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):