Tuesday, August 4, 2020

Cloudbusting** - Incapacity and invalid wills – a 101 reminder

View Legal Blog Cloudbusting - Incapacity and invalid wills – a 101 reminder

Last week, we had to look at a relatively interesting question concerning a series of wills that had been made by someone who died recently.

Due to evidence on the death certificate, the validity of the most recently will has been called into question because of a lack of capacity (namely, long term dementia).

There are a number of things that may happen from here, however in very broad terms, if the most recent will is held to be invalid, then the will made immediately before the most recent will is the one likely to be submitted to probate.

If that immediately preceding will is also shown to be invalid because of a lack of capacity, then the court is required to keep going back through previously made wills until they find one that does not fail on the basis of the incapacity issues.

The above approach assumes of course that the previous wills can be accessed, and the court can ultimately satisfy itself that a valid will was made at a time when capacity was not in doubt.

If the court is unable to satisfy itself, the default position is that the intestacy rules apply.

** for the trainspotters, the title here is riffed from the Kate Bush song ‘Cloudbusting

Tuesday, July 28, 2020

The Blues Brothers** Trust case

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 of the most interesting family law trust cases is what I refer to as The Blues Brothers case, otherwise known as Morton and Morton.

In this case, there were two brothers, the Blues Brothers as I call them.

They were both shareholders of the corporate trustee. They were both directors of the corporate trustee. They were the two primary beneficiaries and joint appointors of the trust. The trust itself owned the bucket company 100%. The bucket company’s two directors were the two brothers. You’re likely starting to see the pattern.

Brother one busts up with his wife. His wife says, “He is the 50% owner - all day every day he is 50%. Therefore, I get half of his 50% end of story.”

The court said, “No, he’s not 50%. Because he has no casting vote, because he is an equal appointor, equal shareholder, equal director, he’s received broadly equal distributions, he’s not 50%. He is a 0%.” Therefore, the assets of the trust were protected.

Some will argue here, “Hang on Matthew, that’s quite unique, we’re not always going to be able to set up with 2 siblings.” Agreed and understood. But if you’re looking at wider succession of a family unit and protection of intergenerational wealth, we believe the principles from The Blues Brothers case are seriously important to have in mind.

As always thanks to the Television Education Network for the video content here.

** for the trainspotters, a classic song from the Blues Brother today, ‘Gimme some lovin’.

Tuesday, July 21, 2020

Over (it)** insurance and buy sell arrangements

View Legal Blog Over (it)** insurance and buy sell arrangements

There were a number of enquiries following last week’s post, and in summary, the answer to a number of these queries was that before implementing the kind of strategy explored, care should always be taken to make sure that all of the commercial, legal and transaction cost issues are properly considered.

One question that is also worth exploring further is the appropriate quantum of insurance cover in this type of situations.

Obviously, while we do an extensive amount of work in this area, we do not actually provide insurance product solutions, and instead work with specialists in this area to help clients get appropriate strategies implemented.

The advice that we often give however is that for a variety of reasons, we prefer that wherever possible the parties involved look to maximise the level of insurance cover able to be obtained.

Obviously, this approach is subject to specialist advice in these circumstances and the ability for the clients to commercially justify the insurance premium, however some of the practical advantages with this approach that we see include:
  1. It reduces the need to uplift the quantum of insurance cover as circumstances change.
  2. It reduces the risk that in the future appropriate levels of cover may not be able to be accessed (due to health reasons).
  3. It guards against the risk that the underlying assets involved increases more rapidly than insurance protection is able to be updated.
  4. If structured appropriately, the excess insurance can also be used to facilitate other non-business succession objectives.
** for the trainspotters, the title here is riffed from the Dinosaur Jnr song ‘Over it’.

Tuesday, July 14, 2020

Why contracts beat (it) ** wills

During the week, in the context of reviewing a buy-sell deed, we had to provide advice about whether the terms of the buy-sell deed would overrule the provisions of one of the partner’s wills.

While there were a number of factors that may potentially impact on the answer to this question, in very simple terms, contractual arrangements will always override the provisions of a will.

As the buy-sell deed was crafted on the basis of option agreements, then the position was therefore that they would override any inconsistent provision of the will.

In the context of the buy-sell arrangement here, there were two individual partners who had implemented buy-sell arrangements.

For a combination of reasons (not least of which the ability to eliminate any stamp duty or tax on the transfer of the partnership interest on death), the parties agreed to implement wills whereby they would each gift their respective partnership interest to their co-partner on death.

The agreement to make these gifts however was predicated on the assumption that the exiting partner’s estate would receive insurance proceeds at least equal to (if not greater than) the market value of their partnership interests.

Option agreements were still put in place however to cover the partners against a range of risks, including:
  1.  a partner changing their will;
  2. the will of an exiting partner being challenged; and
  3. the insurance proceeds received being inadequate as compared to the market value at the date of death.
** for the trainspotters, the title here is riffed from the Michael Jackson song ‘Beat it’.

Tuesday, July 7, 2020

Happy New Year’s Day**! & some further reasons for the rise and rise of share sales

Happy New Year’s Day**! & some further reasons for the rise and rise of share sales

Last week’s post considered some key aspects impact of the introduction of the 50% general discount on business succession.

A further significant related transaction cost issue that has also changed over the last few years to further encourage purchasers to consider a share acquisition relates to the tax consolidation rules.

In particular, it was historically the case that in order for a purchaser to be able to claim depreciation in relation to the market value of the assets they had acquired, they needed to physically acquire those assets.

In contrast, if the shares in the relevant company were acquired, then there was no adjustment to the tax carrying costs of its assets.

In very broad terms, if a purchaser acquires shares in another company and that company becomes a member of the purchaser’s tax consolidated corporate group, then it is permitted to 'reset' the tax carrying costs of all assets of the company.

Although there can be a number of problems that arise with this resetting, in very general terms, the intention of ensuring that the tax outcome for a purchaser on a share sale as compared to an asset sale in what is otherwise an identical transaction are normally broadly achieved.

One last permutation worth remembering relates to where a purchaser is open to consider a share sale arrangement but wants to ensure that any historical difficulties with the company currently operating the business are quarantined to the maximum extent possible.

