Tuesday, May 31, 2022

(my) spouse** and the family trust

Previous posts have looked at various aspects of what a 'spouse' is, particularly for family law purposes.

Often, however a definition of a spouse under a discretionary trust deed is crafted in a way that is materially narrower than what might otherwise be the case for either family law or tax law purposes.

In particular, if a wide definition is adopted under a trust deed, it can potentially mean that even short term de facto spouses may have some rights as a beneficiary of the trust, particularly in relation to a trustee's obligation to provide an account to beneficiaries of their administration of trust assets.

Where a narrow definition under a trust deed is adopted, there would normally still be the ability for the trustee or appointor to nominate people who do not otherwise satisfy the definition of spouse under the deed, by way of a specific process on a case by case basis.

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 Blues Brothers song ‘Groove me’.

View hear (sic):

Tuesday, May 24, 2022

Hey!** It’s part III of the Ioppolo decision

Las week’s post looked at the original Ioppolo decision.

This post considers the subsequent appeal decision in Ioppolo & Hursford v Conti [2015] WASCA 45.

In broad terms, the appeal decision confirmed the original case, in particular:
  1. It was confirmed that section 17A(3)(a) of the Superannuation (Industry) Supervision Act 1993 (SIS Act) does not obligate the trustee of an SMSF to appoint the legal personal representative of a member following that member’s death.
  2. In other words, section 17A(3)(a) is a ‘permissive rather than mandatory' provision.
  3. This meant that the surviving trustee was within their rights to appoint a corporate trustee (of which he was the sole director) and still comply with the SIS Act.
  4. It was further confirmed that as the appointment took place within 6 months of the member’s death, then the fund was still complying for SIS Act purposes.
  5. In also confirming that there was no lack of bona fides in the trustee’s decision, the court expressly commented that the subsequent signing by the deceased of a binding nomination (in favour of her husband) meant that it was reasonable to assume that the earlier made comments in her will (requesting that the death benefit pass to her children) had been superseded.
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 Pixies song ‘Hey’.

View hear (sic):

Tuesday, May 17, 2022

(Nothing) challenging** a trustee's decision

Previous posts have considered the key aspects of the Ioppolo decision.

One aspect of the decision, which is potentially very relevant for advisers and clients alike, relates to the plaintiff's argument that the trustee (being effectively the surviving husband) had not exercised his discretion in paying the entirety of his deceased wife's death benefit to himself in a 'bona fide' (or in good faith) manner, and therefore, should have been forced to repay the benefit to the fund.

In addressing this issue, the court specifically commented as follows:
  1. The husband had sought specialist advice in relation to his rights and obligations as the trustee;
  2. The husband deliberately waived his right to confidentiality (or privilege) in relation to this advice;
  3. The court on reviewing the advice agreed with the conclusion given, that being that the husband was able to make the payment to himself;
  4. Where a trustee is acting on advice of a specialist, it will be generally very difficult to successfully argue that the trustee lacked good faith in making a decision;
  5. Even whereas here, there was a provision of the deceased’s will that contradicted the decision ultimately made by the husband, this of itself did not automatically mean that the husband was acting without good faith, particularly when there was no other evidence to support the allegation; and
  6. Ultimately, a court will only review the way in which the discretion of a trustee is exercised in very limited circumstances.
Next week’s post will provide commentary on the outcome of an appeal of the original decision.

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 James song ‘Ring the bells’.

View hear (sic):

Tuesday, May 10, 2022

Sometimes** the Family Court will allow access to trust documents

The case of Schweitzer & Schweitzer [2012] FamCA 445 considers the disclosure of documents claimed by one spouse to be in the possession, or under control, of the other.

The specific facts of this case were that the husband was a director of two corporate trustees, but not the sole director. In one corporate trustee, the husband's father was the other director. In the other corporate trustee, the husband's father and mother were the other directors.

While the husband was not a shareholder of either of the trustee companies, however he was a discretionary beneficiary of both trusts.

The appointor of both trusts was the husband's father.

The wife applied to the court asking that the husband disclose the financial statements, tax returns, bank statements and the minutes of meeting relating to trust distributions by the corporate trustees.

The wife’s request was rejected on the grounds that the husband had a fiduciary obligation in relation to the holding and use of trust and corporate trustee documents.

The court also held that the documents were not under the husband’s ‘control‘ for the purpose of the Family Court rules. The decision confirms that directors of corporate trustees have no right to 'possession' or 'control', but only to 'access' trust documents and that such access must be used strictly for the trust or company purposes.

The documents might have been accessible if the wife was able to join the corporate trustees as parties to the proceedings, although this was not necessarily something the court would approve; and even if they were joined, disclosure of the documents would still be subject to the court’s discretion.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, ‘Sometimes’ is a song by Badfinger.

Listen hear (sic):

Tuesday, May 3, 2022

Tax law v Property law – as stark as the difference between Wit and Chu**

Many previous View posts can be filed under the heading ‘trust horror stories’ – and indeed every year we run seminars solely on this topic (with entirely new content each year).

Recently we were reminded of a Tax Office private ruling (being Authorisation Number 1012450031835) that was a horror story, at least with reference to the interplay between the property law regime and tax law.

Briefly the factual matrix was as follows:
  1. A firm (presumably a law firm) prepared and supplied four copies of the trust deed to the settlor of the trust.
  2. The settlor paid the settlement sum to the trustee and it was banked in the trust bank account.
  3. The accountant involved provided the four unsigned copies of the trust deed to the trustee for signing.
  4. The trustee executed all four copies of the deed and returned them to the settlor for signing.
  5. The accountant held the trust deeds in safe keeping for a few years and then returned three copies of the trust deed to the trustee. On receipt, the trustee discovered that the settlor had not signed any of these three copies of the trust deed.
  6. The sole signed copy was retained by the accountant and not returned to the trustee. However on that document, the settlor had signed in the witness space, and the signature was not witnessed.
  7. A Deed of Confirmation was drafted to show that a trust was created and the parties intended to create the trust, however while the trustee and beneficiaries were willing to sign this document, the settlor refused.
The Tax Office confirmed:
  1. The trust deed was invalid under the Property Law Act 1974 (Qld) due to the failure of the settlor to validly sign the document.
  2. This said, the 4 key elements of a trust (being a trustee, trust property, beneficiaries and obligations on the trustee) were all present.
  3. That is, as explained in Harmer v FCT (1989) 20 ATR 1461, a trust is the relationship which arises wherever a person called the trustee is compelled in equity to hold property, whether real or personal, and whether by legal or equitable title, for the benefit of some persons or for some object permitted by law, in such a way that the real benefit of the property accrues, not to the trustee, but to the beneficiary or other object of the trust.
  4. Unlike under the Property Law Act which requires trusts in relation to real property to be documented in writing, a formal trust deed is not a specific requirement under tax legislation, so long as there is a clear intention - which there was here.
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 song by Queens of the Stone Age and ‘Make it Wit Chu’.

View here: