When is the right time** to get structuring of business assets right?

Last week, we had a client wanting to revisit their business structure, and in particular, the decision to run all aspects of the business via the one legal entity (in this instance a company).

The particular issue of focus was in relation to the risks that attach to certain items of plant and equipment that, in a worst case scenario, could cause serious injury (or death) to employees.

The same items of plant and equipment were owned by the entity that held the goodwill of the business as well as other real property assets.

While there were a myriad of issues that needed to be addressed, at a basic level, we explored the movement of the items of plant out of the existing company into a 'standalone' special purpose vehicle (‘SPV’) that would house the plant and equipment. The SPV would then lease the plant and equipment back to the operating entity - and thereby comply with the rules of ‘domino theory’ (as explored in previous View posts).

The work involved in achieving this part of the restructure was not significant and given that in the circumstances it could be done without any tax or stamp duty consequences, the customer saw it as a sensible step to implement immediately.

While the exact stamp duty and tax outcomes will depend on the circumstances, it is worth keeping this style of SPV solution in mind as an example that there can be relatively simple restructure ideas implemented without significant time delays or cost investment.

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 Hoodoo Gurus song 'The Right Time'.

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What happens to assets in the estate if a person dies without a will?

A previous post has looked at what happens to assets in the estate if a person dies without a will (see - http://blog.viewlegal.com.au/2011/11/how-do-intestacy-rules-work.html).

If a person dies without a will, the law says that their assets will be distributed to their family, as determined by a set formula (the ‘intestacy’ rules). The set formula is different in every Australian jurisdiction. There are a range of issues which will determine which jurisdiction’s rules will apply.

The intestacy rules will also apply where a person dies without a valid will in relation to all of their assets. In this regard, it can in fact be possible to die ‘partially intestate’. This simply means that there are assets in a person’s estate that are not validly dealt with under the will in place at a person’s death.

The following summary gives a broad example of the way in which the intestacy rules often work. If a person dies leaving:

1. their spouse, but no children: their spouse receives everything; 


2. their spouse and children: their spouse receives the first $150,000 and one half of the balance of the estate if there is one child, or one third of the balance if there is more than one child. The Testator’s children share the balance between them;


3. children but no spouse: their children receive a share each, but only if 18 years of age or married;


4. no spouse or children: the person’s parents will share the estate (if both are alive then equally);


5. no spouse, no children and no parents: their siblings share equally.

A spouse includes a legal and de facto spouse.

The amount received by each person will depend on the value of the estate and whether any other beneficiaries are entitled to the assets of the testator.

If the person does not have any family members who qualify, then the assets may pass to the government.

It is necessary that someone apply to the court to be appointed as the administrator, to ensure that the person’s estate is properly administered. This normally adds time and significant extra costs to the administration of the estate. If the testator has young children and a guardian is needed, an application to the court may also have to be made.

Image credit: Mathias Pastwa cc

'Look through' powers of the Family Court

As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of 'Look through' powers of the Family Court’ at the following link - https://youtu.be/4I57VXYU0w4 

As usual, a transcript of the presentation for those that cannot (or choose not) to view the presentation is below – 

The ultimate rationale in relation to the look through powers of the Family Court which are extraordinarily wide - the Family Court has powers that do not exist in other area of the law-, is public policy.   

This is because it is seen as inequitable that a party who has been in a longstanding relationship has access to assets that they can effectively deal with as their own via a trust structure, but then suddenly those assets are completely ignored in a property settlement.   

The rules are driven by public policy and this is why the concept of 'continuum' as to the way the courts deal with trusts is so relevant. The answer to the question 'is that asset protected?' in many situations will ultimately often be 'it depends'. And it depends on the court's perception and interpretation as to how that overriding and overarching public policy framework applies to any particular factual scenario. 

Lessons from decisions since Spry

As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of ‘Lessons from decisions since Spry’ at the following link - https://youtu.be/IWsmKqpgwbs

As usual, a transcript of the presentation for those that cannot (or choose not) to view the presentation is below –

Immediately following Spry, the feeling of many observers was that there would never be any outcome in a family law matter other than to say that the assets of trusts were entirely exposed. 

What actually happened, however, is that despite the decision in Spry and a number of subsequent decisions have reinforced this, that trusts potentially remain a very robust asset protection vehicle.

Having said that, it is also clearly the case that the court will not be in any way restricted in terms of what they can and cannot do with the assets of a trust, if they have a legitimate reason to believe that there are grounds for doing so. 

Some examples might be if:

• the trust is actually the ‘alter ego’ of one of the parties to the relationship;
• it can be seen that the assets of the trust have really been created because of the joint effort of the relationship; and
• the assets of the trust have traditionally always been used for the benefit of not just the two spouses, but also wider family members.

In each of those types of scenarios, the court will rely on, if not Spry itself, certainly principles adjacent to Spry, to look beyond the trust structure and deal with the underlying assets of the structure.

When will an inheritance be at risk?

As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of ‘When will an inheritance be at risk?’ at the following link - https://youtu.be/Ks2GvSVp07U

As usual, a transcript of the presentation for those that cannot (or choose not) to view the presentation is below –

There is a true continuum in terms of the approach that the court is going to take, where at one end, assets of a trust will be completely exposed and will be considered property of the relationship. At the other end, you've got a situation where the assets will be completely ignored and they won't even be considered a financial resource. 

Inheritance is a classic example, because in order for the court to make a decision that they're not taken into account, it really does come back, and this will often be used by the lawyers, to the two word answer - 'it depends', because it really does depend on the underlying factual matrix.

 

If people are particularly concerned about trying to exclude inheritances, the types of things that the courts will normally gravitate towards are things like ensuring that the assets pass as late as possible in terms of when the relationship has broken down, and ideally to the extent this can ever be achieved, that the assets don't pass until after the relationship has ended. 

The other things that are relevant include whether the former spouse has in any way contributed to the growth of the assets that are coming via the inheritance. Obviously, and most relevantly in the context of trust planning, whether the people that are handing the assets on have done so directly in the name of the spouse, or preferably have they used some sort of trust structure - for example, a testamentary discretionary trust.

Until next week.