Tuesday, October 31, 2023

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

View Legal blog - The fine line (& time)** between being entitled … and not by Matthew Burgess

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.

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Tuesday, October 24, 2023

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

View Legal blog - Just because there's knocking** for a testamentary trust statutory will doesn't mean the court will answer by Matthew Burgess

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?'.

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Tuesday, October 17, 2023

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

View Legal blog - Another (brick in the wall)** - or statutory will case (as the case may be) by Matthew Burgess

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'.

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Tuesday, October 10, 2023

Easy** - Court criteria for statutory wills

View Legal blog - Easy** - Court criteria for statutory wills by Matthew Burgess

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'.

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Tuesday, October 3, 2023

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

View Legal blog - Dear Judge: Do you see what I see** - how to get a statutory will by Matthew Burgess

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?'.

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