Who should be appointed as an executor - Better the Devil you know(?)**

Previous posts have considered some of the key questions to ask in any estate planning situation - the following View articles also set out some of the key issues to be aware of:

https://viewlegal.zendesk.com/hc/en-au/articles/360036531992-What-is-an-executor-

https://viewlegal.zendesk.com/hc/en-au/articles/360036532092-Testamentary-trusts-overview

Generally it is critical to ensure the choice of executor is very carefully considered.

At a threshold level, an executor should be someone the willmaker trusts implicitly.

Other key attributes to consider can include:

1. Financial literacy and acumen;
2. Emotional strength;
3. Likely ability to perform the role in the worst of circumstances;
4. Age and health;
5. Previous experience;
6. Knowledge of and strength of relationship with beneficiaries;
7. Knowledge of and strength of relationship with other executors;
8. Residency;
9. Expectations in relation to payment;
10. Overall willingness to act.

The executor of the will is also known as the trustee. While the trustee of the testamentary trust is often the same as the executor, it can however be someone different.

Generally there can be up to 4 executors appointed at any one time. Particularly if only one executor is appointed initially, having at least one back up is generally advisable.

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 Kylie Minogue song 'Better the devil you know'.

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When is the right time** to get structuring of business assets right?

Last week, we had a client wanting to revisit their business structure, and in particular, the decision to run all aspects of the business via the one legal entity (in this instance a company).

The particular issue of focus was in relation to the risks that attach to certain items of plant and equipment that, in a worst case scenario, could cause serious injury (or death) to employees.

The same items of plant and equipment were owned by the entity that held the goodwill of the business as well as other real property assets.

While there were a myriad of issues that needed to be addressed, at a basic level, we explored the movement of the items of plant out of the existing company into a 'standalone' special purpose vehicle (‘SPV’) that would house the plant and equipment. The SPV would then lease the plant and equipment back to the operating entity - and thereby comply with the rules of ‘domino theory’ (as explored in previous View posts).

The work involved in achieving this part of the restructure was not significant and given that in the circumstances it could be done without any tax or stamp duty consequences, the customer saw it as a sensible step to implement immediately.

While the exact stamp duty and tax outcomes will depend on the circumstances, it is worth keeping this style of SPV solution in mind as an example that there can be relatively simple restructure ideas implemented without significant time delays or cost investment.

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 Hoodoo Gurus song 'The Right Time'.

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Amending testamentary trusts: a non-zero possibility**?

The ability to amend a testamentary trust after its establishment (and in particular following the death of the will maker) is an area of some contention. Often specialist advisers argue that changing any terms of a will after death is a breach of the rule against delegation of will making powers.

One aspect of the issue that is however very clear is that unless there is a power to vary included in the terms of a testamentary trust, the only way in which to change its terms is by way of a court application.

In all Australian states, there is legislation that empowers the court to vary the terms of a trust. One example of a case in this regard is Robert Thomas Grant as trustee of the Grant Family Testamentary Trust [2013] NSWSC 1603

In this case, a testamentary trust had been setup by the trustee’s late father.

Some years after its establishment, the trustee wanted to obtain finance to make improvements to one of the real properties owned via the trust.

Financiers refused to lend any funds on the basis that the powers of the trustee set out under the testamentary trust did not include a raft of provisions normally expected to be seen in a trust instrument, including the power to lend, the power to open and operate accounts with financial institutions, the power to delegate, the power to borrow and a right of indemnity.

Using a discretion granted to the court in New South Wales to vary a trust instrument where it deems it ‘expedient for the management of the trust’, all the deficiencies identified by financiers were remedied by the court approved variation.

Interestingly, part of the application included a specific power to allow the trustee to unilaterally make future amendments to the terms of the trust. While other cases have refused to include such a power, here the court was comfortable to allow it, on the basis that any amendment would require the consent of all potential beneficiaries. This prohibition was seen as ensuring that the trustee could not do anything to alter the ‘substratum’ of the trust.

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 At the drive in song 'Non-zero possibility’.

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Excepted trust income and ‘bare’** trusts

A previous post has considered various aspects of the statement that ‘every will contains a testamentary trust’.

One example of where basic or 'bare' testamentary trusts exists includes where a gift is given to a beneficiary who does not have legal capacity (for example, because they are under the age of 18).

This was the factual matrix in the Tax Office private ruling mentioned in last week’s post, namely 1011602878465.

In particular –

1. The beneficiary had received gifts of money which were invested on their behalf by their parent.
2. The money had been sourced from several places, including money left to the beneficiary from a deceased estate.
3. The money was held in trust by the parent in a bank savings account named '[Parent's name] in trust for [child's name]'.
4. Under the terms of the relevant will, the child received a certain amount, which was to be paid to their parent or guardian to be held for the benefit of the child if the child was under 18.

It was held that the proportion of the interest income earned that would be 'excepted trust income' would be determined with reference to how much of the original amount invested into the bank account was sourced from the deceased estate, as compared to the amount gift from non-estate sources.

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 Cure song 'Bare’.

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Get Up** to speed: companies acting as trustees of wills

One issue that comes up regularly is whether a company can act as an executor and trustee of a will.

While there are a number of issues that need to be taken into account, broadly the position is as follows:

1. Individuals must apply for probate of a will, unless an exempted entity (eg the Public Trustee, Perpetual, ANZ Trustees or NAB Trustees etc) is appointed;
2. There are no such prohibitions at law in relation to who may act as trustee of a testamentary trust;
3. We regularly assist in setting up estate plans with a private company acting as the trustee of a testamentary trust; and
4. There are a range of issues that best practice suggests should be taken into account however – we often for example see the failure to take into account the rules under the Corporations Act prohibiting share self ownership, addressed in two previous posts.

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 REM song ‘Get up’.

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Trust closedowns**, or vesting (as the case may be)

Following on from last week's post, in the case of winding up the trust due to a lost trust deed, some of the considerations a trustee should generally take into account include:

1. should the trust property be sold with the net proceeds of sale then distributed to the beneficiaries?
2. what level of certainty does the trustee have that they have identified all potential beneficiaries and adequately discharged their obligations to all such beneficiaries?
3. should assets be transferred to beneficiaries as they are (that is as an 'in specie' distribution)?
4. what are the revenue consequences (particularly tax and stamp duty) of each distribution alternative?
5. have all loan accounts and unpaid present entitlements with beneficiaries been satisfied (if known)?
6. which beneficiaries will receive the distributions?
7. have all legal, accounting, tax and statutory requirements of both the trustee and the trust itself been complied with?
8. how will the records (if any) of the trust be stored following vesting?
9. will all beneficiaries indemnify the trustee for the actions taken by the trustee in historically administering the trust and for the wind itself?

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 Cure song 'Closedown’.

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Lost trust** deeds and trust vesting

If a trust deed cannot be found, commercially it can often be the case that the most responsible approach is for the trustee to wind up the trust. Indeed, there may be disgruntled beneficiaries or third parties that essentially force a trustee to adopt this course.

Any vesting of a trust is likely to trigger a range of revenue consequences, particularly taxation and stamp duty.

These revenue consequences normally arise where a positive determination is made by the trustee to vest a trust, the trustee will usually resolve to make one or more beneficiaries absolutely entitled to the assets (or specific assets) of the trust.

While not intended to be an exhaustive list, the revenue related ramifications of a trust vesting can include:

1. capital gains tax being payable on the increase in the value of any assets being transferred since the date they were acquired;
2. income tax being payable on non-capital assets, such as plant and equipment and trading stock;
3. stamp duty being payable on the transfer of the assets, to the extent they comprise dutiable property in the relevant jurisdiction;
4. additional tax, stamp duty and commercial costs being incurred to subsequently transfer the assets out of the name of the recipient beneficiary (if they want the assets then re-routed to a trust environment);
5. asset protection exposure for the beneficiary receiving the assets in the event they subsequently commit an act of bankruptcy;
6. considering the impact of the rule against perpetuities (which effectively prevents a distribution to another trust if this causes the assets to remain within a trust environment for more than 80 years); and
7. where an individual receives the assets, the need to update their estate plan to reflect the additional assets owned in their personal name.

If the vesting of a trust is being anticipated by the parties, many of the consequences above can be adequately managed through appropriate planning.

** For the trainspotters, the title of today's post is riffed from the Cure song 'Trust’.

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