennedy with the intention of getting married.

About 11 days before their wedding, Mr Kennedy told Ms Thorne that they were going to see solicitors about signing an agreement.

He told her that if she did not sign it then the wedding would not go ahead.

An independent solicitor advised Ms Thorne that the agreement was drawn solely to protect Mr Kennedy's interests and that she should not sign it.

Ms Thorne understood the advice to be that the agreement was the worst agreement that the solicitor had ever seen. She relied on Mr Kennedy for all things and believed that she had no choice but to enter the agreement.

On 26 September 2007, four days before their wedding, Ms Thorne and Mr Kennedy signed the agreement. The agreement contained a provision that, within 30 days of signing, another agreement would be entered into in similar terms.

In November 2007, the foreshadowed second agreement was signed. The couple separated in August 2011.

In April 2012, Ms Thorne commenced proceedings in the Federal Circuit Court of Australia seeking orders setting aside both agreements, an adjustment of property order and a lump sum spousal maintenance order. One of the issues before the primary judge was whether the agreements were voidable for duress, undue influence, or unconscionable conduct. The primary judge set aside both agreements for "duress".

Mr Kennedy’s representatives appealed to the Full Court of the Family Court, which allowed the appeal. The Full Court concluded that the agreements should not be set aside because of duress, undue influence, or unconscionable conduct.

By grant of special leave, Ms Thorne appealed to the High Court. The High Court unanimously allowed the appeal on the basis that the agreements should be set aside for unconscionable conduct and that the primary judge's reasons were not inadequate.

A majority of the Court also held that the agreements should be set aside for undue influence. The majority considered that although the primary judge described her reasons for setting aside the agreements as being based upon "duress", the better characterisation of her findings was that the agreements were set aside for undue influence.

The primary judge's conclusion of undue influence was open on the evidence and it was unnecessary to decide whether the agreements could also have been set aside for duress.
Ms Thorne's application for property adjustment and lump sum maintenance orders remains to be determined by the Federal Circuit Court. 


 ** for the trainspotters the title of the post today is riffed from 2002 and Silverchair’s ‘The Greatest View


Tuesday, February 26, 2019

Full names in wills – do the right thing**


Over the last few days, we have had some difficulties in progressing with the administration of an estate for a client where the deceased will did not set out his full name.

Although it sounds like a very pedantic issue, the courts are reluctant to allow wills to be granted probate unless there is complete certainty around a person’s name.

Some of the issues that need to be considered in this regard include:

1) If there is a nickname that someone uses all the time, this should ideally be mentioned in the will.

2) Ideally, the name in the will should exactly match government records (for example, on the birth certificate or marriage certificate for the will maker, and thus in turn, what the death certificate will state).

3) To the extent there is any inconsistency between government records, this should ideally be explained or clarified in the will itself.

4) If the government records do not match the will and this is known at the time of lodging probate, look to explain the inconsistencies proactively with the court when making the application.

** for the trainspotters the title of the post today is riffed from the late 1980’s and ‘Redhead Kingpin


Tuesday, February 19, 2019

Guardianship appointment under wills – another application of The Vibe **


Last week, an adviser (on behalf of a client) questioned how binding the nomination of a guardian under a will for infant children is likely to be.

The simple answer is that in a practical sense our experience is that the nomination of a guardian is almost always followed. Arguably however this experience is nothing more than reliance on the well known legal principle ‘The Vibe’.

The strict legal answer is that the courts retain the final and absolute authority to determine who the guardian of an infant child should be with their only responsibility to determine what is in the best interest of the child.

Obviously, in a situation where both parents have died and there is a nomination of a guardian under their wills, the courts will normally put a significant amount of weight on this nomination. Despite the court’s inherent power, it is somewhat unusual to have a situation where the nomination under the will is not followed.

** for the trainspotters Dennis Denuto and his vibe legal principle need no introduction

Tuesday, February 12, 2019

Ensuring loans are loans and people are people


Following last week’s post, the case of Berghan & Anor v Berghan [2017] QCA 236 is a stark reminder. As usual, if you would like a copy of the decision please contact me.

Broadly, the factual matrix was as follows:

1) A son had borrowed (either directly or via related entities) a six-digit sum from his parents over an extended period.

2) The total amount lent was by way of instalments on a number of separate occasions.

