With thanks to co View Legal director Tara Lucke, this week’s post looks at the widely publicised High Court judgment of Stanford v Stanford (2012) HCA 52 from the end of 2012 and the Family Courts’ powers to potentially displace the distribution of assets under an estate plan. A link to the full copy of the decision is as follows: http://www.austlii.edu.au/au/cases/cth/HCA/2012/52.html
As many will be aware the brief facts were that Mr and Mrs Stanford had no children together, although both had children from previous relationships. The Stanford’s had both crafted their estate plans to provide for their respective children, without making provision for each other, other than a life tenancy in the family home. The house was owned solely in the name of Mr Stanford (he had bought it before the marriage), although it had been lived in by the couple for over 40 years.
Critically, Mrs Stanford appointed her children, not Mr Stanford, under her guardian and attorney documents.
Due to ill health and mental incapacity, Mrs Stanford was moved into residential care. Despite no suggestion that the couple were anything other than happily married, on her mother’s incapacity Mrs Stanford's daughter initiated proceedings in the Family Court (as Mrs Stanford's legal guardian) seeking orders for equal division of the marital property (the main asset was the family home) between Mr and Mrs Stanford.
The initial Judge ordered that Mr Stanford pay a fixed sum of approximately half the value of the marital property to Mrs Stanford, which payment would have effectively passed directly to her guardians. To fund the payment the family home would have needed to be sold, forcing Mr Stanford to leave the house.
Mr Stanford appealed the decision, however Mrs Stanford passed away before judgment was delivered by the Court of Appeal. The Court of Appeal ultimately decided that Mrs Stanford's legal personal representatives should receive the fixed sum upon the death of Mr Stanford. This decision effectively altered the distribution of Mr Stanford's estate (which Mrs Stanford had agreed with while she had capacity) under his will as the house (following his wife’s death) would have otherwise passed to his children.
The decision of the Court of Appeal was ultimately set aside on appeal to the High Court, on the basis that the order was not just and equitable. However, importantly, the High Court confirmed that the death of a party to a marriage ‘does not transform the nature of the claim (for example, into a claim by the beneficiaries of the wife’s estate)’.
In other words, the right of a guardian or attorney to commence property settlement proceedings was effectively confirmed, even where (as here) they would have no entitlement to challenge the estate of their step father.
The decision highlights the risks that in some cases, particularly in relation to blended families, estate distributions may be fundamentally altered by way of ‘pre-emptive’ proceedings through the family law court.
Until next week.
Tuesday, January 29, 2013
Monday, December 10, 2012
Final post for 2012
With the annual leave season
starting in earnest over the next couple of weeks and many advisers taking either
extended leave or alternatively taking the opportunity to catch up on things
not progressed during the calendar year, last week’s post will be the final one
until early 2013.
Similarly, the Twitter and Linkedin postings will also take a hiatus until the New Year as from today.
Thank you to all of those advisers who have read, and particularly those that have taken the time to provide feedback in relation to, the various posts.
Additional thanks also to those who have purchased (via donation) the various versions of ‘Inside Stories’ – the consolidated book of posts. An updated version of this book, containing all posts over the last 3 years should be available in the new year.
Very best wishes for Christmas and the New Year period.
Similarly, the Twitter and Linkedin postings will also take a hiatus until the New Year as from today.
Thank you to all of those advisers who have read, and particularly those that have taken the time to provide feedback in relation to, the various posts.
Additional thanks also to those who have purchased (via donation) the various versions of ‘Inside Stories’ – the consolidated book of posts. An updated version of this book, containing all posts over the last 3 years should be available in the new year.
Very best wishes for Christmas and the New Year period.
Monday, December 3, 2012
Single v multiple testamentary trusts: The ‘hybrid’ approach
Recent
posts have looked at various aspects of the debate in an estate planning context
of whether a single or multiple testamentary discretionary trust (TDT)
will provide the best outcome.
As highlighted in those posts, there are a myriad of issues that should be taken into account and often the approach that best suits the client may change over time.
One mechanism that we have seen used with increasing regularity is a ‘hybrid’ approach. Under this model, elements of both the single and multiple testamentary trust solutions are combined.
For example:
1 a set percentage (or certain assets) are distributed to a TDT which includes all lineal descendents as potential beneficiaries (i.e. the ‘head’ trust);
2 the control of this ‘head’ trust is jointly shared amongst various family members and any nominated independent trustees;
3 a separate TDT is also established for each child and their respective lineal descendents;
4 a separate percentage share of the estate, or discreet assets, are then gifted to each of these ‘sub’ TDTs; and
5 normally each child would control (perhaps jointly with a co-trustee) ‘their’ TDT. Each child would also have the ability to independently regulate succession of control for their trust.
As in any estate planning exercise the appropriateness of the hybrid approach will depend on a range of issues including the exact objectives of the client, the overall family dynamics and the nature and value of the wealth involved.
Until next week.
As highlighted in those posts, there are a myriad of issues that should be taken into account and often the approach that best suits the client may change over time.
One mechanism that we have seen used with increasing regularity is a ‘hybrid’ approach. Under this model, elements of both the single and multiple testamentary trust solutions are combined.
For example:
1 a set percentage (or certain assets) are distributed to a TDT which includes all lineal descendents as potential beneficiaries (i.e. the ‘head’ trust);
2 the control of this ‘head’ trust is jointly shared amongst various family members and any nominated independent trustees;
3 a separate TDT is also established for each child and their respective lineal descendents;
4 a separate percentage share of the estate, or discreet assets, are then gifted to each of these ‘sub’ TDTs; and
5 normally each child would control (perhaps jointly with a co-trustee) ‘their’ TDT. Each child would also have the ability to independently regulate succession of control for their trust.
As in any estate planning exercise the appropriateness of the hybrid approach will depend on a range of issues including the exact objectives of the client, the overall family dynamics and the nature and value of the wealth involved.
Until next week.
Monday, November 26, 2012
Single v multiple testamentary trusts: The debate continues
Last
week’s post set out a number of reasons as to why a single testamentary
discretionary trust (TDT) might be the preferred structure, even if
there are multiple family members to benefit under an estate plan.
As noted there are a number of factors that need to be taken into account in any particular estate planning exercise and there are a wide range of the factors that might be relevant in deciding to implement multiple TDTs.
Many of these factors have a practical focus and can include:
1 the different geographical locations of the children - particularly if one or more children live overseas;
2 poor relationships between siblings (or their respective spouses) meaning that jointly controlling wealth is likely to further fragment family dynamics;
3 the risk profiles of each child’s investment outlook;
4 the underlying nature of the wealth – for example, if particular assets are earmarked for the sole control of a particular beneficiary;
5 differences in the ‘life cycle’ of each beneficiary – for example if one child themselves has young (or no) children whereas another child has adult children, their investment objectives can look quite different;
6 the desire to have different control mechanisms in relation to different children – for example one child might be the sole controller of their TDT whereas another child may have one or more co-trustees, or indeed, not be a trustee at all; and
7 there can be a myriad of difficulties that arise if a single TDT is utilised and it is still running in, say, two generations time both in terms of overall management of the structure and how income and capital is ultimately allocated.
In the next post we will look at one further variation on this debate, the so called ‘hybrid’ approach.
Until next week.
As noted there are a number of factors that need to be taken into account in any particular estate planning exercise and there are a wide range of the factors that might be relevant in deciding to implement multiple TDTs.
Many of these factors have a practical focus and can include:
1 the different geographical locations of the children - particularly if one or more children live overseas;
2 poor relationships between siblings (or their respective spouses) meaning that jointly controlling wealth is likely to further fragment family dynamics;
3 the risk profiles of each child’s investment outlook;
4 the underlying nature of the wealth – for example, if particular assets are earmarked for the sole control of a particular beneficiary;
5 differences in the ‘life cycle’ of each beneficiary – for example if one child themselves has young (or no) children whereas another child has adult children, their investment objectives can look quite different;
6 the desire to have different control mechanisms in relation to different children – for example one child might be the sole controller of their TDT whereas another child may have one or more co-trustees, or indeed, not be a trustee at all; and
7 there can be a myriad of difficulties that arise if a single TDT is utilised and it is still running in, say, two generations time both in terms of overall management of the structure and how income and capital is ultimately allocated.