In these circumstances, it is often sensible for the vendor to suggest that a restructure be done before completion (often the finalisation of the restructure will be a settlement day condition precedent) whereby the assets of the existing company are 'rolled over' into a cleanskin company.

Obviously, there are a number of commercial, tax and stamp duty issues that need to be considered with this approach, however in many instances, it can deliver the precise outcome that each of the parties are aiming for.

** for the trainspotters, the title here is riffed from the U2 song ‘New Year’s Day’.

Tuesday, June 30, 2020

Keeping it real** on 30 June – the rise and rise of share sales

View Legal blogpost 'Keeping it real** on 30 June – the rise and rise of share sales ' by Matthew Burgess

Given that it is 30 June, it seemed like an appropriate day to focus on the impact of the introduction of the 50% general discount on business succession.

Since its introduction (and certainly with the various evolutions of the small business capital gains tax concessions), we have seen an ever-increasing number of merger and acquisition transactions take place by way of share sale.

Historically, many (if not all) of these transactions would have taken place by way of asset sale.

Due to the difficulties with accessing the various tax concessions when assets are sold by a company, the attractiveness of a share sale has become significant.

The additional issue in this regard can often be that the share sale will legitimately avoid any stamp duty consequence, which is still in some states not the case in relation to a business sale.

One of the key ramifications of the increased number of share sales is that many vendors will actively embark on a 'vendor due diligence' exercise.

Broadly, this involves, sometimes many months before any sale transaction is entered into, the vendor prepares a complete set of due diligence material from its own perspective.

Such an approach can help to significantly reduce the overall costs and risks that might otherwise be associated with a share sale transaction.

Next week’s post will further explore two other key aspects to consider in relation to share sale arrangements.

** for the trainspotters, the title here is keeping it very real by being riffed from a line in the Hannah Montana song ‘Let’s get crazy’.

Tuesday, June 23, 2020

Have I lost you?** - Lost company constitutions

View Legal blogpost 'Have I lost you?** - Lost company constitutions ' by Matthew Burgess

Previous posts have considered the key issues in relation to lost trust deeds (let me know if you want access to any of these). A related issue that comes up regularly is the loss of other essential documents, and in particular, the constitutions for companies.

In most instances, the ramifications of losing a constitution for a company (or as they were formally known the 'memorandum and articles') are normally not as problematic as with the case with discretionary trust deeds.

This said, we would always normally recommend that, if possible, at least a copy of the constitution be located, and particularly for older companies, this can often be achieved via the microfiche records retained by the ASIC.

As many advisers will be aware, up until around the 1990s, all company constitutions had to be lodged with the ASIC on registration of a company.

Where no copy can be found, there is also a process available to adopt a replacement constitution, however some difficulties (particularly from a tax perspective) can arise in this regard if there is uncertainty as to the rights attaching to the shares on issue in the company.

** for the trainspotters, the title here is riffed from the Supremes song ‘Have I lost you’.

Monday, June 22, 2020

Excepted trust income changes for testamentary trusts: the numbers** and details matter

The one (very key) change to the excepted trust income rules this week for distributions to minors via testamentary trusts is shown by the redline version of the legislation passed this week attached.

The redline version shows what the final rules state, as compared to the exposure draft ... thankfully the wacky approach originally to make two thirds of the rules turn on the "Commissioner’s opinion" was removed ...

** For the trainspotters, the title of today's post is riffed from the Kraftwerk song ‘Numbers’.

View here:

Tuesday, June 16, 2020

What I am** and should I be the appointor?

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.

The Richstar case has featured in many previous posts. As usual, if you would like access to those posts, please contact me.

In terms then of who should be an appointor, despite what Richstar says, which was that the appointor is highly critically important from an asset protection perspective, that’s not actually the law. Richstar has been rebutted. Therefore, we would argue that in the ordinary course, it does not matter who the appointor is.

Now as with all trust areas, I would argue there is an exception to that general rule.

The exception to the general rule is do not set your client up to fail unnecessarily.

Therefore, you want to have at least two other things on your list when you’re looking at an appointor I would argue at the bare minimum.

Point number 1, make sure that embedded into the trust instrument, there is an automatic disqualification of the appointor if they commit any act that allows the court to look at the act. By crafting the provisions that way, you do a couple of things.

First, it sets the rules of the game before the trust is even started. It’s therefore almost impossible for anyone to argue that that was some sort of inappropriate strategy because it was there from the very start.

The second thing is that if any court comes in, the bankruptcy court, the family court, etc., before they come in, the deed self-executes and makes sure that the appointor is automatically removed.

The next point is just thinking about who you actually want as your appointor. Maybe it isn't the smartest thing to have the at-risk individual. Not because of itself is going to cause the trust assets to be exposed, but why even raise a question when you can actually avoid the issue.

The one thing I would flag on that is that having a non-at-risk person as appointor can be a lot easier said than done. The appointor has the ability to hire and fire the trustee in its complete discretion.

The person needs to be someone you can completely trust in order to deliver that role in a way that actually is going to align with what the people behind the trust are actually striving for.

As always thanks to the Television Education Network for the video content here.

** for the trainspotters, the title here is riffed from the Edie Brickell song ‘What I am’.

Tuesday, June 9, 2020

This is how to do it** - To disclose or not to disclose trusteeship?

View Legal blogpost 'This is how to do it** - To disclose or not to disclose trusteeship?' by Matthew Burgess

The issue of whether the existence of a trust relationship should be disclosed to third parties, including banks and Titles Offices is one that comes up regularly.

The strict position from a trust law perspective is that the existence of a trust relationship does not need to be disclosed.

This said, there are a number of other factors that often need to be taken into account, including the following:
  1. the Tax Office, in relation to superannuation funds, is of the view that the existence of a trust relationship should always be disclosed;
  2. in some jurisdictions (New South Wales is a classic example), it is in fact not possible to disclose the existence of a trust on Titles Office records;
  3. from an evidentiary perspective (for example, if the Tax Office is querying the way in which assets are held), it is often of significant benefit to have the trust arrangements supported by third party documentation;
  4. where the trust instrument is lost, disclosing the trust and lodging a copy of it with a third party can often prevent significant costs and administrative difficulties that otherwise arise when a trust instrument cannot otherwise be located; and
  5. finally, however, the non-disclosure of a trust relationship can be commercially important from a privacy perspective.
** for the trainspotters, the title here is riffed from the Katy Perry song ‘This is how we do’.

