Australian Estate Law Today

Double Payments To Children Before Death, And Under A Will

Mon, 16 Apr 2012 14:00:00 +1000

Many parents, prior to their death, provide gifts to their children to avoid any disputes under a Will. However, if the Will also provides for another gift of the same amount, the payments could potentially be challenged on the basis that they are a double payment.

For example, a few months prior to his death, Bill gives his three daughters a gift of $100,000.00 each. Once he has passed away, it is discovered in the Will, that Bill has left $100,000.00 to each of his daughters and the remainder of his estate to his Wife Heather (who is not the mother of his daughters). Unfortunately, the Will does not make it clear whether the $100,000.00 left to each of the daughters under the Will was in addition to the $100,000.00 gifted to each of the daughters while he was alive.

The situation becomes complicated as Heather may allege that:

The $100,000.00 to each daughter left under the Will has already been satisfied or paid to the daughters while Bill was alive.
Bill’s three daughters should not receive further payments of $100,000.00 each under the Will.
If Bill’s daughters do receive a further $100,000.00 each under the Will, the remainder of the estate which was left for her, will be reduced by a total of $300,000.00.

Bill’s daughters believe that:

The gifts of $100,000.00 they received while their father was alive are separate and in addition to the $100,000.00 that has been left to them under the Will.
They should each receive a further $100,000.00 under the Will.

When determining the issue of whether the gifts paid by Bill while he was alive, and the gifts under the Will result in a double payment, a Court will consider:

Bill’s intention when providing the gifts while he was alive.
Bill’s intention under the Will.
Whether the gifts to the children while Bill was alive and the gifts left under the Will were provided to the children in equal or unequal shares.
Whether, for various reasons, one child may have a greater claim to the remainder of the estate compared to the other children.
Whether the surviving widow has any claim for a fairer provision under the estate due to the further amounts left under the Will.
Who is alleging the double payment? The Courts will only allow certain parties to make this claim.

Depending on the Court’s decision and the facts of each case:

Bill’s three daughters may receive an extra $100,000.00 under the Will and the remainder of the Estate which was left to Heather will be reduced by $300,000.00; or
Bill’s three daughters receive nothing under the Will and the remainder of the Estate is left in full to Heather; or
Bill’s three daughters and Heather have to share the remainder of the Estate in various portions, as determined by the Court.

Accordingly, it is very important when providing gifts while alive, and then subsequently leaving gifts under a Will, that:

The specific intention of the person making the Will is clear having regard to the factors that may be considered by a Court. This can have a dramatic effect on the remainder of an Estate which is available to be distributed amongst the parties.
The Will is amended to reflect any items that have already been gifted while the Will maker is still alive.

It is equally important to obtain detailed advice before proceeding with a legal argument on this issue, as it is a complex area of Estate Law.

For any further information regarding Wills and Estate Law generally, please do not hesitate to contact me.

Using Adoption as an Asset Protection Strategy - A novel USA case

Fri, 13 Apr 2012 14:29:00 +1000

Two weeks ago, John Goodman was found guilty of DUI, manslaughter and vehicular homicide in the USA.

The charges related to an incident that occurred on 10 February 2010 when Mr Goodman, an air-conditioning mogul from Palm Beach Florida, allegedly ran a stop sign in his Bentley convertible and struck a Hyundai being driven by Scott Wilson, a 23 year old civil engineering student. Wilson’s car landed in a nearby canal where the young man drowned.

The criminal proceedings coincide with a wrongful death civil suit filed by Wilson’s parents.

Fortunately for Goodman, he had set up a very large trust fund reportedly worth several hundred million dollars for the benefit of his children that is beyond his control. So far as his lawyers are concerned it is also beyond the grasp of Wilson’s parents should their case prove successful. What makes this case particularly interesting however, is the fact that one of those children is also his 42 year old girlfriend.

At the advice of Goodman’s estate planning attorney, Goodman has recently adopted his girlfriend, Heather Laruso Hutchins, making her a beneficiary of the Trust. The craftiness of this situation would be that the parents of Mr Wilson would be unable to claim the Trust funds as a component of their lawsuit in the event that they are successful.

According to a recent article on slate.com there is actually a growing trend in the United States of adopting one’s adult lover or spouse for the associated estate planning benefits.

Before you race out and adopt your significant other here in Australia, there are a number of implications that you will need to consider:

Whilst in an earlier decision, Palm Beach County Circuit Judge Glenn Kelley ruled that the Trust Fund that Goodman had created for his children was “off limits”, in a recent decision, Judge Kelley ruled that when a jury decides next month whether Goodman should pay Mr Wilson’s parents for the death of their son, they will be able to consider the millions of dollars that Goodman’s girlfriend is now a beneficiary to. As Judge Kelley stated, “the Court cannot ignore the reality of the practical impact of what Mr Goodman has now done. [Goodman] has effectively diverted a significant portion of the assets of the children’s Trust to a person with whom he is intimately involved at a time when his personal assets are largely at risk in this case”.
The second implication is whether or not Mr Goodman could be charged with incest, which pursuant to Section 222(5) of the Criminal Code Act 1899 (QLD), is defined to include without limitation, sexual relations with adoptive offspring or other lineal descendants.

Rumors are currently swirling that the civil matter has been resolved by an out of court settlement. In any event however, in my view, whilst Mr Goodman’s estate planning attorney’s approach was a novel one, it is not one that I believe carries prospects of success in Australia.

Whilst it is important to consider asset protection in your estate planning, this case probably takes it a bit too far!

Please contact me if you have any questions regarding Asset Protection and Estate Planning.

One Very Big Estate Dispute

Mon, 02 Apr 2012 14:00:00 +1000

I have been following with interest thenews reports over the family dispute between Gina Rinehart and three of her children, in relation to a dispute over a trust formed from the estate of Gina Rinehart’s late father, Lang Hancock.

Lang Hancock left a large portion of his estate in a trust for his grandchildren (Gina Rinehart’s children). Gina Rinehart is the trustee of the trust and it is alleged that the trust was to come to an end when the youngest daughter turned 25 in September 2011.

In Court documentation filed, the three children allege they discovered that their mother changed the vesting date of this trust until 2068, effectively delaying the date the children to receive the proceeds from the trust until that time.

The three children are now trying to remove their mother as trustee of the trust.

I am not familiar with the details of this case, and therefore I am not in a position to provide my opinion. This case however does highlight the necessity to have a very detailed estate plan, especially when assets are owned in structures such as trusts and companies.

It is essential to consider many different objectives when preparing your estate plan. These include:

Who will have the effective control of the entities that own your assets.
Tax – Tax considerations, and the impact that your wishes have from a tax perspective, are very important factors that should be taken into account. It is important to work with an accountant and other advisors to ensure that your tax objectives are not breached in your estate plan;
Asset protection – It is important to take to consider personal circumstances of your beneficiaries and implement your estate plan to ensure that their assets, and assets of the estate are protected;
Financial support – It is very important to ensure that your spouse and children are properly supported from your estate, to avoid any potential claims;
Anticipating family disputes and battles for control – This is something that the late Lang Hancock may well have considered (I am not in a position to know what considerations were taken into account by him). By pre-empting and anticipating any potential family disputes, steps can be taken prior to death to minimise the risk of a dispute that could ultimately affect the value of the estate, and destroy family relationships;
Superannuation – It is important to consider what will happen to your superannuation benefits upon your death.

These are not all the considerations that need to be taken into account when formulating a strategy for your estate plan. By taking the time, and seeking appropriate advice, you can do everything in your power to reduce the risk of family dispute subsequent to your death. Often it will be the case that advice needs to be obtained from a lawyer, accountant and financial planner.

If you have any queries or any questions in relation to estate planning, or reducing the risk of a claim being made against your estate, please do not hesitate to contact me.

Blood Relatives and Stepchildren

Tue, 20 Mar 2012 14:00:00 +1000

I read with interest a recent article in the Australian Newspaper in relation to a Victorian Supreme Court decision where a stepdaughter was awarded a large payment by the Court for a claim made against her stepfather’s estate.

The claim was made against the estate of the late Harold Ward. Mr Ward died in 2007 and left his shares in the family company Ward McKenzie to his three natural children. These shares were valued at approximately $30 million.

The natural children argued that their father never wanted anyone other than a blood relative to own shares in the company. He had indicated the success of the company was put down to wholesome family values.

The claimant was the daughter from the deceased’s second wife. She lived with him for four years between the ages of 14 and 18 when she became independent.

The deceased, Mr Ward did not make provision for his stepchild for the reasons outlined above, and also that the stepchild was to receive provision from her own mother’s Will.

The natural children argued it would be difficult to provide for the stepchild as the only asset in the estate were shares and there was no cash. The shares will be difficult to sell because it was the deceased’s wish that they remain in the Ward Family.

Justice Hargrave of the Victorian Supreme Court ordered that the Ward children pay an amount of $750,000.00 to the stepsister to be held in trust, plus $50,000.00 a year living expenses until her mother dies. The lump sum was to be held in trust by a trustee if who could make sound financial decisions.

This case highlights the importance of identifying any potential claims when drafting and preparing your estate plan. In this case the Judge did not interfere with the deceased’s wishes of having ownership of the company outside the family. Instead the lump sum payment was made.

Assessing these types of claims a Court will take into consideration the circumstances of the party making a claim, and at this instance, the Judge thought it appropriate to make the award, despite the wishes of the deceased.

Please do not hesitate to contact me if you have any questions about this very important topic.

Abuse of Enduring Powers of Attorney

Fri, 27 Jan 2012 15:00:00 +1000

I am receiving increasing interest and enquiry from clients about abuse, or perceived abuse, of an Enduring Power of Attorney. Often I am approached by one family member who is concerned about the conduct of another family member who has been appointed as an Attorney for their parents who have lost capacity.

The Attorney’s Control

It is very important to understand the extent of control that an Attorney can have over a person’s assets. These powers include:

Dealing with monies in bank accounts;
Dealing with property;
Applying to the Court for a statutory Will to be made;
Severing joint tenancies for the ownership of property;
Taking out mortgages on behalf of the attorney;
Installing themselves as “Carers”;
Changing death benefit nominations for insurance and superannuation;
Taking control of family trusts;
Amending trust deeds;
Withdrawing superannuation.

A “creative” attorney can deal with the assets of the person who appointed them in a number of ways to depletethose assets.

Control the Controller

It is very important that the actual document appointing a person as an Enduring Power of Attorney is thoroughly considered to protect your assets. Matters that need to be taken into account include:

Who to appoint
Controls - You can insert some protective controls to restrict the attorney’s power to deal with some of following:
Business affairs - Dealing with the incapacity of directors and shareholders, carrying on your business, providing guarantees for any borrowings;
Family Trust – You should review your trust deed to consider what happens on the incapacity of a trust and consider who has the power to control the trust and appoint a new trustee;
Conflict transactions - where the attorney may transfer assets to him or herself. You can prevent the attorney from engaging in a conflict transaction unless specific transactions are allowed and recorded;
Your Will – You should make sure that the attorney is aware of the contents of your Will and the effect that their decisions may have on bequests you have made;
Have more than one attorney appointed;
Superannuation – You should ensure that proper advice is obtained before superannuation is dealt with and consider whether or not an attorney can make or renew any superannuation death benefit nomination;
Your accommodation in to the future – If a nursing home is not preferred you may stipulate what type of care you would like;
Obtaining financial and legal advice;
Caring for pets and children;
Life and lifestyle generally.

It is very important to invest your time to properly consider all of the implications in appointing a person as an Enduring Power of Attorney. Detailed consideration of these matters could avoid considerable for you and your family.

Please do not hesitate to contact me if you have any queries or concerns in relation to an Enduring Power of Attorney.

De facto Relationships in Succession Law

Fri, 13 Jan 2012 15:00:00 +1000

I often get queried by clients as to what amounts to a “de facto spouse” in the context of claims being made against an Estate. It is very important to understand that the definition of a de facto relationship in the context of succession law is different to family law.

A “de facto spouse” is a reference to either one of two persons who are living together as a couple on a genuine domestic basis, but who are not married to each other, or related by family.

In deciding whether two persons living together as a couple on a genuine domestic basis, any of the following factors may be taken into account by a Court:

The nature and extent of the common residence
Length of the relationship – naturally the longer the relationship the more likely it is to be treated as a marriage-like relationship. In Queensland there is a two year minimum period. Short periods of separation may not necessarily mean the de facto relationship has ended. The intention of the parties will be a relevant consideration of the Court.
Whether or not a sexual relationship exists or existed – the existence of a sexual relationship, during, or at least at some stage in the relationship, needs to be established.
Degree of financial dependence or interdependence – where parties, in a financial sense, treat each other with trust and generosity and intermingle their finances, this provides good evidence of a common household.
Ownership, use and acquisition of property – joint ownership of property is a very important factor indicating a marriage-like relationship, particularly where property is owned by the parties as joint tenants (meaning that the property automatically transfers to the surviving person upon the death of one person).
Degree of mutual commitment to a shared life - evidence of a future intention to marry is very relevant. Physical, emotional and financial support and caring in times of hardship and/or sickness is also relevant. The stronger the support shown, the stronger the evidence of this factor.
Care and support of children – where one party takes the principle caring role for either their own or the other party’s children, this will be deemed good evidence of this factor. This however does not apply if the parties do not live together under the one roof.
Performance of household tasks – this factor is relevant when one party can be shown to undertake most household chores, or if household chores are shared jointly. Evidence of cleaning, shopping for food and household goods, preparation of meals, maintaining gardens, household maintenance etc will be relevant factors.
Reputation and public aspects of the relationship – it is very important to be able to provide evidence as to how a couple present themselves socially or in business situations. Evidence from either of the parties, and those who have been in contact with them, will be useful in any Court proceedings. As will evidence of taking holidays together, attending family occasions such as weddings. Evidence from neighbours can carry a great deal of weight.
Courts may also take into account other issues including:

(a) Whether a single pension is received whilst living under the same roof;

(b) The exclusivity of the relationship is only one factor that the Court will consider;

(c) The subjective beliefs of each party to the relationship will also be considered, but the Court will look primarily to objective evidence.

The above is certainly not an exhaustive list of factors that will be taken into account. Each case will be assessed on its own merits by a Court.

If you have any queries or concerns in relation to your relationship, or whether a claim could be made against an Estate, do not hesitate to contact.

Blended Families and Mutual Wills

Mon, 12 Dec 2011 15:00:00 +1000

I recently spoke at an educational seminar run by the Institute of Public Accountants. An interesting discussion evolved about estate planning for blended families and what controls can be implemented to ensure that a Willmaker’s wishes are carried out.

Blended Families

Blended families arise where a couple enters into a relationship and one, or both of them, have children from pre-existing relationships. Willmakers in this instance often want to leave all of their assets to each other in the event that one passes away, but they also wish to ensure that their respective children benefit from their estate after the surviving spouse passes away.

Without specific strategies in place, there is the risk that the surviving spouse could change their Will and leave everything in their estate to their own children. One way to manage this risk is to have mutual Wills.

Mutual Wills

Some key matters to be taken into account when considering mutual Wills include:

A mutual Will exists when each spouse agree to leave his/her property to the survivor of the 2 of them, and then that survivor is to leave the property to the beneficiaries that have been mutually agreed - usually a child or children of both husband and wife (including children from previous relationships);
A constructive trust actually arises in a true mutual Will;
A Court must be satisfied that a constructive trust arises, and it is the constructive trust that beneficiaries can enforce;
A Court must be satisfied that there was an agreement between the 2 parties not to revoke the Will without the knowledge of the other;
An agreement to make mutual Wills is revocable by one party giving notice to the other of their intention to revoke the Will;
Revocation of a Will by re-marriage does not impact on the constructive trust that is created in mutual Will. Divorce does however free the surviving spouse from any obligation;
A mutual Will does not stop a beneficiary from making a family provision application if they have been left out of the Will;
A family provision application can still be made after the death of the first party to the agreement.

It is imperative to obtain qualified and experienced advice or in considering preparing mutual Wills, as a number of considerations need to be discussed and thought through before the Wills can be properly implemented, and the risk properly managed. Please do not hesitate to contact me if you would like to discuss or enquire about mutual Wills.

Who gets my password when I die?

Thu, 17 Nov 2011 15:00:00 +1000

A question that will undoubtedly be asked more and more frequently in the preparation of estate planning documents is what will happen to the online identity of a person when they die.

As our online presence becomes more and more aligned with how we define ourselves, Will makers are beginning to recognise the need to ensure that they consider how the online component of their lives will continue, or cease to continue, upon their death.

News.com recently flagged an interesting article on this very issue. Across the World it is estimated that 1.78 million Facebook users are expected to die this year, nearly 200,000.00 of them over the age of 55.

The issue that this raises is what will happen to the email, internet banking, Facebook, Twitter, Youtube, iTunes, and Linked In accounts of these people following their death.

The article calls for heavier regulation and the establishment of a code of conduct for website providers in the way in which they deal with approaches by family members of a deceased, however in my view, the matter could in some circumstances be better dealt with by way of pre-emptive estate planning.

While there may be legal implications with the disclosure of pertinent banking and other online passwords, it may be prudent for Will makers to provide a list of online passwords amongst their personal papers that can be passed to their Executors upon their death. In this way, the passwords are not openly disclosed as part of the Will, but the deceased’s accounts may still be managed in accordance with their wishes, provided they are clearly set out in the Will.

Thought must be given here as to how online service providers and regulators will handle the disclosure of passwords and other pertinent personal information by their users into the future, as generations who have grown accustomed to enjoying an online identity approach old-age.

While a solution to this issue is far from clear-cut and traverses a number of sometimes conflicting areas of law, the consideration is one that we are more than more likely to be faced with into the future.

If you have any questions about this important topic, or your Estate Planning needs in general, please contact me.

Binding Death Benefit Nominations For Superannuation

Mon, 17 Oct 2011 14:00:00 +1000

I was recently involved in a dispute regarding the payment of a Deceased member’s death benefit from a superannuation fund. It highlighted to me the importance of considering your Superannuation when undertaking your Estate Planning, and the consequences of not properly considering your Superannuation.

FACTS

In this matter:

The Deceased had a substantial amount of money in superannuation;
The Deceased had advised her children prior to her death that they were to share equally in her Estate (which she said included her superannuation) with her de facto;
The children and the de facto did not get on;
After the Deceased passed away it was established that assets had been transferred to the de facto prior to the Deceased’s death and other assets were held jointly with the de facto (meaning that they went automatically to the de facto);
The de facto made an application to the Trustee of the Superannuation Fund for 100% of the death benefits to be paid to the de facto;
There was very little left in the Estate assets to be distributed, as the Superannuation did not form part of the Estate assets;
The children also applied to the Trustee of the Superannuation Fund, for the Trustee to exercise his discretion to pay the superannuation fund consistent with the wishes outlined in the Deceased’s Will;
The Trustee of the Superannuation Fund determined that it would pay all money to the de facto.

In this case there was no Binding Death Benefit nomination signed.

WHAT IS A BINDING DEATH BENEFIT NOMINATION?

A Binding Death Benefit Nomination is a document signed by a member of a Superannuation Fund binding the Trustee of the Superannuation Fund to pay amounts from the Member’s entitlements in the Superannuation Fund to those parties nominated.

FORMAL REQUIREMENTS OF A VALID BINDING DEATH BENEFIT NOMINATION

To be valid a Binding Death Benefit Nomination must satisfy all of the following:

It must be in writing;
The people nominated must be dependants or a legal personal representative of the member, at the time of the member’s death. Dependants can include inter-dependants (e.g. two persons living together and providing financial, domestic and personal support to each other;
It must state the proportion of the benefit payable to each nominated beneficiary;
It must be signed and dated by the Member in the presence of two witnesses over the age of 18 years, neither of whom are nominated to receive a benefit;
The witnesses must sign and date the declaration stating the Member signed the document in their presence;
It must have been signed, confirmed or updated within a three year period (or shorter period if specified in the Trust Deed).

The formal requirements of the Superannuation Industry (Supervision) Regulations must also be complied with.

WHAT IF THERE IS NO BINDING DEATH BENEFIT NOMINATION?

If there is no Binding Death Benefit Nomination the Trustee of the Superannuation Fund has a discretion with respect to who should get paid.

Regulation 6.2.2 of the Superannuation Industry (Supervision) Regulations 1994 provide that a Trustee of the Superannuation Fund must pay a death benefit to either or both of:

The Member’s legal personal representative (i.e. the Estate); or
One or more of the Member’s dependants.

Dependants can include a spouse (including a de facto spouse), child or a person in an inter-dependency relationship.

In this particular situation, if a Binding Death Benefit Nomination had been signed, the death benefits from the Superannuation Fund would have been paid directly to the children in the desired proportions, and no dispute would have arisen. It is disappointing when the wishes of a Deceased person are not seen to fruition, due to an oversight or misunderstanding of what is required to fulfil your objectives within your Estate Plan.

To avoid this situation occurring in your family, it is important to obtain expert legal advice when preparing your Estate Plan, Wills and other associated documents. Please do not hesitate to contact me should you have any questions in relation to this issue.

ELECTRONIC WILL - THE IMPORTANCE OF SIGNING YOUR WILL

Wed, 05 Oct 2011 14:00:00 +1000

IS AN ELECTRONIC WILL A WILL?

I recently read an interesting case from the Supreme Court of Queensland called Mahlo v Hehir.

In that case the Deceased had typed on her home computer a document in the form of a Will, two weeks prior to her death. The Will appointed her brother as Executor and allowed for gifts to her parents, along with the balance of her Estate to her son and daughter.

The Will was not signed.

The Deceased had a previous Will made approximately three months earlier, where she appointed her then de facto as Executor and Beneficiary of her Estate.

The Deceased’s children sought an Order from the Court that the electronic document was in fact the Deceased’s last Will, rather than being in a situation where the Deceased’s former de facto was the sole Executor and Beneficiary of her Estate.

The document was an electronic document. The Succession Act allows for an electronic document to be determined as a Will.

There was no evidence of the electronic document being printed. On the face of it the document purported to state the Deceased’s intentions , however, an issue arose as to whether the document was made by the Deceased or her daughter. The issue of testamentary intention therefore became evident.

The Respondent in this matter, Mr Hehir, was a financial planner and neither admitted nor denied that he had drafted the clause in the February Will leaving a residence owned by the Deceased to him.

One month after the February Will, Mr Hehir rented an apartment, however, he continued to sleep at the Deceased’s house.

The Deceased had indicated to other family members that her relationship with Mr Hehir had ended.

Importantly, on 8 May 2008, Mr Hehir emailed the Deceased, attaching a copy of previous Wills indicating that he had recreated her Will for her. Mr Hehir asked the Deceased to send a copy of the Will for him to peruse to ensure that it still met with the legal criteria before resigning it.

There was a lot of evidence lead as to discussions and communications had between the Deceased, family members and Mr Hehir in relation to the electronic Will.

In deciding the question as to whether or not the electronic document was a Will, the Court found:

The question is whether the electronic document was intended by the Deceased to form her Will;
The Court was not satisfied that the Deceased intended the electronic document to form her Will. The Court found that the Deceased knew that in making a new Will she had to do more than type or modify a document on a computer. She understood that she had to sign it.
The Deceased had a fairly recent experience in making a Will, which was signed and witnessed.
The electronic document made specific provision for where the signature was to appear and be witnessed, and the Deceased had been reminded by Mr Hehir of the necessity for her signature.
The case was different to the case of Re Trethewey, where the Deceased had said on several occasions that he had left Will on his computer. The Deceased, in this instance had described a paper document as being her Will.

The Court dismissed the claim that the electronic Will formed the last Will of the Deceased. The result of this was that the former de facto benefitted generously from the Deceased’s Estate, over and above the Deceased’s children.

This case serves as a timely reminder to ensure that:

(a) Your Will is updated if personal circumstances change; and

(b) You act quickly to ensure that your Will is prepared properly, with qualified legal advice; and

If you have any questions in relation to this particular matter, or finalising your Will, please do not hesitate to contact me.

Key Personal Capital Insurance and Capital Gains Tax

Mon, 19 Sep 2011 14:00:00 +1000

I recently was invited to speak at the Business and Estate Planning Specialists annual conference in Cairns. One issue raised, was whether there was any way to limit exposure to Capital Gains Tax for the reduction of debt in a business, from the payment of Key Person Capital, or Debt Reduction, Insurance.

This is a very good question and opens up many issues relating to Capital Gains Tax and the ownership of insurance policies.

The issues to be addressed when considering a Key Person Capital insurance policy are:

What exactly are the tax implications? Unless a specific exemption applies, the proceeds of a policy may be subject to Capital Gains tax;
Who should own the policy? Should it be the individual, the business or a trust?
The different tax treatment for death benefits and non-death benefits (such as TPD and trauma);
Can a CGT exemption apply? ;
How do we bind the beneficiary of the policy to actually use the proceeds to reduce the debts of the business;
The need to avoid capital gains tax on insurance policies if new owners are introduced to the business;
How do we protect the estate of a deceased from any contribution claims by the Business for debt? Here it is very important to ensure that the policy is sufficient to cover all debts that are personally secured by the insured parties.

One potential solution to the Capital Gains Tax issue is to establish a Hybrid Trust or Business Insurance Trust Agreement

Hybrid Trust – Business Insurance Trust Agreement:

This is a specialised document that requires careful consideration and specialised advice, to ensure that Capital Gains Tax is not payable. The key attributes to this type of agreement are:

Insurance policies are taken out on the life / TPD / Trauma of each owner;
Policies can be held on trust (CGT exemptions available for “beneficial owners”)
Beneficiaries of policies must be noted in the agreement (must be the life insured to satisfy ATO);
The type of insurance is noted (i.e. key person cover, death etc)
It sets out responsibility for the payment of premiums;
It can include buy and sell options for certain trigger events such as death and TPD;
It deals with the collection of the proceeds of policy by the Trustee, in the event that a policy is enlivened;
It deals with payment of the proceeds of policies in different circumstances (ie to an estate upon death if an option is exercised, or to a beneficiary for trauma);
The beneficiary can direct the Trustee to pay part of the proceeds to a third party recipient, such as a creditor of the business to reduce debt. This is very important as it ensures the debt is reduced and not paid out to an estate, which may then spend it. It is also important that this part of the agreement is worded properly to satisfy the ATO in the treatment of Capital Gains Tax;
The entry and exit of proprietors is dealt with in a way so as to avoid the situation where Capital Gains Tax may be triggered by a deemed acquisition of an interest in a policy

Very detailed consideration needs to be given to these types of agreements. It is essential to get advice from your Lawyer, Accountant and Advisor before implementing this type of arrangement in your business. Please contact me if you have any queries or would like to discuss this in more detail.

Challenging a Will and Claiming against an Estate

Tue, 13 Sep 2011 14:00:00 +1000

I recently had a meeting with Trevor Benson from Infocus Money Management. Trevor asked me a question on behalf of a client of his about making a claim against an estate of a recently deceased relative. It led to a discussion on the general principles applied by the Courts when a claim is made against a deceased estate in Queensland.

Lee Nevison, Barrister, recently published a paper that dealt with this issue. As to general principles with respect to the determination of family provision applications in Queensland, the following will be a guide:-

A party must fall within the one of the categories of eligible applicants to have standing to pursue an application. These categories include:

(a) A spouse (including de-facto spouse) of the deceased; and

(b) Children (including step-children) of the deceased; and

Any application must be commenced within nine months of the date of death of a deceased, unless leave of the Court is granted outside that time for the application to be heard. Notice should be provided to the Executor of the Deceased Estate within 6 months from the date of death that a claim will be made;
Courts do not simply re-write wills because a claim is made – there is definitely no guarantee that a claim will be successful;
There is no principle of paramountcy of entitlement for a spouse or for equality between siblings – again reinforcing the fact that there is no guarantee of success;
Claims in small estates will be discouraged. I have personally been involved in a case where I had to advise a client to settle a claim at an early stage, given my concern that the Estate did not have enough assets to warrant a claim, and there was a chance of costs being ordered against my client. I have previously posted a blog on this issue.
Courts will approach the matter by determining what a wise and just, as opposed to a fond and foolish Willmaker,would have done in all the circumstances: Bosch v. Perpetual Trustee Co Ltd [1938] AC 463;
What is “adequate” and “proper” will vary depending on the facts and circumstances of each individual case;
Proceedings will be determined on a two stage process involving a range of considerations. If a Court is satisfied that adequate provision has not been made, then a Court will exercise its discretion by determining, what, if any, provision should be made: Singer v. Berghouse (1994) 181 CLR 201.

These principles highlight the importance of giving thorough consideration to a claim before one is made, given that there is no guarantee of a claim being successful. It also highlights the importance of getting properly qualified professional estate planning advice if there is any prospect of a claim being made against your estate.

Please contact me if you have any questions at all on this very important topic.

Binding Financial Agreements and Family Provision Claims

Sat, 03 Sep 2011 14:00:00 +1000

About the Author

Ben Hall is a lawyer and Managing Director of Love Law, an online service connecting visitors with trusted Australian family lawyers whilst reducing the price of their legal advice.

The last thing anybody wants is to leave valuable possessions to particular people only to have somebody else go to court to stake a claim on the estate. When you create a will you hope that it will stand the test of time and give effect to your wishes.

In Australia, people who consider themselves beneficiaries of an estate and who meet certain legislative prerequisites, but who are not provided for to their satisfaction in a will, may be entitled to make what is known as a “family provision claim”.

The cause of much controversy, family provision claims can be made by long forgotten sons and daughters (including step-sons and daughters), ex-lovers, widows, widowers and a myriad of others who meet the criteria set down by the legislation.

Given the confusion surrounding family provision claims, it is important to have in mind what Australian law says about spouses and partners who go after an estate for more than was left to them and in particular what protection, if any, a Binding Financial Agreement (formerly known as a Prenuptial Agreement or Cohabitation Agreement) will offer you.

In the case of Kozak v Matthews [2007] QCA 296 a farm labourer (who, relevantly, lived in a caravan) and his rich de facto partner entered into a legal agreement that attempted to prevent the parties from claiming against each other’s estates. At the time of signing the deed, Kozak’s partner had terminal cancer and was not expected to live for more than a few years. After her death a short time later, and despite having signed a prenuptial agreement, Kozak claimed against her estate a distribution large enough to buy himself a house.

His legal action failed and the court made two particularly important statements. The court considered that where you enter into a marriage on a particular basis (i.e. signing an agreement about how assets might be distributed) you should be held to that standard. In this case, Kozak should not be given enough money to buy a house outright when this would place him in a significantly better situation than when he was a farm labourer living in a caravan during his relationship with his partner. The prenuptial agreement he signed showed that he did not expect to receive anything more from his partner’s estate than what she decided to leave to him. To profit from her death – particularly when the prenuptial agreement implied that he was not expecting such a bounty – would be unjust.

The court also held that people cannot contract out of family provision legislation. In other words, a family provision claim will be available even when an agreement attempting to block such a claim exists, but the prenuptial agreement can be used by a court as evidence of the nature of the relationship between the deceased and the person seeking to increase his or her share of the estate.

Family provision claims are always decided on a case-by-case basis and courts look to any available evidence to assist their decision making. In the case of Hills v Chalk & Ors [2008] QCA 159 a man (Mr Hills) and a woman entered into a prenuptial agreement and the woman’s will was written in accordance with the terms of the agreement. Mr Hills wanted more than the woman’s will left him, so he claimed against her estate for family provision.
Ultimately his claim did not succeed, with the court holding that although people cannot contract out of legislation, the prenuptial agreement was relevant as it was “illuminating the totality of their relationship” (Keane J at 44) - the nature of a relationship being a core consideration for deciding family provision claims.

If these cases are anything to go by, it seems that Binding Financial Agreements (of the Prenuptial Agreement variety) are not going to prevent an ex-spouse coming after your assets once you pass away. However, as in the cases above, such an agreement may illustrate for a court the nature of your relationship and assist your executors to defeat such a family provision claim.

Removal of Testes and Sperm from Deceased

Wed, 17 Aug 2011 14:00:00 +1000

I read with interest the recent and important judgment of the Queensland Supreme Court (Re-Floyd [2011] QSC 218). In this matter the Court ordered that the spouse of a deceased was entitled to remove the testes and sperm from the deceased.

The Facts

The deceased died in a level crossing accident on 12 July 2011 (he was killed by a train).
The deceased and the applicant were in a de-facto relationship;
They had planned to marry at the end of the year and had just built a house together;
The couple had constantly discussed having children together;
The applicant had made an appointment to visit an obstetrician gynaecologist to discuss having children;
The applicant told the Court that all the deceased wanted was to have a child and they decided to build a house first because otherwise they would not be able to afford to build a house;
An urgent application was heard by telephone as the procedure required had to be performed within 24 hours to be effective;

The Law

Doctors and Coroners (if a death is reportable) have power to authorise the removal of sperm from the deceased person. It is uncertain whether the prior written consent of the deceased (or next of kin) is legally recognised;
The best prospect is to make an urgent application to the Supreme Court;
The subsequent use of sperm for in-vitro fertilisation may be considered by the Court as a separate issue;
If the death is a reportable death under Section 8 (3) (b) of the Coroners Act 2003(QLD), under Section 24 of the Transplantation and Anatomy Act the Coroner may consent to the removal of the tissue;
Under Section 23 of the Transplantation and Anatomy Act “a senior available next of kin may … authorise the removal of tissue from the body of a deceased person” … for … medical purposes …”;
A recent decision of the New South Wales Supreme Court (Jocelyn Edwards; Re-the Estate of the late Mark Edwards [2011] NSWSC478), it was held that “removal of sperm could be regarded as “for medical proposes” where the proposed use is in assisted reproductive treatment”. This assists the authorisation by next of kin;
As outlined above, if it the death is a reportable death under the Coroners Act, the coroner may give a direction in relation to their consent for the removal of tissue;
The Court was satisfied, after considering number of authorities, that an appropriate order should be made;

Upon the solicitor for the applicant undertaking to inform the government’s pathology centre in relation to the order, the Court ordered that:

The Court authorised the removal of the testes and spermatozoa from the deceased;
The Court authorised the provision of material removed to an IVF Organisation;
The Court authorised any blood tests advised by the IVF Organisation be carried out;
The Court authorised the storage of sperm obtained pending a future application for the use of that sperm.

The Queensland government has a helpful fact sheet in relation to these issues which also lists a number of Queensland Supreme Court decisions in relation to the matter.

It is imperative that applications to the Court are made as a matter of absolute urgency. The Court will always be accommodating for applications like this, as they must be made within 24 hours of death. Please do not hesitate to contact me if you have any questions in relation to this particular issue.

How Does Divorce Affect You And Your Will?

Tue, 09 Aug 2011 14:00:00 +1000

In most jurisdictions in Australia, except Western Australia, the whole Will (in the case of Tasmania) or certain provisions contained in the Will (in other States), are revoked by the divorce or annulment of the marriage.

Western Australia

In Western Australia, a Will made before a divorce will continue until it is actually revoked by the Will maker. This is particularly dangerous if a person dies after a divorce and property settlement, but has not changed their Will.

Queensland, New South Wales, Victoria, ACT, South Australia and Northern Territory

A summary of the law in all jurisdictions except Tasmania and Western Australia, is as follows:

Upon divorce, any provision for the Will makers former spouse is revoked;
With some exceptions, any powers of appointment exercisable by a former spouse are revoked;
With some exceptions, the appointment of the former spouse as executor, trustee or guardian is revoked. In Victoria, Queensland, the Northern Territory and New South Wales, a former spouse can still be trustee for property where the beneficiaries include the children of the spouse;
If a Will maker leaves a specific gift or legacy to the former spouse, that gift will form part of the balance of the estate as it will be deemed to have lapsed;
All provisions relating to revocation are subject to a Court being satisfied that the Will maker had the intention of actually leaving gifts or part of the estate to the spouse to the former spouse;
In the ACT and South Australia, if the Will maker executes a document to confirm the Will, generally there will be no revocation;
In New South Wales, the ACT and South Australia, a former spouse can still make a claim for family provision.

Tasmania

The effect of the Tasmanian Legalisation is that the whole of a Will is revoked by divorce. In other states, only provisions relating to the former spouse are revoked. The effect of the Tasmanian Legalisation is that all gifts will fail, including provisions relating to guardianship and the disposal of the Will makers body.

What should I do if I have separated and I am contemplating divorce?

It is imperative that anyone who is contemplating divorce seek advice from a lawyer who specialises in estate law so that your Will is property drafted to reflect your current circumstances and your wishes.

Please contact me if you have any further questions at all in relation to what happens to your Will after your divorce.

Can Scandalous Words Be Removed From A Will After Death?

Fri, 29 Jul 2011 14:00:00 +1000

A recent decision in the Supreme Court of South Australia handed down on the 20th July 2011, ”In the Estate of Brummitt (deceased)”, highlighted to me the importance of properly drafting your Will if you wish to include reasons as to why you have left a person out of your Will.

In the case of the Estate of Brummit, an Application was made in the Supreme Court of South Australia to remove words from a Will of the deceased. In the Will:

a) The deceased directed that his former wife shall not take any benefit from his estate;

b) He declared that he has “no further obligation to her in any circumstances”;

c) He declared that he had not provided for his former wife’s child as he believed that his former wife “had extra marital affairs” and the child was not his child;

d) Both child and his former wife refused to conduct a paternity DNA test.

For obvious reasons, the former wife did not want these particular words to be included in the Will that was to receive the final approval from the Court as the deceased’s last Will.

The judge refused to remove the reference to “extra marital affairs” and admitted the Will in its signed form. A summary of the legal principals relating to this issue are as follows:

In the first instance the Courts will issue Probate in the words of the Will itself;
A person making a Will has the right to provide reasons as to why (or why not) the will maker is disposing (or not disposing) of their property;
The will maker cannot use the will as a vehicle for defamation, scandal or offence, where those words have no effect upon the Will, or the disposition of property;
Generally, the two criteria that need to be met before the Court can exercise its power to omit the words are:
a) The words cannot be interpreted to have the effect of disposing of assets within the estate; and
b) The words must be capable of being characterised as scandalous, offensive, defamatory or blasphemous;
It is a discretionary power of the Court to determine whether to omit words, on a case by case basis.
The power of the Court must be exercised with great care and so generally, in so far as words provide or support a reason for the will maker’s decision, they ought not to be omitted from the Will. It follows that where the words assist a Court interpreting the Will, the Court may decline to omit them.

In this case, the application failed because removing the words “extra marital affairs” would have rendered the rest of that particular clause incomprehensible. The Court held “in the circumstances of this case this level of interference with a testator’s testamentary affairs would be disproportionate the offensive or scandalous character, if any, of the words used”.

How does this affect your Will?

This case highlights the importance of getting properly qualified advice if you wish to leave people out of your Will. It is very important to express the reasons why people are left out of your Will. My recommendation is to leave a detailed statutory declaration as a separate document to your Will. The benefits of this are:

a) It is a separate document to your Will, meaning that your Will may not meet the same challenges that were faced in this particular case; and

b) It is a sworn document that can be relied upon as evidence (if prepared properly) in the event that there is a dispute over an estate, and the will maker’s reasons.

If you have any queries in relation to this particular matter please do not hesitate to contact me.

Enduring Powers of Attorney - Financial Abuse

Sat, 23 Jul 2011 14:00:00 +1000

An Enduring Power of Attorney is one of the most powerful documents that you will ever sign. This was highlighted in a recent article in the Sunday Mail by Anthony Gough, Anthony highlighted cases where elderly people had fallen victim to abuse by people that they had appointed as their attorney.

Thirty-two percent of recent cases in the Queensland Civil and Administration Tribunal related to financial abuse under enduring powers of attorney with the dollar amounts adding up to millions. Most of the abuse was done by the victim’s adult children. This is consistent with my experience, as I am seeing more and more clients who are concerned about the abuse of elderly people by the abuse of trust of an attorney who has been appointed under an Enduring Power of Attorney document.

Some critical matters that need to be understood when appointing an attorney under an Enduring Power of Attorney include:

The financial attorney may have complete control over all of your assets;
Your personal/heath attorney may have complete control over all of your personal and lifestyle matters (even though the personal/health attorney does not start until you lose capacity.);
It is very important to remember that you can choose when the power of financial attorney begins. If you are confident that you will not need assistance until you have lost capacity, it may be wise to nominate that this power does not commence until you lose the ability to make decisions for yourself.
You have the ability to limit the power of the attorney that you appoint. For example you can ensure that your attorney does not enter into transactions where the attorney has a conflict of interest, including the making of gifts, or the sale of any assets;
It is often wise to appoint more than one attorney who may act jointly, or in the majority. This will ensure that not one single person can make all of your decisions for you;
You should have implicit trust in the person that you appoint as your attorney. If you have any reservations you should not appoint that person at all;
If, after you have appointed an enduring attorney, you can revoke that Enduring Power of Attorney at any time so long as you still have the mental capacity to do so.
You should regularly review your Enduring Power of Attorney to ensure that the people you have appointed continue to be suitable, or whether any limits should be applied.
Appointing the wrong person in an Enduring Power of Attorney document can have devastating consequences for you and your family.

On Wednesday 15 June 2011 was World Elder Abuse Awareness Day. This day is a timely reminder of the importance of the requirement to protect elderly people against the acts of those who are willing to take advantage of their vulnerability.

It is very important that if you are considering appointing an Enduring Power of Attorney that you obtain professional legal advice from a competent and experienced legal practitioner in this area. Please contact me if you have any queries or concerns about this important document.

Capital Gains Tax and Life Insurance Policies in Business Wills

Fri, 22 Jul 2011 14:00:00 +1000

I was recently asked to give a presentation for Business and Estate Planning Specialists. This company specialises in selling risk insurance for businesses and individuals. They had asked that I explain to their team the taxation implications for various forms of life insurance policies.

One issue that was discussed is why it is so important to structure life insurance policies properly when preparing Business Wills or Buy/Sell Agreements.

Is Life insurance a Capital Gains Tax asset?

The Capital Gains Tax legislation treats insurance policies as a Capital Gains Tax asset, and the payment of the insurance proceeds as a disposal of the asset.

Capital Gains Tax asset a Chose-in-action

The definition of a Capital Gains Tax asset includes a “chose-in-action”. A chose-in-action is a contractual promise to do something or to pay something. An insurance policy is a chose-in-action as it is a contractual promise by the insurer to pay the amount insured upon the occurrence of an event (ie. death). This asset will be disposed upon the performance of the contract (ie. the payment of the insurance proceeds). This results in the disposal of a Capital Gains Tax asset.

Now that it is established that an insurance policy is a Capital Gains Tax asset, careful consideration needs to be given as to whether any of the Capital Gains Tax exemptions apply.

Capital Gains Tax exemptions

Death benefits will only be exempt from Capital Gains Tax where the recipient is either:

(a) The original beneficial owner - this can include two or more people such as the case when policies are owned by business partners over each other, and can also include a company or trust; or

(b) Acquired the interest in the policy for nil consideration.

The term “original beneficial owner” has also been stated by the ATO to be the first person who:

(a) At the time the policy is effected, holds the rights under the policy; and

(b) Possesses all the normal incidents of beneficial ownership.

Ownership of policies by surviving business owners

It is very important that if insurance policies are owned by surviving business owners, there are no changes to the ownership of the business between the time that the policy was taken out, and the death of the deceased owner.

The reason for this is that if new owners are introduced into the business, and those owners wish to take advantage of the insurance policy, the definition of “original beneficial owner” may not be met as:

(a) That person would not have been the original beneficial owner; and

(b) If money was paid to purchase the share in the business, and the interest in that life insurance policy, there would not have been an “acquisition in the interest of the policy for nil consideration”.

It is therefore essential that if new owners are introduced into the business, that the existing policies are terminated and new policies entered into.

Ownership by deceased estate

If insurance policies are owned by the deceased estate, the deceased estate would be the “original beneficial owner” and the estate would be exempt from Capital Gains Tax in relation to the life insurance proceeds.

However, for Capital Gains Tax purposes, the estate would be deemed to have disposed of the interest in the business, at a deemed market value, and would have to pay Capital Gains Tax on the capital gain realised upon their disposal of the interest in the business.

Business Wills

It is essential that when drafting Business Wills, careful consideration is given to the ownership of life insurance policies so that unwanted Capital Gains Tax consequences are not brought about. Please do not hesitate to contact me if you would like to discuss any aspect relating to Business Succession, Business Wills, Estate Planning, or the ownership of life insurance policies.

KEY ISSUES TO INCLUDE IN YOUR WILL

Sun, 17 Jul 2011 00:00:00 +1000

Anthony Keane published an article entitled “Have you the will to leave your family in peace?” in the Courier Mail on 13 June 2011. Anthony quotes Darren James of AMP Financial Planning.

In the article Anthony summarises some of the key issues that Darren James considers should be included in the Will. All of the points raised by Darren are correct, and very important. In this post I would like to summarise some of the important factors that I feel should be taken into account when considering your Will. These are:

Your Executor – the appointment of an appropriate Executor is critical. Executors have very strict duties and choosing the wrong person could end up costing your estate a lot of money, or worse still, result in your wishes not being properly carried out.

Tax – taxation objectives are key considerations when preparing your Will and estate plan. The treatment of different assets within your estate can have, in some cases, unwanted and avoidable tax consequences.

Asset Protection – it is very important to take into the account the circumstances of the beneficiaries of your estate so as to minimise any risk that their inheritance could be eroded.

The ownership of your assets – in some states in Australia,assets that are not owned in your own personal name do not form part of your estate. These include companies, trusts and superannuation funds. It is very important to consider how the control of these entities is passed in your estate, and what happens to the assets that are owned by these entities.

Superannuation – it is important to thoroughly consider your superannuation as it may be paid directly into your estate. Some of my clients prepare a Binding Death Nomination to ensure that the benefit from their superannuation fund is paid directly to the person that they nominate.

Family provision – is very important to consider the implications if you do not adequately provide for your spouse/children/dependents in your Will. Detailed advice should be obtained in this situation.

Businesses – if a business is owned in a company or partnership it is very important to consider what happens to the business, and the ownership of the business, upon your death. Often people enter into buy/sell agreements, (also referred to as Business Wills) to ensure a smooth transition in the ownership of the business upon death of one of the owners.

Life Insurance – life insurance is a critical tool to ensure that your debts are paid out, and your beneficiaries are adequately provided for upon your death.

Testamentary Trusts – Testamentary Trusts are a very good tool to achieve different objectives within your Will and estate plan. They can have the effect of minimising tax for your beneficiaries, assisting your beneficiaries in their wealth creation and management, and also asset protection.

The ultimate aim of estate planning is to maximise the value of your estate and reduce any potential hardship to your beneficiaries. It is important that you speak with your solicitor, or contact me to discuss any of your estate planning needs so that your wishes are carried out in an effective way.

Why every property owner needs a Will

Fri, 10 Jun 2011 00:00:00 +1000

I was recently interviewed by Jemma Pearson of My Property Preview where she published an article entitled “Get it Write”.

The article highlights the importance of reviewing your Wills when you purchase or sell property. I have highlighted in this post some of the important issues covered in the article.

Mortgages on Property - It is important to take into account whether or not properties that you own have mortgages on them, and how those mortgages will be paid out, upon your death. If a beneficiary is unable to service the debt they may need to sell the property. I therefore recommend that property owners always obtain sufficient life insurance to ensure that all debts of the estate are paid out, and the beneficiaries are not burdened with inherited debt.

Capital Gains Tax - A principal place of residence of a deceased will be capital gains tax free if it is transferred within 2 years from the date of death. Capital gains tax will apply after that date. Capital gains tax for investment properties is treated differently. The Australian Taxation Officehas some helpful information in relation to this.

Under age beneficiaries Children under the age of 18 are entitled to inherit property, however the property will be held on trust for them until they turn 18. Most people will nominate a guardian to take care of their children. A well structured Will should have provision to entitle the guardian to apply to the Executor for sufficient funds for the care, education, support and maintenance of the children until they turn 18.

Property owned as Joint Tenants - It is also very important to consider how properties are owned, as this will impact on the way properties can be dealt with in a Will. If a property is owned as joint tenants, it means that the deceased share in the property is automatically transferred to the surviving person. This means that particular property cannot be dealt with in the Will.

Property owned as Tenants in Common - If a property is owned as Tenants in Common, then the deceased’s share will be distributed in accordance their Will, as that portion of the property forms part of the pool of assets of their estate.

Property owned by a Company or Trust - As companies and trusts do not die, property owned in those vehicles will not form part of the estate. It is therefore important to consider who owns the shares in a company, or who has the controlling position of a trust. The effective control of the company or trust can therefore be passed over in accordance with the provisions of your Will.

Property owned in a Self Managed Superannuation Fund - Property owned in self managed superannuation funds is also dealt with differently. The control of the self managed superannuation fund needs to be carefully considered when reviewing your Will.

Marriage or Divorce – It is imperative that couples who are going through a separation, or are about to get married, review their Wills as these events can invalidate certain aspects of your Will. Specific advice from your solicitor is required in these circumstances, as each case may differ.

As stated by Jemma Pearson “adequate estate planning will ensure your loved ones will be looked after in accordance with your wishes when you are no longer around.” It is therefore important that you contact your solicitor when buying or selling your property, to ensure that your Will is up to date.