When exactly is a director being a reasonable (man)**?

Posts over the last 2 weeks have looked at various aspects of the business judgment rule, leveraging the lessons explained in the decision of ASIC v Mariner Corporation Ltd [2015] FCA 589.

This case also explains when a director will be held to have acted reasonably as part of relying on the business judgment rule.

In particular, the court confirmed that the reasonableness of a director's belief should be assessed by reference to the:

1. importance of the business judgment to be made;
2. time available for obtaining information;
3. costs related to obtaining information;
4. director or officer’s confidence in those exploring the matter;
5. state of the company’s business at that time and the nature of competing demands on the board’s attention;
6. evidence available as to whether or not material information is reasonably available to the director.

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 National song ‘Reasonable Man’.

Listen here:

Happy** to be a safe Harbour in the Mariner?

Today's post considers the decision in ASIC v Mariner Corporation Ltd [2015] FCA 589.

The case is particularly important because it highlights the interaction between directors’ duty and liability where a company breaches a Corporations Act 2001 (Cth).

ASIC brought the case against Mariner and three of its directors alleging the directors had breached their directors’ duties of care and diligence by failing to comply with the takeover provisions under the Corporations Act. ASIC also argued the directors breached their duties regardless of whether the company itself had breached the Corporations Act.

ASIC argued the directors’ primary breach was in relation to their duty of care and diligence, under section 180 of the Corporations Act.

The court held that directors owe their duties to the company. As such, the key issue is whether actions taken by the directors jeopardised the company’s interests.

Here the evidence showed that the directors had considered the risk to the company of their decision and reasonably concluded that the benefit outweighed the risks. This meant there was no breach of section 180 of the Corporations Act.

The case is also important because it was the first time that the so-called ‘business judgment rule’ would have been successfully relied upon if the directors had been found to have breached their directors’ duties.

Next week’s post will explore the key issues in relation to the business judgment rule.

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 Ned’s Atomic Dustbin song ‘Happy’.

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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’.

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How many (times) ** and directors does it take to bind a company?

As is generally well understood, section 127 of the Corporations Act confirms a company with 2 or more directors may execute a document by either:

1. 2 directors signing; or
2. a director and a company secretary signing.

Where a company has a sole director and secretary, that director can sign.

Perhaps less well known is section 126 of the Corporations Act that allows for a company to be bound by an individual acting with the company's express or implied authority.

In situations where section 126 is being relied on a company's constitution is also often relevant. For example, a constitution may provide that the directors can resolve that a specified director is authorised to execute documents.

Third parties will of course not necessarily be aware of the internal resolutions of a company. The Corporations Act under sections 128 and 129 therefore provides some protection for third parties confirming that they may rely on certain statutory assumptions as to valid execution.

These assumptions have a number of limitations however, for example they cannot be relied on where:

1. The person seeking to rely on the assumption knew or suspected that the assumption was incorrect.
2. The document is being executed relying on section 126, as opposed to under section 127. In other words, if 2 directors (or one director and one secretary) sign then the assumption can be relied on. However, if one director only signs who is not the sole director and secretary then the protection of the valid execution assumption is unavailable.

Practically, therefore where a sole director signs a document third parties should ideally:

1. obtain confirmation (for example by performing an ASIC search) that the person is the sole director and secretary;
2. obtain an extract of the constitution for the company and a copy of the resolution appointing the director as an authorised sole signatory; or
3. require the company to instead grant power of attorney to the relevant director. A copy of the power of attorney should then be produced at the time of signing.

** for the trainspotters, the title here is riffed from the Bob Dylan song, ‘Blowin’ in the Wind’.

Subdivision EA & gift/loan back arrangements

Recent posts have touched on various aspects of the 'gift and loan back' arrangement.

Recently we had a situation where historically a gift and loan back arrangement had been entered into, however the provisions of the Tax Act under subdivision EA had been ignored.

While there has been some significant dilution of the circumstances where subdivision EA will apply given the Tax Office’s approach to unpaid present entitlements, in the situation we were looking at it remained potentially relevant.

In particular, the second 'tranche' of the gift and loan back arrangement involving a loan out of a trust was problematic because at the time the loan was made, there was an unpaid distribution to a corporate beneficiary.

We are working with the relevant adviser to determine the most appropriate approach moving forward, however the example was a timely reminder that in any structuring exercise, it is critical to consider all potential transaction costs and in particular those that are not immediately obvious.

Until next week. 