Tuesday, June 2, 2020

Mine, all mine** - Trustees and SMSF borrowing arrangements

Over the last couple of weeks, the posts have focused on the various issues that arise in relation to having the one company act as trustee for multiple trusts.

One area of the law where the ability to have the same company act as trustee for multiple trust relationships is prohibited is in relation to the limited recourse borrowing arrangements that self-managed superannuation funds can enter into.

Briefly, we confirmed to an adviser recently that in relation to these types of borrowing arrangements:

(a) the need to have a separate bare trust is driven by the requirement under section 67A of the Superannuation (Supervision) Industry Act that the borrowing arrangement relates to a ‘single acquirable asset’, meaning a separate trust must be established for each acquisition; and

(b) the bare trust needs to have a different trustee to the super fund because under trust law, if the sole trustee is also the sole beneficiary, the trust ‘merges’ and ceases to exist.

** for the trainspotters, the title here is riffed from the Portishead song ‘All Mine’.

Tuesday, May 26, 2020

Right by your side** - Commercial issues with trustees performing many roles

View Legal blogpost 'Right by your side** - Commercial issues with trustees performing many roles ' by Matthew Burgess

As mentioned in last week's post, it is possible for the same company to act as trustee for a number of trusts.

Such an arrangement should not change the indemnity position if a liability is incurred, however there are a number of commercial reasons that need to be considered before having the same company act as trustee for multiple trusts.

Some of the issues in this regard include:
  1. While the current legal position is that the assets of each trust will be segregated if a liability was to arise, this position in theory could be changed by future cases or legislation. For obvious reasons, most clients do not want their arrangements to become a test case.
  2. If litigation was to arise in relation to one trust, this would force the parties involved to change the trustee of the other trusts not otherwise subject to the litigation. This can be practically an unnecessarily difficult process that in some instances is actually challenged by the relevant creditors.
  3. The costs for maintaining separate trustee companies are relatively nominal.
  4. From an ease of administration perspective, having separate trustee companies for each separate trust can minimise the risk of confusion.
  5. From a land tax grouping perspective, separate trustee companies can, in some jurisdictions, provide a planning opportunity to reduce the overall tax rates that apply.
  6. If the company is acting as a trustee of a SMSF concessional ASIC annual fees are only available if the company performs this role solely.
** for the trainspotters, the title here is riffed from the Eurythmics song ‘Right by your side’.

Tuesday, May 19, 2020

Trustee companies and multiple plays**

View Legal blogpost 'Trustee companies and multiple plays** ' by Matthew Burgess

Previous posts have looked at various issues that arise in relation to trustee companies (let me know if you would like access to any of these posts).

One issue that comes up relatively regularly is the way in which the trustee indemnity provisions work where the same company acts as trustee for multiple trusts.

Briefly, the strict legal position is that the right of indemnity of a trustee is limited to the assets of the trust in relation to which the liability was incurred.

In other words, where a company is a corporate trustee for multiple trusts, a claim or liability in relation to one trust should not expose the assets of the other trust.

Practically however, if the trustee becomes insolvent it can be difficult to establish the beneficial ownership of particular assets to the liquidator’s satisfaction, particularly given some third parties such as ASIC and the NSW Titles Office do not record the name of the beneficial owner.

There are a number of commercial issues that arise in relation to the same company acting as trustee for multiple trusts and some of these will be considered in next week's post.

** for the trainspotters, the title here is riffed from the John Lennon song that has a line mentioning multiple plays, namely ‘Beautiful Boy’.

Tuesday, May 12, 2020

No purging** Non-lapsing interposed entity elections

View Legal blogpost 'No purging** Non-lapsing interposed entity elections' by Matthew Burgess

Last week's post highlighted the fact that in a practical sense, interposed entity elections (IEEs) are very difficult to revoke.

For example, the Tax Office has confirmed in an Interpretive Decision (ID2013/21 – as usual, let me know if you would like a copy of this decision) that IEEs remain in force even if the trust that is a subject of the related family trust election (FTE) ceases to exist.

In particular, where an entity makes an IEE in relation to a family trust to be within the family group of that family trust, it will be taken to be revoked where the FTE for that trust is revoked.

According to the Tax Office, where a family trust is simply wound up and no steps are taken before the wind up to revoke any FTE, then both the FTE and IEE continue to remain in force indefinitely.

This means that the penal rate of tax will continue to apply to the entity that has made the IEE for any distributions it makes outside the family group of the family trust that has been wound up.

While the ability to revoke an FTE is also relatively narrow, whenever considering the windup of a trust that has made an FTE, specific thought should be given to whether the FTE should be revoked before finalising the wind up.

** for the trainspotters, the title here is riffed from the Midnight Oil song that has a line mentioning elections, namely ‘When the generals talk’.

Tuesday, May 5, 2020

Revoking an interposed entity (in the year of) election**

View Legal blogpost 'Revoking an interposed entity (in the year of) election**' by Matthew Burgess

Arguably one of the more complex areas in relation to family trusts relates to interposed entity elections (IEE).

We have had a number of advisers contact us recently in relation to the exact way in which IEEs operate, and unfortunately, preferred distribution arrangements are often effectively prevented due to historical elections that, with the aid of hindsight, were arguably were unnecessary.

While there are some circumstances where an IEE can be revoked, at least in the situations we have looked at recently, the ability to access the revocation provisions is limited.

This is because, among other requirements, a revocation is only available where:
  1. It is done within 4 years of the original IEE being made.
  2. The IEE must not have been relied on at any time.
Next week's post will look at an Interpretive Decision from the Tax Office, which further highlights the restrictive nature of IEEs.

