ByLawyers News and Updates

Estate planning – An exciting opportunity for small law firms

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The usual wills versus a will with estate planning

For most clients a will is a straightforward document that appoints an executor, an alternate executor, perhaps makes some specific bequests of personal items to certain family members, then leaves the balance of the estate to their spouse then their children with a default clause if none of these beneficiaries survive.

The fees charged by most firms are modest and reflect the reality that most clients do not wish to pay a great deal for something that they only reluctantly accept that they need and know they will never personally use and can prepare themselves using a form bought from the post office.

Wills have traditionally been seen as valuable because they eventually bring the firm estate work, rather than valued for the fees associated with the wills themselves. There is an old adage that the goodwill of a practice are the good wills in safe custody.

However, estate planning is a different thing and many firms are now taking a far more comprehensive approach, with a far more profitable result.

Estate planning is an area where small firms can grow their offering to existing clients and attract new, high net worth clients who require and appreciate professional expertise and assistance in this important area of practice.

It is far easier to offer this expertise than many small firms realise. The By Lawyers suite of testamentary trusts and wills clauses, together with the extensive commentary on wills and estate planning, means that firms can confidently advise clients who may have substantial assets including business interests held in company, partnership, trust structures or self-managed superannuation funds.

Whereas a firm might charge few hundred dollars for ‘husband and wife’ wills, the comprehensive succession planning required by a family with substantial assets and interests, including a review of existing structures and documents, preparation of wills which incorporate testamentary trusts, plus other appropriate documents such as powers of attorney and appointments of enduring guardian, is likely to involve fees of many thousand dollars, as well as extending the relationship between the firm and the family to other areas and members. Clients who have such assets and need such advice are mostly very happy to pay for it because they realise the value of the exercise and are as dedicated to retaining their assets for their family as they were to building up those assets in the first place.

Why testamentary trusts?

For clients with substantial assets, complicated families or family members who have medical or personal problems, the use of testamentary trusts has multiple benefits over usual wills, summarised below.

Creditor protection

To protect a bequest from being accessed by creditors of a beneficiary, including guarantees for a business venture.

Divorce of a child

To avoid family assets being redistributed by the Family Court. Assets held in trust are not assets of any individual and the Family Court cannot make an order requiring the distribution of those funds.

Education

Bequests via testamentary trust for payment of school and tuition fees for grandchildren is more tax efficient than simply leaving money to the child’s parents.

High risk beneficiaries

Where one of the beneficiaries is in a high-risk business or has personal issues with drugs or gambling which warrant strict controls being placed on access to any estate funds.

Remarriage of spouse

To limit access to existing family assets by a new family or spouse.

Tax benefits

To minimise tax payable, facilitate income splitting and distribute tax free to children under 18 on marginal rates with the no tax threshold.

Will challenges

Keeping estate assets in trust means they are not in the beneficiaries’ estates and therefore not subject to challenge when they die.

Disabled children

To ensure that any disabled or intellectually impaired children are provided for in the most effective way. A Special Disability Trust can provide a substantial bequest to a disabled child without impacting on any Centrelink benefits.

Identifying the right clients for complex estate planning

Although most clients potentially would benefit from a testamentary trust, their present circumstances do not suggest that one is necessary. In contrast estate planning is essential for clients with high net worth, multiple assets and asset types, business interests, complex business structures, existing family trusts, self-managed superannuation funds, complicated family arrangements and relationships and potential beneficiaries with special needs or personal problems.

Many clients have not considered the need for estate planning which with the aid of By Lawyers commentary and precedents can be offered by practitioners.

The benefits of testamentary trusts

  • The fundamental advantage of a testamentary discretionary trust is that the assets are held by the trustee for the beneficiaries, not by the beneficiaries themselves. This allows the protection of assets from claims against beneficiaries and from misuse.
  • Separate fixed trusts can be established for separate people or purposes, with conditions. For example, if one child has a drug addiction, a bequest could be left in trust for that child to receive appropriate maintenance and treatment, without them having access to the capital.
  • If a beneficiary faces bankruptcy, an inheritance for that beneficiary through a testamentary discretionary trust will not form part of the beneficiary’s bankrupt estate.
  • Assets held within a testamentary discretionary trust are not part of the matrimonial pool to be divided up in any family law property settlement in the event of divorce.
  • Testamentary trusts also provide an opportunity for testators to control assets after their death, by way of conditional access to trust assets. While not desirable for the beneficiaries, this can certainly be seen by many testators as an advantage.
  • Testamentary trusts can be very tax effective – income, capital gains and franked dividends can be distributed among all beneficiaries each year in the most tax-efficient way.

By Lawyers precedents and commentary

Using By Lawyers publications gives your firm the tools and confidence to assist clients with their estate planning, bringing profitable new work and quality new clients into your firm.

GST withholding

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Six months after the ATO introduced new GST Withholding obligations on purchasers of real estate, those changes are starting to have an effect.

In an attempt to reduce avoidance of GST obligations by vendors arising from the practice of illegal phoenix activity, the ATO introduced a GST Withholding obligation on 1 July 2018. The intent of these changes is to require purchasers of certain types of real estate to withhold a portion of the purchase price from the vendor and pay that money to the ATO, to be applied as a credit towards the vendor’s GST liability. This is not a new tax, just a new method of collecting an existing tax. However, as is usually the case when the ATO seeks to transfer responsibility for tax collection, unintended consequences may result in the ‘innocent’ tax collector facing unexpected consequences.

Notice

Unfortunately, the introduction of the Withholding obligation has been complicated by the introduction of a parallel NOTICE obligation on vendors. It is logical in a transaction that generates a purchaser Withholding obligation to require the vendor to notify the purchaser that the obligation exists, but the vendor NOTICE obligation does not mirror the Withholding obligation and applies to a wider set of transactions than the Withholding obligation applies to. By way of example, one of the categories where the purchaser must Withhold is the sale of NEW residential premises but ALL vendors of ALL residential premises are obliged to give a NOTICE. In the case of not-new residential premises, the NOTICE states that the purchaser is NOT obliged to Withhold and given that the vast majority of residential sales are of existing (as opposed to new) properties the effect of the legislation is to require a vast number of vendors to advise the purchaser that no Withholding is required. This obligation appears to be counter-intuitive and has resulted in considerable misunderstanding in relation to the application of the Withholding obligation. It is difficult to glean the motivation behind this wider NOTICE obligation and perhaps this anomaly might be rectified in any review of the legislation.

The most efficient way to deal with the NOTICE obligation when no Withholding is required is to include the NOTICE in the contract with the statement that no Withholding is required. If Withholding is required, the NOTICE must provide the vendor’s name, vendor’s ABN, specify the Withholding amount and when it is payable (at settlement) and may be provided in the contract, or subsequently.

Obligation

In summary, the purchaser must Withhold if the contract relates to:

  1. new residential premises.

This category can be seen to apply to apartment and townhouse sales where there was a perception of illegal phoenix activity.

  1. potential residential land.

This category applies to greenfield subdivision sales, again a potential phoenix scenario.

However, this category is wider than lots on a proposed plan. It applies to potential residential land that is included in a (registered) plan of subdivision. It therefore applies to sales of residential lots off-the-plan (because the plan is registered prior to settlement) but also applies to the sale of ANY residential land that is a lot on a plan of subdivision – effectively ALL vacant residential land.

However, Withholding is only required where the vendor makes a taxable supply. Off-the-plan sales by land developers will be in the course of an enterprise and therefore taxable supplies attracting Withholding, but most sales of one-off vacant residential lots will NOT be in the course of an enterprise and therefore will not be a taxable supply and will not attract Withholding. Notwithstanding that no Withholding is required, the vendor must still give the purchaser NOTICE that Withholding does not apply.

Again, this seems counter-intuitive and restricting the obligation to off-the-plan sales might be a future improvement.

Payment

If the vendor gives NOTICE that Withholding applies the purchaser must lodge a form of Withholding notification with the ATO and will then receive a lodgement reference number (LRN) acknowledging the notification and a payment reference number (PRN) to be used when lodging a settlement date confirmation form at the time of payment to the ATO.

Tip Box

•GST Withholding applies to new residential premises and vacant residential land.

•Withholding NOTICE must be given with ALL residential sales.

Family Law – Grandparents order and commentary

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New commentary on parenting orders in relation to grandparents has been added to the Children publication … Grandparents are entitled to apply for parenting orders pursuant to s 65C, which provides: A parenting order in relation to a child may be applied for by … (ba)  a grandparent of the child; or … Whilst grandparents specifically have standing to make an application under the Family Law Act, it does not automatically mean orders will be granted.  As with any parenting order, the court will always consider an application by the grandparents through the prism of what is in the best interests of the child: s 60CC.

Also, a new draft order has been added to the library of Children Orders: “Spending time with grandparents”.

QLD conveyancing – Priority notices

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From 1 January 2018 priority notices will replace settlement notices.

Settlement notices will not be accepted at the titles Registry after 4.30 pm on 22 December 2017. If lodgement is anticipated after this date prepare a priority notice. Priority notices may be signed prior to 1 January 2018.

The publication has been updated to include precedents and commentary on priority notices.

Family Law – Reference Manual – 101 Family Law Answers

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The Reference Manual – 101 Family Law Answers is the first of the By Lawyers reference manuals to be updated to the new stylish format.

As well as the new format, two commentaries have been added in the Enforcement chapter.

Court enforcement of a child support debt: A child support debt, a debt occasioned due to non payment of a registered maintenance liability, is a debt to the Commonwealth, as opposed to the payer, and is recoverable by action taken by the Child Support Registrar: s 113; or by the payee: s 113A. …

Property orders – Enforcement and the overseas factor: Unlike parenting orders, the Family Law Act, Rules or Regulation make no provision for the registration of property orders in overseas jurisdictions, or the registration and enforcement of overseas property orders in Australia. Furthermore, Australia is not party to any international conventions which provide for the reciprocal recognition of property orders overseas. …

 

Foreign resident capital gains withholding clearance certificates

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Clearance certificates will not be issued during the ATO’s Christmas closure – 22/12/17 to 2/1/18.

Family Law – The Harman Undertaking – Information obtained on discovery or subpoena

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Commentary has been added to the Children and Property Settlement publications regarding the Harman undertaking:

Information obtained on discovery, subpoena or included within an affidavit cannot be used for a collateral or ulterior purpose unrelated to the proceedings in which that production occurs. This is called an implied or ‘Harman’ undertaking after Harman v Secretary of State for the Home Department [1983] 1 AC 280. It is a substantive legal obligation owed to the party who produces the documents and to the court: Hearne v Street [2008] HCA 36 (6 August 2008) at [107]-[108].

Family Law – Binding Child Support Agreements

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The Children’s commentary has been enhanced by adding further information regarding the binding nature of Binding Child Support Agreements and the discretion the Court may exercise to set an agreement aside. The Full Court of the Family Court decision in Masters & Cheyne [2016] FamCAFC 255 (2 December 2016) looks at what changes may be sufficient to enliven the Court’s discretion, and they are extremely limited. The Court’s view is that binding agreements are meant to be binding and possible changes in parental arrangements should be considered before executing the agreement.

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