Appointors (or sisters) doing it for themselves **

Last week's post considered the ability of a trustee in bankruptcy to exercise the powers of an appointor or principal of a family trust who is bankrupt as their personal property.

A related issue that has been the subject of many years of debate is whether the holder of an appointor role can exercise it so as to appoint themselves.

For many years, the case of Re Skeats' Settlement (1889) 42 Ch D 522 has been seen as the leading decision, and it confirmed that an appointor could not appoint themselves as trustee. In particular the case held that '...the universal rule is that a man should not be judge in his own case; that he should not decide that he is the best possible person, and say that he ought to be the trustee'.

This blanket prohibition has however been iterated over the years and, subject always to the provisions of the relevant trust deed, the position now appears to be that the trustee appointment power is a species of special ‘fiduciary power’ that must be exercised for the benefit of objects of the trust.

This means that an appointor may appoint themselves (or a company they control) as trustee of a trust, as long as it is not for fraudulent purposes and permitted under the deed.

An appointor choosing to appoint themselves as trustee will however only by permitted in ‘exceptional circumstances’, where the court is assured that the trusts will be executed in the interests of the beneficiaries.

The decision in Australian Conservation Services v Liladel Holdings [2017] ACTSC 162, provides a concise summary of the rules in this area.

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

** for the trainspotters, 'Sisters are doin' it for themselves' is a song from 1985 by the band the Eurythmics, listen hear (sic) -

Trustees in bankruptcy making plans for appointors (or Nigel) **

Last week's post considered the ability of an attorney to exercise the powers of the donor as an appointor or principal of a family trust.

A key related question is whether a trustee in bankruptcy can act on behalf of a bankrupt for any principal or appointor role held by a bankrupt under a family trust.

As with incapacity (as mentioned last week), generally a well crafted trust deed will expressly address the issue and include a clause along the following lines -

'If the principal suffers the loss of lawful capacity through the committing an ‘act of bankruptcy’, then the principal is the financial attorney of the principal under a valid enduring power of attorney.'

The property of a bankrupt which is available for distribution to creditors includes ‘the capacity to exercise, and to take proceedings for exercising, all such powers in, over or in respect of property as might have been exercised by the bankrupt for his own benefit…’ (see section 116(1)(b) of the Bankruptcy Act).

However, it has been held that the right of a bankrupt to exercise a power of appointment under a discretionary trust is not property of the bankrupt (Re Burton; ex parte Wily v Burton (1994) 126 ALR 557 and Lewis v Condon; Condon v Lewis [2013] NSWCA 204).

Further, the decision in Dwyer v Ross (1992) 34 FCR 463 suggests that a trustee in bankruptcy cannot compel the trustee of a trust to exercise the trustee’s discretion in favour of a bankrupt beneficiary. To do so could be construed as a breach of the trustee’s duty to the solvent beneficiaries of the trust. It would be against the interests of the beneficiaries as a whole to exercise the power in that way.

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

** for the trainspotters, ‘Making Plans for Nigel’ is another song by the band XTC, from 1979, listen hear (sic) –

Generals and majors (or attorneys and appointors, as the case may be) **

Previous posts have considered the broad limitations to an attorney's powers.

A key related question is whether an attorney can act on behalf of a donor for any principal or appointor role held by a donor under a family trust.

Generally, a well crafted trust deed will expressly address the issue and include a clause along the following lines -

'If the principal suffers the loss of lawful capacity through age, accident, or illness (evidence of which is by certificate of a registered medical practitioner), then the principal is the financial attorney of the principal under a valid enduring power of attorney.'

Where the trust instrument does not address the question, the preferred position appears to be that the principal powers can be exercised by an attorney.

The leading case in this regard is generally seen to be Belfield v Belfield [2012] NSWCA 416 where it was held that an attorney could have exercised the principal’s power under the Deed while the principal was incapacitated. In other words, even in the absence of any express provisions in the trust deed addressing the incapacity of a principal, the principal's powers can be exercised by a validly appointed attorney on their behalf.

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

** for the trainspotters, ‘Generals and Majors’ is a song from 1980 by the band XTC, listen hear (sic) –

Parents joined to a child’s family law dispute (for no reason?**)

Anecdotally, there appears to be an increasing number of situations where the parents of a spouse are forcibly required to provide disclosure of their personal arrangements as part of their child’s property settlement proceedings.

Arguably, the highest profile case in this regard was MacDowell and Williams [2012] FamCA 479.

In this case, the parents of a woman going through a property settlement allegedly had access to wealth in excess of $20 million.

Following a marriage of around 7 years, the husband as part of the matrimonial litigation tried to get access to the wills of his former in-laws and the deed for a trust, which he believed his wife was a primary beneficiary of.