In the next post we will look at one further variation on this debate, the so called ‘hybrid’ approach.
Until next week.
Monday, November 19, 2012
Single v multiple testamentary trusts: The debate
One issue that comes up regularly in estate planning
exercises where there is more than one family unit ultimately to benefit, is
whether a single or multiple testamentary discretionary trusts (TDTs) should be implemented.
1 if some (or all) of the children are under the age of 18 – an estate planning exercise should always be undertaken on the assumption that the willmaker dies shortly after signing the document. Therefore the primary focus should be on the needs of the surviving spouse. In these circumstances, it is generally not appropriate for the wealth to be held across multiple TDTs where the surviving spouse will likely be in control for many years;
2 if asset protection (for example guarding against a relationship breakdown of any of the children) is critical, then generally a single TDT will be the more robust approach;
3 if the vision of the will maker is to have the next generation (i.e. their children) effectively act as ‘custodian’ for future generations, then this is normally more easily achieved via a single trust; and
4 if the underlying nature of the assets would make a ‘split’ ownership structure unduly complicated – for example if there is, say, one significant asset (such a property or business).
The next post will focus on some of the reasons that a multiple TDT strategy might be more appropriate.
Until next week.
For example, if there are three adult children, each to
share an estate, should those three children jointly control a single TDT or
should each child (perhaps with a co-trustee) control a separate TDT, with each
TDT receiving one-third of the estate.
As with many aspects of estate planning, there is no
‘correct’ approach. This said, some of the factors that would tend to
support using a single TDT include:
1 if some (or all) of the children are under the age of 18 – an estate planning exercise should always be undertaken on the assumption that the willmaker dies shortly after signing the document. Therefore the primary focus should be on the needs of the surviving spouse. In these circumstances, it is generally not appropriate for the wealth to be held across multiple TDTs where the surviving spouse will likely be in control for many years;
2 if asset protection (for example guarding against a relationship breakdown of any of the children) is critical, then generally a single TDT will be the more robust approach;
3 if the vision of the will maker is to have the next generation (i.e. their children) effectively act as ‘custodian’ for future generations, then this is normally more easily achieved via a single trust; and
4 if the underlying nature of the assets would make a ‘split’ ownership structure unduly complicated – for example if there is, say, one significant asset (such a property or business).
The next post will focus on some of the reasons that a multiple TDT strategy might be more appropriate.
Until next week.
Monday, November 12, 2012
Deferral of property settlements
This week’s post
looks at a recent Family Court case - Pratt [2012] FamCAFC 81 (13 June
2012). A link to the full copy of the decision is as follows: http://www.austlii.edu.au/au/cases/cth/FamCAFC/2012/81.html
The husband and wife were graziers. The main issue in dispute was that a valuer had confirmed there had been a $10 million decrease in value of their two cattle stations over recent years as a result of exceptional circumstances (such as the restrictions on live cattle export). The parties agreed that as a result, the bank debt over the properties substantially exceeded the value of the land.
The wife sought a three year adjournment under the Family Law Act to enable a ‘just and equitable property settlement’, on the basis of the valuer’s statement that the land should increase in value substantially over the next two years, as market conditions return to normal.
The husband opposed the delay on the basis that the parties’ debts exceeded their assets and he could not meet the interest owed to the bank. The adjournment was originally granted but appealed by the husband.
Normally an adjournment is only available where a ‘significant change’ in financial circumstances is likely and the delay will probably do justice, more so than an immediate division of property.
Ultimately, the Court accepted the husband’s argument and ordered that the property settlement be finalised immediately. A key aspect of the decision to deny an adjournment was the failure in the original decision to factor in the cost of maintaining an increasing debt through interest on the loan facility and the ongoing costs of running the properties.
