Are there no limits** to an Attorney’s Powers?

Previous View posts have looked at various aspects of powers of attorney..

A validly appointed financial attorney has extremely wide powers in relation to what they may do on behalf of the donor.

One question regularly raised concerns the limitations imposed on attorneys.

While the rules in each state are slightly different, generally speaking, an attorney is prohibited from doing any of the following on behalf of a donor:

1. acting as a director in place of the donor – a directorship is a personal role and cannot be delegated;
2. voting in government elections;
3. signing affidavits in relation to information that is known only to the donor;
4. marrying or divorcing a spouse;
5. making a will on behalf of the donor; and
6. entering into transactions where the donor’s interests conflict with the attorney's, unless the document appointing the attorney waives potential conflicts of interests.

While most of the prohibitions on attorney conduct are clear, there remains some confusion about the ability of an attorney to implement or change a binding death benefit nomination for the donor’s superannuation entitlements.

Some of the key issues in this regard have also been explored in other View posts.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, ‘no limits’ is a line from the Bjork song from 2007, namely ‘Hope’ listen hear (sic):

Trustee decision making: will you make the right decision this time?**

The decision in Finch v Telstra Super Pty Ltd [2010] HCA confirms the situations where a decision of a trustee can be reviewed by a court.

In very broad terms, the position that seems to have evolved in this area, is that the exercise of a discretion by a trustee is not subject to review by the courts unless one of the following three factors is present:

1. The trustee does not act in good faith;
2. The trustee does not give real and genuine consideration to the exercise of the discretion and the purposes for which the discretion was granted; or
3. Reasons for the decision are provided by the trustee, but those reasons are unsound.

Furthermore, a trustee's decision cannot be reviewed unless on the material before the trustee it is one that no reasonable trustee could have made.

Given this test, best practice dictates trustees adopt a disciplined and detailed analysis of all possibly relevant issues before reaching a decision and clearly document their considerations.

Thus, as further explained in Scott v National Trust for Places of Historic Interest or Natural Beauty [1998] 2 All ER 705, the matters a trustee should consider may not be limited to simple matters of fact but will, on occasion (indeed, quite often) include taking advice from appropriate experts, whether the experts are lawyers, accountants, actuaries, surveyors, scientists or whomsoever may be relevant.

While documenting all such investigations is critical, it is generally preferable to not formally record the reasons for the final decision as to do so unnecessarily exposes the trustee to a challenge based on having unsound reasons.

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 Smiths song ‘London’.

Listen here:

Surviving spouses attacking the estate of the first to die: Breaking it down (again)**

Last week's post considered the case of Sarant v Sarant [2020] NSWSC 1686.

The decision expressly also stated that in family provision applications (or testator family maintenance claims) the 'principles' or 'general principles' set down in previous decisions are not intended to be elevated into rules of law, propositions of universal application, or be viewed as a rigid formulae.

In other words, the jurisdiction of the court should not be unduly confined and the discretion should not be constrained, by statements of principle found in aspects of other decisions that are not at the core of the case, or by preconceptions and predispositions.

Ultimately then, decisions of the past do not, and cannot, put any fetters on the discretionary power of the court, which is left largely unfettered. That is, what is provided via previous cases is a guide and should not be used to turn a judge into a tyrant.

With the warning immediately above, the court did however make the following comments in relation to a claim by a spouse, particularly of a marriage of long duration, that it said were useful to remember:

1. A spouse, particularly of a long marriage, has a primary right to be considered by the deceased, but the extent that they should provide for the surviving spouse is to be governed by their needs, both at present, and in the foreseeable future and also the needs of any competing claimants.
2. The capacity of the surviving spouse to provide for those needs must also be considered.
3. The general duty of the deceased to the spouse, to the extent to which their assets permit them to do so, is to ensure that the spouse is secure in the matrimonial home, to ensure that they have an income sufficient to permit them to live in the style to which the spouse is accustomed, and to provide the spouse with a fund to enable them to meet any unforeseen contingencies.
4. Generally speaking, the amount should be sufficient to free the mind of the spouse from any reasonable fear of any insufficiency as they grow older and their health and strength fail (see Permanent Trustee Co Ltd v Fraser (1995) 36 NSWLR 24 and Elliott v Elliott (Court of Appeal (NSW), 24 April 1986, unrep).
5. Concern as to the capacity of the spouse to maintain themselves independently, and autonomously, may also bear upon the notion of what is proper provision (see Richard v AXA Trustees Ltd [2000] VSC 341).
6. Where, after competing factors have been taken into account, it is possible to do so, a spouse ought to be put in a position where they are the master, or mistress, of their own life, and in which, for the remainder of their life, they are not beholden to beneficiaries (see Langtry v Campbell (Supreme Court (NSW), Powell J, 7 March 1991, unrep).
7. Greater weight may be given to the claims of parties who have entered 'a formal and binding commitment to mutual support' (see Marshall v Carruthers; Marshall v Marshall [2002] NSWCA 47, In the Matter of the will of G.G. Sitch (deceased) [2005] VSC 308 and Sellers v Scrivenger [2010] VSC 320).

Thus, in Steinmetz v Shannon [2019] NSWCA 114 the second wife of the willmaker (who had spent the majority of their adult life together) was awarded by the court a legacy of $1.75M, out of an estate of $6.8M otherwise left to the adult children of the willmaker from an earlier relationship. This provision replaced the gift under the will of an indexed annual annuity of $52,000 for the remainder of the surviving wife's lifetime.

The court specifically confirmed:

1. A key issue is how freedom of testamentary disposition is to be factored into an assessment of whether the provision made by a willmaker is adequate for the proper maintenance, education or advancement in life of a claimant.
2. The determination of the adequacy of the provision of a claimant is a matter for the court and it is to be determined as at the time the court is considering the application, rather than as at the time the willmaker made the will - this point alone may provide a reason for interference.
3. The rules the court apply should not be confined by notions of 'reluctance to interfere with freedom' of willmaking (see Slack v Rogan [2013] NSWSC 522).
4. In applying the rules, a court may consider what the outcome would have been under a matrimonial property adjustment under the Family Law Act. This is because, although the regimes are not identical, there is a substantial overlap.
5. Furthermore, there is neither social sense nor legal logic in parallel regimes that would have the consequence that a surviving spouse of a relationship which endures is left worse off than would have been the case had there been a separation immediately before death. That is, it should be assumed that the community expects a willmaker to provide for their spouse financially in a manner that is no less than the entitlement that would have arisen on a matrimonial property adjustment.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** for the trainspotters, the title today is riffed from the Tears for Fears tune ‘Break it down again’.

View here:

Spouses challenging each other's wills: Everything she (or he) wants**

Last week's post considered the right of a current surviving spouse to challenge a deceased estate (often referred to as family provision or testator family maintenance applications) on the first of the couple to die.

The case of Sarant v Sarant [2020] NSWSC 1686, provides an instructive iteration on this theme in a situation where the couple had been separated, living in the same house, for 4 years before the wife's death.

Other key aspects of the factual matrix included:

1. The main asset of the estate was a 50% share of the house the couple lived in, which was owned as tenants in common at the date of death, due to a unilateral severance of the joint tenancy by the wife prior to death.
2. The marriage between the couple was 44 years in length before their separation.
3. The couple did not divorce and there may have been some level of reconciliation close to the time of the wife's death.
4. The wife's will gave her estate to the 2 daughter's of the marriage, who the husband was estranged from.

In a very detailed judgment the husband was awarded the wife's 50% interest in the house, adjusted by the need for him to make a payment to the estate and also provide a charge over the property to his daughters entitling them to 30% of the sale price on ultimate disposal.

The court also confirmed:

1. The court expects legal representatives to give real consideration to the merits of the other party’s case and provide reasoned submissions on what is, or what is not, “adequate and proper provision in all the circumstances of the case” when asked.
2. The duty to the court of a legal representative requires them, where necessary, to restrain the unreasonable enthusiasms of the party represented, which, ultimately, is in the party’s best interest and is more likely to ensure that a just result is reached sooner and with less expense (see Thomas v SMP (International) Pty Ltd [2010] NSWSC 822).
3. The impact of unfulfilled promises or disappointed expectations may sometimes be relevant when a family provision claim reaches the stage that the moral duty of the deceased is under consideration (see Re Stojanovska; Stojevski v Stojevski [2020] VSC 702).
4. As a rule, when arrangements are made between close relations, for example, between husband and wife, there is a presumption against an intention of creating any legal relationship. This is not a presumption of law, but of fact. It derives from family members generally intending to rely solely on family ties of mutual trust and affection. There may, however, be circumstances in which the presumption, like all other presumptions of fact, can be rebutted (see Jones v Padavatton [1968] EWCA Civ 4 and Balfour v Balfour [1919] 2 KB 571).
5. The inadequacy of provision is assessed at the time when the court is considering the application, however, considerable weight should be given to the assessment of a capable willmaker, who has given due consideration to the claims on their estate (see Sgro v Thompson [2017] NSWCA 326).
6. The court’s discretion in making an order is not untrammelled, or to be exercised according to idiosyncratic notions of what is thought to be fair, or in such a way as to transgress, unnecessarily, upon the deceased’s freedom of will making (see Pontifical Society for the Propagation of the Faith v Scales and McKenzie v Topp [2004] VSC 90).
7. The bond of matrimony gives rise to a testamentary obligation, which can not be assumed comes to an end on the parties separating without them being divorced, at least where there has been no conduct by the applicant disentitling provision (see Kalmar v Kalmar [2006] NSWSC 437).
8. Where a spouse is elderly, generally they should not be given a large capital sum, because this may result in a substantial benefit passing to their chosen beneficiaries, which is contrary to the wishes of the deceased (see White v Barron [1980] HCA 14), although the fact that the provision of a capital asset to the spouse may, incidentally, enable them, in due course, to pass that asset contrary to the deceased’s wishes, is not determinative of the propriety of such a provision (see Worladge v Doddridge (1957) 97 CLR 1).

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 Wham! song 'Everything she wants'

View here:

Spouses challenging each other's estates (that is, when the music's over**)

Previous View posts have considered various aspects of the right for someone to challenge a deceased estate (often referred to as family provision or testator family maintenance applications).

Another important aspect of the issues in this regard is the ability of a (then current) life spouse to challenge an estate of the first of the couple to die.

In relatively modern times, the decision in Luciano v Rosenblum (1985) 2 NSWLR 65 was often quoted as summarising the position of the surviving spouse as follows:

'… as a broad general rule, and in the absence of special circumstances, the duty of a willmaker to his widow is, to the extent to which his assets permit him to do so, to ensure that she is secure in her home, to ensure that she has an income sufficient to permit her to live in the style to which she is accustomed, and to provide her with a fund to enable her to meet any unforeseen contingencies'.

The later decision of Neale v Neale [2015] NSWCA 206 also confirmed generally the correctness of the above approach. However, in the context of a dispute between a second spouse and children of the first relationship of the willmaker, the court also confirmed that the 'rule' should be considered with the following qualifications:

1. The Luciano case involved only some of the estate passing to the spouse, whereas here the entire estate was in fact left to the second wife, and it was the adult children of the first relationship seeking further provision.
2. It is unhelpful, and sometimes misleading, to adopt the value laden language of a different age and culture (in this context, 1985 is a long time ago; as too the challenge mentioned by the court by 'deserving widows' as perceived by 'middle class morality' presented by Eliza Doolittle’s father in Bernard Shaw’s Pygmalion).
3. To describe a party as a 'deserving widow' is to express a conclusion which will reflect fact-specific findings; it is not to state a freestanding criterion.
4. Any references to the Luciano case confirming 'a broad general rule', qualified only by 'the absence of special circumstances', that cause the assumption of an independent standard, are inconsistent with the exercise of discretion required of the court by the legislation in this area.
5. Any such general rule would involve a conclusion reflecting only part of the statutory exercise imposed on the courts in this area.
6. That is, the court must consider a widow’s circumstances balanced against the circumstances, needs and moral claims of the claimants and other beneficiaries.
7. Ultimately then, to treat the Luciano case as establishing a legal principle, or a standard, runs the risk of deflecting the court from the full exercise of its functions.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** for the trainspotters, the title today is riffed from a song by the Doors being ‘When the Music's Over'.

View here:

Legal Professional Privilege** in adviser facilitated estate planning

A question came up recently from a financial planning licensee about whether an adviser attending an estate planning meeting between a client and their lawyer inadvertently waives the client’s legal professional privilege over those estate planning discussions.

As mentioned in last week’s post, legal professional privilege protects communications between a client and their lawyer from third parties, if the communications are brought into existence for the dominant purpose of obtaining legal advice. However, legal professional privilege over communications between a lawyer and a client can be waived if the information is disclosed to a third party.

Broadly we confirmed that we do not believe legal professional privilege is particularly relevant in the context of most estate planning discussions with clients. In particular, the advice generally provided to the client in a meeting is unlikely to be of the nature that legal professional privilege would need to be claimed. Furthermore, the legal documents (i.e. the final wills and powers of attorney) themselves are not generally privileged.

Indeed, in an adviser facilitated estate planning scenario, the client will have, in most cases, already disclosed most (if not all) of the information that will be discussed in the online meeting to the adviser as part of the initial fact finding process before the lawyer commences the legal aspects of the estate planning exercise.

We therefore believe that the risk of any implied waiver of legal professional privilege by having a client’s adviser sitting through the online meeting with the client is low and it would be an unnecessary step looking to avoid having the adviser attend the online meeting.

As most readers will be aware, our strong preference is to have the adviser attend the meeting as, generally speaking, their insights about the appropriateness of the estate planning strategy for the client’s family and financial circumstances is highly valuable.

** For the trainspotters, last week I mentioned that ‘privilege on privilege’ is a line from one of my favourite privilege related songs, from the Church and their 1986 album Heyday, namely ‘Myrrh’. Based on further research, this song is not simply one of my favourite privilege related songs, it is the only decent song I can find, thus listen again hear (sic):

Legal privilege (on privilege)** and estate planning

Often one of the most important aspects of advice provided by lawyers is the ability for that advice to remain private and confidential to the client on the basis of legal professional privilege.

Particularly in relation to tax planning and asset protection, the ability to maintain confidentiality can often be very important and the case of Nolan v Nolan [2013] QSC140 is an important example of this principle. As usual, if you would like a copy of the decision please contact me.

In summary, the situation in this case was as follows:

1. a wife and husband had been married for some years;
2. following a breakdown in their relationship, the wife claimed an interest in the farming property of the husband's parents;
3. because the husband's parents were still alive, the wife tried to gain access to their estate planning documentation; and
4. the parents of the husband sought to deny access to the documents on the basis of legal professional privilege.

In deciding the case, the court confirmed:

1. the dominant purpose for the creation of various estate planning documents including letters of advice and handwritten notes, both by the estate planning lawyer and the parents, was to obtain legal advice;
2. on this basis, legal professional privilege could apply to deny the wife the ability to access the documents;
3. unfortunately, because the lawyers for the parents did not raise the issue of privilege until after the relevant documents had been disclosed, the court held that notwithstanding the documents could have otherwise retained their confidentiality, the disclosure of them had waived the protection of privilege; and
4. importantly, it was also confirmed that it is not necessarily automatically the case that wills and related files are protected by legal professional privilege.

** For the trainspotters, ‘privilege on privilege’ is a line from one of my favourite privilege related songs, from the Church and their 1986 album Heyday, namely ‘Myrrh’ listen hear (sic):

Family Court: ‘I’ve Got the Power’** to make orders against third parties

The powers of the family court in relation to structures such as trusts are potentially extensive.

At a simplistic level, there is the specific power to force the change of a trustee of a trust.

Potentially, there is also the ability to bring forward the vesting date of a trust to require it to end immediately and thereby crystallise the interests of a party to the relationship.

One leading case in this regard is the decision in AC and ORS & VC and ANOR [2013] 93 FLC 540 FamCAFC 60. As usual, if you would like a copy of the decision please contact me.

