Introduction. Succession and Estate Planning Money, Family and Fights. SMSF Disputes

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1 Succession and Estate Planning Money, Family and Fights Bernie O Sullivan, CTA, and Thalia Dardamanis, CTA, Bernie O Sullivan Lawyers Bernie O Sullivan & Thalia Dardamanis 2015 Disclaimer: The material and opinions in this paper are those of the author and not those of The Tax Institute. The Tax Institute did not review the contents of this presentation and does not have any view as to its accuracy. The material and opinions in the paper uses generalisations an unstated assumptions and should not be used or treated as professional advice and readers should rely on their own enquiries in making any decisions concerning their own interests. Introduction SMSF disputes the changing landscape of death benefit controversies Family trusts and family fights how to transition from one generation to another Estate disputes the new (2015) Victorian rules Mutual wills are they worth it? Estoppel be careful what you promise! (Issues covered in Case Study received as pre-reading) Death benefit disputes are on the rise Two opportunities Review client s succession plans Consider if client has a claim Who can be paid death benefits? LPR Dependants Spouse Child Interdependency relationship Common law Other (if none of the above) 1

2 Who chooses the beneficiary? Nomination options Non-lapsing 3 year lapsing - whether or not SISR 6.17A compliant Hard-wire deed Trustee discretion Reversionary pensioner (incl. lifetime pensions?) Who chooses who will be paid? (cont.) Tips and traps Consider deed, SISA and SISR, nomination terms If ambiguity arises: use conservative approach (Donovan v Donovan) and/or seek court guidance (Wooster v Morris) Who will control the fund on a member s death? If trustee discretion, establish and follow a process Choice depends on range of factors Can also assist with grounds to contest Important cases and lessons learned What can go wrong with trustee succession: Katz v Grossman (2005 NSW) Beware of wishes and statutory requirements: Donovan v Donovan (2009 QLD) When in doubt seek advice from the court: Wooster v Morris (2013 VIC) Avoiding rather than managing some conflicts of interest: McIntosh v McIntosh (2014 QLD) Important cases and lessons learned (cont.) No automatic entitlement to become trustee and no court interference if no bad faith: Ioppolo & Hesford v Conti (2013 and 2015 WA) 3-year rule inapplicable for SMSFs and always refer to LPR : Munro v Munro (2015 QLD) Examining interdependency relationships: Friar v Brown (2015 CTH) Clause in Will irrelevant: Stock v N.M. Superannuation Pty Ltd (2015 CTH) 2

3 How do I avoid a Rinehart dispute? How can I control who benefits? Beware of tax and other traps Features of a typical family trust: Discretionary in nature Wide range of beneficiaries Primary beneficiary usually holds trustee and appointor positions (or shareholder in company acting as trustee and appointor) Very broad distribution powers - no fixed entitlements Vests in 80 years or less Assets of the trust Not part of primary beneficiary s estate Protected from TFM claim and have certainty of gift (unless NSW notional estate provisions apply) Aim of succession planning Help primary beneficiary pass control on death/incapacity to intended beneficiaries Succession roles Trustee Appointor/Guardian Trustee succession Role includes to determine whether to distribute income and capital and to whom No reasons for decisions needed Appointor/guardian succession Appointor s role is to hire and fire trustee Guardian s role is to protect distributions by giving consent to trustee Choose successor(s) wisely One or more if more then jointly or by majority If company, shareholders select directors who make decisions Interim role of adviser and other(s) for minor children Case studies to overcome/avoid disputes Individual as trustee and appointor More than one appointor? How should decisions be made? Husband and wife as trustees and appointors What are the risks with extended family members? Important cases and lessons learned Do not seek to control beneficiaries behaviour Family Court s view: financial resource of beneficiary Ineffective deed amendments Resettlement issues Compliance issues and referral to ATO Loan account dangers 3

4 Estate Disputes New rules for Victorian estates from 1 January 2015 Key changes Children Adult independent children Nieces, nephews etc Non-registered carers Members of a household What are they? Arrangement between 2 people: to make identical Wills to not change respective Wills without consent of other On death of first person, survivor not to change their Will Why have them? Popular in second marriages and blended families E.g. Give estate to surviving spouse then to children How are they made? Mutual Will Deed to confirm intentions and impose other conditions (optional) Are they effective? Estate may be contested.barns v Barns Action of survivor may deplete/dispose of assets before death may enter new relationship/have more children so competing claims introduced Costs to enforce Are there any alternatives? Life interests if property held by one person survivor could make TFM claim Change joint tenancy to tenancy in common Bequeath own part of asset separately Issues on death of first person if dispute arises between surviving co-owner and beneficiaries of deceased 4

5 Flocas v Carlson Agreement must be a contract Valuable consideration Certainty Intention Irrevocable following death of one party Enforceability by third part beneficiary Equitable estoppel Main elements: Promise or clear representation Inducing an assumption or expectation Reliance on promise/representation Reliance detrimental Unconscientious to all ow the maker to resile Equitable estoppel Promised the farm (1) (Flinn v Flinn) Promised the farm (2) Rogers v Rogers Questions? We help individuals and families move wealth from one generation to another in an efficient and tax effective manner Promised the business (1) (Fifteenth Eestin Nomiees) Promised the business (2) (Galaxidis v Galaxidis) Refrained from claim against estate in promise of future inheritance (Harrison v Harrison) Level Collins Street Melbourne Victoria 3000 T (1300 boslaw) W 5