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