Always learning … Latest lesson: ‘Last Christmas’ ** by Wham is a break up song … Final Post for 2023 and Season's Greetings

With the annual leave season starting in earnest over the next couple of weeks and many advisers taking either extended leave or alternatively taking the opportunity to catch up on things not progressed during the calendar year, last week’s post will be the final one until early 2024.

Similarly, the social media contributions by both the View and Matthew will also largely take a hiatus until the New Year as from today.

Thank you to all of those advisers who have read, and particularly those that have taken the time to provide feedback in relation to posts.

Additional thanks also to those who have purchased the ‘Inside Stories – the consolidated book of posts’ (see - https://viewlegal.com.au/product/inside-stories-reference-guide/).

The 2023 edition of this book, containing all posts over the last year, edited to ensure every post is current, indexed and organised into chapters for each key area should be available early in 2024.

Very best wishes for Christmas and the New Year period.

** for the trainspotters, ‘Last Christmas’ (riffed for the title of today’s post) is the Wham! hit from 1986, watch the quintessential 1980s video clip here:


PS: & recently I learnt why my first ever girlfriend broke up with me in grade 5 at about this time of the year back in 1986 … at the time I had just spent weeks of pocket money on a 7 inch single (you can google what this is …) by her favourite band Wham and the aforementioned single …

not stopping to listen to the lyrics focused on the withdrawing of the giving of true love … she broke up with me the very next day …

when sharing the breakup story with my daughters recently and musing how I never understood why she ‘dropped’ me they quickly pointed out the stupidity of my choice of gift. Samantha Curran of Flynn Primary School Canberra (who I have not seen or spoken with since that day in December 1986) – I am sorry.

Why every will contains a testamentary trust (Not calling anyone a liar**)

While the popularity of comprehensive testamentary trusts has continued to grow significantly in recent years, strictly every valid will does contain a form of testamentary trust.

While the popular usage of the term 'testamentary trust' refers to a comprehensive discretionary trust embedded into a will instrument, testamentary trusts can refer to any arrangement set out under a will where the intended beneficiaries are not absolutely and immediately presently entitled.

The structure lasts only for the length of administration of the estate (ie normally only a few months).

They are not testamentary trusts as normally understood and do not offer any ongoing tax, asset protection or flexibility advantages.

The phrase for the clause establishing this form of ‘trust’ in a will is often along the lines of:

‘As to 50% of my Net Estate, UPON TRUST for my child once they attain the age of 25 years absolutely’

One (perhaps anecdotal) way to determine if a will has a comprehensive testamentary discretionary trust included is to apply ‘the weight test’.

That is, a comprehensive testamentary discretionary trust will usually is around 30 pages in length.

A ‘bare’ testamentary trust will is rarely more than 10 pages, and can often be as short as 2 pages.

Some examples of where basic or 'bare' testamentary trusts exist include:

1. where the beneficiary receives a direct gift that is subject to them attaining a certain age (for example, the clause set out above);
2. where a gift is given to a beneficiary who does not have legal capacity (for example, because they are under the age of 18, or are over the age of 18 and lack mental capacity); and
3. where a specific gift is given to a beneficiary, however the administration process of the estate has not been completed.

In relation to the first two categories, the Tax Office will generally allow the ultimate beneficiary to enjoy access to the excepted trust income provisions.

In relation to the last category however, the Tax Office generally only allows a maximum of 3 years whereby the excepted trust income provisions apply, and practically, we are aware of situations where they in fact only allow a maximum of 12 months.

The Taxation Ruling IT 2622 explains in more detail the Tax Office’s approach.

The case of Walker v Walker [2022] NSWSC 1104 similarly explores many of the key principles in this area - and indeed appears to support a conclusion that the administration process of an estate will be completed, at least for the purposes of present entitlement for tax, at a point in time even earlier than what the Tax Office has historically suggested in the IT.

That is a beneficiary may be held to have a vested and indefeasible interest to the income (and be specifically entitled) far earlier than might otherwise be assumed. Furthermore, executors may have a duty to ensure tax imposts are legitimately minimised by protectively making interim distributions to beneficiaries.

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 Florence and the Machine song 'I’m not calling you a liar’.

Listen here:

Journal** entries

Recent posts have considered various aspects of the leading cases where two parties owe mutual liabilities or obligations, and the ability to set off the liabilities against each other through a book entry.

It is however important to note that generally, journal entries of themselves have no legal effect.

Arguably the leading case in this regard is Manzi v Smith [1975] HCA 35.

The key quote out of this decision is as follows -

‘We were referred to cases in which a payment of money was held to have been made by means of entries in books of account. But in those cases the entries represented the agreement of the appropriate parties….

These decisions, quite clearly, are not authority for the proposition for which they were advanced, namely, that a payment of money was made by the making by the company of a journal entry in the books of account without reference to, or without the agreement of, the persons said to be the recipients of the money. The company's assertions in its books of account did not establish the indebtedness of the appellants or any payment of money in discharge of that indebtedness.’

The Tax Office similarly has confirmed that while book entries record transactions having legal consequences, they do not of themselves constitute transactions. In other words, a unilateral action by one of the parties, such as a mere entry in its books of account, does not change the liabilities between the parties.

This means that in any transaction it is important that there is a valid binding agreement (or agreements) supporting the existence of the arrangements to which any journal entries purportedly relate.

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 Johnny Cash song 'The singing star’s queen'.

View here:

Walking the line** - understanding what does ‘cashed' means

Last week’s post focused on the issue surrounding ensuring an SMSF maintains compliance following the death of a member.