** for the trainspotters, the title here is riffed from the U2 song ‘Desire.

Tuesday, April 28, 2020

Mr Klaw (back)** - Cummins case and the bankruptcy clawback rules

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.

In terms of the timeline on the Cummins case, there was a long history here with no returns lodged. It’s going back literally decades. We’ve got a 1987 event where a house on Sydney Harbour goes into the wife’s name. No tax returns were lodged for many years in the lead up to 1987 transfer. In around the year 2000, he was about to retire. He was doing the work for a law firm and the law firm paid his bill, but short paid him to the extent of 48.5 cents. He wrote back and said hang on a second, i.e. I sent you a $100 bill, you only pay me $51.50, what's going on?

The law firm said, “Oh, Mr Cummins, (QC or whatever he was), yes, we will give you your other 48.5 cents when you give us an ABN.” Mr Cummins said, “What’s an ABN? They said you get that from the Tax Office.”

He rang the Tax Office and said, “I need one of these ABNs.” They said, “Okay, that’s fine. Give us your TFN and we'll give you an ABN.” Mr Cummins said, “What’s a TFN? I don’t know what you’re talking about.”

The suspicion is that at that point the Tax Office routed him back to the investigation division. By 2002, Cummins was in the middle of an audit because he hadn’t paid tax for decades. You do not need a tax file number if you never pay tax. That was what he had managed to do during his entire career.

Now if you get litigated against in 2002, four years from 2002 takes you back to about 1998. 1998 is a long, long way after 1987. The question was this. Was the Sydney Harbour property, which in the meantime had gone up in value quite significantly, exposed on Cummins going bankrupt?

Cummins’ argument you would guess was that no, outside the clawback period, I’m in the clear, yes, I’m bankrupt. But I don’t care about it because I don’t own anything in my name. What does it matter?

The court said no. The court said that you need to look at the main purpose that’s sitting around the 1987 transaction. The mere fact that the assessments had not actually issued back in 1987 when the transfer took place was held to be irrelevant.

The debt was still there. The fact that the tax debt hadn't crystallised, or Cummins didn’t actually know about it because the tax man hadn’t found him yet, was actually absolutely irrelevant. Cummins’ purpose at the time of moving the family home was to defeat creditors. Therefore, the whole transaction could be unwound because the 4-year limit only applies for transfers made when there are no known liabilities – if the liabilities (as here) are known, then the clawback period is unlimited.

As we understand it, it’s basically the only textbook of its kind in Australia that’s practically focused on how to deliver the asset protection piece. Very happy to give one of those away.

As always thanks to the Television Education Network for the video content here.

** for the trainspotters, the title here is riffed from the They Might be Giants song ‘Mr Klaw’.

Tuesday, April 21, 2020

EPAs and SMSFs – Bit like Generals and Majors**

View Legal blogpost 'EPAs and SMSFs – Bit like Generals and Majors** ' by Matthew Burgess

Following recent posts about attorney appointments it is important to also remember the special rules that apply in relation to self-managed superannuation funds (SMSF).

As is well understood, a superannuation fund is an SMSF where all members of the fund are trustees or directors of a corporate trustee – see sections 17A(1) and (2) of the Superannuation Industry (Supervision) Act 1993.

A super fund is also a complying SMSF where an EPA of a member is a trustee or a director for a corporate trustee in place of a member during any period that attorney has an enduring power of attorney (EPA) in respect of a member of the fund who themselves is unable to act (see section 17A(3)(b)(ii)).

In order for section 17A(3) to apply the person seeking to become a trustee or director needs to be appointed under an EPA of the member who cannot act. A general power of attorney will not be sufficient.

Practically, the only way in which an attorney under an EPA can act in the role as trustee for an SMSF is for the existing member to be removed from their role as trustee (or director of the corporate trustee as the case may be), and for the attorney under that member’s EPA to be appointed as the new trustee or director in place of the member.

In addition to satisfying the statutory provisions, the trust deed for the SMSF must also be complied with.

Importantly, the attorney for the member performs their duties as a trustee of the SMSF, or a director of the corporate trustee of the SMSF, pursuant to their appointment to that position, rather than as an attorney or agent for the member.

The Tax Office has detailed their views in this area in Self-Managed Superannuation Funds Ruling SMSFR 2010/2. As usual, if you would like a copy of this ruling please let me know.

** for the trainspotters, the title here is riffed from the XTC song ‘Generals and Majors’.

Wednesday, April 15, 2020

Who’s Zoomin’ who?** AKA when will AUS follow the Empire State of Mind** and allow estate planning documents to be witnessed via video?

Confirmation that estate planning documents may now be witnessed remotely … in New York …

While NSW has threatened to do the same in AUS (for a maximum of 6 months); query when (if ever) all states will roll this out.

The specifics of the New York rules (perhaps AUS legislators can copy and paste these?) are as follows:
  1. The person requesting that their signature be witnessed, if not personally known to a witness, must present valid photo ID to the witness during the video conference, not merely transmit it prior to or after;
  2. The video conference must allow for direct interaction between the person and each witness and the supervising lawyer, if applicable (e.g. no pre-recorded videos of the person signing);
  3. The witnesses must receive a legible copy of each signed page, which may be transmitted via fax or electronic means, on the same date that the pages are signed by the person;
  4. Each witness may sign the transmitted copy of the signed pages and transmit the same back to the person; and
  5. Each witness may repeat the witnessing of each original signature page as of the date of execution provided the witness receives such original signature pages together with the electronically witnessed copies within thirty days after the date of execution.
Reassuring I am sure for all #BigLaw lawyers that the transmission of the signed pages can be made by fax ...

** for the trainspotters, a double hit (given the Easter long weekend), firstly Aretha Franklin's tribute to Zoom and 'Who's Zoomin' Who'.

View here: https://www.dailymotion.com/video/x6qfe8

 ** the second instalment for the trainspotters, Alicia Keys 'Empire State of Mind' (Part 2).

View here: https://www.youtube.com/watch?v=tGwBPy4j8uo

Tuesday, April 14, 2020

Don’t wanna be the one?** - Corporate trustee appointing an attorney

View Legal blogpost 'Don’t wanna be the one?** - Corporate trustee appointing an attorney ' by Matthew Burgess

Recent posts have considered various aspects of attorney appointments.

Where a company is acting as trustee of a trust, it can appoint an attorney to act on its behalf as trustee of the trust, so long as the:
  1. constitution for the company permits attorney appointments; and
  2. the trust deed for the trust also contains a power for the trustee company to nominate an attorney.
The attorney appointment document should ideally specifically confirm that the:
  1. trustee company has power under the trust deed to appoint an attorney; and
  2. company, in its capacity as trustee for the trust, is appointing the attorney in accordance with the power.
** for the trainspotters, the title here is riffed from the Midnight Oil song that has a line mentioning corporate, namely ‘I don’t wanna be the one’.

Tuesday, April 7, 2020

Looking through (you)** - A sole trustee appointing an attorney

View Legal blogpost 'Looking through (you)** - A sole trustee appointing an attorney ' by Matthew Burgess

Following recent posts about attorney appointment, it is important to remember that a sole individual trustee of a trust can appoint their attorney/s under an enduring power of attorney to act on their behalf if they are unable to carry out their duties as trustee of the trust.

This approach is subject to the trust deed for the trust allowing this outcome.

An example of the relevant clause a trust deed should contain is as follows:

“The Trustee may authorise any person to act as its attorney to perform any act or exercise any discretion within the Trustee’s power including the power to appoint in turn its own agent, attorney or delegate.The appointment may be in respect of more than one delegate or severally and may include provisions to protect those dealing with the agent, attorney or delegate.”

An example provision that should be added to the enduring power of attorney is as follows:

“Whereas I am currently the sole trustee of ‘[#insert] Trust’ a trust established pursuant to the Deed dated [#insert], pursuant to the Trusts Act [#insert details of the relevant stat based Act] and of every other power and law thereunto enabling in the event of my inability for any reason either temporarily or permanently to carry out my duties as sole trustee, or as one of a number of trustees of the [#insert], then this enduring power of attorney operates and allows the attorneys named in this document to act as my attorneys in respect of my trusteeship of the [#insert].”

** for the trainspotters, the title here is riffed (read carefully) from the Beatles Album ‘Rubber Soul’ (Sole) and the song, ‘I’m looking through you’.

Tuesday, March 31, 2020

Powers of attorney – statutory v common (people)** law documents

View Legal blogpost 'Powers of attorney – statutory v common (people)** law documents ' by Matthew Burgess

Following the previous two posts a question has been raised about the need to comply with the state-based legislation in each jurisdiction when creating a general power of attorney, as opposed to an enduring power of attorney.

Broadly the position in relation to general powers of attorney is as follows:
  1. Each state has legislation setting out a statutory regime for making a general power of attorney;
  2. In addition to this statutory regime, there is at common law the right to make a power of attorney or otherwise delegate the rights of a principal to an attorney;
  3. Assuming the document creating the attorney appointment is properly crafted, a common law appointment of attorney will generally have more flexibility than a statutory document (which will often be in a standard pro-forma).
Enduring powers of attorney are not able to be made at common law and it is therefore necessary to rely on the statutory regime.

The reason that the common law does not support enduring powers of attorney is because a power of attorney terminates automatically when a principal loses legal capacity.

The common law treats a principal-agent relationship as a personal one. This means an agent has no authority to act on behalf of a principal if the principal themselves can no longer act.

** for the trainspotters, the title here is riffed from Pulp, ‘Common People’. 

Tuesday, March 24, 2020

The time is now** - Start date for an attorney’s powers

View Legal blogpost 'The time is now** - Start date for an attorney’s powers ' by Matthew Burgess

One of the questions that arose following last week’s post, that is often raised in estate planning is the timing for powers of attorney to commence operation.

In particular, often a donor will suggest that an attorney’s powers should not commence until some future date, for example ‘on loss of capacity’.

On a number of levels, perhaps counterintuitively, we usually recommend immediate commencement of attorney powers where permitted by law (typically in relation to financial appointments).

In some instances, powers are prohibited at law from commencing until the donor has lost capacity.

The reasons we recommend this approach include:
  1. The likelihood the documents may need to be used in other scenarios (such as during overseas travel, or during periods of short term, relatively minor incapacity such as routine surgery) – the effectiveness of the document is significantly compromised if only triggered by ‘complete, absolute and permanent mental incapacity’.
  2. Avoiding a debate as to exactly when the document has come into force – particularly in an emergency situation it can significantly undermine the utility of the document if there needs to be an analysis of whether a pre-condition to commencement has in fact been satisfied.
  3. As an easy rule of thumb test as to whether there should be (say) a co-attorney appointed – that is, if there are concerns about the powers starting immediately. This can often be at least partly due to concerns about the skills or trustworthiness of the persons nominated.
  4. There are a number of practical steps that can be taken to guard against inappropriate attorney conduct – for example, placing the original enduring powers of attorney in secured storage so that the attorneys are required to request copies before they can exercise their powers.
  5. Another practical protection is ensuring that the appointed attorneys do not sign to accept their appointment until they need to rely on it - the powers under an enduring power of attorney cannot be used unless the appointed attorney has signed their acceptance.
  6. Practically a further easy work around is appointing one or more additional co-attorneys – typically another family member, friend or trusted adviser to act jointly with the clients’ attorneys. This prevents a single ‘rogue’ attorney from acting inappropriately as all decisions would require two or more attorneys to act together.
  7. If there are still concerns about the attorneys acting inappropriately in light of the above points, the harsh reality is that this says more about the persons being considered than it does about the document commencing immediately – in other words the issue should be addressed by reconsidering who is being appointed to the role.
  8. Indeed, if there remain concerns about the integrity of the nominated attorney acting inappropriately, there may be in fact be wider concerns that need to be addressed – such as the attorney acting inappropriately after the donor has lost capacity or even fraudulently creating documentation to allow themselves to act, regardless of the donor’s intention.
** for the trainspotters, the title here is riffed from Moloko, ‘The Time is Now’.

Tuesday, March 17, 2020

Enduring powers of attorney – a hopefully not (failed) reminder **

View Legal blogpost 'Enduring powers of attorney – a hopefully not (failed) reminder ** ' by Matthew Burgess

While each state has different legislation in relation to enduring powers of attorney, one issue that has come up over the last few days, which is common to the rules in virtually every state, is the ability to appoint different people for financial related matters as compared to personal (or ‘guardianship’) matters.

Previous posts have considered various aspects of an advanced health directive (which is effectively the 3rd main component of the areas where you can appoint someone else to make decisions on your behalf).

Often, it will be the case that the people a client is wanting to entrust with their financial affairs will be different to those they wish to have make decisions in relation to personal healthcare matters.

Providing the documentation is crafted appropriately, there is no legal reason that different people cannot be appointed.

One practical issue that needs to be kept in mind however is that many of the personal health related issues will have at least a partial financial aspect to them.

For example, the decision as to the standard of nursing home care to be provided is ultimately as much a financial decision as it is a personal health care decision.

Unless there are compelling reasons to have different people appointed, therefore our default recommendation is that the same people are nominated in all roles.

** for the trainspotters, the title here is riffed from the New Order song, ‘Senses’.

Tuesday, March 10, 2020

Appointor (and a life of) succession **

View Legal blogpost 'Appointor (and a life of) succession **' by Matthew Burgess

Previous posts (including last week), have considered various aspects of an appointor or principal power under a trust deed.

In almost every estate plan involving a trust, it is necessary to consider the best way to appoint a successor appointor.

Predictably, the starting point in this process was to review the trust deed.

Often, the deed will permit the incumbent appointor to have their successor nominated under the will.

Generally, if available, a nomination under the will is the easiest and most commercially sensitive approach to take.

In other instances, for example, where there may be a challenge to the will, it may in fact be more appropriate to structure the appointor succession in a standalone document that sits outside the will.

Any approach is always subject to the deed, which are consistently inconsistent with the approaches available, for example:
  1. appointment via will;
  2. appointment via enduring power of attorney;
  3. automatic lapsing of the role;
  4. mandated succession embedded into the trust deed;
  5. no appointor or principal role in the first place;
  6. succession nominated by some other party (eg a ‘guardian’ or ‘nominator’);
  7. no provision in the deed at all as to what happens to the role and no rules as to how appointor might appoint a successor; and
  8. some combination of one or more of the above
** for the trainspotters, the title here is riffed from the Morrissey song, ‘My life is an endless succession of people saying goodbye’.

Tuesday, March 3, 2020

Appointor disqualification**

View Legal blogpost 'Appointor disqualification**' by Matthew Burgess

Last week, we had a situation where under the terms of a trust deed, the principal or appointor (ie the person with the right to unilaterally remove the trustee) had become automatically disqualified.

This type of provision is not unusual in a trust deed, however the exact mechanisms by which the disqualification took place were somewhat unique.

In this particular situation, the appointor was disqualified from acting if they left the jurisdiction that the trust was set up in (which was New South Wales).

The issue had never come up before until it was an issue, with the appointor now wanting to exercise its powers to remove the existing trustee; and the trustee wanting to resist their removal.

The trustee challenged the proposed unilateral removal by the appointor on the basis that the trust deed no longer gave the appointor the relevant power because the appointor was living in Victoria.

On a plain reading of the deed, the advice to the trustee was; yes, they were correct, and the appointor had been automatically disqualified.

Therefore, not only could the (former) appointor not remove the trustee, there was likely the ability for the trustee to proceed with a variation to appoint a new (friendly) appointor. An approach assisted by the fact that variations under the deed did not require appointor consent.

The situation is (yet) another reminder that before taking any step in relation to a trust; read the deed.

** for the trainspotters, the title here is riffed from the only song I could find with the word disqualification in it, ‘The Winner’ by Coolio.

Tuesday, February 25, 2020

Here we go again** - Another reminder - details do matter

View Legal blogpost 'Here we go again** - Another reminder - details do matter' by Matthew Burgess

Last week's post looked at the way in which the Corporations Act applies to the signing of documents.

A previous post has also considered the decision in the primarily superannuation related case of Re Narumon [2018] QSC 185.

This case also offers a related lesson, relevant for deeds of any form of trust, not simply super funds.

As mentioned last week, a sole director and secretary can bind a company where they sign and specifically note this capacity.

In the case here, a deed of variation was signed by the sole director and secretary of the corporate trustee, however the relevant capacity was noted simply as 'authorised representative'; and thus not in accordance with the Corporations Act.

Some years later the invalid execution of the deed of variation was identified by an adviser and a 'Deed of Ratification and Variation' was, validly, signed.

In apparently accepting that the approach that a deed of ratification can remedy errors in an earlier, ineffective, document the court also confirmed that care must be taken. In particular:
  1. Any variation of any invalid document will need to rely on a variation power in the last valid deed in existence;
  2. If no specific variation power is mentioned in the document purporting to amend the invalid document it should be possible to assume that the correct variation power is being relied on;
  3. In contrast, if the deed purporting to make a variation specifically seeks to rely on a power in the invalid document it will itself likely be invalid; and
  4. Practically, there would seem to be merit in retaining all previous versions of a trust deed, even if it is assumed they have been superseded by later variations.
As usual, if you would like access to any of the posts or the case mentioned in this post please contact me.

** for the trainspotters, the title here is riffed from the Whitesnake song, ‘Here I Go Again’.

Tuesday, February 18, 2020

How many (times) ** and directors does it take to bind a company?

View Legal blogpost 'How many (times) ** and directors does it take to bind a company?' by Matthew Burgess

As is generally well understood, section 127 of the Corporations Act confirms a company with 2 or more directors may execute a document by either:
  1. 2 directors signing; or
  2. a director and a company secretary signing.
Where a company has a sole director and secretary, that director can sign.

Perhaps less well known is section 126 of the Corporations Act that allows for a company to be bound by an individual acting with the company's express or implied authority.

In situations where section 126 is being relied on a company's constitution is also often relevant. For example, a constitution may provide that the directors can resolve that a specified director is authorised to execute documents.

