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'.

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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’. 

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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’.

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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.