Fiduciary duties: they are out there**

Fiduciary duties are generally seen as the most onerous of all legal duties and where they apply they require a person to act solely in another party's interests.

One case often referred to that highlights the extent of fiduciary duties is Loughnan v McConnell [2006] QSC 359.

Broadly the situation was as follows:

1. Loughnan was a lawyer and a co-executor and trustee of the estate of Mr McConnell (Ross).
2. Nadia McConnell (Ross’ wife) was the co-executor and trustee.
3. Ross’ accountant was also an executor.
4. Duckett Pty Ltd was the trustee of a family trust.
5. The sole shareholder of Duckett was Ross, who held two shares, and he and Nadia were its directors.
6. Under the will, the shares in Duckett were to be held by the trustees of the will on trust for Henry McConnell (the son of Ross and Nadia) if he was living on 1 August 2021.
7. After probate was granted, Nadia undertook a number of actions without reference to Loughnan, including relevantly -
1. in her role as sole director appointed herself as chairman of Duckett;
2. appointed her mother as an additional director of Duckett;
3. Duckett then resolved to vary the deed for the trust to (among other things) make Nadia the appointor of the trust and allow her to remain a beneficiary even if she remarried. The trust deed prior to the amendment excluded Nadia as a beneficiary if she remarried and gave the appointor powers to Nadia and Loughnan jointly.
4. Under the trust deed as amended, Nadia then by further deed removed Duckett as trustee and in its place appointed NEM Investments Pty Ltd of which she was sole director.

Loughnan made an application to court for directions concerning the trust and in particular unwinding the steps Nadia had unilaterally taken. The court confirmed that proceedings against Nadia should be commenced by Loughnan on the basis that she had breached her fiduciary duties as an executor and trustee of the estate.

The court also observed however that the primary concern was Nadia’s failure to disclose her intentions and that if consent of the co-executors had been obtained the actions would not have been reviewable.

As usual, please make contact 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 Dinosaur Jnr song ‘Out there’.

View here:

Step (child) on** ... and the list of people entitled under an estate

 

Last week's post considered some of the key issues, from a will drafting perspective, about whether a step child is entitled under a deceased estate.

The case of the Superannuation Complaints Tribunal in D19-20\023 provides a useful explanation of the wider position at law in relation to step children, including from a superannuation perspective.

In summary the decision confirms:

1. There is some support for the position for general law purposes, and in particular family provision (or testator family maintenance applications) that someone does not cease to be a ‘step-child’ of a person when their natural parent pre-deceases the person, if the marital relationship between their natural parent and the person was in place at the date of the natural parent’s death (see Scott-Mackenzie v Bail [2017] VSCA 108).
2. That is, the relationship of step-parent and step-child is one of affinity and does not cease merely because of the death of the natural parent. In other words 'once a step-child of the deceased, always a step-child of the deceased (providing the relationship of the deceased with the natural parent was not earlier dissolved otherwise than by death)'.
3. In contrast, there are also cases that conclude the relationship of ‘step-child’ ceases automatically on the death of the natural parent (see Re Burt (1988) 1 Qd R 23, Re Moreton (1996) 2 Qd R 174, Basterfield v Gay (1994) 3 Tas R 293 and Connors v Tasmanian Trustee Limited (1996) 6 Tas R 267).
4. For superannuation purposes, historically the Tax Office is on record as holding that a child only remains a stepchild while the relevant parents are a couple, for example see ATO ID 2011/77 where it was decided that a person ceases to be a 'stepchild' for the purposes of being a 'dependant' of the member under regulation 6.22 of the superannuation regulations, when the legal marriage of their natural parent to the member ends.
5. There is however support for the broader concept of ‘step-child’ - that is a relationship of affinity between the step-parent and step-child that can continue beyond the death of the natural parent.
6. In the factual matrix here, the Tribunal was satisfied that the step-daughter and the deceased member continued to have a sufficiently close relationship after the earlier death of the spouse of the member (who was the natural parent of the step-daughter).
7. As a result the natural daughter of the spouse of the member remained the step-child of the deceased member and in turn fell within the definition of ‘child’ at the date of the deceased member’s death. Therefore she was a ‘dependant’ for the purposes of both the trust deed of the fund and the superannuation legislation.

