Ball + chain** - An estate planning lesson for de facto couples

Previous posts have considered the impact of separation and divorce of a marriage on estate planning documentation.

As mentioned in last week’s post, the general view has been that analogous situations on the breakdown of a de facto relationship do not have the same consequences.

As last week’s post concluded however, whenever there is a significant change in a personal relationship, best practice dictates that there be an immediate review of all estate planning arrangements.

The case of Blyth v Wilken [2015] WASC 486 is a stark reminder of this principle.

Relevantly, the factual matrix here involved a willmaker who left a final will giving the majority of his estate to his ‘de facto wife’. The relationship between the will maker and his de facto ended after the will was made and around three years before he died. No updated will was prepared.

In deciding that the former de facto wife was not entitled to receive anything under the will, the court essentially applied the same principles that would have been relevant had the couple have been married and subsequently divorced.

In other words, the court decided that the gift was made solely because of the de facto relationship.

Once that relationship ceased, the court determined it would have been the willmaker’s intention that the gift should also fail.

In most respects, the decision here contradicts the generally accepted position and arguably leads to a conclusion that if the willmaker had simply referred to his spouse by her name and had not mentioned ‘de facto wife’, then the gift would have in fact stood.

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 XTC song ‘Ball and chain’.

View here:

Relationship status changes and estate planning: Life (re)begins (at the hop)**

Previous posts have highlighted the significant impact a change of relationship status can have on any estate planning arrangements.

The conservative approach is to always update estate planning documentation as soon as it is clear that there is either a new relationship that is evolving towards de facto status or marriage, or a previous relationship that has no real prospect of a reconciliation following an initial separation.

This said, it can be important to understand the broad rules that apply in the event of marriage and divorce on both wills and enduring powers of attorney (EPA).

The following table sets out the broad position, which unfortunately, is inconsistent across each Australian jurisdiction and also as between the situation for wills and EPAs.

The general position is that neither the commencement nor ending of a de facto relationship has any impact on estate planning documentation. This said, some jurisdictions are evolving the rules in this regard as well, for example on the ending of a de facto relationship in Queensland the position is now largely the same as for the ending of a marriage (ie partially revoked).

State	Will – Marriage	Will – Divorce	EPA – Marriage	EPA – Divorce
Victoria	Partially revoked	Partially Revoked	No effect	No effect
New South Wales	Partially revoked	Partially Revoked	No effect	No effect
Queensland	Partially revoked	Partially Revoked	Revoked	Revoked
Tasmania	Partially revoked	Partially Revoked	No effect	Revoked
South Australia	Revoked	Partially Revoked	No Effect	No Effect
West Australia	Revoked	Revoked	No effect	No effect
Northern Territory	Revoked	Partially Revoked	No effect	No Effect
Australian Capital Territory	Revoked	Partially Revoked	Revoked	Revoked

Notes:

1. On marriage, wills in all jurisdictions are at least partially revoked, unless they are made in contemplation of marriage
2. In all jurisdictions, following divorce, an ex-spouse is automatically excluded from receiving direct benefits under the will.
3. Most States and Territories allow a willmaker to make a gifts, following divorce, directly to an ex-spouse where that intention is expressly stated in the will. If this is the case the disposition will still be valid.
4. Western Australia is the only jurisdiction where all dispositions to ex-spouses following divorce are automatically revoked.

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 XTC song ‘Life begins at the hop’.

View here:

Scissors (man)**, paper, rock – Family Law v Bankruptcy Act (part III)

Recent posts have considered various aspects of the interplay between the Family Law Act and Bankruptcy Act.

In 2006, Federal Magistrate John Walters, released a paper titled 'Some Aspects of the Interaction of Bankruptcy with Family Law' which set out a number of the key factors likely to be relevant in balancing the interests of spouses and a trustee in bankruptcy.

