Succession Roadshow - RCS Article

Posted by: Kylie Wilson

The RCS Succession & Continuity Planning Roadshow in central Queensland took place at the beginning of this year. Claudia Power from RCS has posted an article in their latest newsletter "How to run an effective family succession meeting" including my comments.

Click here to read more.

Have you reviewed your industry or public superannuation fund's policy in relation to death benefits recently?

Posted by: Kylie Wilson

Under superannuation legislation, if you do not have a valid binding death benefit nomination that directs the trustee of an industry or public superannuation fund as to where you want your death benefits paid from that fund on your death, the trustee has a discretion to make payments to any one or more of the following:

1. your spouse;
2. your children;
3. financial dependents;
4. any person with whom you have an interdependency relationship; and
5. your legal personal representative (your estate to be dealt with in accordance with the terms of your Will).

However, in recent times public funds have been changing their policies in relation to how they deal with a member's death benefits.
For example, Zurich recently notified members that although Zurich would previously decide who, of a member's dependents and legal personal representative, would receive a member's death benefits not covered by binding death benefit nomination, their new policy from 1 July 2016 will be that any part of a death benefit not covered by a binding death benefit nomination valid under superannuation law at the time of death will be paid to the member's estate. This policy already applies to new members from 21 December 2015.
Further, if the estate is insolvent, or if the legal personal representative cannot be identified within six months, the benefits will be paid to spouses, or, if there is no spouse, to the member's children, with payments made in equal shares where applicable.

Zurich is therefore changing its policy, where there is no valid binding death benefit nomination at the time of death, to specifically prescribe where the death benefit will go, which may not be the best outcome, particularly in circumstances where the estate may be subject to a family provision application after the member's death. 

It is essential therefore that members of public and industry funds understand the current policy of their public or industry fund in relation to how their death benefits will be paid to ensure that the treatment of those death benefits aligns with their estate planning aims.

For further information, contact Kylie Wilson or Kylie Shaw.

Rural Succession Planning - Where to start?

Posted by: Kylie Wilson

I had the privilege of being included in the succession and continuity roadshow in central Queensland, organised by RCS, for the purpose of providing information to primary producers on the best options available to ensure smooth succession and ongoing continuity and viability of their intergenerational businesses.

An interesting part of each section of this roadshow was an exercise that was run and facilitated by Claudia Power of RCS, where each generation was split into two groups: those that consider themselves part of the "older" generation and those that consider themselves part of the "younger" generation.

Effectively, regardless of age, the older generation being those that currently control the business, and the younger generation being those that are working in the business with an aim to ultimately succeed to control of that business.

What was interesting out of that exercise was that in each of the three sessions that were conducted in Emerald, Biloela and Rockhampton, two main themes came through from both generations as their main priority:

1. family harmony; and
2. financial security.

So both generations' top two priorities from each of the sessions by and large exactly mirrored each other.  Why then are there so many difficulties with rural succession being completed in a way that ensures that families both stay together and stay on the land?

There are many answers to this, depending on each respective business and the dynamics of each respective family.  Having said that, one overwhelming issue that came up again and again from both generations was communication.  The older generation not always expressing to the younger generation the status of the business, the liabilities, the exact nature of the income and expenses and how the business is conducted as a whole.  The younger generation not communicating their expectations, their thoughts and ideas on growing the business or their desire to know more about the ins and outs of the entire business.  In failing to communicate these things, each generation is disadvantaging the business by removing from the business two important elements:

• the passing on of wisdom, in a way that occurs over time and in an educated fashion, and allows a younger person to grow and develop in, and with, the business; and
• a loss of the injection of youthful enthusiasm and ideas into the business.

While these problems are not always universal, it is also not uncommon for parents to focus very much on growing the business in a way that they think will benefit the next generation, with little long term planning given to how their retirement will be funded when they exit the business.  In addition, children often want to try to meet what they see as their parents' expectations, without ever actually asking their parents what their expectations in fact are, or expressing what the children actually want.

Therefore, what was clear from the succession roadshow is that the very first step of any succession planning needs to be for all parties involved to identify first and foremost as individuals what it is that they want, both in the business and in life.  Without an understanding of what it is that they want, it is impossible to appropriately plan for it, and ascertain whether what is wanted can be achieved during the succession process.  You cannot set goals to achieve anything in life without knowing what it is you actually want to achieve. 

In summary then, the best approach to starting a succession plan for rural families is for each family member to identify what it is they want and communicate that, openly, honestly and without judgment,  with all the stakeholders in the business.  Then a flexible plan can be put in place to achieve the aims that work for everybody if those "wants" are achievable.  The more planning, time and communication that is put into the succession process, the more likely that the two main aims of family harmony and financial security will be achieved.  Ultimately, each generation wants the same thing, and with proper communication and planning, achieving that does not need to be difficult.  

Spencer v Burton (2015) QCA 104 Case Summary

Posted by: Kylie Shaw

Background

In the case of Spencer v Burton [2015] QCA 104, Sharon Burton and Kent Spencer were in a romantic relationship for 13 years, however, those 13 years were not perfect. Kent had an affair in 2009 which resulted in an end to their relationship but they later reconciled.

In November 2010, Sharon was diagnosed with cancer and passed away in July 2012. They were never married and had no children during the course of their relationship.

At the time of Sharon's death, her estate was worth approximately $800,000.00. Sharon did not have a will. This meant she died intestate and that led to serious complications.

On 12 August 2012, Kent obtained Letters of Administration on Intestacy of her Estate on the basis that he was the deceased's de facto partner.

Five months later on 7 December 2012, the deceased's mother, Daphne Burton filed an Application seeking a declaration that Kent Spencer was not a de facto partner of the deceased and also sought orders that the Letters of Administration on Intestacy granted to him be revoked and that a replacement grant of Letters of Administration by granted to her.

The court takes account of several factors in determining whether a person is a de facto partner and this is where complications can arise. It can be very difficult in weighing up and balancing the competing factors which include:

• Nature and extent of their common residence;

• Length of their relationship;

• Whether a sexual relationship existed;

• Degree of financial dependence or interdependence, and any arrangements for financial support;

• Ownership, use and acquisition of property;

• Degree of mutual commitment to a shared life including care and support of each other;

• Performance of household tasks;

• Reputation and public aspects of their relationship.

Decision in the principal proceedings

In the principal proceedings, the Court found the respondent, Kent Spencer, had not been the de facto partner of deceased, under s32DA Acts Interpretation Act 1954 (Old) and was thus not entitled to share in estate on intestacy. The Court also revoked the Grant of Letters of Administration in favor of the Deceased's mother, Daphne Burton.

Decision on Appeal

On Appeal, the Applicant Kent Spencer argued that the primary judge erred in the application of the criteria set out in s 32DA of the Acts Interpretation Act, in particular attributed greater weight to financial and property matters.

The Appeal Court stated that the criteria in s 32DA are all to be weighed up and analysed together with any other factors or circumstances that the judge considers relevant. One criterion is not to be considered as more significant than the other.

The Appeal Court found the primary judge did place an overemphasis on financial and property matters and a discounting of the other indicia which was clearly present. Appeal was allowed.

The outcome of this case shows that the relevant factors in determining whether a de facto relationship exists is complicated and each situation must be considered on a case by case basis. There is no ‘one size fits all’ solution.

All this came about primarily because Sharon died without a valid Will.

Superannuation death benefits continue to be problematic for executors - Brine v Carter [2015] SASC 205

Posted by: Kylie Shaw

Professor Brine was in a de facto relationship with Ms Carter when he passed away. His Will named Ms Carter, along with his three adult sons from a previous relationship, as joint Executors of his Estate.

In his will, Professor Brine provided a life interest for Ms Carter in his principal residence and another property and gave the rest of his estate to his three sons and grandchildren.

Professor Brine had two superannuation accounts with UniSuper. One account was structured so that the only beneficiary of that superannuation could be a spouse. The second was an accumulation account from which a spouse, child, dependant or the member’s Estate could benefit.

Rather than making a binding death benefit nomination with UniSuper, Professor Brine had written a letter to them expressing his wish for the beneficiary of his superannuation to be his Estate. This was recorded with UniSuper however, given the form it was in, it was not enforceable.

Ms Carter learnt of the two superannuation accounts following Professor Brine’s death, and made applications to UniSuper to have the balance of each account paid directly to her.

For some months, Ms Carter was found to have failed to disclose the extent of the super benefits to the three sons and that the estate and each of them was a potential beneficiary of one of the accounts.

Once the sons found out about the super and the potential to claim, the three sons claimed the benefit as executors of the estate. Notwithstanding their claim, UniSuper exercised its discretion in favour of Ms Carter.

The Court found that, despite the misrepresentations made by Ms Carter and breach of her fiduciary duties as an executor up to the point in time when the three sons discovered her deceit, thereafter the actions of the sons in making a claim on behalf of the estate (without Ms Carter's involvement) effectively meant that they had accepted that she was not acting as an executor in the matter so that she was therefore entitled to pursue her claim for payment in her own personal capacity and not as a co-executor. Since she was no longer acting as an executor, she was therefore not in breach of her duties as such, and therefore was entitled to receive the payment herself without having to account to the estate for it.

Ironically, if the three sons did not make a separate competing claim (which effectively operated as a consent to Ms Carter claiming in her own right), she would have been held to be in breach of her duties as an executor and would have had to pay the money to the estate. As a result, despite Ms Carter's dishonest conduct, she won the case.

This case illustrates the importance of a valid binding death benefit nomination if you have specific wishes as to how your death benefit should be paid by the trustee of the Fund, as well as some of the issues that arise for executors who are also beneficiaries in claiming those death benefit payments.

Solicitor's duty to intended beneficiaries

Posted by: Kylie Shaw 

The High Court will hear an appeal against a decision of the Supreme

Court of Tasmania on the professional duties of lawyers in the context of a will dispute. The appeal is scheduled to be heard on 2 March 2016.

This case concerned the possible duties of a solicitor, when preparing a will for a client to take instructions and give advice as to the circumventing of the provisions of Testator's Family Maintenance Legislation ("TFM").

In Calvert v Badenach [2015] TASFC 8, Mr Badenach, a solicitor, took instructions to prepare a will for Mr Doddridge (the deceased) who at the time, was terminally ill. The deceased’s instructions were to pass his entire estate to his step son, Mr Calvert. Mr Calvert was the son of the deceased's long-term partner. However, when the deceased died six months later, the Mr Calvert did not receive all of his half-share of two real estate properties the pair owned, because the deceased's long estranged daughter successfully sued the estate under Tasmania’s family maintenance statute for $200,000 (and also recovered the costs for her action from the $600,000 estate.)

So, Mr Calvert sued the solicitors who prepared the deceased's will in 2009, arguing that they should have advised the pair about the possibility of such a turn of events, which could have been avoided by converting the pair’s shared ownership in the properties from ‘tenancy in common’ to ‘joint tenancy’ (so that the deceased's half share would have gone directly to the Mr Calvert, rather than via his estate).

Mr Calvert was unsuccessful at first instance. The decision was appealed and Mr Calvert was successful.

On appeal all three judges agreed that the Solicitor owed a duty of care to the deceased not only to enquire of the deceased whether he had any children, but to advise him why the enquiry was being made, the potential for a family provision claim, the impact it would have on his wishes, and any possible steps he could consider to avoid that impact. In the circumstances the solicitor's duty extended to not only asking questions that might elicit the existence of possible claimants but to advising about mechanisms to minimise the estate available to meet any claim.

Their Honours all agreed that this was a case of loss of opportunity or chance.  The Solicitor's negligence caused Mr Calvert to lose an opportunity to obtain a better outcome.

Final Day - Rockhampton, Succession Roadshow

Posted by: Kylie Wilson 

We had the last day of the very successful succession and continuity roadshow in Rockhampton on Thursday.  There were some interesting questions in relation to keeping the business separate from high value assets like land, and Frank Ricci of Entello Group, at the request of one participant, spent some time explaining the ins and outs of off-market shares. 

Almost all of the Lawrie family attended the Rockhampton session, and again told participants their courageous story of overcoming distrust and emotional heartache to come through the succession process as a very close-knit, happy and supportive family. 

Claudia Power again imparted her amazing wisdom, having been through a very difficult situation with her father's Will, both as a young child and later with the succession process as a young woman.  This has taught her the importance of succession planning early and she has used those skills for her own immediate family succession in more recent years. 

John Moore from RCS gave some really valuable tips to participants arising from the lessons he's learned in his own very difficult succession process as a grazier and farmer of a multigenerational primary production business in South Africa.  Kate Murfet of RCS spent most of the roadshow with us and is one of the nicest and most creative people I've ever met. 

Frank Ricci, Tony Garnham and Belinda Piccirillo, all from Entello Group, provided some fantastic advice to primary producers about the options for off-farm investments, a very important consideration if succession planning is to progress smoothly.  I have to say, if I ever dab my toe in the share market again, these guys will be the first people I call. 

Andrew McCormack of Best Wilson Buckley Family Law not only did a great job of overcoming many participants' initial prejudice about financial agreements, by showing clearly the advantages for both parties in a relationship of having clarity, rather than the uncertain and expensive process of having a family court decide, in the event of a marriage breakdown.  He also imparted some absolute gems from his role as executor, in one case in relation to a Will that had not been updated appropriately, causing a huge amount of distress to the beneficiaries left behind.  It again highlighted the importance of ensuring that Wills are updated on a regular basis and further, that a Will is only part of the succession plan - it should never be the entire succession plan.

I have to say that it has been an absolute pleasure and a privilege to work with so many wonderful and inspiring people, both my fellow presenters during this roadshow, and the committed families who came for the purpose of obtaining information on how to transition multigenerational businesses while maintaining family harmony.

I'm now on the long road from Rocky to Brisbane and I have just passed, quite seriously, the longest coal train I've ever seen in my life, and I have seen rather a lot of them in my time.  The mining boom might be over but between the coal trains and the explosive trucks I've passed, it is clear that the process of mining itself up this way is still continuing. 

I have very much enjoyed my time in central Queensland and am now looking forward to getting home.