Divorce** and enduring powers of attorney

Previous posts have considered probably the most high profile case involving a divorce using an enduring power of attorney, that being the decision in Stanford.

The case of McKenzie & McKenzie [2013] FCCA 1013 provides another similar example.

A summary of the facts is as follows:

1. The wife separated from the husband, and around six months later, there was evidence to suggest that she began preparing documentation to apply for a divorce;
2. Around nine months after the initial separation, the wife underwent surgery that ultimately resulted in her losing capacity;
3. Following the loss of capacity, the wife's mother was appointed her legal guardian;
4. Via her role as legal guardian, the wife's mother formally finalised an application for divorce;
5. The court allowed the divorce proceedings to proceed on the application of the mother on the basis that the relationship between her daughter and former son-in-law had broken down irretrievably before the loss of capacity; and
6. The fact that the daughter had not been separated from the husband for 12 months (which is normally required) before she lost capacity was not held to be relevant in the circumstances.

A similar conclusion was reached in the case of Price v Underwood (2009) FLC 93-408 where an urgent application by an attorney for a divorce to be granted (as it evolved, one day for the principal died), waiving the normal waiting period.

Mentioning cases such as Re an Incapable Person D [1983] 2 NSWLR 590, Pavey and Pavey (1976) FLC 90-051, Todd and Todd (No. 2) (1976) FLC 90-008 and Falk and Falk (1977) FLC 90-247, it was confirmed:

1. an enduring attorney can make an application for divorce on behalf of a principal;
2. any such application must be supported by evidence that the marriage has irretrievably broken down;
3. the attorney also needs to be able to show that the principal had the requisite intention to bring the marriage to an end and had lived separately and apart from the spouse for 12 months prior to the filing of the application.

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 Nirvana song ‘Serve the servants’.

View hear (sic):

Buy-sell deeds: pricing to pay** the premium?

One issue that comes up regularly in the context of insurance funded buy-sell arrangements is who should be responsible for the payment of insurance policy premiums.

Depending on the policy ownership approach adopted and the underlying business structures, there are a range of alternatives, including:

1. Each principal pays a premium on their own policy.
2. All principals contribute a proportion of the total premiums for all policies, equal to their respective equity interests in the business.
3. Each principal pays an exactly equal proportion of the total premiums based on the number of principals (regardless of their underlying equity interest).
4. If there are only two principals, sometimes the approach will be that each principal pays premium for the other.

As previous posts have touched on, there are a myriad of tax consequences that can arise from each of the various alternatives.

Assuming that these tax consequences can be managed, generally the pragmatic approach is to apportion the total premiums payable for all policies in accordance with the equity interest of each principal.

While this will not necessarily be seen as fair by each principal in all scenarios, it does keep things relatively simple and also helps the principal's focus on what should be the overriding objective of any insurance funded buy-sell arrangement. That being, to facilitate a smooth transition of a business in a factual scenario where the prospects of a smooth transition otherwise occurring are unlikely.

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 Janes Addiction song ‘Price I Pay’.

View hear (sic):

 

Sometimes** the law matters: Binding nominations and wills

Today’s post looks at whether the superannuation death benefits can be regulated via a will.

This issue was considered by the Superannuation Complaints Tribunal (SCT) in D11-12/066 where the deceased failed to execute a binding death benefit notice (BDBN) or a non-binding nomination.

Instead, she executed a will which appointed her spouse, son and daughter as legal personal representatives (LPR) and left a specific bequest to her spouse.

The trustee of the fund was of the opinion that in the absence of a BDBN, the entire superannuation benefit had to be paid to the LPR of the deceased, to be distributed in accordance with the terms of the will.

The deceased’s spouse challenged this decision arguing that it was unfair and unreasonable given the deceased had left a specific bequest in her will to her. The spouse argued that this bequest constituted a death benefit direction.

The SCT found that the decision of the trustee to distribute the superannuation benefit to the deceased’s LPR was not unfair, unreasonable or contrary to law. The trustee’s decision was in accordance with the terms of the deed and the superannuation law and this, according to the SCT, was the correct decision.

The decision highlights the importance of standalone nominations and that it is unlikely a provision in a will can ever constitute a valid nomination.