Share self-ownership - a structuring warning

For those that do not otherwise have access to the Weekly Tax Bulletin, the article from last week is extracted below.

Recent articles in this Bulletin (for example, 2013 WTB 38 [1642] and WTB 43 [1821]) have focused on the various issues that can arise in relation to the use of corporate beneficiaries by discretionary trusts.

A separate issue that practitioners must be aware of whenever reviewing existing structures or establishing new entities, arises under the Corporations Act 2001. In particular, the Act expressly prohibits companies from owning shares in themselves.

This can arise in instances where a trustee company is incorrectly established with the trust (for which it is trustee) owning some or all of the shares. As the legal owner of those shares is the trustee, this results in the trustee owning shares in itself.

The relevant section is s 259A, which provides as follows:

"A company must not acquire shares (or units of shares) in itself except:

(a) in buying back shares under section 257A; or

(b) in acquiring an interest (other than a legal interest) in fully-paid shares in the company if no consideration is given for the acquisition by the company or an entity it controls; or

(c) under a court order; or

(d) in circumstances covered by subsection 259B(2) or (3)."

Under s 259F of the Act, if a contravention has occurred, a person who was involved (which is widely defined and includes any person who was, directly or indirectly, knowingly concerned in or party to the contravention) in the contravention may be subject to a civil penalty of up to $200,000. There are also potential criminal consequences that can flow from the breach.

Due to the potentially significant penalties that can arise under the Act, together with the likely adverse commercial ramifications, any identified breach of s 259A should be remedied as soon as practical following identification of the issue.

One option is for the persons involved in the contravention to apply to ASIC for a no-action letter, whereby ASIC confirms it does not intend to take any steps as a result of a particular contravention of the Act.

As flagged above, a breach of the Act in the SME space most typically arises where a trustee company of a family discretionary trust is listed under ASIC records as having its shares owned by the trust. That is, the trustee of the trust owns shares in itself. While "circular" ownership arrangements can be beneficial from an asset protection perspective, they must still comply with the Act.

The preferred approach therefore, where the shares in a corporate beneficiary are to be owned by a trust, is for a structure along the following lines:

1. the shares in the corporate trustee should be owned by individuals with a low risk profile; 
2. the corporate trustee should undertake no activities other than its trusteeship and the value of the shares in the trustee company should therefore be limited to their issue price; and 
3. the trustee company in its capacity as trustee should own all of the shares in the corporate beneficiary.

Until next week.

Corporate trustees and SMSFs

Many specialist advisers to self managed superannuation funds (SMSFs) recommend the use of a corporate trustee, as opposed to individual trustees.

While the initial setup costs of a corporate trustee are generally higher than individuals, there are a range of reasons that the use of a company is beneficial, including:

1. as other posts have demonstrated, the use of a corporate trustee provides limited liability protection. This can be particularly important if the SMSF owns real property; 
2. special purpose corporate trustees of an SMSF are entitled to discounted annual ASIC fees; 
3. record keeping and compliance is significantly improved with a special purpose corporate trustee in terms of what the auditor (and ultimately the Tax Office) expects to see; 
4. from a succession planning perspective, it is significantly easier to regulate the control of a corporate trustee (i.e. by simply changing the directors from time to time) as opposed to individual trustees, where each time an individual trustee changes, there is often a myriad of documentation that needs preparing and notifications that must be made; and 
5. particularly in relation to sole member funds, the use of a corporate trustee significantly simplifies the overall structure of a SMSF, as a sole director company is permissible. In contrast, it is impossible to create a valid SMSF with an individual trustee and sole member (there must always be an additional individual who acts as a co-trustee in this instance). 

Until next week.

PPSA transitional arrangements end on 30 January 2014

Image Credit: Images Money cc via Flickr

A post from February 2012 considered the Personal Property Securities Act 2009 (Cth) (PPSA) which commenced some 18 months ago.

Today’s post focuses on one of the upcoming critical aspects of the regime.

The PPSA is the national system for personal property securities in Australia and replaced many state, territory and Commonwealth registers of personal property securities.

Central to this system is the Personal Property Securities Register (PPSR) where details of security interests in personal property can be registered and searched.

To give creditors an opportunity to adjust to the new regime, the PPSA included transitional provisions. The principal object of these provisions was to maintain priority between security interests that existed before the PPSA commenced on 30 January 2012 for two years. These interests are known as ‘transitional security interests’.

This two year transitional period ends on 30 January 2014.

