Tuesday, June 21, 2022

Do beneficiaries need to believe in love** when concerned about trustee distributions?


Many previous posts have considered the overriding duty of trustees of trusts - and the fact that a trustee must exercise its discretion in good faith, upon real and genuine consideration and for a proper purpose.

Again with 30 June rapidly approaching, the decision in Callus v KB Investments - [2020] VCC 135 provides a useful example of the approach the courts will take in this area.

Relevantly the factual matrix involved:
  1. A family trust set up by the parents of the family (on apparently standard terms);
  2. Over time, all adult children benefited in various ways from the assets of the trust;
  3. Some years after the trust was established, a new trustee company was appointed, with one of the adult sons the sole director of the company;
  4. Around 3 years later the trust distributed one of the properties of the trust to the sole director in his personal name;
  5. On discovering the transfer some years later, a sister brought proceedings to unwind the transaction and have the trustee replaced.
In letting the transfer stand, however also removing the trustee, the court confirmed:
  1. While the trustee did not give any reasons for its decision to transfer the asset, it was not required to under the trust deed.
  2. In any event, no record was provided of the decision – and even if there had been a document disclosing the reasons produced, the trust deed provided that the trustee was not bound to disclose any document setting out any reasons for any particular exercise of the trustee’s power.
  3. The trustee was entitled to transfer the property to the son under the terms of the trust deed, which provided that the trustee may in its absolute discretion transfer any property ‘to any beneficiary for his own use and benefit in such manner as it shall think fit’ - with specific provision also confirming the trustee did not have any obligation ‘to consider competing claims of beneficiaries’.
  4. The trustee also had no obligation to tell other potential beneficiaries of the trust of the transfer.
  5. In contrast, due to the clear hostility between the son and one of his sisters (their relationship had deteriorated significantly following the transfer) the court was of the view that the trustee should be replaced, applying the rules explored in many previous posts centred on the test that 'the only guide is the welfare of the beneficiaries, and a trustee may be removed if the court is satisfied that its continuance in office would be detrimental to their interests'.
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 Human League song 'Love Action (I believe in love)'.

View here:

Tuesday, June 14, 2022

The Mirror (man)** test - trustee powers of investment


Previous posts have considered various aspects of a trustee's powers.

Given another 30 June is on the horizon, it is timely to remember that the scope of a trustee's powers is often limited when relying on the provisions of the state based legislation in the area - reinforcing the preference to have comprehensive powers set out under the trust deed wherever possible.

The decision in G v G (No. 2) - [2020] NSWSC 818 is a useful point of reference in this regard.

The case involved the powers of a trustee of a protected estate (where the underlying sole beneficiary had lost capacity to manage their own affairs). As there was no trust deed regulating the trust, the relevant trusts act applied.

The key question in contention was whether the trustee had the power to invest assets of the trust in a retail superannuation fund (as opposed to a self managed superannuation fund).

The reason for the proceedings being the view that a payment by a trustee (which it was argued that by analogy, included a protected estate manager) into a superannuation fund is not an 'investment' of trust property by the trustee.

This was said to be because, by the payment into the fund, the trustee divests itself of trust property, loses control of that property and puts the property beyond the protective control of the court, albeit that, as a member of the fund, but without a property interest in the fund, the beneficiary (not the trustee) obtains a right to future benefits.

Furthermore, the trustee had arranged a binding death benefit nomination in favour of the legal personal representative of the estate of the beneficiary.

The court confirmed:
  1. The trustee had the power under the relevant legislation to invest, or to authorise a private manager to invest, a protected estate into membership of a Regulated Superannuation Fund (although perhaps not a self managed superannuation fund, without deciding that issue).
  2. This was at least in part because a protected estate manager stands in the shoes of the protected person and is the substitute decision maker. A protected estate manager does not hold property for the benefit of the protected person. Rather the protected estate manager controls the property which always remains in the name of the protected person.
  3. There was however no power under the legislation for the making of a binding, or indeed any other form of nomination, for the payment of a death benefit payable by the trustee of a superannuation fund.
  4. This was despite the fact that the court acknowledged that the prevailing view in Australia is that a binding death benefit nomination is not a testamentary act either because it is merely the exercise of a contractual right or the rules of the fund pursuant to which the nomination is given to the trustee confer a discretion on the trustee as to the identity of the person, or persons, to whom the benefit is to be paid.
  5. Rather it was held that the management of an estate terminates on the death of the protected person and therefore the manager's power to make a decision about what happens to the protected person's funds after their death cannot be valid.
  6. Thus, here, the proper course of action in relation to the nomination was there to be a separate court application authorising the effective making of a gift out of the estate of a protected person, and (perhaps) also an application for a statutory will (another topic considered regularly in View posts).
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 Human League song 'Mirror Man'.

View here:

Tuesday, June 7, 2022

(Platinum) pension** planning


In the lead up to (another) 30 June, it is worth remembering that up until the early 2000s, there were a number of planning opportunities available in relation to maximising accessibility to pension payments.

Due to perceived abuses of the system, the government and Tax Office developed extremely comprehensive anti-avoidance provisions.

While some felt that the extent of the crack down was an over reaction, by and large, all of the historical strategies were permanently removed.

While there are some, comparatively minor, planning opportunities still available, none of these can be implemented within any narrow timeframes.

In other words, for example, there is the ability to gift assets to family members or structures such as trusts, however these transfers must take place many years before access to the pension is intended.

There are specialist advisers that continue to assist in the area.

Perhaps, counter intuitively, department and government advisers are however often the best starting point to get a full understanding of the rules as they apply in any particular set of circumstances.

** for the trainspotters, the title today is riffed from the Beck song ‘Broken Train’.

Listen hear (sic):