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

** for the trainspotters, ‘Sometimes’ is a song by U2.

A Christmas fairytale (of New York)**

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 2022.

Similarly, the social media contributions by both View and Matthew will also largely 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 posts.

Additional thanks also to those who have purchased the ‘Inside Stories – the consolidated book of posts’ (see - https://viewlegal.com.au/product/inside-stories-reference-guide/).

The 2022 edition of this book, containing all posts over the last year, edited to ensure every post is current, indexed and organised into chapters for each key area should be available early in 2022.

Very best wishes for Christmas and the New Year period.

** For the trainspotters, my favourite Christmas tune, The Pogues and Kirsty MacColl and ‘Fairytale of New York’:

Memorandum of directions – my shot** at the legalese

With the end of year almost here again, it is timely to revisit an estate planning tool often looked at over the festive season, namely the use of letters of wishes or memorandum of directions.

If such a document is to be prepared it should ideally be done so only as part of a comprehensive estate plan.

Generally the following issues should be specifically set out in the document at the time it is signed, namely that:

1. a last will has been signed;
2. the memo of directions is intended to provide the trustees with some guidance in the administration of the estate but is in no way intended to change the provisions of the wills;
3. the trustees should be instructed to take into account that the comments set out in the memo of directions may not be relevant either at the date of death or at any other time in the future. Therefore the trustees should exercise any discretions under the will in the way they believe most appropriate in the circumstances;
4. to what extent other entities that form part of an overall estate plan (for example, superannuation fund, family trust or company), are to be regulated by the directions;
5. it is intended to be confidential, and should not be given to anyone other than the trustees and any professional advisers they engage from time to time;
6. the memo of directions has been completed and is current as at a certain date and that it has been signed.

As usual, please contact me 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 Hamilton and the song ‘My shot’. Listen here:

Is there anything (stepchildren) can do** to challenge an estate?

Like many areas of the law, the ability for a disgruntled beneficiary to challenge the provisions of an estate plan depends on a range of factors, not least of which the state where the willmaker lived.

This is because each Australian jurisdiction continues to have unique rules in relation to succession legislation, and in particular, the rules that regulate the ability for eligible beneficiaries to make an application for further provision.

What is consistent in each jurisdiction is that there are rules regulating the category of persons who have standing to bring an application.

One stark example in this regard relates to the ability for stepchildren to challenge a deceased estate.

In broad terms, there are three different regimes that apply.

In summary, these are as follows:

1. if the stepchild is wholly or partly dependent on their step parent prior to the date of death, then in South Australia, Western Australia, Australian Capital Territory, New South Wales and the Northern Territory, the stepchild may have standing;
2. if a moral responsibility can be demonstrated, then in Victoria a stepchild may have standing; and
3. so long as the natural parent and the step parent are married at the date of death, then the stepchild would automatically have standing in Queensland.

In Tasmania, stepchildren have no ability to challenge their step parent’s estate.

** For the trainspotters, the title of today's post is riffed from the Go Betweens song ‘Was there anything I could do’. View here:

Powers of attorney and donor** intention

While strictly a case that was focused on a tax issue (and the ability to access trading losses), the decision in the AAT case Executor for the late Joan E Osborne and Commissioner of Taxation [2014] AATA 128 also provides useful guidance in relation to a related estate planning issue.

In summary:

1. The donor under a power of attorney appointed her niece and nephew to manage a share portfolio.
2. All evidence suggested that the donor treated the portfolio as a capital investment.
3. Over time, the attorneys grew the share portfolio significantly, partly by leveraging the shares through a margin loan.
4. At all times during the profit years, the portfolio was treated for tax purposes as a capital asset (i.e. reflecting the donor’s original intention).
5. When however significant losses were incurred, the attorneys sought to argue that they had been conducting share trading activities and therefore the losses should not be quarantined to only being able to be offset against capital gains.

In denying access to the revenue losses, the AAT confirmed that it was always extremely relevant to consider the actual intention of the donor regardless of whatever intentions the attorneys may personally hold.

As usual, please contact me 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 Death Cab for Cutie song ‘Styrofoam plates’. View here: