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):

When you were mine** - An Edelsten case from days gone by

Geoffrey Edelsten has been involved in a number of litigation cases over the years.

Following on from last week’s post which considered the impact the rules concerning sham transactions have on gift and loan back arrangements, it is useful to revisit the decision in Max Christopher Donnelly As Trustee of the Bankrupt Estate of Geoffrey Walter Edelsten v Geoffrey Walter Edelsten and Ors [1994] FCA 992.

Essentially, the case focussed on whether property allegedly acquired by Edelsten during bankruptcy via a series of company structures should have been made available to Edelsten’s creditors.

During the bankruptcy period, these entities were said to be controlled by Edelsten in breach of the Corporations Act 2001 (Cth), before then being formally transferred to him once he was discharged.

Reiterating the key aspects of what amounts to a sham (as summarised in last week’s post), the court confirmed that in this case –

1. A transaction is not a sham merely because it is carried out with a particular purpose or object. If what is done is genuinely done, it should not be deemed to be ‘undone’ merely because there was an ulterior purpose in doing it;
2. Here, the companies involved were real corporations in that they were properly incorporated and administered in accordance with the requirements of the law relating to corporations;
3. Therefore, the key question was whether the acquisition or creation of the businesses of the companies was a sham. In other words, was it in fact agreed and intended that the legal and beneficial ownership of those businesses should be and remain with Edelsten, not the companies;
4. In holding that the structure was valid, the court confirmed a key aspect of the case featured last week, namely, that a structure will not be automatically characterised as a sham because it was undertaken for the purpose of ensuring that any property acquired after bankruptcy did not fall into the hands of a trustee in bankruptcy.

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 Church song 'When you were mine’.

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A further (& deeper)** gift & loan back case

Previous posts have looked at various aspects of gift and loan back arrangements, including arguably the leading case in the area Atia v Nusbaum [2011] QSC044 (Atia).

Further case law support for the position outlined in Atia, is provided by the earlier decision Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 82 ALR 530 (Sharrment).

In this case it was held that for a transaction to be considered a sham, the parties must intend that the acts or documents giving rise to the transaction ‘are not to create the legal rights and obligations which they give the appearance of creating’.

Essentially this means the courts examine ‘whether the act or document was never intended to be operative according to its tenor at all but rather was meant to cloak another and different transaction’.

In Sharrment, a series of complex transactions were implemented that were designed to place assets out of the reach of creditors, with the outcome being an at risk individual owed a debt to the trustee of a family trust.

1. The court held that the transactions did not constitute a sham arrangement. This was the case despite the following factual matrix:
2. The transactions were essentially circular and arguably lacked an objective commercial purpose;
3. There was a ‘round robin’ of cheques (as opposed to a physical transfer of funds) and not all parties had sufficient funds to make good on the payments anticipated by the cheques;
4. The loans created were interest free and repayable at call;
5. The at risk individual could essentially control any loan repayment requirements in his discretion, given he had ultimate control (via an appointor role) of the family trust that made the loans;
6. It seemed reasonable to assume there was ‘ulterior purpose’ of the arrangements of protecting the at risk individual’s wealth from creditors, which created an ‘unpleasant aura’;
7. If an ulterior purpose was present however it counterintuitively supported the validity of the arrangement, given the ulterior purpose would only be achieved if the transactions were intended to be valid and not a sham.

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 Church song from their ‘Further/Deeper’ album and 'Miami’.

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