One issue raised following that post related to how the superannuation rules work in the context of the requirement that a member’s benefits must be ‘cashed as soon as practicable’ after the death of a member, which is set out under the Superannuation Industry (Supervision) Regulations at regulation 6.21(1).

In particular, the question is whether a death benefit can be simply transferred to a surviving member’s account by way of journal entry.

In this regard, in most other areas of the law, where two parties owe mutual liabilities or obligations, they can be set off the liabilities against each other through a book entry (see our earlier post in relation to Spargo case).

The Tax Office has confirmed that the principle in Spargo’s case can also apply to SMSFs where there are mutual liabilities between the relevant fund and another party (see ATO ID 2015/2).

The Tax Office has confirmed in ATO ID 2015/3 however that a death benefit cannot be satisfied simply by way of journal entry, as death benefit dependants do not owe anything to the fund, that is there is no mutual liability to set off against the SMSF.

Therefore, death benefits must actually be paid to the death benefit dependant by the transfer of ownership of assets out of the SMSF.

The Tax Office also confirms that the Superannuation Industry (Supervision) Regulations do not allow for payments to be made to members by way of journal entry.

In particular, regulation 6.17(2) requires payments to be transferred out of the SMSF.

Unfortunately, this requirement for formal payment can in a practical sense trigger unnecessary transaction costs as well as complicating and delaying the death benefit payment process.

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 Johnny Cash song 'I walk the line'.

View here:

Birth, school, work, death** - SMSF trustee compliance on member death

Ensuring an SMSF continues to satisfy the rules in relation trusteeship following a member’s death can be problematic, particularly when specific strategies have not been implemented as part of a comprehensive estate plan.

As is well understood, a complying SMSF must have all individual trustees as members and vice versa.

Where an individual member dies the superannuation legislation allows 6 months for an SMSF to ensure compliance. Often, for funds that are established as 2 member funds, this is achieved via the appointment of a corporate trustee, with the remaining member as the sole director.

The superannuation rules also allow a grace period for non-compliance from the date of death until just before the death benefits commence to be paid, where the legal personal representative (LPR) can act as the replacement trustee.

Most modern SMSF trust deeds reflect the superannuation legislation and have a discretionary provision that automatically appoints the LPR as the trustee on the death of the member.

While there can be confusion about the way the rules work, the conservative position is that the 6 month grace period starts on the death of the member. Therefore, regardless of when the death benefit commences to be paid, the trusteeship must be valid no later than 6 months following the date of a member’s death.

Practically, as set out in earlier posts, these rules further highlight the benefits of having a corporate, as opposed to individual, trustee.

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 Godfathers song 'Birth, School, Work, Death'.

View here:

What is so special ** about 'vested' interests?

Following on from last week's post, a related issue often comes up in the context of how wills are crafted.

In particular, wills often provide that a gift to a beneficiary is subject to the person not having already 'died or dying before attaining a vested interest'.

The decision in Serwin v Dolso [2020] NSWSC 370 explores this phrase in some detail.

In the case the relevant beneficiary survived the willmaker by 30 days (as required under the various state based succession laws) and long enough to receive the distribution of some personal items, but not long enough to receive a physical distribution of the gift anticipated by the will. This was because at the time of the beneficiary's death most aspects of the administration process remained incomplete (for example there were outstanding debts, assets yet to be collected and tax affairs unresolved).

The court confirmed that the words ''attaining a vested interest'' could have one of 3 meanings, namely:

1. that they are tautologous and mean the same as 'if the beneficiary dies before, or does not survive the willmaker';
2. that they mean 'vested in possession'; or
3. that they mean 'before the estate is fully administered and available to be distributed'.

While confirming that the exact provisions of a will are also critical, here the 'vested interest' phrase was held to mean “before the estate is fully administered and available to be distributed”.

In other words, the addition of the words 'vested interest' meant that merely surviving the willmaker was insufficient.

That is, a reference in a will to attaining a vested interest will usually be held to mean something more than merely surviving the willmaker, even if the period of survivorship exceeds 30 days (see Arnott v Kiss [2014] NSWSC 1385 and Kinloch v Manzione [2022] ACTSC 76, a case where CGT Event K3 was also likely triggered, given the relevant beneficiaries appeared to be non-residents for Australian tax purposes).

Furthermore, it was confirmed that, similar to the situation of a beneficiary under a discretionary trust, a residuary beneficiary under a will has no equitable interest in the assets of a deceased estate.

Rather, the only right which a residuary beneficiary has is to compel the due administration of the deceased estate by the executor. The trust created by every will (regardless of whether testamentary trusts are created) is to preserve the assets, to deal properly with them, and to apply them, in the due course of administration, for the benefit of those interested.

Relevantly, the Tax Office adopts a similar approach, and generally only allows a maximum of 3 years for the administration of an estate to remain in place (during which time the concessional excepted trust income provisions can apply).

As explained in other View posts however, we are aware of situations where the Tax Office only allow a maximum of 12 months to administer an estate.

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 Garbage song 'Special'.

View here:

The fine line (& time)** between being entitled … and not

An often over looked aspect of estate planning related to the payment of death benefits from a superannuation fund.

While with a gift under a will a beneficiary who dies after the willmaker, but before the distribution is made, will still (through their own estate) be entitled, this generally is not the case with superannuation benefits.

Arguably the leading case in this area is Webb v Teeling [2009] FCA 1094.

In summary the factual scenario was as follows -

1. a member of a super fund had passed away, validly nominating a dependant to receive the death benefit;
2. the dependant was alive at the time of the member’s death;
3. the dependant however subsequently died before the death benefit was paid and their legal personal representative (LPR) sort payment to the originally nominated beneficiary's estate.