As usual, please make contact 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 Happy Mondays song ‘Step On’.

View here:

A drafting lesson: waiting for you in the shadows**

Recently we were reviewed a clause in a trust deed that confirmed the beneficiaries were ‘any and all of the children, grandchildren or great grandchildren of the mother and the father.

The drafting approach is a common one, and can lead to 2 starkly different interpretations, namely either all of the children, grandchildren and great grandchildren of:

1. the relationship between the father and the mother; or
2. each of the father and the mother (i.e. including children from other relationships).

Generally the position adopted by the courts is that where a phrase is capable of more than one correct grammatical interpretation the construction that conforms with current usage should prevail, while also having regard to the circumstances surrounding the establishment of the trust.

One of the leading cases is Boranga v Flintoff (1997) 19 WAR 1.

The case confirms that the primary task of courts is to discern the intention of the settlor from the words of the relevant trust deed, with reference to the position as at time the deed was entered into.

In this case the following facts were considered to be relevant in determining whether step-children would be included as beneficiaries under the phrase 'the children of A and B’:

1. the ages of the stepchildren at the time the trust was established and whether the step- children were dependants of A or B at the time;
2. whether the step-children had any special needs, e.g. a disability;
3. the existence and ages of any children from the relationship of A and B at the settlement date;
4. the ages of A and B at the settlement date and whether it was likely there would be any further children from the relationship of A and B; and
5. the pattern of trust distributions and whether the step-children received distributions from the trust.

Having factored in each of the above issues, it was held that the phrase 'the children and remoter issue of the said A and the said B’ included children of either A or B – in other words stepchildren were included.

As usual, please make contact 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 Thurston Moore song ‘Smoke of dreams’.

View here:

SMSFs and non-geared unit trusts: bulletproof**

While there are some, narrow exceptions, generally an SMSF is only able to invest in an ungeared unit trust and subject to strict requirements set out in the Superannuation (Supervision) Regulations (namely regulation 13.22C).

The provisions of regulation 13.22C are detailed and prescriptive and if there is any intention to access the concession regard should be had to the exact requirements.

One issue that often arises for SMSFs that do have a partial ownership interest in a trust that otherwise complies with regulation 13.22C is whether the SMSF can acquire additional units in the structure from a related party.

Generally such an acquisition by an SMSF is prohibited under the in-house asset rules, however there is an exemption from those rules in relation investments in trusts that comply with regulation 13.22C.

Furthermore there is an exemption from the prohibition that also applies against SMSFs acquiring assets from related parties for ownership interests in trusts that comply with regulation 13.22C.

The exceptions operate to specifically permit the acquisition of shares in companies or units in unit trusts, so long as all provisions of regulation 13.22C are satisfied at the time of the acquisition and on an ongoing basis.

As usual, please make contact 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 Radiohead song ‘Bulletproof’.

View here:

Accessing excepted trust income – avoid being a paranoid android**

Estate planning best practice dictates to ’begin with the end in mind’ and ensure a person's documentation achieves their objectives, for example, by including a testamentary trust.

This said, as previous posts have highlighted, it is possible to establish a trust following a person's death such as an estate proceeds trusts, superannuation proceeds trust or a special disability trust.

When considering the use of ‘post death testamentary trusts’ it is important to ensure income derived from gifted property to the structure does in fact create excepted trust income.

The Tax Office has provided useful guidance in this regard in Private Ruling 50621.

In the situation of this Ruling, minor children had each received gifts of money from 2 sources which were then invested on their behalf by a relative.

The 2 sources of the gifts were:

1. money left to them in a will; and
2. other gifts made to them by persons who were alive at the time the gifts were made.

The Tax Office confirmed its view that:

1. The investment earnings derived from monies that were sourced from a deceased estate (whether due to an absolute gift under a will or due to the intestacy rules) held in trust for minor beneficiaries were excepted income.
2. In contrast, the investment earnings from monies gifted to children by their living relatives were not excepted income.

As usual, please make contact 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 Radiohead song ‘Paranoid android’.

View here:

#exceptedtrustincome #estateplanning #Radiohead #bethechange #viewlegal #matthewburgess