Like many areas of the law, the ability for a disgruntled beneficiary to challenge the provisions of an estate plan depends on a range of factors, not least of which the state where the willmaker lived.
This is because each Australian jurisdiction continues to have unique rules in relation to succession legislation, and in particular, the rules that regulate the ability for eligible beneficiaries to make an application for further provision.
What is consistent in each jurisdiction is that there are rules regulating the category of persons who have standing to bring an application.
One stark example in this regard relates to the ability for stepchildren to challenge a deceased estate.
In broad terms, there are three different regimes that apply.
In summary, these are as follows:
if the stepchild is wholly or partly dependent on their step parent prior to the date of death, then in South Australia, Western Australia, Australian Capital Territory, New South Wales and the Northern Territory, the stepchild may have standing;
if a moral responsibility can be demonstrated, then in Victoria a stepchild may have standing; and
so long as the natural parent and the step parent are married at the date of death, then the stepchild would automatically have standing in Queensland.
In Tasmania, stepchildren have no ability to challenge their step parent’s estate.
** For the trainspotters, the title of today's post is riffed from the Go Betweens song ‘Was there anything I could do’. View here:
While strictly a case that was focused on a tax issue (and the ability to access trading losses), the decision in the AAT case Executor for the late Joan E Osborne and Commissioner of Taxation [2014] AATA 128 also provides useful guidance in relation to a related estate planning issue.
In summary:
The donor under a power of attorney appointed her niece and nephew to manage a share portfolio.
All evidence suggested that the donor treated the portfolio as a capital investment.
Over time, the attorneys grew the share portfolio significantly, partly by leveraging the shares through a margin loan.
At all times during the profit years, the portfolio was treated for tax purposes as a capital asset (i.e. reflecting the donor’s original intention).
When however significant losses were incurred, the attorneys sought to argue that they had been conducting share trading activities and therefore the losses should not be quarantined to only being able to be offset against capital gains.
In denying access to the revenue losses, the AAT confirmed that it was always extremely relevant to consider the actual intention of the donor regardless of whatever intentions the attorneys may personally hold.
As usual, please contact me if you would like access to any of the content mentioned in this post.
** For the trainspotters, the title of today's post is riffed from the Death Cab for Cutie song ‘Styrofoam plates’. View here:
There have been a number of high profile cases in relation to the enforceability of binding financial agreements or ‘prenups’.
Anecdotally, a number of specialist family law firms now refuse to advise on these types of agreements and the case of Parkes [2014] FCCA 102 provides another example of a situation where a binding financial agreement was held to be invalid.
The key factors in the case here were as follows:
The couple had been in a relationship for around six years, and engaged to be married for almost a year.
The husband raised the idea of a prenup three days before the wedding and provided the spouse with a full agreement and the warning that if she did not sign it ‘the wedding was off’.
The wife claimed that she signed it within 24 hours on the basis that she felt she had no other choice, given the investment that had been made by the two of them and the significant number of guests invited to the wedding.
The court analysed the relationship between the parties and said that the husband had a special duty because of the unequal bargaining position and influence that he had over his wife.
Due to this aspect of their relationship, the husband owed a greater duty to the wife to give her sufficient time and space to consider her position. As this had not been done, the agreement was held to be invalid.
As usual, please contact me if you would like access to any of the content mentioned in this post.
** For the trainspotters, the title of today's post is riffed from the Janes Addiction song ‘Three days’. View here:
Last week’s post considered the amalgamation of 2 testamentary trusts ‘post death’.
A further related issue is where a sole individual beneficiary also becomes the sole individual trustee.
Previous posts have explained how section 104-10 of the Tax Act provides that the change of a trustee is not a CGT event of itself.
There is however in these circumstances effectively a merger of the legal and beneficial interest.
Ford and Lee on Trusts confirms this outcome as follows:
‘’Where legal ownership of trust property passes to a person who is absolutely entitled as beneficiary to the beneficial ownership, the beneficial ownership is extinguished in the legal ownership: Selby v Alston 30 ER 1042; (1797) 3 Ves Jun 339; 341; Re Douglas; Wood v Douglas (1884) 28 Ch D 327; Fung Ping Shan v Tong Shun [1918] AC 403 at 411….
The true reason for extinguishment of the beneficiary’s equitable interest is not merger but the impossibility of a supposed sole trustee being subject to any obligation to himself or herself as a sole beneficiary. This is recognised in judicial dicta which treat merger as a consequence of the absence of an obligation. See, for example, Re Turkington [1937] 4 All ER 501 at 504 where Luxmoore J said:
“…where one finds the legal and equitable estate equally and co-extensively united in the same person or entity, the equitable interest merges in the legal interest, on the footing that a person cannot be a trustee for himself’’.”
While arguably complex, the CGT consequences of the merger depend on whether the sole beneficiary was absolutely entitled at all relevant times. If the answer is yes, then there should be no CGT triggered.
Another example of this trust law rule is under the superannuation laws which prohibit self managed funds having a sole individual trustee and sole member.
As usual, please contact me if you would like access to any of the content mentioned in this post.
** For the trainspotters, the title of today's post is riffed from the Church song ‘Destination’. Listen here:
Last week’s post considered the amalgamation of 2 testamentary trusts ‘post death’ and a Tax Office ruling.
Following that previous ruling there have been more detailed private binding rulings issued by the Tax Office, including Authorisation Number 1013038270642.
The ruling particularly focuses on arguably the leading decision in relation to testamentary trusts and excepted trust income, namely - In Re Trustee of the Estate of the Late AW Furse; A/C Jessica N Delaney and A/C Skye Nea Delaney) v the Commissioner of Taxation [1990] FCA 470 (Furse), which has featured in previous posts.
The ruling confirms that, in a sentence, Furse is authority for the conclusion that provided a testamentary trust meets the requirements of subsection 102AG(2) of the Tax Act (which sets out the requirements to access the concessional taxation regime), income from the trust will be excepted trust income regardless of what other factors are present.
In the ruling here, although one testamentary trust was intending to transfer assets to another, it was confirmed that there were no non-arm’s length dealings in relation to the derivation of trust income. This meant that the anti-avoidance provisions in subsection 102AG(3) would not apply.
In particular, subsection 102AG(3) limits access to the excepted trust income regime where the parties -
‘were not dealing with each other at arm's length in relation to the derivation, or in relation to the act or transaction, (such that) the excepted trust income is only so much (if any) of that income as would have been derived if they had been dealing with each other at arm's length in relation to the derivation, or in relation to the act or transaction.’
The further anti-avoidance provision under subsection 102AG(4) that operates to exclude assessable income derived by a trustee under or as a result of an agreement that was entered into or carried out by a person for the purpose of securing excepted trust income was also held to be irrelevant.
Although all income received from the ‘merged’ testamentary trust would be treated as excepted trust income, the Tax Office confirmed that there was no agreement entered into for the purpose of securing that assessable income as excepted trust income.
Rather it was agreed that the true purpose was to reduce administration and yearly compliance costs.
Furthermore it was noted that if the taxpayer did not enter into the arrangement of merging the two trusts, the trust income from both trusts would be excepted trust income in any event.
In other words, there was no additional tax benefit resulting from the merger, the only substantive benefit was the saving of administration and compliance costs.
As usual, please contact me if you would like access to any of the content mentioned in this post.
** for the trainspotters, the title today is riffed from the J Mascis (of Dinosaur Jnr fame) song ‘And then’. Listen hear (sic):