In other words, it was held that in order to delay a property settlement, all relevant financial issues must be considered. It is not sufficient for there simply to be a ‘significant change’ in the gross value of the assets.
Until next week.
The husband and wife were graziers. The main issue in dispute was that a valuer had confirmed there had been a $10 million decrease in value of their two cattle stations over recent years as a result of exceptional circumstances (such as the restrictions on live cattle export). The parties agreed that as a result, the bank debt over the properties substantially exceeded the value of the land.
The wife sought a three year adjournment under the Family Law Act to enable a ‘just and equitable property settlement’, on the basis of the valuer’s statement that the land should increase in value substantially over the next two years, as market conditions return to normal.
The husband opposed the delay on the basis that the parties’ debts exceeded their assets and he could not meet the interest owed to the bank. The adjournment was originally granted but appealed by the husband.
Normally an adjournment is only available where a ‘significant change’ in financial circumstances is likely and the delay will probably do justice, more so than an immediate division of property.
Ultimately, the Court accepted the husband’s argument and ordered that the property settlement be finalised immediately. A key aspect of the decision to deny an adjournment was the failure in the original decision to factor in the cost of maintaining an increasing debt through interest on the loan facility and the ongoing costs of running the properties.
In other words, it was held that in order to delay a property settlement, all relevant financial issues must be considered. It is not sufficient for there simply to be a ‘significant change’ in the gross value of the assets.
Until next week.
Monday, November 5, 2012
Wholesale deed updates post Bamford
During our recent master class seminars on trusts, one specific issue that was addressed related to updating family trusts after the Bamford decision and related legislation.
The post today is the 4th and final one in this series of posts via the following video link under the heading ‘Wholesale deed updates post Bamford’. If you would like a link to the video please let me know.
As with other video posts, for those that do not have easy access to the streaming or would otherwise prefer to read the transcript, this is set out below -
The third idea is the ‘wholesale update’ approach.
The providers around are saying for $x you can go and get all of your deeds across the board 2012 compliant, really adopting the same approach that you do with an SMSF trust deed. People accept that with an SMSF, you're going to have to update it every 5 years probably. That’s just the life that you lead running an SMSF.
We would argue that people have never really had that attitude with family trusts. Whether that’s right or wrong is another question. But by and large, people have not really had that wholesale approach. We'll speak about Clark and why that may be the case from a resettlement perspective.
What we're saying with the third option is that you just go and do the update for all clients. Are you running the risk that you'll have to go and do that again in 3 or 4 years’ time? Absolutely you are. But in the meantime, are you investing in your clients by saying you will read the deed once, make sure that every deed across the entire client base has the exact same provisions, can start getting some efficiencies in terms of resolutions, in terms of the review process.
It may be a little bit of pain upfront, however hopefully, any subsequent changes won't be too prohibitive anyway and many are saying may be this is the way to go.
Until next week.
The post today is the 4th and final one in this series of posts via the following video link under the heading ‘Wholesale deed updates post Bamford’. If you would like a link to the video please let me know.
As with other video posts, for those that do not have easy access to the streaming or would otherwise prefer to read the transcript, this is set out below -
The third idea is the ‘wholesale update’ approach.
The providers around are saying for $x you can go and get all of your deeds across the board 2012 compliant, really adopting the same approach that you do with an SMSF trust deed. People accept that with an SMSF, you're going to have to update it every 5 years probably. That’s just the life that you lead running an SMSF.
We would argue that people have never really had that attitude with family trusts. Whether that’s right or wrong is another question. But by and large, people have not really had that wholesale approach. We'll speak about Clark and why that may be the case from a resettlement perspective.
What we're saying with the third option is that you just go and do the update for all clients. Are you running the risk that you'll have to go and do that again in 3 or 4 years’ time? Absolutely you are. But in the meantime, are you investing in your clients by saying you will read the deed once, make sure that every deed across the entire client base has the exact same provisions, can start getting some efficiencies in terms of resolutions, in terms of the review process.
It may be a little bit of pain upfront, however hopefully, any subsequent changes won't be too prohibitive anyway and many are saying may be this is the way to go.
Until next week.
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