Inheritance received FOUR YEARS after separation available for splitting with former spouse!

In the matter of Calvin & McTier [2017] FamCAFC 125 (12 July 2017), the Full Court heard an appeal by a husband who argued that an inheritance received FOUR years after separation should not be included in the property to be divided.  The Full Court held that the property to be divided in a matrimonial matter is the property held by the parties at the date of HEARING, not date of SEPARATION.

The husband’s counsel submitted a number of legal arguments to defeat the inclusion of the inheritance, including the proposition that if the inheritance was to be counted – the later acquired inheritance should be subject to a separate finding as to division (in that case, the inheritance equated 32% of the property pool, which the trial court awarded 65% to husband, and 35% to wife).  The Full Court did not agree.  The Full Court determined that a trial court has discretion to make decisions as to the whole of the assets of the parties, including assets acquired long after separation. To make matters worse, the husband was left to pay the parties’ costs.

The lesson here is that if your beneficiaries are separated, but have not resolved matters by a binding financial agreement or court orders (far preferred because of the finality), then you should be revisiting your estate planning and contemplating proper testamentary trust structures with adequate appointor and guardian provisions.

Also, if you have separated, but believe the cost of making a binding financial agreement and/or seeking court orders is “too hard” or “not worth the expense”, think again.  It is far better to divide what is your marital pool, than risk dividing what is your later accumulated wealth.  Whilst adjustments and contribution weighting may allow for a factor which compensates for your later accumulated wealth, you most likely will lose part of that accumulated wealth.

Life is a gamble, sometimes you win the gamble.

If you aren’t up for the gamble, we welcome you to contact one of the estate planning and/or family lawyers at Nautilus Law Group.  Please free to contact Katrina Brown on (07) 5574 3560 or by email.

Estate Planning Myths Series: Anyone can challenge a Will – it’s not worth the paper it’s written on

A Will is one of the most important legal documents you will make and must be tailored in accordance with your individual needs. It sets out your wishes for the distribution of your estate and provides directions as to who is appointed as your executor and how they should manage your estate.

The failure to execute a Will before your death will mean that you die ‘intestate’, leaving your assets to be distributed in accordance with legislative provisions (in Queensland, this is pursuant to the Succession Act 1981 (QLD) (the Act) – other States have similar legislation), which may not be in accordance with your wishes.

Further, a failure to seek professional legal advice to prepare a Will, attempting to draft your own Will, or neglecting to make sufficient provision for your spouse, descendants and dependants may result in a Family Provision Claim against your estate.

What is a Family Provision Claim?

Family Provision Claims are made under Part IV of the Act and are the most common type of challenge to a Will.  The Act provides that whether a person dies testate (having a Will) or intestate (without a Will), the court may, in its discretion, apply such provision as the court thinks fit having regard to the status of the individual making the claim and whether they qualify as a dependant on the deceased.

Who can make a Family Provision Application?

A deceased person’s spouse, child or dependant is entitled to bring a Family Provision Application seeking proper support and maintenance from the estate of the deceased.  Each potential claimant will be considered in detail below.

Spouse:

At law, a person’s spouse is entitled to a distribution from the estate if they are the husband, wife, de-facto partner or a registered partner of the deceased.

Children:

The definition of child under the Act is broad.  Children who may bring a Family Provision Claim include not only the deceased’s natural or legitimate children, but also step-children and adopted children.  Foster children may bring a claim if they can establish that they were wholly or partially dependent on the deceased and were a member of the deceased’s household.

Dependant:

A claimant may also fall within the category of a Dependant, which is defined as “any person who was wholly or substantially maintained or supported … by that deceased person at the time of the person’s death being:

  • a parent of that deceased person; or
  • the parent of a surviving child under the age of 18 years of that deceased person; or
  • a person under the age of 18 years.”

Accordingly, a dependant may be a parent of the deceasd person.

 So – if a Family Provision Claim can be made in any instance, what’s the point in writing a Will?

In the event of a Family Provision Claim, the Will is one of the primary documents upon which a court will rely, as this document sets out the testamentary intentions of the deceased.

While there is no concrete method of preventing a Family Provision Claim being lodged – there are various methods by which the chances of a claim being lodged, or of such a claim being successful, can be decreased.

When a court considers a Family Provision Claim, the deceased’s views will be considered.  However, there is no guarantee that the court will uphold the wishes contained within the Will if the claimant can demonstrate the need for proper support or maintenance.  It is, therefore, paramount to consider every possibility which may arise, and to draft a Will that considers all potential claimants and provides security and protection to ensure your estate is distributed as you intend.

If you are excluding any of the potential claimants from receiving a distribution under the Will, or effecting a distribution that is less than what may be considered by a court to be “proper entitlement”, it is important that you record the reasons for such exclusion or reduction with either a clause included in the Will or alternatively executing a signed statement to be kept with the Will.  There are various supplementary documents which can be prepared by your solicitor setting out the reasons a lesser provision was made for potential claimaints.

If you would like to speak to our estate planning team about drawing a Will or potential Family Provision Claims, please contact our office on 07 5574 3560 or via email at info@nautiluslaw.com.au.

Estate Planning Myths Series: “I made my Will years ago – I don’t need to do a new one”

You drafted a Will years ago – it’s pretty basic, but it gives everything to your spouse, or, if your spouse doesn’t survive, then everything goes to your children. So, if the content of the Will applies, what is the point of doing a new Will that sets out the same wishes?

Many people see the updating of a Will as an unnecessary and costly exercise, particularly when the new Will contains the same directions as the prior Will.

Although we certainly understand the frustration with the process, there are three important reasons to ensure your Will is reviewed and updated regularly.

Firstly – a regular review of your Will is critical

There have been recent cases in Queensland that indicate that if a challenge is made against the Estate of a deceased person, and the Estate is being administered by a Will that was not recently made or reviewed, the Courts often question whether the wishes of the deceased at their date of death were the same as those contained in the Will.

There is good reason for this. We regularly hear “I’ve been meaning to update my Will for months now, especially since this happened” – life is busy, and updating a Will falls a long way down the to-do list for most people.

However, it is important to make time for the review process – attending on your solicitor to review the Will, make any alterations, or confirm your wishes can clarify your intentions for the administration of your Estate and potentially prevent an Estate challenge. There is no defined review period, however we recommend reviewing your documents with your solicitor at least every three years.

Secondly – legislation and case law changes regularly – your documents need to change with it

Legislation and Case Law in each State is constantly evolving, meaning that the way your Will is interpreted or effected may change over time.

It is important to review, and confirm or vary, your Estate planning documents with your solicitor regularly to ensure that there are no material changes to your Estate plan that result from changes in law.

Finally – has your Will been voided or revoked?

While a regular review of your Estate planning documents is important, there are certain circumstances which will void your Will – therefore, review is critical should any such occasion occur.

Marriage, for example, will revoke a Will. Unless your Will is made in contemplation of your marriage to your partner, the act of marrying will invalidate the Will.

Similarly, divorce or annulment will also revoke your Will (unless a contrary intention is specifically indicated).

It is also important to review your Will as the circumstances of yourself, your executors or your beneficiaries change – if you, your executors or your beneficiaries become subject to bankruptcy or family law proceedings, it is important to review your Estate plan to ensure that it is still appropriate and, where necessary, that appropriate protective measures are set in place.

If you need to review your Estate plan, we welcome you to contact our Estate Planning Team on 07 5574 3560 or via email.

Can an employee acquire a residential property as an investment in the employee’s Self Managed Superannuation Fund (SMSF), if the employer is a property developer?

Answer:  Maybe, maybe not.

This question asks whether an employee is a related party of their employer (or the employer a related party of the employee’s SMSF) for purposes of Section 71 Superannuation Industry (Supervision) Act 1993 (SISA), in respect to the In-House Asset Test and Section 66 of the SISA, in respect to the prohibition against acquiring certain assets (including residential property) from a related party.

There is no default rule that an employee is an associate of their employer.  The analysis does not, however, end at that fact.

A related party of another is defined at section 10(1) of the SISA as a member, a standard employer sponsor of the Fund, or a Part 8 Associate of either the member or the standard employer sponsor of the Fund.

Assuming the employee’s SMSF is not an employer sponsored fund, the question is whether the employer may nonetheless be a Part 8 Associate of the employee.

A Part 8 Associate is defined at section 70B of the SISA as a relative of an entity (if the employee is unrelated to the employer, no problem), a partner of the entity (if the employee is not a partner – then not a problem), a trustee of a trust for which the entity is “controlled” (if the employee has no influence over the trust, receives no income or capital, etc. – then not a problem), or if the employee has a “sufficient influence” or “majority voting interest” in the entity (this could be the area in which the test is relevant, because as an employee she may have significant influence over the conduct of the entity), or another Part 8 Associate of the employee has this influence (for example, a family member controls the employer or a related entity of the employer).

In respect to the question of “sufficient influence”, we consider section 70E of the SISA, and note that it may be the case that the employee has considerable conduct in the employer’s affairs.

For example, the employee may, for a property developer, determine the properties to be acquired and/or developed, and be charged with the derivation of investors and the profit sharing relationships.  The employee may also, in such circumstances, receive a bonus on the development projects.  The directors may rely on the employee to provide recommendations across the business.  In this case, the employee may likely have “sufficient influence” to be a related entity to his employer.  Similarly, if the employee received, as a consequence of employment, the right to demand an asset as compensation for the services to the employer, this may be “sufficient influence” to be a related party.

On the other hand, if the employer is a property developer, and the employee is a secretary with float tasks over administration matters, it is quite likely the employee has little or no influence over her employer.

The circumstances in which section 70E may apply in an employee/employer relationship are complicated and should be considered on the facts and circumstances (consider for example the relationship between employer and employee for purposes of the Fringe Benefits Tax Assessment Act 1986 (Cth)).

Provided the employee is not a Part 8 Associate (nor a related party of the employee) to the employer, then the employee may acquire assets of the employer at arm’s length and commercial terms (subject to satisfying at all times section 62 of the SISA, being the Sole Purpose Test), without restriction under the test of section 66 (restricting acquisitions of assets from members and their related parties), and section 71 (In-House Asset Test) would not apply if the asset was acquired.

Notwithstanding the above, any transaction must be compliant with section 109, with every stage of the acquisition, including any vendor finance arrangements, made on arm’s length and commercial terms.  Whilst sections 67 and 67A do not prevent an employer from lending money to an employee (subject to any restrictions posed by Division 7A of the Income Tax Assessment Act 1997), the finance arrangements (limited recourse borrowing arrangements) must be such that the vendor (employer) does not retain title over the asset pending settlement of the borrowing.

If you have any queries regarding the subject of this article, please do not hesitate to contact Katrina Brown via email or on 07 5574 3560.