Statutory Wills: What are they?

Statutory Wills are also known as ‘court-authorised wills’ or ‘court-made wills’. They are orders made by the Supreme Court authorising the making, alteration or revocation of a will on behalf of a person who lacks the capacity to make, alter or revoke their own will (“the will maker”) (section 21 of the Succession Act 1981 (Qld)) (“the Act”).

In this case, the court places itself in the position of the testator with a view to determining the testator’s likely wishes.

There is a gradual increase in the application for these kinds of Wills. This is likely due to the ageing population in Australia as well as the statistical rise of people who suffer from dementia and other similar medical conditions.

Statutory-Will

When is a Statutory Will needed?

Where there is no Will, and they have lost capacity to make a Will—for example where the Will maker been in a fatal accident and has lost testamentary capacity, or where they are currently suffering from dementia or other similar illnesses. This category also involves minors who might have suffered an incapacitating event (e.g. a motor vehicle accident) and have received compensation for the event If no Will was made for the Will maker who has lost capacity, the rules of intestacy would apply and this may result in someone benefitting from the deceased’s estate contrary to their wishes.  

Example Scenario: 

An incapacitated man who has a lifetime close relationship with his sisters and (for much of his life) his late mother, but has had no contact whatsoever with his biological father and/or his father’s subsequent children by later relationships. Under the rules of intestacy, the man’s assets would pass to his father (if surviving) or equally between all of his full and half siblings. An application for a statutory Will or codicil by the sisters would have a reasonable prospect of success in these circumstances. 

    • Where they have lost capacity, and have an out of date Will that no longer reflects their intentions; or  
    • Where they have lost capacity and their Will has not been executed properly, or any other defects that needs to be rectified. 

 

Who can apply for a Statutory Will?

Any person can make an application to the court for a Statutory Will on behalf of another person. However, the court must be satisfied that the person applying is the correct person to be making the application.

Generally, the applicant will be a spouse or a family member of the testator, however it is not mandatory that a family member be the person to make the application. For example, in the past the court has allowed a carer, a power of attorney, the testator’s lawyer or even a close friend of the testator to make an application for a Statutory Will on the testator’s behalf.

 

The process

Previously, when applying for a Statutory Will, there was a requirement to obtain leave from the court prior to making an application. However, since 25 May 2020, through the Justice and Other Amendment Act 2020, leave is no longer required and applicants may proceed to make a substantial application without first seeking leave of the court. This may mean that  the process is now faster and less costly for those wishing to make an application for a Statutory Will.

For the substantial application, section 23 of the Act lists the information that must be provided to the court. This notably includes:

    • Satisfactory evidence of the testator’s lack of testamentary capacity, and any available evidence that they are unlikely to reacquire testamentary capacity in the future;
    • An estimate (formed from the evidence available to the applicant) of the size and character of the testator’s estate;
    • A draft of the proposed Will, revocation or alteration for which the order is sought;
    • Available evidence describing the testator’s wishes;
    • Details of who would be entitled to the testator’s estate if rules of intestacy applied; and
    • Whether it is likely that a family provision claim will be made upon the testator’s death and by whom (if such details are available).

All of the above contributes to satisfying the ‘core test’ of section 24 of the Act.

 

What is the core test?

The core test is where the court must be satisfied that the proposed Will, alteration or revocation would accurately reflect the likely intentions of the testator if he/she were to have testamentary capacity.

In R, J [2017] SASC 153 (31 October 2017), an application was made to remove the testator’s biological father who he had no present relationship with. The court was satisfied that had the testator had testamentary capacity, he would have excluded his father from his estate. A statutory Will was made accordingly.

Where a Will contains a fatal defect, the core test can generally be easily satisfied as most testators with testamentary capacity would likely have authorized the rectification of the error (provided that there is no evidence suggesting that the wishes of the testator differ to this “prudent” approach).

If there are any changes in circumstances, a further application could also be made to the court for the court to reassess or “update” the terms of the Statutory Will.[1]

 

How we can help

If you believe it may be beneficial for you to apply for a Statutory Will on behalf of a spouse, family member, or close friend who has lost capacity, or you would like more information about Statutory Wills, please contact our client engagement officers to book an initial consultation with one of our lawyers.

If you do not have a Will yet and would like advice on how  to put one in place to avoid the delays, cost and undesired effect of people benefiting from your estate in accordance with the rules of intestacy, please also feel free to contact our client engagement officers. You can find more information about our Estate Planning services here.

 

Footnotes

 [1] See Re Pickles [2013] SASC 175.

The Risks of Preparing an Informal Will – Lindsay v McGrath [2015] QCA 206

What are the risks associated with preparing an informal Will?  This article discusses the need for Will-makers to take great care when preparing their Will to ensure it satisfies all formal requirements so that it may be properly recognised by law after they pass away.

The consequences of an improperly made will can be that loved ones are left with ambiguous directions and have to pay costly legal fees out of their inheritance.

The decision of Lindsay v McGrath [2015] QCA 206 is the first Queensland Court of Appeal decision which involved an informal Will.

 

Background

Nora Priscilla Lindsay passed away on 16 October 2012 at age 90 and was survived by her two adult children Geoffrey (the appellant) and Heather (the respondent). Nora made a Will with the Public Trustee back in 1986 however later revoked that Will prior to her passing. As there was believed to be no other Will the appellant applied to the Supreme Court for letters of administration on the basis of intestacy.

On 9 July 2013 Geoffrey later found handwritten documents written in the form of an informally made Will in a storage box containing personal items removed from the deceased’s family home. The contents of the document made instruction to gift the deceased’s Camp Hill property and its contents to Geoffrey and specifically made instructions not to leave anything to Nora’s estranged daughter (the respondent) and her children.

The appellant then brought an initial application in 2014 seeking that the Court find that the handwritten document as Nora’s last Will. The application was initially dismissed and later appealed in 2015.

 

The Law

Section 18 of the Succession Act 1981 (Qld) provides that the Court may dispense with the formal requirements of a Will so long as there is a document (or part of a document) which purports to state the testamentary intentions of a deceased person and demonstrates to the court sufficient evidence it was intended to form the deceased person’s Will.

The Court in this case considered the test provided in the NSW Court of Appeal decision in Hatsatouris v Hatsatouris [2001] NSWCA 408 to determine whether the document was a valid will:

    1. Was there a document?
    2. Did the document purport to embody testamentary intentions?
    3. Did the evidence satisfy the Court that the relevant deceased by some act or words demonstrate that it was his/her intention that the document operate as his or her last will?

 

The Decision

Despite there being no question that the handwriting in the document was the deceased’s and there was sufficient evidence supporting the fact the handwritten document embodied her testamentary intentions, the Court dismissed the appeal as there was insufficient evidence to establish this was intended to form the deceased’s final Will.  That is, the court effectively found that the informal documents did not amount to a Will.

The court noted from the Western Australian case of Oreski v Ikac, that it is not sufficient if the document was intended to record gifts “…or to be a note of instructions or a draft will or a ‘trial run’”[1] – there must be sufficient evidence that the “…deceased did not want to make changes to that document.”[2]

Given that Nora had prepared an earlier Will in 1986, it was presumed that she would have been aware that her Will should appoint an executor and contain her signature properly witnessed by a third party. Although the deceased clearly wrote her name on the document, there was no formal signature or date to demonstrate the document was now finalised.

 

Our Concluding Remarks

This case demonstrates the risks of improperly preparing a Will and the scrutiny the Court undertakes. before granting probate to an informal Will.

Even though the appellant was able to provide clear evidence that the deceased intended to disinherit her estranged daughter, her wishes were not honoured as the document did not satisfy s18 of the Succession Act.

Seeking legal advice at the time of preparing a Will can save your family much time, heartache and money down the track.

 

Have you made an informal Will and would like to rectify or create a new one?  Contact us today.

If you would like further advice on an informal Will left by a loved one, or you would like to have your Will prepared by one of our experienced Brisbane Estate Lawyers, please contact our Business Development Team on (07) 3252 0011 to arrange an appointment.

 

Footnotes

[1] Lindsay v McGrath [2015] QCA 206 9.

[2] Lindsay v McGrath [2015] QCA 206 60;73.

Succession Plan – Discretionary Trusts

In this paper regarding succession plan discretionary trusts, I use the following terms interchangeably – “Family” / “Discretionary” Trust.

 

Discretionary Trust assets do not form part of your Estate

Assets owned by a trustee on trust for a discretionary trust, are held for the benefit of all the potential beneficiaries.

Discretionary Trusts are usually expressed to have a life of 80 years and so they will often survive the person who originally arranged to set them up.

Even if you are the personal trustee of your family trust, the trust will usually continue to have life after your death. The assets are not “your” personally owned assets that are part of your estate to be gifted via your Will.

 

Control of the trust

There are usually two levels of control:

    1. The trustee, who administers the trust and exercises discretion year by year as to whom income/capital is paid to; and
    2. The Appointor/Principal, who has power to hire and fire the trustee.

 

Ensuring that control moves to those you intend

Both levels of control must be considered and effectively passed on to your chosen person(s) otherwise the wealth in the trust may end up with those you do not intend.

