How do the intestacy rules work?

Following last week’s post, I have had a couple of enquiries about how the intestacy rules work.

As most readers will know, the intestacy provisions 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.

Not dissimilar to a number of the other issues dealt with in previous posts, the intestacy rules are (at least currently) inconsistent across each state in Australia.

The intestacy rules in each state are however set out under the relevant Succession Acts and, in very broad terms, provide for the distribution of wealth amongst immediate family members according to predetermined formulas.

In very general terms, only one set of intestacy rules will apply and which rules are relevant will depend on where the deceased person was 'domiciled'.

The question of domicile can in itself a fairly complex issue and if there is a level of interest, I will try to address this in a future post.

Until next week.

Court drafted wills

Last week I had an example of a client situation which in some respects was similar to the post a few weeks ago where a sole director died without a will.

The situation that came up last week involved a client who was the sole director of a number of companies and had lost capacity.

While she had an attorney appointed via the Guardianship and Administrative Appeals Tribunal (there are separate entities in each state regulating how someone can be appointed as an attorney where the incapacitated individual has not otherwise made a valid appointment), the director here also did not have a will.

In many situations, there is now the possibility to apply to a court before someone’s death and have the court approve a will.

The process is a relatively intense one, primarily because the court system holds the making of a will as something that ultimately should only ever be made by the individual in control of the relevant assets.

This said, when compared to dying intestate, the process is often one that we strongly recommend be considered.

Until next week.

Financiers being financiers

With apologies for the lack of post last week (for reasons that I won’t bore you with), this week’s post looks at one area where financiers seem to have had a continued focus on recently. In particular, with the continuing economic uncertainty, we are seeing a number of clients being asked to comply with the financial assistance rules.

Financial assistance can be a relatively complex area of the Corporations Act, however essentially it centres around situations where a company provides some form of help to shareholders (or associates of shareholders) in relation to the provision of finance.

What amounts to ‘financial assistance’ can be an issue of some debate in many transactions, however ultimately the 'golden rule' invariably applies. That is a financier will normally have the last word as to whether they believe there is a financial assistance issue.

There is a specific process set out under the Corporations Act that allows a transaction to proceed despite the existence of financial assistance, however there are a number of strict timelines that must be satisfied in order to comply with these provisions. Therefore, unless all parties are aware of the possibility that financial assistance approval may be required, significant difficulties can arise.

Until next week.

Why do so many people still talk about Richstar?

The interest from recent posts about accessing assets of a family trust on marriage breakdown reminded me of the Richstar decision.

It has been a few years since the very well publicised decision in Richstar was handed down. The decision does however remain an interim one and there does not seem to be any clear indication as to if or when proceedings might be restarted.

For those unfamiliar with the exact decision of Richstar, please email me and I can provide a summary.

While there have been a number of cases that have criticised various aspects of Richstar, it still seems to be generally the case that most commentators strongly recommend that the broad principles in Richstar be considered as part of any trust structuring exercise (whether it be the establishment of a new trust or the variation of a pre-existing trust).

Pragmatically, it may also be that part of the reason that Richstar has remained so relevant despite the fact that it is only an interim decision of a single judge from Western Australia is that the judge involved has now gone on to become the Chief Justice of the High Court.

Until next week.

Insurance funding via superannuation

Earlier posts have mentioned the ‘debt reduction’ and ‘hybrid’ buy sell arrangements and I can forward information in this regard for those interested.

One particular issue raised with me recently in this area was the ability to use superannuation owned policies for insurance arrangements supporting a debt reduction (or asset protection) solution.

Generally the position is that the asset protection (debt reduction) component of any insurance policy should be self owned, rather than superannuation owned.

This is because a superannuation fund trustee is unlikely to be able to make the required payment directly to the other principals, as the fund can only pay a benefit to a member (in the case of disablement), or to the dependants or estate (in the case of death).

Furthermore, a superannuation fund could not be a party to the agreement as this would raise issues about compliance with the sole purpose test, and also might be construed as an assignment of a benefit, which super fund trustees are prohibited from recognising.

Given these technical limitations, there could be no certainty that insurance proceeds held in superannuation would find their way to the correct parties to enable them to pay down the external debt.

This said, it is often possible to have two policies for each principal under a hybrid buy sell deed, one being a self owned policy for asset protection (debt reduction) purposes and the other policy being owned through superannuation for equity transfer (that is, traditional ownership or buy sell) purposes.

Until next week.

Further comments on assets protected by a family trust on marriage breakdown

Further to last week’s post, some feedback was received about other aspects of the decision mentioned (Keach & Keach).

To provide some more context to the main conclusion of the case mentioned last week, it is worth noting that:

1. The relevant trust was established by the father of the divorcing husband.

2. The father had all practical control over the trust as well as legal control.

3. While the main asset of the trust (being a home that the husband and wife were living in) was allegedly used by the husband 'as if it were his own', this did not change the legal ownership position.

4. In order for an arrangement to be a sham (and therefore, for example, for the trust’s ownership to be ignored), it must be shown that all relevant parties had the common intention to mislead others.

5. Even if the husband was conducting himself as if he were the owner, unless it could have been shown that the husband’s father intended the arrangement to be a sham, then there was no access to the assets of the trust.

6. Here the evidence was in fact the opposite – i.e. the husband’s father deliberately structured the arrangements to ensure that he retained control and direction of the trust. On this basis, the assets of the trust could not be considered as assets of the marriage.

Until next week.

Family law case excludes assets owned by a family trust

As mentioned in last week’s post, a family law case from earlier this year involving a family trust has received an amount of attention given the decision seems somewhat at odds with the High Court’s decision in Spry.

The more recent case (named Keach & Keach and Ors [2011] FamCA 192 – (if you would like a copy of the case please email me) focused on a family trust that the father of the divorcing husband had established.

The father admitted that among other things, one reason for setting up the trust was to keep the assets as far away from the reach of the family court as possible.

The divorcing wife argued that the assets of the trust should be available to her on a property settlement as her former husband effectively treated them as his own.

The court held that the assets should be ignored on the property settlement. Essentially, it was held the only time that the legal documents and arrangements could be ignored was where they were a sham or a 'mere puppet'. In all other instances, the family court cannot ignore the interests of third parties in the property, nor the existence of conditions or covenants that limit the rights of the party who owns it.

Until next week.