Sole director companies – An estate planning tip

During the week, due to a rather unfortunate set of circumstances, I was reminded of a very important provision under the Corporations Act.

The situation broadly was as follows:

1. The sole director of a number of companies suddenly passed away.

2. A number of third parties (including a financier) questioned representatives of the deceased director’s estate about the authority for the company to continue to act and in particular, requested copies of the deceased’s will.

3. The deceased director in fact died without a will.

While there will be a number of issues that arise in relation to the director dying intestate (including the way in which the shares in the various companies are to be distributed amongst the family members), the immediate issue concerning who had authority to act as director of each company was resolved by a particular section of the Corporations Act.

In particular there is a section that allows the legal personal representative of a sole director company to take steps to appoint a new director.

While a fairly significant amount of additional paperwork has been required because of the absence of the will, the various concerns of the financier have at least been managed for the time being.

Given the number of public holidays over the next 10 days or so, unless a particularly time sensitive issue comes up, there will not be a post for a couple of weeks and today’s post is made ‘early’ (normally it would be posted next Monday).

Government review of trusts – the journey continues

As most will know, the ongoing saga in relation to the taxation of trusts took another turn last week with Bill Shorten retracting his previous promise to ensure that post Bamford amendments would be implemented before 30 June 2011.

The government has now indicated that other than in relation to the streaming of income all other issues will not be considered further until the wider taxation review scheduled for October. This review has already been postponed once.

Practically the latest announcement may cause trust advisers to proceed with ‘core’ amendments (for example, ensuring that trustee minutes can be made after the end of a financial year) to trust deeds before 30 June 2011.

Two other important issues to note from last week in relation to trusts are that:

1. it now appears unlikely that there will be any change to the unpaid present entitlement rules released by the Tax Office before 30 June 2011.

2. the announcement that the Coalition will look to re-invigorate entity taxation (i.e. taxing trusts as companies) if they win the next election.

Until next week.

Important stamp duty changes in Queensland

For those advisers who provide guidance to trusts with assets in Queensland, relatively important changes have been announced to the Duties Act.
Previous posts have mentioned the difficulties surrounding corporate trustee duty, particularly in relation to the Commissioner’s discretion in determining whether it applies.

This discretion has now been removed.

Similarly, the discretion surrounding whether a trust is a 'family trust' and therefore able to get access to various concessionary provisions has also been removed.

At least on the face of the new provisions, it should be easier to implement rearrangements of family trusts (particularly in succession situations), however due to the vagaries of how many trust deeds are drafted, advisers will need to be extremely careful to ensure that any particular change does in fact comply with new rules.

It should be noted that the changes are only in bill form at this stage – in other words, they are not formally legislated as yet.

Until next week.

ATO Discussion Paper on buy-sell agreements

Following last week’s post, we had a number of people contact us in relation to the, withdrawn, ATO Discussion Paper on business succession arrangements (i.e. buy-sell agreements).

As mentioned in last week’s post, the ATO has unequivocally stated its belief that the Discussion Paper is not current and that advisers in this area should be deterred from relying on it.

This said, the Discussion Paper remains (even 11 years after its initial circulation) the only comprehensive attempt by the ATO to articulate its view of the various business succession models.

For those interested in the issues addressed by the Discussion Paper, please email me. 

Please note the copy of the paper I have access to is shown in 'marked up' format as this was the final version released by the ATO before it was withdrawn from circulation.

Until next week.

Insurance funded buy-sell arrangements - ATO commentary

A number of earlier posts have considered various taxation aspects of insurance funded buy-sell arrangements.

Some minutes recently released from the National Tax Liaison Group meeting towards the end of last year provide an interesting insight to the latest ATO views in this area.

For those who have not seen a full copy of the minutes and would like a copy please email me.

As you will see, in summary:

1. The status of taxation ruling on absolute entitlement (TR2004/D25) remains unclear.

2. The ATO considers its finalisation intricately linked to how it will deal with bare trusts, which again remains an unresolved issue.

3. The ATO confirms that the product ruling released last year in relation to one provider’s insurance trust arrangement is based entirely on the assumption that absolute entitlement was created. As my post from last year indicated, this assumption may be an unwise one to make given the ATO’s apparent attitude in this area.

4. While the ATO is flagging that they will further consider providing appropriate guidance, they have specifically confirmed that the Discussion Paper from 2000 on business succession arrangements cannot be considered current.
Until next week.

Do prenups actually work?

The above question was posed to me during the week and, unfortunately, when I was told to make my answer succinct, the only thing that easily came to mind was 'it depends'.

Many advisers will be aware that prenups (or as they are more technically termed in Australia 'binding financial agreements') have been available for around 10 years now.

There have been a number of changes to the way in which the rules in this area work and the most significant of these changes occurred towards the end of last year.

While there were a number of quite heavily publicised cases where what otherwise appeared to be binding agreements were held to be invalid, the changes made towards the end of last year have generally been seen to be positive steps to ensure that disgruntled spouses cannot extract themselves from previously made promises on the basis of a legal technicality.

Until next week.

Witnessing powers of attorney

Following last week’s post, I had a number of people raise concerns about the witnessing requirements for powers of attorney.

Unfortunately, this is yet another example of inconsistencies between each Australian state.

Certainly, in each state, legal practitioners are authorised witnesses for most forms of powers of attorney.

Having this said, documents that are directly related to medical issues can normally only be witnessed by a medical practitioner.

In some states, the financial related power of attorney documents can be witnessed by a relevantly large range of authorised signatories.

Ultimately, as I recommended to the advisers who contacted me, the safest pathway is to carefully read the relevant documentation to ensure all witnessing provisions are complied with. While there are numerous inconsistencies between the various states, each state does at least set out in some detail the witnessing requirement for each document as part of the standard government form.

Until next week.