Acknowledging that each situation would depend largely on the facts, the court in this case decided:

1. While the husband could get a copy of the trust deed, the court flagged it was unlikely that the trust would be taken into account in any form under the property settlement (i.e. it would be treated neither as an asset or a financial resource), given that the wife was only one of many potential beneficiaries and had received less than $30,000 of distributions from the trust during the entire marriage;
2. The wills did not need to be disclosed on the basis that the parents had full testamentary capacity and may change their wills, or indeed, may otherwise spend or dispose of a substantial part of their wealth; and
3. The privacy of the parents’ personal affairs was seen as an important factor in denying access to the wills and estate planning documents.

Interestingly, the court did however note that if the wife’s parents had lost capacity or they were in extremely poor health, then it may have created a situation where the wills would be required to be disclosed.

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 Church song 'It’s no reason'.

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Plan to part company** - the need for property owners’ deeds

Last week’s post summarised some of the key issues to consider in relation to agreements documenting arrangements between parents and their children for the provision of elder care.

Where substantive assets, particularly housing accommodation, are to be jointly acquired by a parent and one or more children, best practice is to implement a formal deed setting out the exact terms of the arrangement.

Generally, it will be appropriate to implement a deed that has provisions, which are virtually identical to the type of arrangement entered into by arm’s length parties who jointly own property, or for that matter, family or friends who jointly acquire property where there is no elder care relationship in place.

The exact provisions of any agreement will obviously depend largely on the circumstances.

An example of some of the provisions normally included is as follows:

1. the exact financial obligations between the parties;
2. rights of access to the property;
3. term of the agreement;
4. events that will trigger an ending of the agreement;
5. rights of first refusal or pre-emption if a party wishes to sell their interest;
6. circumstances in which a sale of the entire property is to take place;
7. whether any existing joint owner can attempt to acquire the entire property if a forced sale takes place;
8. to the extent the property will be rented in a holiday pool, the basis on which a co-owner can access the property;
9. how costs are to be apportioned;
10. what is to occur if a party is in default;
11. what happens if a party loses capacity or dies; and
12. dispute resolution provisions.

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 Go Betweens song 'Part company'.

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(all your) Elder** care agreements

One form of legal documentation that is becoming increasingly prevalent is contractual arrangements between children and their parents where those children are providing support to their parents.

Most commonly, the agreements set out the exact legal basis on which support is provided, whether it be direct financial support (such as paying expenses), indirect financial support (for example, providing accommodation without seeking reimbursement of expenses) or in kind support (for example, caring services).

A comprehensive agreement will deal with a range of matters, many of which can potentially lead to later litigation if not appropriately addressed.

Examples include:

1. agreed financial values for all support provided;
2. the timeframe over which support will be provided;
3. legal ownership of any jointly acquired assets;
4. impact on the entitlements of each child under their parents’ estate plan;
5. principal and interest repayment terms in relation to any loans that may have been made;
6. consequences of death or incapacity;
7. consequences of any relationship breakdowns (for example, the divorce or separation of a child who is a primary carer of a parent);
8. consequences of any relationship breakdown between the relevant child and the parent;
9. dispute resolution provisions; and
10. consequences of termination (including potentially compensation for any foregone opportunities).

Ideally, although arguably not strictly required in a legal sense, the parties to this style of agreement should include all family members, particularly those who might otherwise have different expectations as to what they might receive pursuant to the estate plan for the parents.

** For the trainspotters, the title of today's post is riffed from the Go Betweens song 'Ask'.

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Can you make a will for another** person where they are the main beneficiary?

Particularly as people live longer, it is becoming increasingly prevalent that the instructions for someone’s will are provided by a close friend or relative who themselves will be the primary (and in some instance, only) person to benefit under the will.

In order to ensure that the will is not later successfully challenged or held to be invalid, there are a number of critical steps required.

While each situation will depend on the exact circumstances, generally the following steps should be taken:

1. a specialist lawyer should ideally be responsible for preparing the estate planning documentation;
2. to the extent possible, that lawyer should tolerance test the integrity of the instructions being received directly with the will maker and without the intermediary being present;
3. if the lawyer has an ongoing client relationship with the intermediary, then thought should be given to ensuring that the will maker obtains some form of independent legal advice;
4. if there is any concern in relation to the capacity of the will maker (for example, due to age or mental capabilities), specialist medical advice should also be obtained at the time of signing the documentation; and
5. comprehensive meeting notes should be prepared in relation to all interactions on the file, ensuring that they are in a format that could be provided to, for example, a court if the will is ultimately challenged.

** For the trainspotters, the title of today's post is riffed from the Coldplay song 'Another’s arms'.

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