 

Control at trustee level

If you are a personal trustee:

    1. We will need to consider what the Trust Deed says about:
      • Change of trustee; and
      • Death or incapacity of a trustee.
    2. It may be that the Trust Deed has contemplated these situations and no action need be taken.
    3. If not, a Variation of Trust will probably be required.

 

If your trust has a corporate trustee (e.g. a Pty Ltd company):

    1. Who are the shareholders? Who will these shares pass to under your Will? Does the corporate trustee constitution have any limitations on how shares can be transferred?
    2. Does the constitution require more than one shareholder? This is unlikely if the company has been fairly recently formed. If yes, we will take care that not all shares are left in your will to a single person or amend the constitution.
    3. What does the constitution say about appointment of directors? Generally the power to hire and fire directors rests with the shareholders.
    4. Will there be an undesired single controlling director before the estate can act? While the power to hire and fire may be with the shareholders this may not prevent a single director acting before a replacement/additional director is appointed by your estate. A solution may be to appoint an additional director(s) now.

Clearly, these issues need our advice.

 

Control at Appointor/Principal level

Assessing the succession of control at this level is even more critical.

Here is our usual approach:

    1. Check what the Trust Deed says about this.
    2. This power is often a personal power and so without express provision in the Trust Deed it will not pass to the executors of the deceased Appointor. Is there provision in the Deed for the next Appointor?
    3. Often the Appointor will need, via Deed (made now as part of their Estate Plan), to appoint their successor. After death, it is obliviously, too late.

It may be necessary to amend the Trust Deed to provide for a more robust succession mechanism.

 

Who does the new controller give the wealth to?

This question is often overlooked by Will makers.

When you have multiple beneficiaries and they are not all appointed as “controllers”, the potential exists for the controller to divert the wealth for their own personal benefit at the expense of other beneficiaries.

At the very least, you would want to prepare a Desired Beneficiaries Expression of Wish.

Estate Litigation: Real Property Transfers, Undue Influence & Unconscionable Conduct – do you have grounds for an equitable claim to increase the size of an estate?

When a loved one passes away, what they give to others in their Will is undoubtedly significant to those people in holding dear the memories of that loved one.  Real property is perhaps one of the most significant assets that can be given in a Will, out of the deceased’s estate.

What happens when real property is transferred to someone else before a person passes away?  The immediate effect of this is that the real property will no longer form part of that person’s estate and it cannot be gifted under their Will.

Of course a person has freedom to deal with their property as they wish, but in circumstances where real property is transferred during a person’s lifetime because of the undue influence or unconscionable conduct of another person, the High Court has held that these transactions may be set aside.

The basis of this court action is in equity, and a claim to set aside a transaction or for compensation can be brought before a person passes away (by the person themselves) or after their death, by persons who would be entitled to benefit from the deceased’s estate.  The latter claim may be brought in the context of a family provision application.

Two recent cases in Queensland provide guidance for the court’s approach in giving orders for property transfers to be set aside after the previous property owner passes away.

 

Equitable claims after a person’s death

In Anderson v Anderson [2013] QSC 008, the Queensland Supreme Court granted an application by John Anderson for a declaration that a transfer of his mother’s property during her life to her other son, Malcolm Anderson, was void or voidable on the basis of Malcolm’s undue influence.  This application was brought after the mother, Roma Anderson, passed away.

In this case, Roma had made a will in 2007 leaving everything to her two sons in equal shares and appointing John as first executor.  John and his wife Deborah were also appointed as her attorneys in relation to health and financial matters.  Then, in 2008, Roma made a new Will with the same distribution but appointing both John and Malcolm as executors.  That same day she signed a transfer of her family home to Malcolm, for consideration of “natural love and affection”.

The question of whether Malcolm knew or ought to have known whether Roma had sufficient capacity to transfer the property was not raised by John as the applicant.  What was established was that Roma was found to have been pressured and influenced by Malcolm in giving instructions in 2008 to change her will and transfer the property.

In the circumstances, Roma:

    • was elderly, sick and very isolated from others;
    • was dominated by Malcolm to question John’s dealings with her finances as attorney;
    • became increasingly and heavily dependent upon Malcolm for her day-to-day care;
    • experienced some symptoms of memory loss and dementia; and
    • gave the 2008 instructions on Malcolm’s prompting and, in all but one meeting with her lawyer, in his presence.

These circumstances gave rise to the presumption of undue influence, and Malcolm was unable to otherwise show that Roma signing the transfer was the result of a free and voluntary exercise of her independent will.

While it was not considered in detail, the Court indicated that Malcolm’s conduct was also likely to amount to unconscionable conduct, as he took unfair advantage of Roma’s position of special disadvantage.

The Court found that the transfer of the property rendered Roma’s estate almost worthless, and gave orders to set aside the transfer so that the property would form part of her estate as at her death, to be distributed in accordance with her will.

