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’.