Death is not the end (... for a former spouse when somebody else takes their place**)

Following recent posts, the decision in Scott v Scott [2009] NSWSC 567 is a relevant case to be aware of in the context of the prospects of a former spouse seeking to challenge the deceased estate of their former spouse.

Relevantly the court held the following key principles are applicable, namely:

1. In most cases the achievement of a final property settlement in the Family Court would be seen by the parties, in current social circumstances, as terminating any moral claim of a former spouse to provision in the will of the other.
2. This said, public policy, must adapt itself to legislation that creates a specific entitlement for a former spouse to claim. These rules in essence contemplate there will be cases where such a claim will succeed, notwithstanding the public policy of finality of property settlement.
3. A former spouse who has been accorded all rights under a property settlement and does not have any continuing entitlement to maintenance, is not generally regarded as a natural object of testamentary recognition.
4. Even if the former spouses have not divorced or entered into a property settlement, there is the threshold question as to what might be adequate provision in all the circumstances. Those circumstances must take into account both the fact of separation from the deceased and the fact that, as between themselves, a division of their assets is likely to have already been effected.
5. Therefore as long as the deceased takes steps to effect an amicable and relatively fair division of all assets this will normally terminate any moral claim the deceased might have had to the former spouse.

One iteration on the above comments however is that even where an ex-spouse is not receiving maintenance (which may give them a right to challenge the deceased estate) they may be ‘entitled’ to be receiving maintenance.

If this is the case then the former spouse may fall within the category of persons entitled to challenge (under the extended definition of 'spouse').

In this regard, in the case of Ryan v Harrison [2020] QSC 267 it was confirmed:

1. 'Entitlement' must be an entitlement enforceable either by contract or court order (see Re Lack [1981] Qd R 112).
2. The entitlement will ordinarily need to involve a rightful claim or title to it; that is an established claim as opposed merely to an asserted or alleged one (see Krause v Sinclair [1983] 1 VR 73 and Sarich v Erceg [1984] WAR 11).
3. Where there is no order of the family court requiring continuing maintenance at the time of death, a former spouse must prove there was a contract or agreement between them and the deceased that created an entitlement to be receiving maintenance.

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 the post today is riffed from the David Bowie song ’Blackstar’. View here:

NSW implications for all changes** of trustee

There is a specific provision of the New South Wales and ACT Duties Acts which require that, in order to qualify for the stamp duty exemption where a change of trustee is occurring, the new trustee needs to be excluded as a beneficiary of the trust.

This means the trust deed needs to contain an express provision excluding any new trustee from being a beneficiary.

Advisers practicing in New South Wales or the ACT are usually acutely aware of that limitation being in most of their trust deeds and of the resulting need to look at who may have been a previous trustee to see whether any beneficiaries are excluded.

The issue comes up quite commonly because several of the popular online trust deed providers use trust deeds from Sydney law firms, meaning that even though the trust deed might be ordered online by an accountant in Western Australia or a lawyer in South Australia, if the deed provider is based in New South Wales, the deed they’re providing probably contains this exclusion without the adviser being aware of it.

There are two reasons we need to know whether the deed contains the exclusion.

Firstly, if we are changing the trustee and we appoint a new trustee who is a beneficiary of the trust, then that change of trustee may be invalid or it may trigger unintended tax or stamp duty consequences.

Secondly, we may have individuals who were previously a trustee of the trust and who at face value appear to be a beneficiaries, but who were actually excluded as a result of the clause.

For instance, if Mum and Dad were individual trustees but they subsequently retired and appointed a corporate trustee, even though they may be named as beneficiaries of the trust, the exclusion clause may have made them ineligible to receive income or capital distributions.

An exclusion like this can have an impact from a family law perspective and also from a tax perspective, if we have been purporting to make trust distributions to individuals thinking they were beneficiaries, not being aware of this exclusion hidden within the trust deed.

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 David Bowie song ‘Changes’.

View here:

Statute barred** loans and structuring advice

Last week’s post touched on statute barred loans from a Division 7A perspective.

The issues in relation to statute barred loans are often highly relevant in the context of estate planning and asset protection exercises.

In particular, amounts that have often built up over many years can in theory become unrecoverable automatically six years after they were initially made.

In a practical sense, so long as all parties to the arrangement are aware of the automatic forgiveness, steps can normally be taken to ensure that there are no unintended consequences triggered.

For example:

1. If the existence of the loan is acknowledged at any point, this automatically restarts the 6-year period.
2. Acknowledgement can be achieved simply by making even a nominal repayment of the loan or charging of interest.
3. There is also the likelihood that if the parties to the loan have signed the financial statements where the loan is evidenced, this will be sufficient to create the requisite acknowledgement.
4. Care must however be taken in relation to the previous point, for example, if there is a loan between a trust and a beneficiary, and that beneficiary is also a director of the corporate trustee of the trust, then there would appear to be a valid argument that notification has been given.
5. In contrast, if the loan is between the trust and a beneficiary, who is not otherwise in any way involved in the trust, then proving that they were aware of the loan and acknowledged its existence may be impossible.

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 David Bowie song ‘It’s no Game (Part 2)’. View hear (sic):

Changes** and ownership structures and the bankruptcy rules

Recent posts have looked at various aspects of the bankruptcy regime in relation to jointly owned assets.

As set out in last week's post, from an asset protection perspective, it is generally preferable to own assets with other parties on a tenants in common basis, so that if a co-owner dies, their interest can be distributed to a testamentary trust.

Arguably the leading case in this area is Peldan v Anderson [2006] HCA 48.

As usual, if you would like a copy of the case please contact me.

In this case, the wife as one of the co-owners of a house, who was in no financial difficulty, was diagnosed with an illness that meant she did not have long to live.

Driven largely by asset protection objectives, given the husband’s financial difficulties, the two owners decided to change the ownership structure of the property from joint tenants to tenants in common.

This meant that the husband as co-owner who was also at risk would not receive 100% of the property automatically on the death of his wife, rather her 50% would pass via a will, which was structured to include a testamentary trust.

The High Court held that this change in ownership was not a transaction that was void against the trustee in bankruptcy and therefore only the husband’s 50% interest was exposed to his creditors.

** for the trainspotters, the title here is riffed from the David Bowie song ‘Changes’.