To ensure transitional security interests continue to be protected they should be reviewed to ensure they are validly registered on the PPSR by 30 January 2014. There is no PPSR fee to register a transitional security interest.

Until next week.

Redline changes

At the moment, we are assisting a client in relation to the sale of shares in their trading company.

Last week, we received suggested changes to the share sale agreement for the lawyers acting for the purchaser.

As is usual commercial practice, this top tier law firm provided the document to us confirming that all of their suggested changes were made in 'redline'. While we had no particular reason to doubt that all changes would have been shown in mark-up, we used the 'DeltaView' (i.e. document comparison) function in Word to be certain of this before commencing our review.

The DeltaView confirmed that while almost all changes were shown in redline, there were a handful of words changed to one particular clause in the warranties that had not been marked up. These words (if gone undetected) would have potentially left our client in an unnecessarily weak position following settlement.

As we understand it, the oversight of not marking up these changes was a simple mistake, however it highlights the importance of always using the DeltaView function (or another document comparison program) regardless of whether the amendments are otherwise promised to have been marked up.

Until next week.

Read the deed - another reminder re invalid distributions

A structure diagram of the trust in Harris v Harris [2011] FamCAFC 245 

For those that do not otherwise have access to the Weekly Tax Bulletin, the article from last week extracted below.

Practitioners will be aware, from many previous articles in this Bulletin (and elsewhere), of the critical importance that trust deeds should be read before making any distribution of income or capital. While the "read the deed" mantra should be indelibly etched in practitioners' minds, regular reminders of the dangers of not doing this are not out of place.

One example of a family law case of Harris v Harris [2011] FamCAFC 245 where the range of potential beneficiaries was critical was profiled in our article at 2012 WTB 39 [1586].

In that case, the trial judge in a family court matter noted that the recipient of trust distributions (being a company), who was being challenged, was not in fact an eligible beneficiary of the relevant trust. If the company had been simply nominated as a potential beneficiary, then the distributions would have most likely been valid.

A more common example of where difficulties with invalid distributions arise, however, relates to where particular potential beneficiaries are in fact expressly excluded by the trust deed. The most common example in this regard is the exclusion of the trustee, be that the current, former or even a future trustee, from being a beneficiary of a trust.

These types of clauses are often found in deeds prepared by New South Wales advisers. This is primarily because s 54(3) of the Duties Act 1997 (NSW) limits the nominal duty exemption for a change of trustee to trust deeds that contain provisions ensuring that:

1. none of the continuing trustees remaining after the appointment of a new trustee are or can become a beneficiary under the trust; 
2. none of the trustees of the trust after the appointment of a new trustee are or can become a beneficiary under the trust; and 
3. the transfer is not part of a scheme for conferring an interest, in relation to the trust property, on a new trustee or any other person, whether as a beneficiary or otherwise, to the detriment of the beneficial interest or potential beneficial interest of any person. 

An example of a clause adopting an approach that ensures access to the stamp duty relief is as follows:

"The Trustee for the time being of the Trust can not be a beneficiary of the Trust. None of the continuing Trustees remaining after the retirement of a Trustee is or can become a beneficiary under the Trust, and none of the Trustees of the Trust after the appointment of a new Trustee is or can become a beneficiary under the Trust."

New South Wales is the only Australian jurisdiction that has this type of restriction on accessing the duty concessions for a change of trustee and, understandably, clauses drafted in this manner are extremely prevalent with deed providers or lawyers based in New South Wales.

In many instances, however, there may in fact be no other connection with New South Wales for anyone associated with the trust.

The risks created by this drafting approach will, therefore, often be less than obvious. Anecdotally, there would seem to be an increasing number of situations where invalid distributions are being discovered that stretch back over many years and involve significant levels of invalid distributions.The exact ramifications of this type of situation will depend on a range of issues, including how any default provision under the relevant trust deed is crafted. This said, an embracing by all advisers involved with the administration of the trust of the mantra "read the deed" would avoid the issue ever arising in the first place.

Until next week.

Why would a professional partnership incorporate?

As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of ‘Why would a professional partnership incorporate?’. If you would like a link to the video please let me know.

As usual, a transcript of the presentation for those that cannot (or choose not) to listen to the presentation is below –

The number of answers to this question are probably only limited to the number of professional practices there are out there.  There are a range of reasons. 

Tax is one and we keep coming back to that, but that can sometimes be in the eye of the beholder from that perspective. 

We're seeing, certainly from a risk management perspective and asset protection and the credit crunch and everything else that’s going on and the changes to the bankruptcy rules in the recent past mean that everyone is much more aware that when things go wrong, it's very attractive to have your liability limited.  

Obviously, that’s probably the biggest advantage of an incorporated model. 

There's also I guess the sense from people talking about retaining key staff and the skills shortage that many professional organisations are facing these days that it tends to make sharing of equity a lot easier if you've got a true corporate model. 

That can sometimes be as simple from a perception viewpoint that a lot of times staff or key employees are much more aligned and find it much easier to understand a company setup as opposed to some sort of fancy trust arrangement or a service trust arrangement for that matter. 

Certainly, the transaction costs side of things, in terms of the hard costs, particularly stamp duty, in most states now, the concept of having to pay stamp duty on the transfer of listed shares is basically a thing of the past.  So that can be very attractive to people. 

The last main reason and perhaps this is touching on the perception side of it again, I think the corporate model from a governance perspective, it tends to be a lot easier for people to understand.  We've done a lot of work in this area and it is interesting that by becoming a director, and by having a board and by having shareholders and all of these sorts of more formal things, even though the deck chairs haven't really changed in the organisation, there seems to be an air of governance around the place that just wasn't there while they remained as a partnership.

Until next week.

How should a partnership of discretionary trusts be structured?

As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of ‘How should a partnership of discretionary trusts be structured?’ by way of audio podcast (not video) at the following link - http://youtu.be/qPJJ_1NRwcw

As usual, a transcript of the presentation for those that cannot (or choose not) to listen to the presentation is below –

There's a number of aspects relevant here. 

The biggest one, if we pick up on that idea of it being a little bit of a messy structure, is that ideally there should be some sort of corporate entity that’s the face to the outside world.  We see that being used very regularly. 

Now whether that's a standalone nominee or agent company that’s appointed to act on behalf of all the trusts or whether in fact you just have one company acting as trustee for all of the trusts is probably a mute point. 

The outcome that’s delivered to the outside world is that they're not having to deal with numerous separate trusts; as far as the clients know, all they see is that standalone Pty Ltd company.  That would probably be the biggest thing. 

The other types of things that need to be thought about I guess are looking at the constitution of that company and making sure that you've got an appropriate balance between directorship powers and shareholder powers. 

You'd also obviously, particularly if you're going to use the same company as trustee for a number of trusts, need to have a fairly good understanding of how an appointor or principal or nominee type power under the trust documents work, to give everyone the comfort of knowing that they do have ultimate say over ‘their’ particular trust. 

Probably, the final point would be, and we've got recurring themes coming through here, (this harks back to this concept of asset protection) and that is, if you're serious about maintaining protection against issues that might go wrong in the practice, it would really be quite important in our view that the trust that is involved as a partner in the partnership of trusts do nothing else but be a partner in that partnership. 

So in other words, you don’t buy the investment property in that trust and you don't have a listed share portfolio in that trust, because otherwise you're potentially exposing all those passive assets to the risks of the business.

Until next week.

Appointor succession - read the deed

As highlighted in previous posts, it is critical to 'read the deed' when providing advice that involves a trust.

Following last week's post (and again with thanks to Tara Lucke) about Montevento Holdings, this post reinforces the importance of reading a trust deed before taking any step. 

In Montevento Holdings, a disgruntled beneficiary sought to rely on a technical interpretation of the way the appointor could exercise their power under the trust deed to change the trustee to support the argument that the change was ineffective. 

The relevant clause precluded individual appointors from personally being appointed as trustee.  As mentioned last week, the individual appointor appointed a company as trustee of which he was personally the sole director and shareholder. 

The High Court held that the ordinary and natural meaning of the clause was that an individual person holding the office of appointor could not personally appoint themselves as trustee.  However, because the trust deed consistently distinguished between individuals and companies, it did not prohibit the appointment of a corporate trustee, even if that trustee was controlled by the individual appointor.

Until next week.

How do business, or goodwill, licences work?

As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of ‘How do business, or goodwill, licences work?’. If you would like a link to the video please let me know.

As usual, a transcript of the presentation for those that cannot (or choose not) to listen to the presentation is below –

The key idea, and it’s probably not dissimilar to some sort of service trust arrangement, is having the two arms of the business being conducted by different entities.

An example, particularly for those that are currently in a partnership of individuals is that if the right to run the business was able to be utilised by someone else or by another entity, for example a partnership of trusts, then there's arguably the ability to create a licence arrangement that would say that the partnership of trusts has the ability to do everything to conduct the business and to enjoy the fruits of conducting the business, the income that’s generated for the payment of invariably a relatively nominal fee back to the actual original owners of the business.

Now the idea of that arrangement obviously, particularly from an asset protection perspective is that, if you can get the risks associated from running the business away from the individuals, that’s obviously a very attractive thing.

It also gives the partners the ability to think a little bit strategically about how they would want that income derived. So in other words, rather than earning the income in their own name, they have the ability to earn it through a company or trust environment.

Until next week.

What are some of the issues with a professional partnership ‘rolling over’ into a company structure?

As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of ‘What are some of the issues with a professional partnership ‘rolling over’ into a company structure?’at the following link - http://youtu.be/pIwVOyEAeBA



As usual, a transcript of the presentation for those that cannot (or choose not) to view the presentation is below –

The rollover at face value is always the easiest way to go, because it removes one seriously significant transaction cost being the capital gains tax implications. The problem though is that when you dig a little bit deeper, that is a little illusionary at times, particularly for a group of individual partners rolling over to a company. The attraction of taking that style of rollover can be diminished by the fact that they will still individually own the shares in the company.

So if it's a standard rollover, for example a partnership to a company under Division 122B of the Tax Act, ultimately, the individuals would still actually own the shares in the company. What they will have done is taken away 100 cents in the dollar, if that’s the right way to say it, of income that they’ve historically been enjoying and replaced that with 70 cents in the dollar and an imputation credit or franking credit.

This can lead to a situation where people, having done a rollover are then looking to restructure again anyway. So effectively it's a double restructure because they'll want to divest themselves individually of shares and make those shares be owned via some sort of discretionary trust arrangement.

It can also lead into a range of other potential restructures, dividend access shares and these types of arrangements that certainly get away from the overall goal in the first place, which was to simplify arrangements and get true limited liability.

The other areas (and some of these touched on in other parts of today's program) that obviously need to be taken into account include that while there is no stamp duty on unlisted shares, there is certainly stamp duty in every state moving from an individual or partnership arrangement into a company arrangement. That's a significant transaction cost that cannot be avoided in any way, shape or form currently and needs to be paid upfront effectively to get yourself into the new structure. The other ancillary costs that go around an incorporation include issues such as payroll tax, which is inevitably a lot more expensive if you've moved into a company structure as opposed to remaining in a partnership structure.

Until next week.

Company owned insurance policies for business succession

We recently had an adviser seeking more detailed comments about company owned business succession insurance policies.

In particular, feedback was requested about the specific reservations with insurance policies for business succession being owned by a company. In summary, and with thanks to co View Legal director Tara Lucke, we provided the following reasons:

1   while capital gains tax (CGT) should not be payable on receipt of life insurance proceeds, it will be payable on any total and permanent disablement or trauma proceeds that are paid to a company. In contrast, no CGT should be payable on receipt of the insurance proceeds where the policies are self owned;

2   there can also be significant practical difficulties in extracting insurance proceeds from a company to the appropriate recipient. This is particularly important when the main purpose of the policy is for an equity payment, as opposed to debt cover. Again, where the policy is self owned, the exiting principal or their estate will receive the proceeds directly and none of these practical issues will arise, as long as an appropriate agreement is implemented;

3   where insurance proceeds need to be accessed by the exiting principal (or their estate) this is generally only achievable via a share buy-back or dividend. A dividend will likely be tax inefficient and generally a buy back will also have an inefficient tax outcome for the following reasons:

(a) the consideration will be split between an assessable capital gain and a dividend, which restricts access to the full benefit of the CGT 50% discount and small business CGT concessions;

(b) while a company may be able to pay the proceeds to the exiting shareholder/s as a partially or fully franked dividend, this will use franking credits that would otherwise have been available for distributing profits; and

(c) the surviving owner/s will own 100% of a company after a share buy-back, however their cost base in the shares will not have increased;

4   insurance proceeds will be under the control of the remaining director/s of a company, in contrast with a self owned or superannuation owned policy where the estate directly receives the benefit of the proceeds; and

5   finally, the legal documentation required for company ownership is comparatively complex to all other policy ownership approaches.

Until next week.

What are some of the advantages of a professional partnership incorporating?

As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of ‘What are some of the advantages of a professional partnership incorporating?’. If you would like a link to the video please let me know.

As usual, a transcript of the presentation for those that cannot (or choose not) to view the presentation is below –

The biggest thing I guess with incorporation is that, if only from a perception perspective, but in reality from many other perspectives as well, the ability to facilitate the entry and exit is significantly easier.

Probably the greatest example of that is in relation to transaction costs. In most Australian states already - and in those that haven't done it, it's not very far away – there has been the abolishment of stamp duty on the transfer of shares in unlisted companies.

So what that means in a very practical sense is that shares can be moved without any immediate transaction costs between current owners and future owners. That obviously significantly simplifies and reduces the transaction costs that would otherwise be involved.

Conceptually as well, the ability to create employee share type arrangements or have partial sell downs is significantly easier in a corporate environment than it has historically been in a trust environment, or if there's individual partners involved.

In relation to the stamp duty side of things, it is an important consideration to take into account. Basically every Australian state now has abolished stamp duty. Victoria and Tasmania actually led the way originally by abolishing stamp duty on transfers of unlisted shares. The only major Australian state now that hasn’t done it is New South Wales and the government has released a timetable that would see the abolishment of that duty very soon.

Until next week.

What roles do ‘quasi-ownership’ arrangements play in succession planning

As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of ‘What roles do ‘quasi-ownership’ arrangements play in succession planning ?’ at the following link - http://youtu.be/oUcuYyRXZ_U



As usual, a transcript of the presentation for those that cannot (or choose not) to view the presentation is below –

This is probably a really developing area in terms of what we've seen in recent times, because out of the GFC, the changes to trust law that many of us have experienced first hand in terms of the impact of relationship breakdowns and/or the intergenerational transfer that goes wrong; you find in many family scenarios they are effectively wanting to, if not fully rule from the grave, at least do a very good impersonation of it.

In that scenario, as much as we've spoken earlier today about secured loan arrangements and actually transferring assets down and securing those under a loan arrangement; a more ‘bespoke’ version of that is never having the asset leave the master trust in the first place and using tools such as letters of wishes or the way in which the trustee company constitution is crafted to allow the underlying beneficiaries to have indirect access to the assets, whether they be business assets or investment assets.

Beneficiaries will probably still have to meet KPIs in relation to their performance and running of those assets, but they never actually get the physical ownership or the legal control of them.

It may be overtime that beneficiaries do ultimately receive legal ownership or legal control, but for an interim period, which may last for many years, what this final form of structure does is effectively keep the assets within the initial master trust structure and really only have a synthetic or notional allocation of assets made, at a trustee level, for the underlying beneficiaries.

Until next week.

What are some of the steps taken in relation to regulating control of testamentary trusts

As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of ‘What are some of the steps taken in relation to regulating control of testamentary trusts?’ at the following link - http://youtu.be/A104L8JfGGw




As usual, a transcript of the presentation for those that cannot (or choose not) to view the presentation is below –

The reality I think for many people in this area at the moment that estate planning as a whole, and particularly the use of more bespoke forms of testamentary trusts, is the ‘new black’. 

What that has meant I think for a lot of advisers in this area, particularly for those with legally trained advisers is that many of the concepts that you see in wider corporate law or corporations law are now actually being filtered back into traditional estate planning.

What we're finding, particularly where people are wanting to use trusts that are going to last at least 2 generations, possibly even 3 or 4, is that the regulatory regime, if you like, sitting around the control of those structures is becoming far more sophisticated.

Probably the biggest thing we're seeing in that area is the use of specifically set up trustee companies. Not in terms of the government setup structure, but in terms of the actual client setting up a corporate structure and being very particular about the way the constitution of that company is crafted, the way shareholders can be nominated, the way directors are appointed and the way voting takes place within that structure all overseeing the way in which the actual trust is going to be run moving forward.

Until next week.

Trust distributions 101

Last week’s post touched on the Family Court decision from the end of 2011 concerning the way in which a family trust was treated as part of a matrimonial settlement.

One other aspect of the case that is worth mentioning involved the conclusion by the Court about the, purported, use of a corporate beneficiary.

In particular a ‘bucket company’ was set up some years after the initial establishment of the trust. The evidence that seemed to be accepted by the Court was that the company was established for ‘tax minimisation or reduction purposes’.

Unfortunately, to the extent that a disgruntled third party (including the Tax Office) may wish to challenge the distributions, the company was not in fact a beneficiary of the trust.

While the ‘wrongful’ distributions (in the words of the Court) were not explored further in the context of this family law case, the comments highlight the theme of many earlier posts – that is in almost every area where structures are used (whether they be trusts, companies or super funds) it is critical that someone takes responsibility for reading the establishment documents before any step is taken.

Until next week.