Briefly in that case:

1. The husband’s mother was in control of the corporate trustee and the trust at the relevant times.
2. The husband and his former wife had a fixed entitlement to the capital of the trust on its vesting, which, at the time of the property settlement, was still 50 years in the future. That is, the trust was not a traditional discretionary trust where there are no fixed entitlements.
3. The court found that the entitlement was rightly considered property of the parties and therefore ordered the trustee to vest the trust.
4. The Attorney General intervened in the proceedings, given that the practical result of the decision was that the property entitlements of a third party were substantially altered.
5. Critically, it was held that the husband and wife did in fact have an interest in the trust property despite the fact that it was accepted that the control of the trust was with the husband’s mother.
6. In other words, the ability to alter the structure of trusts can be made even where a party to the marriage is not in control of the trust.
7. In a more traditional discretionary trust however there may not be the required nexus between the trust assets and the parties to the marriage.
8. For completeness however, in this particular case, the forced vesting of the trust ultimately failed due to the appeal court’s conclusion that procedural fairness had not been given to the husband’s mother, particularly given that the parties to the marriage had other assets that could have likely achieved financial closure between the parties without the need to impose orders on a third party

** For the trainspotters, ‘I’ve Got the Power’ is a song by Snap! from 1990 see hear (sic):

I’m gonna break into your heart** (and anything else you get): family law and post separation inheritances

One ongoing area of contention (admittedly amongst many others) in family law is how post-separation inheritances are treated on a matrimonial property settlement.

In very broad terms, the Family Court is required to consider all relevant factors before distributing any share of one party’s inheritance to their former spouse.

Depending on the exact factual matrix, the Courts will, in broad terms, take one of the following approaches:

1. Completely ignore the inheritance for all purposes in relation to the division of matrimonial property.
2. Exclude the inheritance from the division of matrimonial property, however make an adjustment on the division of the matrimonial property to take into account the access to the inheritance that one spouse will have.
3. Include the inheritance as part of the pool of property to be distributed between the parties, while making some adjustment to acknowledge the ‘contribution' that one party made to bringing the asset to the matrimonial pool.
4. Simply including the inheritance as part of the matrimonial asset pool, with no specific adjustments.

However, based on the published cases to date, it is important to note that it is very rare for the recipient of an inheritance or similar ‘windfall' to have those assets completely quarantined, regardless of when they are received up until the final date of the property settlement.

** For the trainspotters, ‘Break into your heart’ is a song by Iggy Pop from his album with Josh Homme (QOTSA) in 2016 ‘Post Pop Depression’ see hear (sic):

Full names in wills – do the right thing**

Over the last few days, we have had some difficulties in progressing with the administration of an estate for a client where the deceased will did not set out his full name.

Although it sounds like a very pedantic issue, the courts are reluctant to allow wills to be granted probate unless there is complete certainty around a person’s name.

Some of the issues that need to be considered in this regard include:

1. If there is a nickname that someone uses all the time, this should ideally be mentioned in the will.
2. Ideally, the name in the will should exactly match government records (for example, on the birth certificate or marriage certificate for the will maker, and thus in turn, what the death certificate will state).
3. To the extent there is any inconsistency between government records, this should ideally be explained or clarified in the will itself.
4. If the government records do not match the will and this is known at the time of lodging probate, look to explain the inconsistencies proactively with the court when making the application.

** for the trainspotters the title of the post today is riffed from the late 1980’s and ‘Redhead Kingpin’, see:

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:

'The Vibe' and ruling from the grave: nothing breaks (like a heart)**

The legal doctrine of The Vibe was originally argued in the movie The Castle.

Arguably however it essentially captures the concept of courts making decisions driven by 'public policy' or what they believe to be 'in the public interest'.

One aspect of estate planning and asset protection that brings these concepts into sharp focus is a willmaker imposing conditions on provisions under their will about the personal relationships of a beneficiary.

One of the leading cases in this area dates from the mid 1800s and confirms that a trust (such as a life interest) for a surviving spouse can be structured to end automatically if the surviving spouse ceases to be 'single ... and living a chaste life' (see - Lloyd v Lloyd (1852) 2 Sim (NS) 255).

Similarly in Ramsay v Trustee Executors and Agency Co Ltd (1949) 77 CLR 321, a will gifted proceeds in trust “... to pay the income ... to my son ... for such period ... as he shall remain married to his present wife ... and on the termination of such period in trust for my ... son absolutely provided however that should my ... son predecease his said wife during such period ... my estate shall go to my ... nephew ... and my sister ... in equal shares.”

The court confirmed that:

1. This provision contained nothing which offended against public policy as having, or tending to have, an adverse effect on the son’s marriage and it was wholly valid.
2. The will was drafted to secure an income to the son during the marriage, and to prevent his wife obtaining any interest, either directly under the will, or indirectly through her husband’s will, in the corpus assets and there is nothing illegal in such an intention—it is simply a case of a willmaker choosing their beneficiaries.
3. By way of an analogy, it would be contrary to all experience to say that a remainderman of a life interest under a will, under which a person is entitled to property on the death of the life tenant, is exposed to a temptation to hasten the death of the life tenant.
4. Most people in a civilised community respect the sanctity of marriage as well as of life, and would not be induced by pecuniary gain to destroy one or the other. It is not reasonable to suppose that the terms of the will here create any practical conflict between the son’s duty as a husband and his interest as a beneficiary – future illegal or immoral activity (that is deliberately ending the marriage) is not to be presumed.

More recently decisions have upheld partial restraints on marriage, such as preventing marriage to a person with particular characteristics (including race and religion). For example, in Seidler v Schallhofer [1982] 2 NSWLR 80, there was an agreement which contemplated the continuation of a de facto relationship for a specified period but then required that the parties either marry or end the relationship. It was held that the agreement simply formalised the financial aspects of the relationship and was appropriate given current public policy notions.

More recently again is the decision of Ellaway v Lawson & Anor [2006] QSC 170. This case involved a will where the entitlements of one daughter were conditional on her divorce from her then current husband, or his death (assumedly due to natural causes), whichever occurred first.

Arguably applying The Vibe it was held the reason for the approach was the mother's desire to protect the daughter's finances - and not a wish to see the daughter get divorced or the son in law die. On this basis the provisions in the will were held to be valid.

Similarly, the decision in Jones v Krawczyk [2011] NSWSC 139 also involved a will where a daughter was prohibited from being a potential beneficiary of a testamentary trust so long as she was married to, or living with, her husband (his death was not specifically mentioned). The decision based on public policy, was that the restriction was valid as a being motivated by a desire to protect the daughter, rather than trying to force the daughter to get a divorce.

In contrast however, there remain situations where the courts will strike down agreements that will offend the public interest, perhaps the highest profile example being the claim bought by a form of 'defacto spouse' against married businessman Richard Pratt (see Ashton v Pratt (No 2) [2012] NSWSC 3).

In this case, Ashton sought to enforce a contract for 'mistress services' in return for Pratt establishing a trust for her and her children with $5 million and an ongoing income stream.

In rejecting the claim the court held that the extent of the relationship was simply for ‘meretricious sexual services’. The court's view was that such arrangements were contrary to public policy and thus illegal and unenforceable.

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 Mark Ronson (featuring Miley Cyrus) song ‘Nothing breaks like a heart’.

View here:

Being stuck** with ’fixed’ testamentary trust wills

Previous View posts have touched on the concept of a basic form ‘fixed’ testamentary trust where the assets are required to pass directly to infant beneficiaries on them attaining a certain age (often 18).

One issue that advisers need to be aware of in this area however is that even where, on the face of the document, the age at which an infant beneficiary might appear to be entitled is over 18 (for example if the age of 25 is nominated) there can be situations that as soon as the relevant beneficiaries reach the age of majority (18) they can legally require the assets be transferred to them.

In other words, even though the will may mention that entitlements are not to be taken until the age of 25, a beneficiary may be able to force a trustee to distribute assets to them on them turning 18 years of age.

The rules in relation to this issue can be complex, however essentially there are cases that support the argument that if there is no contingent requirement that needs to be satisfied by the beneficiary then they will be able to force the distribution of the assets to them.

** For the trainspotters, the title of today's post is riffed from the Ned’s Atomic Dustbin song ‘Stuck’.

View here:

Guardianship appointment under wills – another application of The Vibe **

Last week, an adviser (on behalf of a client) questioned how binding the nomination of a guardian under a will for infant children is likely to be.

The simple answer is that in a practical sense our experience is that the nomination of a guardian is almost always followed. Arguably however this experience is nothing more than reliance on the well known legal principle ‘The Vibe’.

The strict legal answer is that the courts retain the final and absolute authority to determine who the guardian of an infant child should be with their only responsibility to determine what is in the best interest of the child.

Obviously, in a situation where both parents have died and there is a nomination of a guardian under their wills, the courts will normally put a significant amount of weight on this nomination. Despite the court’s inherent power, it is somewhat unusual to have a situation where the nomination under the will is not followed.

** for the trainspotters Dennis Denuto and his vibe legal principle need no introduction, see:

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’.

View here:

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’.

View here:

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.

View here:

‘Where’s the proof man?’ Powers of Attorney and Conflicts of Law **

Continuing the theme over recent weeks of conflicts of law between various jurisdictions, the way in which the powers of attorney provisions operate in each Australian state are very relevant.

Effectively, while each state has its own legislation (and completely unique forms) for powers of attorney, there is also legislation that is designed to ensure that each state will acknowledge each other state’s documentation.

While this theoretical position is comforting, practically the situation is anything but satisfactory.

For example, the enduring power of attorney document in New South Wales is less than five pages. The equivalent document in Queensland runs to around 20 pages.

For third parties (including banks), who are used to (in New South Wales) seeing a very short document, they will often be quite unsettled to be presented with the much longer Queensland version.

In a practical sense, we quite often therefore arrange for enduring powers of attorney to be prepared in each state where the client has substantive investments, particularly if they own real property in more than one jurisdiction.

A more detailed explanation of how to craft multiple, complementary, powers if attorney is explored in our previous post. Please contact me if you would like access to this and can not easily locate it.

** For the trainspotters, ‘Where’s the proof man?’ is a line from Lou Reed’s song from 1989, ‘Dirty Boulevard’.

View here:

Only one thing ? – constitutions + division 7A provisions **

A previous post has considered the various trust deed providers that have from time to time contained a clause which seems to automatically convert an unpaid present entitlement into a loan (see our post from 9 December 2010). This week I was reminded of a similar difficulty with some constitutions offered by similar providers.

In particular, while the Tax Office has for some years accepted the ability for a company's constitution to set out the terms by which any loan by the company is made for Division 7A purposes, care must always be taken to ensure that the provisions of this loan (or facility) agreement do in fact reflect the intent of the parties.

A number of these types of facility agreements require compliance with the Division 7A provisions, regardless of the financial status of the relevant company. For example, even where a distributable surplus does not exist (and therefore the tax rules would not otherwise apply), many of these constitutions can in fact require compliance with the Division 7A rules.

While perhaps not so memorable as the ‘read the deed’ mantra for trusts, similarly we have a mantra of ‘read the constitution (& Tax Act)’ when considering company related issues.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, ‘The One Thing’ is a song by INXS from 1982.

View here:

Who’s (are you**) a beneficiary?

When we’re dealing with a discretionary trust, one of the first things we need to do is to identify who the beneficiaries are.

Is our client (or their spouse) in fact a beneficiary of the trust that we’re dealing with?

There are some common tricks and common issues that we should be keeping an eye out for, including ensuring we have identified all variations to the deed since establishment.

We also need to be aware of a case by the name of Yazbek, which outlines the approach that the courts take when they are asked to consider who the beneficiaries of a trust are.

Yazbek is significant because the court confirmed that a person who is eligible under a trust deed to receive income or capital from a trust is a beneficiary, notwithstanding that they may not have actually received anything from the trust at that point in time.

The Yazbek decision was handed down in the context of an assessment which had been issued to an individual beneficiary.

The ATO normally has a two-year period after that assessment was issued in which to issue an amended assessment (where they have identified some additional tax they believe should have been included in the taxpayer’s return).

However that standard two-year window is extended to four years where the individual involved is the beneficiary of a trust.

In Yazbek, ATO was trying to issue an amended assessment three years after the original assessment had been issued. So it was outside the two-year window, but within the four-year window.

The taxpayer in Yazbek hadn't received any distributions from the discretionary trust that the ATO contended he was a beneficiary of.

This was a discretionary trust which was controlled by other family members.

He was included in a wide class of discretionary beneficiaries, but had not actually received anything.

His contention was that in order to be a beneficiary of a trust, he needed to have actually received something from it.

Now the court was quite quick to shut that argument down and said that even if a person has not received any income or capital from the trust for the entire period it has existed, if they are within a class of persons who are eligible to receive income or capital at the trustee’s discretion, they are still a beneficiary of the trust.

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 Who song ‘Who are you?’.

View here: