EPAs and conflicts of interest

With the aging population, conflicts of interest arising particularly in relation to the use of an enduring power of attorney (EPA) are becoming far more prevalent.

Previous posts have looked at cases like Stanford. Recently we had a client situation that underlined how critical it is to include a conflict of interest provision in an EPA. This style of provision is not standard in any government form and indeed many lawyers do not choose to include such a provision.

The situation the client faced was as follows:

1. The main asset in the estate was a family home which was owned as joint tenants. 
2. The husband lacked capacity due to advanced dementia, although was otherwise in good health. 
3. Our client (the wife) wanted to include testamentary discretionary trusts under her will to provide for the children of the relationship. 
4. The husband’s will was a very basic document and did not allow for testamentary discretionary trusts. 
5. To ensure that half the value of the house would pass into an appropriate structure if the wife predeceased the husband she was wanting to rely on her appointment as the husband’s EPA to sever the joint tenancy (for a summary of the distinction between owning assets as joint tenants and tenants in common see http://mwbmcr.blogspot.com/2010/02/what-exactly-does-jointly-mean.html). 
6. Due to an appropriately crafted conflict of interest clause in the EPA, the wife was able to quickly and easily implement the severance and avoid some of the more complex solutions that might also have been available such as the unilateral severance of the tenancy or applying for a court ordered will (the court ordered will process is featured in previous posts: http://mwbmcr.blogspot.com/2013/08/court-drafted-wills.html and http://mwbmcr.blogspot.com.ar/2013/09/using-court-drafted-wills-to-achieve.html). 

Until next week.

Image credit: Schnaars cc

Divorce and 'jointly' owned assets

Image credit: Stefano Corso

In a recent post, the impact of separation following a relationship breakdown on estate planning arrangements was considered. 

One particular aspect that arose recently in this regard involved an adviser who identified that many assets owned by a couple who had recently separated were owned as joint tenants. 

While the adviser was quick to ensure updated will and power of attorney documentation was put in place, at the same time, for the benefit of both spouses, steps were also taken to sever the joint tenancy ownership and convert it to tenants in common. 

An earlier post summarises the distinction in this regard, and it is critical that joint ownership structures be considered as part of an estate planning review following a relationship breakdown. 

The other aspect in this regard is the often forgotten requirement that before a married couple can in fact divorce, there must be evidence of an irretrievable breakdown in the relationship that has lasted more than 12 months. 

As touched on in last week's post, while divorce will often partially revoke a will to the extent that it benefits a former spouse, given the 12-month 'waiting period', the conservative approach is to always update estate planning documentation as soon as it is clear that there is no real prospect of a reconciliation following the initial separation. 

Until next week.

De facto relationships - further examples

Further to last week’s post, the list below sets out some of the specific circumstances that are taken into account by the courts to determine whether a relationship does amount to a de facto relationship.

Circumstances of the relationship taken into consideration include any or all of the following:

(a) the duration of the relationship;
(b) the nature and extent of their common residence;
(c) whether a sexual relationship exists;
(d) the degree of financial dependence or interdependence, and any arrangements for financial support, between them;
(e) the ownership, use and acquisition of their property;
(f) the degree of mutual commitment to a shared life;
(g) whether the relationship is or was registered under a prescribed law of a State or Territory as a prescribed kind of relationship;
(h) the care and support of children; and
(i) the reputation and public aspects of the relationship.

A link to the above definition is as follows:
http://www.austlii.edu.au/au/legis/cth/consol_act/fla1975114/s4aa.html

Until next week.

What is a de facto?

Following on from last week’s post, I thought it would be useful to also summarise the definition of 'de facto'.

This particular definition is taken from the Family Law Act (Section 4AA).

In summary, a person will be in a de facto relationship with another person, if:

(a) the persons are not legally married to each other; and

(b) the persons are not related by family (see subsection (6)); and

(c) having regard to all the circumstances of their relationship, they have a
relationship as a couple living together on a genuine domestic basis.

A link to the above definition is - http://www.austlii.edu.au/au/legis/cth/consol_act/fla1975114/s4aa.html

Until next week.

What is a spouse?

The issue that what kind of relationship satisfies the definition of a 'spouse' has been coming up increasingly regularly.

The Tax Act sets out one of the most used definitions in this regard and I thought it useful this week to extract that definition in its entirety, given that it has been amended relatively recently.

A "spouse" of an individual includes:

(a) another individual (whether of the same sex or a different sex) with whom the individual is in a relationship that is registered under a State law or Territory law prescribed for the purposes of section 22B of the Acts Interpretation Act 1901 as a kind of relationship prescribed for the purposes of that section; and

(b) another individual who, although not legally married to the individual, lives with the individual on a genuine domestic basis in a relationship as a couple.

Until next week.

What difference does 1% make?

Last week we were walking through an asset protection exercise with a business owner and one of the recommendations was that the family home (currently owned by the wife and husband as joint tenants) should be converted to tenants in common ownership and 49% of the total interest of the house owned by the husband was then to be transferred to the wife.

An earlier post touches on the difference between owning an asset as joint tenants as opposed to tenants in common - a summary of the distinction is available via the 'core services' section of the View Legal website (www.viewlegal.com.au).

Today’s post focuses on the reasons why an at-risk spouse might retain a 1% interest in a property.

The main reasons that an at-risk spouse would retain a nominal percentage interest can include:

1. Protection against spouse or relationship difficulties.

2. Protection against the majority owner seeking to encumber the property. In particular, if there is (for example) a gambling issue that arises, no mortgage may be taken out over the property without the consent of the spouse who owns the nominal interest.

3. For ease of security arrangements – often a financier will prefer to see the at-risk spouse’s name on title documentation, even if their actual ownership interest is nominal.

4. Stamp duty savings. This issue is not as relevant as in days gone by because generally there is no longer any substantial stamp duty benefit, even if both spouses retain an interest in the property.

In relation to stamp duty, it should be noted that in most states there are concessional provisions which apply where one spouse who owns 100% of a family home and transfers 50% (but no more or less) to their spouse and this is another concept that we may deal with in a future post.

Until next week.

What exactly does 'jointly' mean?

On three separate occasions last week, the issue of 'jointly' owned assets arose.

A concise summary of the difference between owning something as joint tenants and tenants in common can be found via the 'core services' section of the View Legal website (viewlegal.com.au).

Practically, the distinction normally becomes most relevant at times when it is too late to implement a change – for example on death, litigation or relationship breakdowns.

As a general rule (although there are always exceptions), for most business owners, professionals or people in long term relationships, jointly owned assets should be owned as ‘tenants in common’ to provide the greatest amount of flexibility. This conclusion is not always the case and in fact often the preferred position is that one party has no ownership of the relevant asset – in other words, as part of the review process, it is transferred to another person or structure.

Ultimately, as I was reminded last week, there are two things you should keep in mind, namely:

1. Remember the distinction between the two joint ownership structures.

2. Make sure that in relation to each asset for any particular client, you know which ownership structure applies.
Until next week.
Matthew Burgess