 

Will delay prevent me from bringing an equitable claim?

The issue of delay in bringing an equitable claim was considered by the Queensland Court of Appeal in the case of Gillespie & Ors v Gillespie [2013] QCA 99.

On 17 December 2002, Bruce Gillespie transferred a house and two home units to his three children from his first marriage, nine days after his marriage to his second wife, Gloria Gillespie.  Bruce passed away on 14 August 2010.

Upon Gloria’s application, commenced 10 January 2011, the District Court held that the transfer of the house resulted from the unconscionable conduct and undue influence of Bruce’s son, Geoffrey Gillespie.

The Court found that Geoffrey’s conduct included:

    • falsely asserting to Bruce that he would need to transfer the properties before his death to avoid death duties (which did not actually exist);
    • inducing unsubstantiated ideas in Bruce’s mind that Gloria intended to deprive the children of their inheritance; and
    • taking advantage of the elderly age and disadvantage of his father, who relied upon Geoffrey for his financial affairs.

The Court ordered that the transfer of the house be set aside and the property be transferred to Gloria as administrator of the estate.  Bruce’s three children (the “Appellants”) appealed this decision to the Queensland Court of Appeal, arguing that:

    • Gloria (and during his lifetime, Bruce) acquiesced to the transfer by not giving prior notice of the right to a claim or exercising that right at an earlier time; and
    • Gloria’s delay in commencing the application resulted in prejudice to themselves and others, because (for example) Bruce was unable to give evidence and the Appellants had changed their financial positions in reliance on their title to the property.

In dismissing the appeal, the Court of Appeal found that:

    • Bruce and Gloria had modest resources with which to commence legal proceedings;
    • the legal advice Gloria received in relation to her rights to a claim had been extremely limited;
    • as Bruce’s attorney, Gloria believed his wishes were not to commence proceedings during his lifetime, to avoid disputes amongst the family;
    • Bruce’s degenerating memory meant that his evidence would not have made a material difference had the claim been brought during his lifetime;
    • there was no evidence that the Appellants had altered their affairs on the basis of their property ownership; and
    • as there was no claim for recovery of the proceeds of the units which had been sold, the potential prejudice to estate if the transfer of the house was not reversed far outweighed the prejudice to the Appellants.

In this case, the order to set aside the transfer of property was upheld, even though the application was brought more than 8 years after the transfer.

A court will consider your particular circumstances in deciding whether delay should prevent you from obtaining orders to have a transfer set aside.

 

Do you need tailored legal advice for your circumstances?

In administering a deceased estate, the cases of Anderson v Anderson and Gillespie & Ors v Gillespie emphasise the importance of considering the basis of any significant property transfers made during the deceased’s lifetime and the nature of their relationships with family and other beneficiaries of their estate, as well as the specific terms of their Will.

 

Have a query regarding real property transfers that occurred prior to the deceasing of a loved one? 
Contact us.

If you consider a potential equitable claim may be brought to set aside a transfer of property, we suggest seeking advice from our Brisbane Estate Litigation lawyers, even if the previous property owner has passed away or many years have gone by.

Why should you have a Will?

A Will is a legal document that records your personal directions or wishes about how to deal with the assets in your estate, and other affairs relevant to you, upon your death.  

A Will allows you to have a say on who will administer your estate and how your personal assets will be distributed.  Having a Will generally enables smooth and efficient transmission of your assets on your death. 

If you have children, a Will can assist you in providing security for their future.  You can also use your Will to nominate a guardian for your children if they are under 18 when you die. 

Without a Will, you will have no say on who administers your estate upon your death, and your assets will be distributed according to the laws of intestacy.  In Queensland these laws are contained in the Succession Act1981 (Qld). 

 

Considerations when making a Will  

Here are some key matters to consider if you have decided to make a Will:  

  1. Executors  
  2. Guardians 
  3. Your freedom and duty when making a Will  
  4. What can you give under a Will? 
  5. Passing control of trust and company structures 
  6. How do I give to members of my blended family? 
  7. Has my Will been properly prepared and signed? What happens if I don’t have a valid Will? 
  8. When should I update my Will?

 

1. Executors

A Will allows you to appoint an executor to be responsible for representing your wishes on your death, distributing your estate according to your Will, and protecting the interests of your loved ones. 

If you have chosen to appoint a friend or relative as executor, you do not need to disclose to them the contents of your Will. 

Your executors usually appoint lawyers to advise and help them. 

Think about:

    • First preferred Executor(s)  
    • Acting jointly? 
    • Age 
    • Capacity 
    • Relationship to each other 
    • Reserve executor(s)

 

2. Guardians

If you have a child or children under the age of 18, it is important that you consider having a say as to who their guardian will be when you pass away.   

It may be in your child or children’s best interests for you to set out who you want to care for them in your Will.  

If a parent of your child survives you, the surviving parent will generally continue to exercise parental care and authority over the child. 

Think about:

    • Gift to guardian(s)? 
    • Executors and trustees to advance monies for children 
    • Joint appointments – conditional or continuing? 
    • Guardian guidelines

 

3. Your freedom and duty when making a Will 

While you have capacity, you have the freedom to make a Will however you wish.  No one has the right to dictate to you (or demand to know) what your Will contains. 

However, when you are making a Will, the law effectively imposes a duty on you to consider anyone who might reasonably expect to benefit from your estate.   

Whether or not you have a Will, the law provides spouses (including de factos and some former spouses), children (including step-children) and certain dependants with the right to apply to the Court for further provision from your estate, after you have died, if they have not received adequate provision for their proper maintenance and support.  This is called a Family Provision Application. 

We recommend taking legal advice on the best approach to manage the risk of a Family Provision Application according to your personal circumstances.   

Think about:

    • disentitling conduct 
    • any inter vivos provision 
    • the size or nature of your estate 
    • strategic property holding

 

4. What you can give under a Will? 

Under the Succession Act 1981 (Qld), (1) a person may dispose by Will of: 

    • any property to which the Will maker is entitled at the time of their death (not on the date of the Will); and 
    • any property to which the personal representative of the Will maker becomes entitled, in their capacity as personal representative (including after the Will maker’s death). 

Think about:

    • Cash 
    • Real estate 
    • Shares/units in public companies/listed trusts 
    • Pets, motor vehicles, jewellery, art 
    • Assets outside Australia – do you need an international Will? 
    • Shares in private (Pty Ltd) companies 
    • Property holding arrangements  
    • Liabilities – do you have a solvent estate? 
    • Adequate descriptions of assets 
    • Forgiveness of loans or debts (CGT implications) 
    • Avoiding lists of gifts – risk of ademption 

Things that may not immediately form part of your estate on your death include: 

    • Superannuation in a Retail Fund or a Self Managed Super Fund (“SMSF”) 
    • Life Insurance proceeds 
    • Property used in a business – subject to partnership or other arrangements? 

Think about:

    • A review of the Register (folder) of SMSF core documents (trust deed, variations, and recent accounts, including member details) 
    • Binding Death Benefit Nominations – is yours valid? 
    • Life insurance policy  
    • Buy/sell or business succession arrangements

 

5. Passing control of trust and company structures

A person cannot dispose by Will of: 

    • Assets held by that person as trustee; (2)  
    • Other trust assets; 
    • Company assets. 

However, depending on your needs and intentions, trust and company structures can be appropriate vehicles to provide for the ongoing needs of your loved ones after you die. 

If you have a controlling interest in a trust or company holding valuable assets, you need to consider how this control might pass upon your death.  The time to consider this is when you make a Will.   

Think about:

    • Family Trusts / Unit Trusts / Hybrid Trusts / Fixed Trusts 
    • A review of the Trust Deed (and any variations), latest end-of-year financials for the Trust and Unit-holders Register for Unit Trusts 
    • Succession of Trustee  
    • Succession of Appointor (if any) 
        • Often the personal representative of the last surviving Appointor 
        • Consider nomination by Will (if Trust Deed allows) 
    • Trust property – any unpaid present entitlements? 
        • repayable on demand to the beneficiaries of the Trust.  If there are significant UPE, this can greatly reduce the actual Trust assets. 

Think about:

    • A review of the Constitution, Shareholders/JV Agreement (if any) and the most recent financial statements for the company 
    • Special rights attaching to different classes of shares 
    • Role of Directors  
    • Role of Shareholders 

 

6. How do I give to members of my blended family?

If you have had or are undergoing a divorce or separation, it is important to think about: 

    • any court sanctioned property settlement 
    • remaining outstanding property settlement matters 
    • any ongoing maintenance orders or arrangements 
    • child support 

These things may affect the enforceability of your Will or the risk of a Family Provision Application. 

If you have started a new marriage or de facto relationship, think about: 

    • how to provide for your spouse 
    • how to provide for any children of a previous relationship 
    • Possible mutual Wills with a Will Contract  
    • Deed of Family Arrangement with adult children / dependants

 

7. Has my Will been properly prepared and signed?

If you have made your Will yourself or are in the process of making one, we recommend that you seek legal advice to ensure it is valid. 

The Succession Act 1981 (Qld) (3) requires that a Will must be in writing and signed by the Will maker (or another person in the presence of and at the direction of the Will maker) with the intention of executing the Will.  This signature must be made or acknowledged by the Will maker in the presence of 2 or more witnesses present at the same time, at least 2 of whom must attest and sign the Will in the presence of the Will maker. 

In response to the COVID-19 pandemic, the Queensland Government passed legislation in 2020 modifying the usual requirements to enable electronic signing and remote witnessing of a Will under specific conditions.  However, these modified arrangements expired on 30 June 2021, and the usual requirements apply on and from 1 July 2021.   

 

What happens if I don’t have a valid Will? 

If you do not have a valid Will, we recommend you speak with a Wills and Estates Lawyer to assist you in making one while you still have capacity. 

If you have made a Will that does not comply with the legal requirements, the risks on your death include your loved ones becoming entangled in long and costly legal proceedings and the Court ultimately deciding that your Will is invalid.  Then your estate may be distributed according to your previous Will (if you have one) or the rules of intestacy.  

After you die, it is possible for the Court to dispense with the legal requirements for your Will if it does not comply.  However, the Court process will always cause delays and incur costs in the administration of your estate.  

 

8. When should I update my Will? 

You should review your Will regularly and consider updating your Will as your circumstances change. 

For example, you may need to consider updating your Will if: 

    • you have a child or children; 
    • you have a grandchild or grandchildren; 
    • you marry or divorce; 
    • your spouse or partner dies; 
    • an executor or beneficiary dies; 
    • your home or property ownership changes. 

 

Have further questions about making your Will? 

Contact our Business Development Team on (07) 3252 0011 to learn about our 1,2,3 Will-making process and arrange an appointment, or to book an estate planning consultation with one of our Brisbane Estate and Elder lawyers for a complex Will and estate plan. 

This article was written by Kathleen Stonehouse (Senior Associate).

QLD Transfer duty exemption for limited recourse borrowing arrangements on transfer from bare trust SMSF

On 12 June 2013, a new exemption to the Duties Act 2001 (Qld) was introduced. This new exemption allows for the transfer of fund property from a custodian or bare trustee of a self-managed superfund (“SMSF”) to a trustee for the same SMSF to be transfer duty exempt. This exemption has been introduced retrospectively from 26 October 2011. This means that if the conditions for the exemption described below apply, the trustee or custodian may be eligible for a transfer duty refund.

Prior to the amendments introduced by Revenue Amendment and Trade and Investment Queensland Act 2013 (Qld), it was unclear as to whether transfer duty would be able exempt on the transfer from the custodian or bare trustee of a SMSF to a trustee of a SMSF. The Revenue Amendment and Trade and Investment Queensland Act 2013 (Qld) has now introduced a transfer duty exemption (by way of new section 130B in the Duties Act 2001), which clarifies this issue.

To be eligible for this exemption, the following conditions must be satisfied:

  • The fund property, or interest in the fund property, must not have ceased to be fund property; and
  • The members of the SMSF must have the same trust interest in the fund property after the property is transferred as they had immediately prior to the transfer..

Trustees of a SMSF who have received fund property from the custodian of the same SMSF and have paid transfer duty should consider applying for a refund of Transfer Duty.

Superannuation Death Benefits – Remedies for Disappointed Beneficiaries and Dependants

What remedies are available to a Disappointed Beneficiary of an estate or Dependant when a superannuation Trustee exercises discretion not to pay superannuation death benefits to the Legal Personal Representative (into the Estate) or to one dependant, but rather directly to another dependant?

When a person dies, their superannuation death benefits do not automatically form part of their estate.  If a member has made a Binding Death Benefit Nomination (or “BDBN”) that is valid and effective at the date of their death, the superannuation Trustee must distribute the death benefits in accordance with the BDBN.

However, in the absence of a valid and effective Binding Death Benefit Nomination, the Trustee generally has discretion as to how it will pay a member’s superannuation death benefits.

 

Superannuation Trustee’s Discretion

Regulation 6.21 of the Superannuation Industry (Supervision) Regulations 1994 (Cth) (the “SIS Regulations”) requires “a member’s benefits in a regulated superannuation fund [to] be cashed [or rolled over] as soon as practicable after the member dies”.

Regulation 6.22 of the SIS Regulations gives the Trustee discretion to pay superannuation death benefits to:

    • the member’s Legal Personal Representative (“LPR”) (to pass into their estate and to be dealt with in accordance with their Will, if any, or otherwise on intestacy); or
    • one or more of the member’s dependants.

“Dependant” is defined in the Superannuation Industry (Supervision) Act 1993 (Cth) (the “SIS Act”) to include a member’s spouse, child and any person with whom the member has an interdependent relationship.

Two individuals will generally be seen to have an ‘interdependency relationship’ under section 10A of the SIS Act if they satisfy all the following elements:

    • they have a close personal relationship;
    • they live together;
    • one or each of them provides the other with financial support; and
    • one or each of them provide the other with domestic support and personal care.

This gives the Superannuation Trustee wide discretionary powers to distribute the death benefit to one or more dependants of the member and not to their LPR (to be distributed with the rest of their estate).

If the Trustee decides to pay the superannuation death benefits to a dependant of the member, this may disappoint the beneficiaries of the member’s estate or other dependants of the member who might have expected or hoped to share in the superannuation death benefits.

 

Can a Disappointed Beneficiary or Dependant Contest a Superannuation Trustee’s Decision?

Disappointed beneficiaries or dependants may have the right to lodge a formal complaint with the Superannuation Complaints Tribunal (the “SCT”) to dispute the decision of a superannuation Trustee (except in the case of Self-Managed Superannuation Funds).  The SCT was established under the Superannuation (Resolution of Complaints) Act 1993 (Cth) as an independent dispute resolution body which is an alternative to the court system.

It is important to note the very strict time limitations and conditions which apply to lodging a complaint after the Trustee’s discretion in making a decision has been exercised.

If a complaint is lodged with the SCT in time and compliance with the necessary conditions, the SCT must first try to settle the dispute must by an alternative dispute resolution practice called conciliation.

If the matter is not resolved at conciliation the SCT must fix a date for a review meeting, allowing a reasonable time for the parties to make written submissions in support of their position.  While superannuation death benefits may not have been paid to a deceased member’s estate, at this stage the SCT may consider the person’s Will and whether there was any specific intentions expressed in relation to the superannuation when making its decision.

If no resolution can be found, the complainant (in limited circumstances) may escalate the matter to the court for review.

The Federal Court in Wilkinson v Clerical Administrative & Related Employees Superannuation Pty Ltd (1998) 79 FCR 469 at 480 considered the grounds on which an exercise of a trustee’s power in the context of a superannuation fund could be challenged in a court.  Heerey J quoted the statement of Northrop J from the Federal Court below:

Where a trustee exercises a discretion, it may be impugned on a number of different bases such as that it was exercised in bad faith, arbitrarily, capriciously, wantonly, irresponsibly, mischievously or irrelevantly to any sensible expectation of the settler, or without giving a real or genuine consideration to the exercise of the discretion.  The exercise of a discretion by trustees cannot of course be impugned upon the basis that their decision was unfair or unreasonable or unwise.  Where a discretion is expressed to be absolute it may be that bad faith needs to be shown.  The soundness of the exercise of a discretion can be examined where reasons have been given, but the test is not fairness or reasonableness.

The test developed in Karger v Paul [1984] VR 161 has been widely applied by the courts. In this case, McGarvie J commented (at 163-164) that the decision should not be reviewed by the courts so long as the discretion was exercise by the Trustees “…in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred.” A court may, however, review a decision where the trustee chose to state their reasons for their exercise of discretion.

In summary, while a disappointed dependant or beneficiary can dispute the decision of a superannuation Trustee through the SCT, there are limited circumstances where the court will review the decision if the results are unsatisfactory.  Only in the event where the Trustee fails to exercise their discretion with real or genuine consideration, acts in bad faith, or fails to exercise their power in accordance with the purposes for which it was conferred, may the Court choose to make a ruling against the Trustee (see also Sayseng v Kellogg Superannuation Pty Ltd [2003] NSWCSC 945).

 

Implications

Over a person’s lifetime, a considerable amount of their wealth is accumulated and held in superannuation. In exercising their discretionary powers, the superannuation trustee can leave potential beneficiaries and dependants disappointed.

If you are a beneficiary of a superannuation member’s estate, or a dependant of a member, the best practice is always to prepare a strong case to inform or direct a Trustee’s discretion before the Trustee has made a decision.  Conciliation may result in a better outcome if you are adequately prepared, however the process of disputing the decision of a superannuation Trustee can be a difficult and costly legal process without any guarantee of a change in decision.  It is important to have legal representation to lead and support you through these processes.

If you are a member of a superannuation fund, the best thing to do is to consider how you want your superannuation death benefits to be paid and, if necessary, take steps to make your wishes binding.

 

If you would like to dispute the exercise of a Trustee’s discretion to pay superannuation death benefits a certain way, or want advice to take proactive steps in your estate planning

Please contact our Business Development Team on (07) 3252 0011 to book an appointment with our Estate Planning Lawyers today.

Can I delay inheritance from my children until they are 25 years old?

As a parent you may be concerned about the maturity of your child/children to manage wealth at an early age.

The question is: Can you cause a delay inheritance from your children, until they are older?

The short answer is: technically yes, but it’s complicated.

 

The starting point – Saunders v Vautier

Often, lawyers will tell you that drafting a minimum age clause into your will is a “smoke screen” and that your child/children would be entitled to challenge your will and inherit early when they reach 18.  For the most part, this is true.

We look at the long standing case of Saunders v Vautier as an example of this. It determines that if a beneficiary who has full legal capacity reaches 18, they will be able to challenge the clause that prevents them from receiving their inheritance at a later date. This is provided that they have a vested interest in the gift.

If there is more than one beneficiary (e.g. more than one child entitled to the same gift) these beneficiaries must be acting unanimously in order to challenge the will.

In this case, it is possible to draft a will which can prevent a child becoming entitled to their gift until they reach a later age.

 

Contingent v Vested interests

A Will-maker can decide on: a “vested interest” or a “contingent interest”.

Contingent interests in a will can (with careful drafting) prevent your children from inheriting under your will until they reach a certain age.

Under a will, an interest will be granted to a beneficiary (e.g. your child) but an event must occur, or that beneficiary must satisfy some condition, before the gift can be released to the beneficiary.  An example of such a condition is the need to obtain a certain age.

A Vested interest will exist if a person has a certain interest in the property being gifted even if the gift is postponed or delayed.

It was held in the case of Austin & Anor v Wells & Ors [2008] NSWSC 1266 that, “If the person’s interest depends upon a contingency which may or may not occur, he or she does not have a vested interest, but a contingent interest.”

 

Example Drafting

If you need to create a contingent interest under a will, careful drafting would need to be done.

For example, this is provided that “if” your child reaches 25, particular gifts will be dispersed to them, and should they fail to reach this age as a condition precedent another beneficiary such as a charity or a grandchild will inherit under your will instead.

In this case, because the child reaching 25 is a condition precedent and, in the event that the child passes away prior to attaining this age another beneficiary will become entitled. The child therefore does not hold a vested interest in the gift and has no immediate entitlement.

The courts have upheld wills drafted in this way, making this a good strategy for those who would prefer that their children do not inherit wealth before they are ready.Diagram showing how a contingent gift works - i.e. putting a condition in place to send money only if a condition is met (reaching age 25)

To delay inheritance requires careful drafting

An experienced lawyer is needed to draft a clause which contemplates a contingent interest.

You must also take care to ensure that the interest granted under your Will isn’t construed as a “vested” interest (i.e. your child will definitely inherit as opposed to they might inherit).

If this is to occur your child can challenge your Will to inherit as soon as they turn 18, and not when you desire them to.

It is important to ensure your Will reflects your wishes as there could be other consequences of creating a contingent interest without a lawyer’s advice.

 

Still have questions about delay inheritance? Contact us today

Our Estate Planning team can assist you in drafting your Will to reflect contingent interest and/or vested interest. Speak with our client engagement team today on (07) 3252 0011 or email enquiry@corneyandlind.com.au for an appointment today.

What happens if all my beneficiaries die?

When a person dies having made a valid Will, the deceased’s estate will generally be distributed in accordance with the directions in that Will.

However, it may be that by the time the deceased has passed away, all of the beneficiaries (recipients) under the Will have also passed away. This is a particular risk where will-makers are leaving their estate to older beneficiaries, such as their parents.

Ideally, if a majority of the beneficiaries die during the life of a will-maker, the will-maker should update their Will to move the deceased beneficiaries and instead include living beneficiaries. However, some people never get around to doing this, and the executor of the Will finds themselves in a position where they must administer a Will that only contemplates deceased beneficiaries.

 

Obtaining Probate

If an executor finds themselves in this position, they would ordinarily need to apply for probate of the Will and then distribute the deceased’s estate in accordance with the laws of ‘intestacy’ (explained below).

Whether an executor will need to apply for a grant of probate will depend on various factors (including the requirements of the deceased’s bank). You should contact a lawyer if you have any queries in this regard.

 

The Laws of Intestacy

The laws of intestacy set out the order of the persons who a deceased’s estate must be distributed to, if a deceased dies without leaving a Will.

The same rules and order applies if a deceased dies leaving a Will, under which all of the contemplated beneficiaries died before the deceased.

These rules can be found in sections 35 – 39 of the Succession Act 1981 (QLD), and require the distribution of the deceased’s assets in the order shown in the diagram below:

 

 

If for any reason the estate assets cannot be distributed to any of the beneficiaries or any of the parties outlined in the above diagram, the estate would ultimately be distributed to the Crown as per the doctrine of Bona Vacantia.[1].

 

Footnotes

[1] A A Preece, Lee’s Manual of Queensland Succession Law (Thomson Reuters, 7th ed, 2013) 12.200