It was held that the death benefit could not be paid to the LPR of the deceased dependant because they were neither:

1. a dependant of the deceased member; or
2. the deceased member’s LPR.

With the aid of hindsight, the workaround in similar situations is to ensure that if the nominated beneficiary dies before the death benefit is paid, the funds should pass (ideally under a binding nomination) to the LPR of the member.

The member's will should then direct the amount specifically to the intended recipients and can do so without restriction as the superannuation rules will have been complied with by the initial payment to the member's LPR.

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

** for the trainspotters, ‘Fine Time’ is a song from New Order.

View hear (sic):

Just because there's knocking** for a testamentary trust statutory will doesn't mean the court will answer

Last week’s post considered a leading statutory (or court ordered) will case that approved a will incorporating testamentary trusts.

The decision in a further case in this area, namely Re RD [2021] QSC 65, highlights however that much will turn on the exact factual matrix as to whether a proposed testamentary trust will is approved by a court.

Relevantly in this case the court had to decide between 2 radically different draft wills submitted, one with 5 testamentary trusts, and the other with none (and all gifts passing directly into the names of the intended beneficiaries). Relevantly, the percentage allocations between each main beneficiary were identical under both 2 wills.

The lawyer proposing the testamentary trust will argued that “a properly advised person in possession of a substantial trust fund, would be concerned to ensure that the substantial inheritance they leave be held in a protected testamentary trust structure for the protection of their chosen beneficiaries”, which would include “asset protection from third parties such as other spouses, or from other sources, whether during the beneficiary’s lifetime, or after their death, if they have already inherited”.

In contrast the lawyer proposing the simple will provided the following context which the court accepted:

1. The main beneficiaries under the wills all argued that they did not believe the incapacitated person would want to have 'tied up' the wealth in a testamentary trust with no fixed entitlement.
2. As the proposed testamentary trusts were wholly discretionary, any benefit that would flow to the intended beneficiaries would be “merely an expectation or hope” (see Bowers v Bowers [2020] NSWSC 109).
3. The potential beneficiaries of the testamentary trusts were much broader than the immediate family – which was contrary to the comments of the lawyer proposing the testamentary trust will that there was a need to ensure that people who were effectively strangers to the incapacitated person, and who had not contributed in any way to his well-being, should not benefit.
4. Although there may have been some asset protection benefits, the testamentary trust will involved:
1. unnecessary complexity in its administration over the lifetime of the beneficiaries;
2. significant costs being incurred by the estate over the lifetime of the trusts, by reason of the fees incurred by the executor and trustee (Perpetual Trustees), in its management of the trusts over a prolonged period of time;
3. uncertainty as to what the beneficiaries might receive from the estate, given the discretionary nature of the trusts, such that they might not receive any more than some proposed specific pecuniary gifts; and
4. uncertainty as to whether there would be sufficient funds in the estate on death to give effect to the proposed specific pecuniary gifts.
5. Therefore, the complexity, additional cost and uncertainty as to what the beneficiaries might receive under the testamentary trust will proposed outweighed any potential asset protection benefits.
6. The draft testamentary trust will also contained a number of anomalies which would have required amendments by the court.

The court ultimately confirmed:

1. The central issue for the court’s determination in statutory will cases is what will would the incapacitated person probably have made, if they had capacity.
2. The cases where testamentary trust wills have been approved, such as the one mentioned in last week's post (Doughan v Straguszi [2013] QSC 295) were distinguishable both because of the facts involved, and because in each case the approval of a will incorporating testamentary trusts was supported by the likely beneficiaries.
3. It was likely that the incapacitated person here would have (if they had capacity) taken into account and given considerable weight to the views expressed by his mother and his father (who both opposed a testamentary trust will).
4. It was therefore unlikely that a reasonable person with capacity, would favour a convoluted will under which five testamentary trusts are imposed on his favoured beneficiaries, as opposed to a straightforward, simple will, benefiting those family members directly.

Separately, the court also confirmed that the execution of a non-lapsing binding death benefit nomination (BDBN) was an act in relation to a financial matter within the meaning of section 33(2) of the Guardianship and Administration Act 2000 (Qld) (see another case explored in previous posts, namely Re SB; Ex parte AC [2020] QSC 139). The incapacitated person's administrator (effectively his enduring attorney) was therefore able to sign the BDBN on his behalf.

The signing of such a BDBN was critical because the bulk of the incapacitated person's assets were held via superannuation and therefore to achieve the estate planning objectives 100% of his superannuation death benefits needed to be paid to his legal personal representative (to then be dealt with in accordance with the statutory will).

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 Rolling Stones song ‘Can't you hear me knocking?'.

View here:

Another (brick in the wall)** - or statutory will case (as the case may be)

Recent posts have looked at various aspects of the statutory (or court ordered) will regime.

Doughan v Straguszi [2013] QSC 295 provides another example of how the courts approach these provisions.

In summary:

1. A will maker had lost capacity leaving a will that did not deal with a number of assets and indeed was inaccurate in relation to one of the main assets, being the family farm.
2. The will maker’s son was involved in litigation that had some prospect of ultimately resulting in his bankruptcy.
3. The proposed court ordered will created testamentary trusts, primarily to benefit the will maker’s daughter and grandchildren.

In approving the will, despite the clear financial difficulties of the son, the court confirmed the following factors, were critical:

1. There was significant evidence to show the longstanding connection of the family with the farming property.
2. There was no doubt, based on the evidence, that the will maker wanted the property to stay in her family line for future generations.
3. There was no evidence to suggest that the use of the testamentary trusts to benefit the daughter and grandchildren was a mechanism to simply shelter the wealth for the ultimate benefit of the son, once his financial difficulties had been resolved. This was an important distinction compared to other cases where applications for a statutory will incorporating testamentary trusts were rejected on the basis that they were simply designed to provide de facto control of wealth to a beneficiary who is otherwise facing bankruptcy.
4. In other words, here, the intention was not to defeat the son’s creditors, rather it was to ensure that the substantive assets of the family were held in an appropriate structure for the benefit of future generations.
5. The fact that there were also errors and unnecessary complications with the pre-existing will was also seen as important.
6. Ultimately, the court was in no doubt that the will being proposed was precisely what the will maker would have done had she still had the capacity to do so.

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 Pink Floyd song 'Another brick in the wall'.

View here:

Easy** - Court criteria for statutory wills

Last week’s post provided a summary of the key evidentiary issues in relation to any application for a court ordered will.

Even if each of the issues flagged last week can be adequately addressed, the court still retains complete discretion as to whether it will approve an application.

The key issues that a court must be satisfied about before allowing a statutory will to be created are as follows:

1. anyone who may have a potential interest in the estate must have the opportunity to address the court;
2. the person applying for the court ordered will must be deemed by the court to be the most appropriate person; and
3. the court must be satisfied that it is appropriate in all the circumstances to approve the will. This invariably means that the court must be satisfied that the proposed will is reflective of what the will maker would have made if they had the required capacity.

In the context of the above, the decision in the (arguably aptly named) case of Wills v NSW Trustee [2022] NSWSC 1098 is relevant.

The main asset in this case was a property at North Bondi, valued at more than $7M. The sole owner had lost capacity and had no relatives and no will; meaning on death her estate would pass to the State Government under the intestacy rules.

A neighbour at North Bondi (named Wills) brought an application for a statutory or court ordered will for the entire estate to pass to Wills, which was rejected with the court confirming:

1. There was evidence to support the sole owner had a preparedness to die intestate even if that meant that 'the Government' took the benefit of her estate.
2. Furthermore, there was insufficient evidence to support a conclusion that the proposed statutory will was one that was reasonably likely to have been made, if the sole owner were to have had capacity (see GAU v GAV [2016] 1 Qd R 1 and Re K’s Statutory Will (2017) 96 NSWLR 69).
3. An informal will (a concept explored in other View posts) produced by Wills (that gave the entire estate to her) did not assist the court in the application for a statutory will, particularly given that it was prepared and signed in circumstances sufficiently 'suspicious' to require proof that the sole owner 'knew and approved' the contents of it. A point reinforced by the fact that Wills was the sole owner's guardian and provided care and assistance and therefore owed fiduciary duties.
4. Ultimately, Wills' application for a court ordered will was not in any material way for the benefit, and in the interests, of the sole owner. Rather it was an attempt to legitimise the informal will; with the veracity of that document held by the court to be best tested following the death of the sole owner, assuming a court application was then made for the informal will to be admitted to probate.

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 Hunters and Collectors song 'Easy'.

View here:

Dear Judge: Do you see what I see** - how to get a statutory will

In some circumstances, a person who does not have testamentary capacity can have a court make a will for them.

Before embarking on a court application, there are a number of issues that need to be addressed including:

1. confirmation that the will maker lacks the required capacity;
2. a complete summary of the reasons for the application, together with details of all wealth of the will maker;
3. a comprehensive draft of the intended court ordered will;
4. details of any previous estate planning exercises the will maker was involved in, together with evidence about their intentions historically and what their probable intentions would be currently (but for the fact that they lack capacity); and
5. all details of the wider factual matrix, including whether there is any realistic prospect that someone may look to challenge the deceased estate.

Assuming all of the above issues can be addressed, the court will only approve an application in relatively limited circumstances.

Next week’s post will list out the exact steps the court applies in this regard.

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 Hunters and Collectors song 'Do you see what I see?'.

View here:

Who should be appointed as an executor - Better the Devil you know(?)**

Previous posts have considered some of the key questions to ask in any estate planning situation - the following View articles also set out some of the key issues to be aware of:

https://viewlegal.zendesk.com/hc/en-au/articles/360036531992-What-is-an-executor-

https://viewlegal.zendesk.com/hc/en-au/articles/360036532092-Testamentary-trusts-overview

Generally it is critical to ensure the choice of executor is very carefully considered.

At a threshold level, an executor should be someone the willmaker trusts implicitly.

Other key attributes to consider can include:

1. Financial literacy and acumen;
2. Emotional strength;
3. Likely ability to perform the role in the worst of circumstances;
4. Age and health;
5. Previous experience;
6. Knowledge of and strength of relationship with beneficiaries;
7. Knowledge of and strength of relationship with other executors;
8. Residency;
9. Expectations in relation to payment;
10. Overall willingness to act.

The executor of the will is also known as the trustee. While the trustee of the testamentary trust is often the same as the executor, it can however be someone different.

Generally there can be up to 4 executors appointed at any one time. Particularly if only one executor is appointed initially, having at least one back up is generally advisable.

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 Kylie Minogue song 'Better the devil you know'.

View here:

When is the right time** to get structuring of business assets right?

Last week, we had a client wanting to revisit their business structure, and in particular, the decision to run all aspects of the business via the one legal entity (in this instance a company).

The particular issue of focus was in relation to the risks that attach to certain items of plant and equipment that, in a worst case scenario, could cause serious injury (or death) to employees.

The same items of plant and equipment were owned by the entity that held the goodwill of the business as well as other real property assets.

While there were a myriad of issues that needed to be addressed, at a basic level, we explored the movement of the items of plant out of the existing company into a 'standalone' special purpose vehicle (‘SPV’) that would house the plant and equipment. The SPV would then lease the plant and equipment back to the operating entity - and thereby comply with the rules of ‘domino theory’ (as explored in previous View posts).

The work involved in achieving this part of the restructure was not significant and given that in the circumstances it could be done without any tax or stamp duty consequences, the customer saw it as a sensible step to implement immediately.

While the exact stamp duty and tax outcomes will depend on the circumstances, it is worth keeping this style of SPV solution in mind as an example that there can be relatively simple restructure ideas implemented without significant time delays or cost investment.

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 Hoodoo Gurus song 'The Right Time'.

View here:

Amending testamentary trusts: a non-zero possibility**?

The ability to amend a testamentary trust after its establishment (and in particular following the death of the will maker) is an area of some contention. Often specialist advisers argue that changing any terms of a will after death is a breach of the rule against delegation of will making powers.

One aspect of the issue that is however very clear is that unless there is a power to vary included in the terms of a testamentary trust, the only way in which to change its terms is by way of a court application.

In all Australian states, there is legislation that empowers the court to vary the terms of a trust. One example of a case in this regard is Robert Thomas Grant as trustee of the Grant Family Testamentary Trust [2013] NSWSC 1603

In this case, a testamentary trust had been setup by the trustee’s late father.

Some years after its establishment, the trustee wanted to obtain finance to make improvements to one of the real properties owned via the trust.

Financiers refused to lend any funds on the basis that the powers of the trustee set out under the testamentary trust did not include a raft of provisions normally expected to be seen in a trust instrument, including the power to lend, the power to open and operate accounts with financial institutions, the power to delegate, the power to borrow and a right of indemnity.

Using a discretion granted to the court in New South Wales to vary a trust instrument where it deems it ‘expedient for the management of the trust’, all the deficiencies identified by financiers were remedied by the court approved variation.

Interestingly, part of the application included a specific power to allow the trustee to unilaterally make future amendments to the terms of the trust. While other cases have refused to include such a power, here the court was comfortable to allow it, on the basis that any amendment would require the consent of all potential beneficiaries. This prohibition was seen as ensuring that the trustee could not do anything to alter the ‘substratum’ of the trust.

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 At the drive in song 'Non-zero possibility’.

Listen here:

Excepted trust income and ‘bare’** trusts

A previous post has considered various aspects of the statement that ‘every will contains a testamentary trust’.

One example of where basic or 'bare' testamentary trusts exists includes where a gift is given to a beneficiary who does not have legal capacity (for example, because they are under the age of 18).

This was the factual matrix in the Tax Office private ruling mentioned in last week’s post, namely 1011602878465.

In particular –

1. The beneficiary had received gifts of money which were invested on their behalf by their parent.
2. The money had been sourced from several places, including money left to the beneficiary from a deceased estate.
3. The money was held in trust by the parent in a bank savings account named '[Parent's name] in trust for [child's name]'.
4. Under the terms of the relevant will, the child received a certain amount, which was to be paid to their parent or guardian to be held for the benefit of the child if the child was under 18.

It was held that the proportion of the interest income earned that would be 'excepted trust income' would be determined with reference to how much of the original amount invested into the bank account was sourced from the deceased estate, as compared to the amount gift from non-estate sources.

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 Cure song 'Bare’.

Listen here:

Get Up** to speed: companies acting as trustees of wills

One issue that comes up regularly is whether a company can act as an executor and trustee of a will.

While there are a number of issues that need to be taken into account, broadly the position is as follows:

1. Individuals must apply for probate of a will, unless an exempted entity (eg the Public Trustee, Perpetual, ANZ Trustees or NAB Trustees etc) is appointed;
2. There are no such prohibitions at law in relation to who may act as trustee of a testamentary trust;
3. We regularly assist in setting up estate plans with a private company acting as the trustee of a testamentary trust; and
4. There are a range of issues that best practice suggests should be taken into account however – we often for example see the failure to take into account the rules under the Corporations Act prohibiting share self ownership, addressed in two previous 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 REM song ‘Get up’.

View here:

 

Trust closedowns**, or vesting (as the case may be)

Following on from last week's post, in the case of winding up the trust due to a lost trust deed, some of the considerations a trustee should generally take into account include:

1. should the trust property be sold with the net proceeds of sale then distributed to the beneficiaries?
2. what level of certainty does the trustee have that they have identified all potential beneficiaries and adequately discharged their obligations to all such beneficiaries?
3. should assets be transferred to beneficiaries as they are (that is as an 'in specie' distribution)?
4. what are the revenue consequences (particularly tax and stamp duty) of each distribution alternative?
5. have all loan accounts and unpaid present entitlements with beneficiaries been satisfied (if known)?
6. which beneficiaries will receive the distributions?
7. have all legal, accounting, tax and statutory requirements of both the trustee and the trust itself been complied with?
8. how will the records (if any) of the trust be stored following vesting?
9. will all beneficiaries indemnify the trustee for the actions taken by the trustee in historically administering the trust and for the wind itself?

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 Cure song 'Closedown’.

View here:

Lost trust** deeds and trust vesting

If a trust deed cannot be found, commercially it can often be the case that the most responsible approach is for the trustee to wind up the trust. Indeed, there may be disgruntled beneficiaries or third parties that essentially force a trustee to adopt this course.

Any vesting of a trust is likely to trigger a range of revenue consequences, particularly taxation and stamp duty.

These revenue consequences normally arise where a positive determination is made by the trustee to vest a trust, the trustee will usually resolve to make one or more beneficiaries absolutely entitled to the assets (or specific assets) of the trust.

While not intended to be an exhaustive list, the revenue related ramifications of a trust vesting can include:

1. capital gains tax being payable on the increase in the value of any assets being transferred since the date they were acquired;
2. income tax being payable on non-capital assets, such as plant and equipment and trading stock;
3. stamp duty being payable on the transfer of the assets, to the extent they comprise dutiable property in the relevant jurisdiction;
4. additional tax, stamp duty and commercial costs being incurred to subsequently transfer the assets out of the name of the recipient beneficiary (if they want the assets then re-routed to a trust environment);
5. asset protection exposure for the beneficiary receiving the assets in the event they subsequently commit an act of bankruptcy;
6. considering the impact of the rule against perpetuities (which effectively prevents a distribution to another trust if this causes the assets to remain within a trust environment for more than 80 years); and
7. where an individual receives the assets, the need to update their estate plan to reflect the additional assets owned in their personal name.

If the vesting of a trust is being anticipated by the parties, many of the consequences above can be adequately managed through appropriate planning.

** For the trainspotters, the title of today's post is riffed from the Cure song 'Trust’.

View here:

Please remember** - one reminder in relation to paying super death benefits

Last week's post considered the fact that in some circumstances a superannuation death benefit may be paid, other than to a member's dependants or legal personal representative (LPR) – which according to superannuation laws are generally the only two possible recipients.

One piece of feedback in relation to this related to how such a payment is permissible given the superannuation rules seem to so clearly mandate that death benefits must be paid to a dependant or LPR.

The reason that a wider class of potential recipients is possible is set out under Superannuation (Industry) Regulation 6.22(3), which states that the relevant conditions are satisfied if:

1. the trustee has not, after making reasonable enquiries, found either an LPR, or a dependant, of the member; and
2. the person in whose favour benefits are cashed is an individual.

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 Cure song 'Treasure'.

View here:

Lost SMSF trust deeds – an (un) kool thing**

As mentioned in recent posts, lost trust deeds can cause significant difficulties for trustees of family trusts.

In the context of SMSFs and other forms of fixed trusts with a narrow range of known beneficiaries (who can be proved via other evidence), a court application for adopting a new trust deed is generally seen as being unlikely to be necessary from a trust law perspective.

However, the federal court decision in Kafataris v DCT [2008] FCA 1454 highlights that even for trusts with an ostensibly narrow range of potential ‘beneficiaries’ care must be taken.

In this case a husband and wife established separate SMSFs appointing themselves as sole members. They declared a property owned by them as property of their respective SMSFs.

In considering who the ‘beneficiaries’ of each SMSF were, it was held that upon construction of the SMSF deeds, the class of beneficiaries was broader than each single member. This was because the trust deed allowed the trustee to pay benefits to the member’s dependants and even relatives (if there were no dependants, as defined under the superannuation legislation) of the member.

As such, the potential class of beneficiaries included 21 different people.

Best practice therefore dictates that each person who can enforce the due administration of the trust should be a party to and sign a deed of variation that seeks to implement a replacement for a lost SMSF trust deed.

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 Sonic Youth song 'Kool thing'.

View here:

I want you back!** Finding lost trust deeds

Recent posts have considered various issues in relation to lost trust deeds.

Due to the difficulties that arise when a trust deed is lost, the preferred solution is to locate the original deed.

The types of searches most likely to be successful in relation to locating a lost trust instrument include:

1. Former and or present banks, as trust deeds are often required to be produced to open accounts or enter into finance arrangements;
2. Past and present lawyers, including the lawyer who prepared the deed as they will often keep an original or copy of the trust deed for their own records;
3. Accountants, past and present for similar reasons as lawyers, they may have access to at least a copy of an original trust deed;
4. In some states, if the trust has ever owned real property it can be useful to contact the Land Titles Office, in that jurisdiction. It may be that the department will have retained a full copy of the trust instrument on the initial acquisition of the property;
5. This particular alternative is however not available in all jurisdictions. For example, New South Wales prohibits the disclosure of the existence of a trust relationship on title, so there will never be trust instruments with that department. The approach is also dependent on the exact practices from time to time of the relevant department;
6. Where none of the above pathways prove successful, there can be benefits in contacting the original settlor of the trust, particularly if they were not directly associated with the law firm that established the trust. Alternatively, other parties that have had any dealings with the trust from time to time should also be contacted. For example:
1. a beneficiary that is known to have historically received a distribution (or close relatives of deceased beneficiaries who are known to have received a distribution);
2. former trustees; and
3. parties who have held a position of authority with the trust, for example, appointors, principals, guardians or nominators.

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 Hoodoo Gurus song 'I want you back'.

View here:

Something less than infinity** - what evidence is needed to 'recreate' a trust deed

Recent posts have considered leading cases in relation to lost trust deeds.

These cases highlight the critical role ancillary documentation plays in supporting the existence of the trust.

While ancillary materials will not necessarily prove the existence of a trust, their absence when producing a purported trust deed is likely to be fatal to any court application.

In particular, to varying degrees, each of the cases profiled confirm:

1. Supporting documentation, while not of itself enough to establish the existence of a trust, will be critical to the prospects of success in any court application;
2. In many respects, the more relevant ancillary documentation available, the more likely that a court application will be successful;
3. If the supporting documentation indicates at least how the capital and income of the trust are dealt with, the court may advise the trustee to administer the trust according to those documents; and
4. Similarly, the more evidence that a trustee can bring demonstrating that it has discharged all duties in relation to a trust, other than ensuring security of the trust deed, the more likely that the court application will be successful.

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 Guru Josh song 'Infinity'.

View here:

Lost trust deeds and the presumption of regularity: A (Boogie) Wonderland**

Recent posts have considered various issues in relation to lost trust deeds.

The decision in Chase v Chase [2020] NSWSC 1689 provides another useful summary of the key issues in this area.

In a situation where there was only secondary evidence about the possible existence of a trust, the court reiterated anyone wanting to have the court confirm the existence of a trust relationship is required to establish:

1. Clear and convincing proof of the existence and contents of the missing trust deed (as confirmed in the decision of Maks v Maks (1986) 6 NSWLR 34, as set out in an earlier post).
2. The '3 certainties of a trust', that is:
1. The identity of the beneficiaries.
2. The property the subject of the trust.
3. The nature of the trust (i.e. whether fixed or discretionary).

The court found the above tests had not been satisfied.

In particular, there was an absence of a declaration of trust, an absence of any document establishing the terms of the trust and a lack of coherent evidence of what the contents of any such documents were. Thus there was uncertainty as to the identity of the beneficiaries, the property the subject of the trust and whether or not the trust was fixed or discretionary.

The court also made comments about the potential application of the 'presumption of regularity', another concept featured in previous View posts.

This presumption states that where 'an act is done which can only be legally done after the performance of some prior act, the proof of the latter carries with it a presumption of due performance of the prior act'.

The court confirmed:

1. There are 4 key conditions that must be satisfied, before the resumption of regularity will be applied.
2. First, the matter must be more or less in the past and incapable of easily procured evidence.
3. Second, it must involve a mere formality or detail of required procedure in the routine of a litigation or of a public officer’s action.
4. Third, it must involve, to some extent, the security of apparently vested rights so that the presumption will serve to prevent an unwholesome uncertainty.
5. Fourth, the circumstances of the particular case add some element of probability.

Cross referencing the case of Burnside v Mulgrew; Re the Estate of Doris Grabrovaz [2007] NSWSC 550, it was confirmed that when considering the presumption of regularity, courts will draw a distinction between cases where “what is in question is compliance with formal requirements” as opposed to those involving a “substantive issue”, with the presumption potentially applying in cases of the former but not the later.

Thus here, unlike the cases mentioned in last week's post, where there was very little to support the existence of the trust, the presumption of regularity offered no assistance.

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 Earth, Wind and Fire song 'Boogie Wonderland’.

View here:

Lost trust deed? – how ‘bout pluggin’ in** a photocopy?

Posts over recent weeks have considered leading cases in relation to lost trust deeds.

Another useful decision in this space is the case of Sutton v NRS(J) Pty Ltd [2020] NSWSC 826.

In this case, the trustee provided the court with what appeared to be a full photocopy of a trust deed, dated on establishment in 1972.

At all times all relevant parties had acted on the assumption that the photocopy was indeed a true and full copy of the original deed (which had been misplaced).

A financier for the trust operating under the 'know your customer' policy mandated production of the original trust instrument for sighting, to ensure the trust’s constituent documents were in order.

Given the trustee was unable to produce the original deed, the application to court was made, with part of the evidence also including a further photocopy of the deed that was located with the law firm who originally drafted the trust deed.

The court confirmed:

1. generally, in the absence of evidence to the contrary, it can be presumed from the taking of the action that the formalities have been complied with – that is, a presumption of regularity may apply to the effect that where an act is done which can be done legally only after the performance of some prior act, proof of the later act carries with it a presumption of the due performance of the prior act (see for example Harris v Knight (1890) 15 PD 170, and the case of Re Thomson [2015] VSC 370 where an unsigned SMSF trust deed was assumed to have been properly adopted, even though the relevant trustee had subsequently died).
2. In this case however, there was no need to prove by inference that any formality had been complied with - the photocopy of the deed was signed and the evidence established directly that the parties concerned had always acted on the basis that it set out the terms of the trust.
3. In this type of situation it was held that the Court should assist those responsible for the administration of the trust by ensuring that they can continue to administer it as if the photocopied deed was the trust’s constituting document.
4. The way this was achieved here was for the Court to formally order that the trustees of the trust were justified in administering the trust on the basis that the photocopy of the deed that was annexed to the Court order was a true copy of the original trust deed.

A similar outcome, based on a similar factual matrix, was also reached in the decision of The application of M & L Richardson Pty Limited [2021] NSWSC 105.

Similarly in Re Cleeve Group Pty Ltd [2022] VSC 342, it was confirmed that where there is a fully copy of the deed (even if unexecuted), there is either no need to prove the terms through ‘clear and convincing’ evidence, or, if there is, the terms of the draft documents provide that ‘clear and convincing’ evidence.

D R McKendry Nominees Pty Ltd [2015] VSC 560 provides another example of where a lost trust deed was accepted as being in the form of a solicitor’s usual pro forma deed. In contrast however, in Mantovani v Vanta Pty Ltd (No 2) [2021] VSC 771 (another case featured in View posts) in the absence of any evidence as to the terms of the deed, the schedule alone was held to be insufficient.

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

** for the trainspotters, the title is riffed from a key line in the Basement Jaxx song ‘Plug it in’.

View here:

Dig it up** - Lost trust deeds & another case to remember

Last week's post considered arguably the leading case in relation to lost trust deeds.

The case of Re Porlock Pty Ltd [2015] NSWSC 1243 provides further insight into the issues a court will consider where a trust deed has been lost.

In this case, the plaintiff was the trustee of the JBD Carr Trust No 2 which was established in 1957 and by the time of the court application had substantial assets. The trustee applied to court seeking advice pursuant to the powers under the relevant Trusts Act confirming how it held the property.

As part of the search for the deed, a letter was produced by the accountant of the trust which outlined how the income and capital of the trust was to be distributed. The trustee produced a supporting affidavit from the accountant indicating the letter was likely to be an accurate summary of the deed as he recalled quoting the trust deed itself when drafting the letter.

In making an order, the court concluded that the trustee would be justified acting in accordance with the letter as this was the ‘best evidence’ of the trust’s terms.

Importantly, the court confirmed that if the trust deed were to be found and a claim brought against the trustee by other parties who may be entitled under the deed, the trustee would not be personally liable for any breach of trust so long as they followed the advice of the court.

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 Hoodoo Gurus song 'Dig it up'.

View here:

Lost (in infinity**) and lost trust deeds - the leading case

In the lead up to another 30 June, it is timely to consider one of the most important issues leading to potentially seeing trust distributions fail, that is the trustee having custody of the original trust deed.

Arguably the leading case in relation to when a court will allow a trustee to rely on secondary evidence where a trust deed has been lost is Maks v Maks (1986) 6 NSWLR 34.

In this case, both parties lived in a number of homes purchased by the defendant in his own name.

The plaintiff sought a declaration that the defendant in fact held a half share of the relevant property 'on trust'.

The plaintiff argued that a document had been signed by both parties which amounted to a declaration of trust. The alleged document was never produced at trial. On balance, the court considered a document did exist, however the judge was not prepared to make a finding as to the terms of the document.

It seems apparent from the decision, there was no argument put forward as to the nature of the terms of the missing document.

The court concluded that where secondary evidence is being relied upon to prove the existence of a trust, there must be clear and convincing evidence not only of the existence, but also the terms of the trust.

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 World Party song 'Lost in infinity'.

Listen here:

When prenups** will fail – part II

Last week’s post considered a number of the situations that might lead to prenups (or binding financial agreements) being declared unenforceable. Seven further examples are set out below:

1. Impracticality – for most agreements, they are unlikely to be determined entirely void for impractical reasons, although there may often be components of the agreement that are ignored, particularly in relation to specific assets that can no longer be dealt with in the manner originally anticipated by the agreement.
2. Lack of disclosure – while potentially caught by one of the other items set out above, the failure to provide full and complete disclosure can of itself be grounds for avoiding an agreement.
3. Just and equitable grounds – in many respects, this is reminiscent of the 'vibe' in the Australian movie ‘The Castle’ – i.e. the court interprets the overall circumstances to assess that the agreement should no longer be binding.
4. Public policy – this ground is similar to just and equitable i.e. the court determines that it is not in the public’s interest to see a precedent set for the agreement to be binding in the particular circumstances of the case.
5. Ending due to lapse of time – some financial agreements have a specific time or duration – if no other arrangements are made before the ending of the agreement, it will simply lapse.
6. Termination by agreement – if both the parties voluntarily agree, then the agreement can be terminated absolutely, or alternatively, a replacement agreement can be entered into.
7. Death – many binding financial agreements are specifically crafted to end on the death of either party, however this is often subject to certain provisions being made under the estate plan of the deceased. It is important to be aware that in some states it is possible to have a binding financial agreement whereby the parties also agree not to challenge the estate plan of the survivor, however these rules do not apply in every jurisdiction.

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 Kayne West song 'Gold Digger'.

View the (kid friendly) Glee version here:

When prenups** will fail – part I

A number of previous posts have highlighted court decisions where prenups (or binding financial agreements) have been held to be invalid.

While the range of situations that might lead to this type of arrangement being declared are not enforceable, six of the main examples are set out below (next week’s post will list another seven):

1. The relevant legislative provisions are not followed – the laws in relation to binding financial agreements are very particular. If each aspect is not followed, then there is a real risk that the document will not be binding.
2. Failure to get independent advice – one of the key characteristics of the provisions is that each spouse must obtain independent legal advice. A failure to do so (or failure to receive specialist advice) can mean the agreement will be void.
3. Unconscionable conduct – this normally arises where it can be shown that one spouse has taken advantage of the other, in circumstances where that other spouse was in a weak position.
4. Abandonment or revocation by conduct – over time, the parties may start to consider themselves not to be bound by the arrangement, and even enter into inconsistent arrangements. If this occurs, then the original agreement is likely to be ignored.
5. Undue influence – this can arise in a range of circumstances and does not necessarily require that a spouse be completely overborne.
6. Duress – if one spouse can demonstrate that they effectively felt that they had no alternative but to sign the document, then a case of duress can be substantiated.

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 Prince song 'Illusion, Coma, Pimp & Circumstance'.

Listen here:

Another prenup** held to be void

Previous posts have highlighted a number of examples where a binding financial agreement (or prenup) has been held to be invalid.

The case of Adame & Adame [2014] FCCA 42 provides another example where an agreement was set aside.

The factual background of the case was somewhat complex, however briefly:

1. The relationship was described as 'tumultuous' and the parties had separated and then reconciled on numerous occasions.
2. The wife had been told by two separate lawyers (one of whom was introduced and paid for by the husband) not to sign the draft agreement.
3. There was evidence that suggests that the husband may have attempted to avoid disclosing the existence of some assets to the wife.
4. There was a lack of evidence to support that the lawyer who ultimately signed the certificate saying that he had provided the required advice to the wife had in fact provided the advice.

In the context of the above factual scenario, the court decided the agreement was not binding for the following reasons:

1. the wife said she relied on the husband’s representation of the assets that he had and that those representations were false;
2. the court accepted that the wife was 'harassed until she signed the agreement'; and
3. the wife’s lawyer did not discharge all of his duties to provide her with independent advice.

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 Madonna song 'I don’t give a'.

Listen here: