Badenach v Calvert [2016] HCA 18

Posted by: Kylie Shaw

Jeffrey Doddridge had been recently diagnosed with a terminal illness and wished to amend his will so as to leave the entirety of his estate to the son of his long term partner, Mr Calvert.

In 2009, Mr Doddridge approached Murdock Clarke Solicitors, a firm who had prepared his previous wills, and asked to have a new will drawn up accordingly. Mr Doddridge owned two properties which he owned as tenants in common in equal shares with Mr Calvert.

Following Mr Doddridge's death in 2010, and with no provisions preventing otherwise, a claim was made by his estranged daughter seeking control of her father's interests in any property. The daughter's claim succeeded and she was awarded a significant amount of her father's estate.
As such, Mr Calvert filed a claim against both the solicitor, Robert Badenach, and the firm who had prepared the will.

Although initially succeeding in the Full Court of the Supreme Court of Tasmania, the claim ultimately failed and was dismissed by the High Court of Australia.
The Court had previously held that a beneficiary to a will may make a claim where his interests and the interests of the testator align completely, such that by working in the best interests of a client a solicitor could also be considered to be working in the best interests of the beneficiary. The Court held that as the duty of Mr Badenach was to advise Mr Doddridge in relation to all options available to him, even if said options worked against the interests of Mr Calvert, that the two interests did not align and no claim could be made.

The Court also found that although Mr Badenach should have enquired as to the existence of another family member,
it was impossible to say whether Mr Doddridge would have been able to provide enough evidence in order for him to fully advise on the likelihood of a claim. Further, the Court found that even if Mr Doddridge had been able to provide all the relevant information, it could not make an assumption as to how Mr Doddridge would react. As such the High Court found that although the solicitor may have breached his duty it was not possible to show that without that breach no damage would have been incurred by Mr Calvert.

This case highlights the importance of discussing options with your solicitor when making a Will, particularly when it comes to considering potential claims against your estate.

Superannuation and small business in the 2016 Federal Budget - what does it mean for you?

Posted by: Kylie Wilson

In the Budget last night Scott Morrison announced some big changes to superannuation and a tax cut for small business companies.  Some of the changes to superannuation were unexpected and are likely to cause a rush on an adjustment of planning strategies for some who are already in pension phase.

Superannuation key points

The key changes announced for superannuation include:

• A cap will apply to the transfer of superannuation balances into retirement phase from 1 July 2017. Those in pension phase now do not receive the benefit of any grandfathering provisions.  Therefore existing tax-free pension phase superannuation balances over $1.6 million will have to be transferred back to accumulation phase and will be subject to a concessional 15% tax rate.
• In a largely unexpected move, concessional contribution caps have been lowered to $25,000 (previously $30,000 for those under 50, and $35,000 for those 50 and over) to be introduced from 1 July 2017.
• Non-concessional contributions will have a lifetime cap of $500,000 from last night.  This is a lifetime cap as opposed to a previous annual cap of $180,000 or for those using the bring-forward rule, up to $540,000 in a three year period.
• The tax offset of up to $500 on concessional superannuation contributions for low income earners continues (although renamed).
• The ability for people under the age of 75 to make concessional contributions to superannuation has been significantly extended, and people aged under 75 will no longer have to satisfy the work test to be able to receive contributions from their spouse.
• From 1 July 2017, the 10% rule that has applied to claiming a tax deduction for personal superannuation contributions will be removed.
• From 1 July 2017, the Division 293 threshold will be reduced from $300,000 to $250,000 (a largely expected move).
• A rollover of unused concessional contribution caps will be made available from 1 July 2017, which will allow individuals to make additional concessional contributions for years where they have not previously reached their concessional contributions caps.  This will apply to people with superannuation balances of less than $500,000 and may be helpful for people who have had interrupted work patterns.  It should be noted, however, that amounts will carry forward on a rolling basis for a period of five consecutive years, and only unused amounts accrued from 1 July 2017 can be carried forward, which does restrict the effectiveness for many of those with interrupted work patterns; and
• From 1 July 2017, the Government will repeal anti-detriment payments.

So far the industry response has been mixed, with the most significant criticism revolving around the reduction of the concessional contributions cap to $25,000.

 

Small business key points

• From 1 July 2017, company tax relief will apply for small and medium sized businesses, with the company tax rate for businesses with an annual turnover under $10 million cut to 27.5%. 
• The Government has announced a plan to progressively reduce this tax rate to 25% by 2026/27.
• All small businesses with a turnover of less than $10 million will also be eligible for the instant tax write-off for equipment purchases of up to $20,000 made next financial year.
• To help fund the above, the Government has announced, in relation to multinationals, that the ATO will receive an extra $679 million to hire further staff to form part of a 1,000 person team to monitor multinationals, with any moneys that are planned for shifting off-shore to be taxed at a higher 40% tax rate.

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.