Third parties will of course not necessarily be aware of the internal resolutions of a company. The Corporations Act under sections 128 and 129 therefore provides some protection for third parties confirming that they may rely on certain statutory assumptions as to valid execution.

These assumptions have a number of limitations however, for example they cannot be relied on where:
  1. The person seeking to rely on the assumption knew or suspected that the assumption was incorrect.
  2. The document is being executed relying on section 126, as opposed to under section 127. In other words, if 2 directors (or one director and one secretary) sign then the assumption can be relied on. However, if one director only signs who is not the sole director and secretary then the protection of the valid execution assumption is unavailable.
Practically, therefore where a sole director signs a document third parties should ideally:
  1. obtain confirmation (for example by performing an ASIC search) that the person is the sole director and secretary;
  2. obtain an extract of the constitution for the company and a copy of the resolution appointing the director as an authorised sole signatory; or
  3. require the company to instead grant power of attorney to the relevant director. A copy of the power of attorney should then be produced at the time of signing.
** for the trainspotters, the title here is riffed from the Bob Dylan song, ‘Blowin’ in the Wind’.

Thursday, February 13, 2020

It’s alright** (trust splitting is coming back)

Previous posts have explored in detail the July 2018 release from the ATO and its views on trust splitting in TD 2018/D3.

As explored in previous posts, there were a range of concerns with TD 2018/D3 for all trust advisers.

These issues have only been partially addressed by the final ruling released in December 2019 as TD 2019/14 - a near Christmas release date that continues the (apparent) tradition of the “last ATO officer out the door has to issue an attack on trusts and then turn off the lights”.

Critically, TD 2018/D3 assumed a single factual matrix which is very specific, and it lists a number of line items that may, or may not, be a part of a trust splitting arrangement.

Many trust splitting arrangements involve a change of trustee in relation to specific assets and few (or indeed none) of the other features listed in TD 2018/D3 (for instance, no changes to the appointors, right of indemnity or range of beneficiaries).

Given the extended delays in finalising TD 2018/D3, there must be a legitimate question as to its correctness in relation to the one example included in the draft.

This is particularly the case given the ATO conveniently:
  1. ignores both High Court and Full Federal Court authority in decisions such as FCT v Commercial Nominees of Australia Ltd (2001) 47 ATR 220 and FCT v Clark (2011) 190 FCR 206 when making conclusions about trust resettlements;
  2. makes unsubstantiated and unexplained assumptions about how a trustee may or may not act following a trust split.
More positively TD 2019/14, does now include two key changes that address other serious issues in TD 2018/D3.

  1. a second example has been included, which suggests how the ATO believes a form of trust split may be able to be implemented, without causing a resettlement.
  2. the ATO has effectively abandoned its previous attempt to make the TD retrospective by acknowledging that its “view of the potential CGT implications of the arrangement discussed in this Determination may have been subject to conjecture prior to the publication of TD 2018/D3 on 11 July 2018. The Commissioner will not devote compliance resources to apply the views expressed in this Determination to arrangements entered into before this date.”
The second example included in TD 2019/14 essentially confirms that a trust split will not be a resettlement, so long as:
  1. if each trustee keeps separate accounts in respect of the assets they hold, the results are consolidated for the entire trust fund and a single tax return is prepared for the trust as a whole;
  2. there is no attempt to apply for a separate tax file number;
  3. there is no amendment of beneficiary classes;
  4. there is no narrowing of the trustee’s right of indemnity (ie each trustee must continue to have recourse to all of the assets of the trust to satisfy its right of indemnity);
  5. there are no changes to the trustee who remains in control of assets not subject to the trust split; 
  6. the trustees of each 'split' trust must still act jointly in relation to issues such as choosing an accountant, incurring joint expenses, amending the trust deed and determining an earlier vesting date. 
Based on the second example, all other aspects of a trust split are permissible, for example:
  1. amending the trust deed to allow the trust split to occur (assuming there is an adequate power of variation);
  2. appointing a new trustee (and replacing the previous trustee) to certain assets that are to be subject to the trust split;
  3. changing the appointor or principal in relation to the assets the subject of the trust split;
  4. updating third party records (eg Land Titles Office, share registries etc) in relation to the change of trusteeship.

** For the trainspotters, today’s title is riffed from the Eurythmics and ‘It’s alright (baby’s coming back)’.

View here:

Tuesday, February 11, 2020

SMSF trusteeship: Individual v Corporate ... every 1s a winner**

View Legal blogpost 'SMSF trusteeship: Individual v Corporate ... every 1s a winner**' by Matthew Burgess

The debate about whether to use a company or individuals as the trustee of a self-managed superannuation fund (SMSF) is longstanding and arguably ongoing.

Here are the 9 top reasons we see most specialist advisers recommending there is only one winner to the debate, namely - always use a corporate trustee.

1. Costs
Often, cost is used as the key reason for not having a corporate trustee.

The reality is that the company establishment cost and relatively nominal ongoing ASIC fees (particularly if a special purpose company is used, allowing access to the concessional ASIC annual fee for SMSF trustees) are significantly less than the costs associated with individual trustees.

This is especially stark in an estate planning context - the death of a director results in one ASIC form being lodged. The death of an individual trustee causes the need for a formal deed of change of trustee and then the subsequent notification to every asset register. This process must be repeated on the death (and likely also any capacity) of every trustee.

2. Limited Liability
The liability of a company is limited to its paid up capital - a properly structured SMSF special purpose trustee company will have an exposure of $2.

Individual trustees have unlimited liability, jointly and severally.

This can be particularly important if the SMSF owns real property given the inherent risks with that class of asset.

This reason on its own makes corporate trustees compelling.

3. Penalties
The administrative penalty regime generally applies at the trustee level.

Therefore, a single company trustee has one penalty imposed for each contravention.

An SMSF with (say) 3 individual trustees has triple the penalty - one imposed for each trustee.

4. Sole member funds
A sole member SMSF with a corporate trustee can have the one individual as both the sole member and the sole director.

A sole member SMSF with individual trustees must have 2 people appointed - thereby opening up many of the issues outlined above.

Furthermore, even if the SMSF starts as a 2-member fund, when one trustee dies it often forces the appointment of a corporate trustee – again, triggering many of the difficulties mentioned above. Arguably, the mantra 'begin with the end in mind' is relevant.

5. Administration ease
Title in the assets of the SMSF remains permanently in the name of the corporate trustee, regardless of how many changes to directorship (or indeed shareholding) are made.

In contrast, every admission or cessation of a member (not only on death) triggers the need to have a formal change of trusteeship - as well as the transfer of title to all assets of the SMSF.

6. Compliance
Generally, in terms of what the auditor (and ultimately the Tax Office) expects to see, the use of a special purpose corporate trustee more easily facilitates appropriate levels of record-keeping, overall governance and legislative compliance.

7. Perpetual existence
Companies have no ending date (unless specifically resolved to the contrary).

This fact is generally seen as allowing far greater certainty and ease of managing control of the SMSF as compared to individual trusteeship.

8. Control strategies
As a company acting as the trustee of an SMSF need only ensure all members are directors, there are a number of strategies available to otherwise regulate management and control of the company (and in turn the SMSF).

For example, there is complete autonomy on who the shareholders of the company are and how shareholder decisions are to be made.

The rights of the shares on issue can also be tailored to (for example) automatically end on the owners death or incapacity, ensuring control passes seamlessly and without the prospect of challenge under an estate plan.

9. Maximum numbers of trustees
The maximum number of individual trustees at law is 4.

For SMSFs considering larger numbers of members following the 2018 Federal Budget announcement of allowing 6 member funds they will need to have a company as trustee, as there are no similar limitations on the number of directors of a trustee company.

** for the trainspotters, name check to Hot Chocolate and their song 'Every 1s a Winner'.

View here:

Tuesday, February 4, 2020

Frozen (body) warnings** and disposal - getting into the detail

View Legal blogpost 'Frozen (body) warnings** and disposal - getting into the detail' by Matthew Burgess

One of the estate planning war stories we have shared regularly over the years involves how we assisted a man who was wanting to be cryogenically preserved for 350 years and the complex estate planning issues that arose.

One example of the type of issue to be considered - how do testamentary trusts assist when they can generally only last 80 years from the date of death (Answer: use an inter-vivos trust established under South Australian law, as there is no perpetuity period there).

One of the few reported decisions in this area is the UK case of Re JS (Disposal of Body) [2016] EWHC 2859 (Fam). As usual, if you would like a copy of the case please contact me - although please note the factual matrix is a particularly sad one involving a terminally ill young lady aged 14.

In granting the child's wish to undergo cryonic preservation, the court made a number of relevant comments in relation to body disposal, including:
  1. A dead body is not property and therefore cannot be disposed of by will.
  2. The legal personal representative of the deceased has the right to possession of (but no property in) the body and the duty to arrange for its proper disposal.
  3. While the concept of 'proper disposal' is not defined, it is clear that customs change over time.
  4. Under English law, there is no right to dictate the treatment of one's body after death - regardless of testamentary capacity or religion.
  5. While the wishes of the deceased are relevant (and perhaps highly so), they are not determinative and cannot bind third parties nor the court.
  6. Ultimately, the role of the court is not to give directions for the disposal of the body but to resolve disagreement about who may make the arrangements.
** for the trainspotters, the title here is riffed from a John Cale song, first recorded by Nico, namely ‘Frozen Warnings’. 

View here:

Tuesday, January 28, 2020

What are the 3 layers of asset protection (assuming you cannot have 1,000s of layers)**?

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.

Asset protection can be described as a 3-legged stool for want of a better phrase. At the top of that stool, the absolute best layer of protection, and often you will hear specialists in the asset protection space talk about building firewalls.

The very best one is actually best practice. The easiest way to ensure that a person is not going to be exposed from an asset protection perspective is to make sure they don’t ever do anything wrong. Now I know that’s a really easy thing to say and really easy to write up on the whiteboard.

A lot more difficult to deal with in today’s environment particularly where if you look at the per capita numbers, the three most litigious areas in the world are California in the US, which is probably not too surprising, New South Wales and Queensland in that order. But it means that even if we are trying our level best to deliver on that best practice principle, there is every chance that something will go wrong at some point in time.

What are the other two components of this three-legged stool? The next one obviously is making sure you’ve got appropriate insurance in place.

If you’ve got a situation where you haven’t delivered on best practice for whatever reason, it might be a team member or employee, it could be in a moment of time where you weren’t quite across the issues you need to be across. The insurance doesn’t deliver.

The insurance I put an asterisk against, because the reality is that the insurance companies that are around still today aren't there because they pay out. They are around because they specialise in not paying out.

The third leg of the stool then is this: it all comes down to your structure.

As always thanks to the Television Education Network for the video content here.

** for the trainspotters, the title here is riffed from a Paul McCartney tune ‘House of Wax’.

View here:

Wednesday, January 15, 2020

View's Adviser Facilitated Estate Planning Platform 2020

View’s online estate planning platform is in a constant state of beta testing aimed at providing advisers (and their customers) the best possible solution. From 6 January 2020, View accredited advisers have three ways to lodge instructions:
  • via View’s webpage here; or
  • emailing a completed word based instruction form to solutions@viewlegal.com.au, or;
  • submitting a Free Review (yes, it is free) via View’s diagnostic tool here
Here are some of the links regular users have found most useful:
If you are unsure which estate planning package is right for your customer, we recommend you submit a Free Review.

To learn more about how the View Legal platform can help you to seamlessly deliver estate planning solutions for your customers, here is a 10 minute video.

Based on feedback from leading compliance specialists, any adviser wanting to utilise the View Legal Estate Planning platform must be accredited by View Legal as an Estate Planning Specialist Adviser.

There are three steps to achieving accreditation:
  1. Join the AdVIEWser community (in the ‘Friend’, ‘BFF’, or ‘Family’ categories) here, and;
  2. Complete the accreditation exam within 30 days of joining AdVIEWser, and;
  3. Complete at least five hours of self assessed continuing estate planning education with View Legal every 12 months (attending customer online meetings, View webinars and AdVIEWser Facebook lives all count towards the five hours).
Some FAQs are here.