A summary of the factors mentioned is as follows, in the context that the overriding objective is to effect a just and equitable division of property between the parties to the marriage while also taking into account the legitimate interests of creditors -

1. has a party to the marriage acted recklessly, negligently or wantonly with matrimonial assets and reduced or minimised their value;
2. the non-bankrupt spouse's knowledge of the events leading to the other spouse's bankruptcy, including (for example) to what extent, the non-bankrupt spouse has either benefited from, or contributed to, the bankrupt spouse's insolvency;
3. when and how a relevant debt was incurred by the bankrupt spouse, and whether, for example, the debt was incurred in deliberate or reckless disregard of the non-bankrupt spouse's potential entitlement;
4. the factual circumstances surrounding the commencement or continuation of the property settlement proceedings – including, the perceived objective reasons, such as any strategic or tactical plan or initiative designed, in some way, to insulate the assets of the family (or a member of the family) from creditors;
5. whether and in what manner the creditor pressed or pursued – directly or indirectly – their rights in relation to the payment of the debt prior to bankruptcy, or prior to the commencement of proceedings in the Family Law Court, and whether the creditor did so in a timely fashion;
6. the overall conduct of all relevant parties, including the making of full and frank disclosure of their respective financial positions at all relevant times;
7. whether the debts were incurred pre or post separation; and
8. the overall financial circumstances of the non-bankrupt spouse and the children of the parties during the period since the incurring of the relevant debt or debts, and at the time of the property settlement proceedings (including the effect on the non-bankrupt spouse and the parties' children of the orders proposed by the parties to the proceedings).

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 XTC song ‘Scissor man’.

Listen here:

Trustees in bankruptcy making plans for appointors (or Nigel) **

Last week's post considered the ability of an attorney to exercise the powers of the donor as an appointor or principal of a family trust.

A key related question is whether a trustee in bankruptcy can act on behalf of a bankrupt for any principal or appointor role held by a bankrupt under a family trust.

As with incapacity (as mentioned last week), generally a well crafted trust deed will expressly address the issue and include a clause along the following lines -

'If the principal suffers the loss of lawful capacity through the committing an ‘act of bankruptcy’, then the principal is the financial attorney of the principal under a valid enduring power of attorney.'

The property of a bankrupt which is available for distribution to creditors includes ‘the capacity to exercise, and to take proceedings for exercising, all such powers in, over or in respect of property as might have been exercised by the bankrupt for his own benefit…’ (see section 116(1)(b) of the Bankruptcy Act).

However, it has been held that the right of a bankrupt to exercise a power of appointment under a discretionary trust is not property of the bankrupt (Re Burton; ex parte Wily v Burton (1994) 126 ALR 557 and Lewis v Condon; Condon v Lewis [2013] NSWCA 204).

Further, the decision in Dwyer v Ross (1992) 34 FCR 463 suggests that a trustee in bankruptcy cannot compel the trustee of a trust to exercise the trustee’s discretion in favour of a bankrupt beneficiary. To do so could be construed as a breach of the trustee’s duty to the solvent beneficiaries of the trust. It would be against the interests of the beneficiaries as a whole to exercise the power in that way.

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

** for the trainspotters, ‘Making Plans for Nigel’ is another song by the band XTC, from 1979, listen hear (sic) –

Generals and majors (or attorneys and appointors, as the case may be) **

Previous posts have considered the broad limitations to an attorney's powers.

A key related question is whether an attorney can act on behalf of a donor for any principal or appointor role held by a donor under a family trust.

Generally, a well crafted trust deed will expressly address the issue and include a clause along the following lines -

'If the principal suffers the loss of lawful capacity through age, accident, or illness (evidence of which is by certificate of a registered medical practitioner), then the principal is the financial attorney of the principal under a valid enduring power of attorney.'

Where the trust instrument does not address the question, the preferred position appears to be that the principal powers can be exercised by an attorney.

The leading case in this regard is generally seen to be Belfield v Belfield [2012] NSWCA 416 where it was held that an attorney could have exercised the principal’s power under the Deed while the principal was incapacitated. In other words, even in the absence of any express provisions in the trust deed addressing the incapacity of a principal, the principal's powers can be exercised by a validly appointed attorney on their behalf.

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

** for the trainspotters, ‘Generals and Majors’ is a song from 1980 by the band XTC, listen hear (sic) –