3) On every occasion, there was a confirmation from the parents that they intended the amount to be a loan.

4) In saying this however, no formal agreement was ever entered into.

5) There was also an extended delay between the point in time at which the loans were made and when the parents ultimately sought recovery of the loans.

In the initial court decision, it was held that despite the reference to the loans, the conduct of the parents was more analogous to a gift, and on this basis, there was no obligation at law (ignoring any moral argument) that the son had to repay the amounts.

While on appeal, the parents were successful in having the court confirm that the amounts were actually loans repayable on demand, the fact that there was a protracted legal case to achieve this outcome is a stark reminder to ensure that comprehensive legal agreements are implemented.

The court focused on the factual matrix to determine whether the transactions had objectively demonstrated that the payments were made by way of an oral loan agreement and were not gifts. Once it was determined that the advances were loans, it was confirmed that at law, in the absence of anything to the contrary, such loans are deeded to be at call and repayable on demand.

Finally, independent legal advice should be obtained by each party to ensure that the prospects of, particularly the borrower, arguing that the arrangements were in fact a gift is unsustainable.

** for the trainspotters the title of the post today is riffed from 1984 and Depeche Mode’s ‘People are People





Tuesday, February 5, 2019

Ensuring a loan is a loan (or alone with you**) – part 1


Arguably, in relation to any form of loan arrangement, it is fundamentally important that there are documents confirming the exact terms that apply.

Purely from an asset protection perspective, ignoring wider issues such as the commercial arrangements, estate planning and tax, the importance of documenting loan arrangements in writing cannot be underemphasised.

Similarly, it is critical to consider:

1) Regular repayments, even if only nominal, to ensure that the terms of the agreement remain on foot and acknowledged by the parties. In this regard, as profiled elsewhere in these posts, government legislation can automatically cause loans to become unrecoverable and statute barred.

2) Possibly implementing security arrangements in relation to the loan, for example, by way of mortgage or registering an interest under the PPSR.

3) Ensuring that each party to the loan receives independent legal advice. Particularly in relation to arrangements between family members, the failure to ensure each party receives independent legal advice can cause a loan to become unrecoverable on the basis that a court decides that the loan was in fact a gift.

The requirement for independent advice is arguably the most important aspect in family situations, such as parents lending funds to a child and their spouse.

If the child and spouse have a relationship breakdown it is likely that the funds advanced will be argued to be a gift by the estranged spouse, even if a loan agreement has been signed.

If the amount is treated as a gift it will be an asset of the relationship (not the parents as lenders) and thus unrecoverable by the parents.

** for the trainspotters the title of the post today is riffed from the early 1980’s and The Sunnyboys ‘Alone With You’, see them perform live!


Tuesday, January 29, 2019

Trust creation – the 4 key elements





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 –

On the basis that a picture tells a thousand words, we find the best way to explain a trust is via diagrams. Generally, we use triangles to represent a trust, rectangles for companies to keep things simple.

If pictures, symbols and diagrams are used then when you explore some of the technical issues with trusts it invariably makes it a lot easier. This is particularly the case when you then get into the detail of a trust document that run to dozens of pages.

If we, therefore, explore the creation of a trust arguably there are really only ultimately 4 key principles that need to be in place in order for there to be a trust relationship.

Many readers would probably argue very quickly, “Hang on, there’s a whole range of additional things that need to be satisfied.” On many levels that feedback is fair. However arguably the response is that, “Any other idea that you can come up with would be, I would argue, falls under one of the 4 headings.”

The first one is that you need to have legal ownership. Invariably, that’s the trustee. Invariably with a discretionary trust, that trustee will be a company. Its sole role is having the legal ownership of the underlying asset.

Where is that underlying asset? It's held within the trust, which is point two.

Without an asset, there is no trust relationship. It might again sound abundantly simple but it is a really key point.

Point three is that there are some rules. Invariably those rules will be set out in a trust deed, or a trust instrument. Generally this will be a written document.

Finally, the fourth point, is that there must be at least one beneficiary to receive entitlements, whether they be income distributions on the way through the life of the trust or capital distributions either interim or on the final vesting of the trust.

Within those 4 parameters, there are essentially no restrictions in terms of what can or can’t be done in relation to a trust structure.