Ensuring loans are loans and people are people** – part 2 – the Berghan decision

Following last week’s post, the case of Berghan & Anor v Berghan [2017] QCA 236 is a stark reminder. As usual, if you would like a copy of the decision please contact me.

Broadly, the factual matrix was as follows:

1. A son had borrowed (either directly or via related entities) a six-digit sum from his parents over an extended period.
2. The total amount lent was by way of instalments on a number of separate occasions.
3. On every occasion, there was a confirmation from the parents that they intended the amount to be a loan.
4. In saying this however, no formal agreement was ever entered into.
5. There was also an extended delay between the point in time at which the loans were made and when the parents ultimately sought recovery of the loans.

In the initial court decision, it was held that despite the reference to the loans, the conduct of the parents was more analogous to a gift, and on this basis, there was no obligation at law (ignoring any moral argument) that the son had to repay the amounts.

While on appeal, the parents were successful in having the court confirm that the amounts were actually loans repayable on demand, the fact that there was a protracted legal case to achieve this outcome is a stark reminder to ensure that comprehensive legal agreements are implemented.

The court focused on the factual matrix to determine whether the transactions had objectively demonstrated that the payments were made by way of an oral loan agreement and were not gifts. Once it was determined that the advances were loans, it was confirmed that at law, in the absence of anything to the contrary, such loans are deemed to be at call and repayable on demand.

Finally, independent legal advice should be obtained by each party to ensure that the prospects of, particularly the borrower, arguing that the arrangements were in fact a gift is unsustainable.

** for the trainspotters the title of the post today is riffed from 1984 and Depeche Mode’s ‘People are People’, see here:

Ensuring a loan is a loan (or alone with you**) – part 1

Arguably, in relation to any form of loan arrangement, it is fundamentally important that there are documents confirming the exact terms that apply.

Purely from an asset protection perspective, ignoring wider issues such as the commercial arrangements, estate planning and tax, the importance of documenting loan arrangements in writing cannot be underemphasised.

Similarly, it is critical to consider:

1. Regular repayments, even if only nominal, to ensure that the terms of the agreement remain on foot and acknowledged by the parties. In this regard, as profiled elsewhere in these posts, government legislation can automatically cause loans to become unrecoverable and statute barred.
2. Possibly implementing security arrangements in relation to the loan, for example, by way of mortgage or registering an interest under the PPSR.
3. Ensuring that each party to the loan receives independent legal advice. Particularly in relation to arrangements between family members, the failure to ensure each party receives independent legal advice can cause a loan to become unrecoverable on the basis that a court decides that the loan was in fact a gift.

The requirement for independent advice is arguably the most important aspect in family situations, such as parents lending funds to a child and their spouse.

If the child and spouse have a relationship breakdown it is likely that the funds advanced will be argued to be a gift by the estranged spouse, even if a loan agreement has been signed.

If the amount is treated as a gift it will be an asset of the relationship (not the parents as lenders) and thus unrecoverable by the parents.

** for the trainspotters the title of the post today is riffed from the early 1980’s and The Sunnyboys ‘Alone With You’, see them perform live! on Countdown here:

Shooting down** the difficulties with ‘fixed’ testamentary trust wills

As mentioned in last week’s post, it is possible to gain access to the excepted trust income provisions under the Tax Act where a will provides for the assets to be held on trust for infant children until they reach a certain age.

It is important to note however that, as compared a comprehensive testamentary discretionary trust, there can be a number of difficulties with the more basic approach including:

1. The assets of the trust will normally pass absolutely to the child beneficiaries on them attaining a certain age. Often this age will automatically be 18.
2. There is no real flexibility in terms of distributions of income or capital at any point during the structure. This can cause a number of difficulties particularly in relation to asset protection and tax planning.
3. The structure is very inflexible in terms of future estate and succession planning objectives and requires that the child beneficiaries implement comprehensive estate plans for themselves as soon as they gain entitlement to the assets.

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 Stone Roses song ‘Shoot you down’.

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Shining a light** on ‘fixed’ Testamentary trust wills

‘Simple’ or ‘I love you’ wills are normally a relatively straightforward document and traditionally provide for assets to be gifted directly to a surviving spouse and then if not to the children of the relationship on them reaching a certain age (e.g. 18, 21 or 25).

One issue that often comes up in relation to this type of will is whether the ‘excepted trust income provisions’ under the Tax Act can be accessed. These provisions allow children to be taxed at adult rates for income distributed to them via a deceased estate.

In very broad terms, the excepted trust income provisions can only be accessed via this type of will during the period that the infant children of the deceased (and, in particular, not grandchildren) remain under the age of 18.

Next week’s post will explore some of the difficulties with this type of will as compared to more comprehensive testamentary trust arrangements.

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 Rolling Stones song ‘Shine a light’.

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Time (again) for the gravy** … Final Post for 2025 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 2026.

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 2024 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 2026.

Very best wishes for Christmas and the New Year period.

** for the trainspotters, as was the case this time last year, the title today riffed from one of my favourite modern-ish Christmas related tunes, namely ‘How to make gravy’ by Paul Kelly. 

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Remember the days of the ‘old (school) law’ **

Following on from last week’s post concerning conflicts of law, a similar area of potential difficulty relates to where governments replace existing legislation with a new act.

For example, in many states of Australia, the state governments have removed the previous 'Stamp Acts' and replaced them with 'Duties Acts' in recent years.

In very simple terms, the new Duties Acts effectively replace the previous Stamp Acts in their entirety as and from a particular date.

Practically however there can often be difficulties with this approach.

Recently, for example, we had a situation where a client became aware of an historical transaction that, while not subject to duty under the current Duties Act, would probably have been subject to stamp duty under the relevant Stamp Act.

It appeared that the only reason duty had not been paid was because the relevant documentation had not been lodged with the Stamps Office at the time.

Even though the relevant Stamp Act has been repealed for over ten years, it became necessary to review the provisions of that Stamp Act in detail as well as various court decisions that we had otherwise assumed had been consigned to the history books.

** For the trainspotters, ‘Remember the Days of the Old School Yard’ is a song by Cat Stevens from 1977.

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Shake it off and Conflict of Laws **

The concept of ‘conflict of laws’ is one that comes up regularly in estate planning exercises and essentially relates to is determining which rules apply when there are two or more potential jurisdictions in relation to a certain set of circumstances.

Conflict of law issues can come up in a wide range of situations. One recent example related to a trust where the controllers of the trust wanted the laws of South Australia to apply, even though there were no substantial assets held in South Australia and the trustee company was registered in New South Wales.

The attraction of having the South Australian laws apply was that it would mean (potentially) that the trust could last forever due to the effective abolishment of the perpetuity rules in South Australia some years ago.

Broadly, so long as certain steps are followed, it is generally possible to have a trust with assets in any other Australian state regulated by South Australian law.

** For the trainspotters, ‘Shake it off’ by Taylor Swift is the number one hit on Google for songs about from 2014.

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