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About Bernie O'Sullivan

As Principal of Bernie O’Sullivan Lawyers, Bernie is best known for providing practical estate planning, superannuation, family trust and business succession solutions in plain English. He is widely recognised as one of Australia’s leading estate planning lawyers. Bernie has specialised in estate planning for over 30 years across various jurisdictions and specialises in complex estate planning matters. He is author of Australia’s best-selling estate planning book “Estate and Business Succession Planning” and chair of Kaplan’s Masters of Applied Finance topic Insurance and Estate Planning. Prior to setting up his boutique private client legal practice in 2011, Bernie spent 10 years as a partner with Maddocks and senior associate with Mallesons.

Patrick Cussen joins the team

PatrickWe are delighted to announce the merger of Cussen Legal into Bernie O’Sullivan Lawyers. Patrick Cussen has almost 30 years’ experience advising accountants, businesses and individuals on tax related matters. He is highly regarded by accountants and their clients for his astute advice on structuring of business and investment activities and business succession. We look forward to introducing Patrick to you in 2016.

This caps off a very exciting year for us which has also seen leading tax lawyer Rob Warnock and Accredited Wills & Estates Specialist Stephen Hardy join us.

Our reputation continues to grow as the go-to law firm for high net worth individuals, their accountants and advisers in the fields of estate planning, tax & duties, superannuation, trusts and related litigation.

We thank you for your continued support and wish you and your family a wonderful festive season and a safe and prosperous 2016.

By |December 14th, 2015|News|0 Comments

A new era for estate disputes

2015 changes to Victoria legislation

On 17 September 2014 Parliament passed amendments (the Amendments) to the Administration and Probate Act 1958 (Vic) (the Act), effectively restricting the type of claims that can be brought by a prospective claimant against a deceased’s estate. The Amendments took effect on 1 January 2015; this means they apply to estates where the willmaker dies on or after that date.

Why were the changes made?

In 1997 the Act was amended to broaden the class of persons entitled to claim against an estate to persons for whom the deceased “would have a moral duty to make proper and adequate provision”.  As a result, the number of claims against deceased estates increased dramatically, including by persons such as carers and distant relatives. Such claims were assisted by the reluctance/inability of courts to award costs against parties bringing unsubstantiated claims.

The Amendments significantly prevent unmeritorious legal proceedings brought by a person claiming to provide some minor form of care or assistance to the Deceased prior to death (i.e – mowing the Deceased’s lawns or taking the Deceased grocery shopping once a fortnight). The Amendments also give the Court power to make orders as to costs it thinks necessary in cases where claims are frivolous, vexatious or issued with no reasonable prospect of success.

The new rules

The Amendments clearly state who is entitled to bring a claim against an estate under the heading “Eligible Person”.  An Eligible Person is defined as the following:

  • Spouse or Domestic Partner of the deceased as at the date of the deceased’s death;
  • A child, including adopted child, who at the date of the deceased’s death;
  • Was under 18 years of age; or
  • Is a full time student between 18 and 25 years of age; or
  • Has a disability.
  • A step child of a domestic partner as at the date of the Deceased’s death, subject to the criteria in points 2)(a) – 2)(c) above; or
  • A person treated as a natural child of the deceased for a substantial period subject to the criteria in points 2)(a) – 2)(c) above; or

A former spouse or domestic partner who would have been able to commence divorce and / or spousal maintenance proceedings at the time of the deceased’s death.
An “Eligible Person” is also defined as:

  1. A person treated as a natural child of the deceased for a substantial period; or
  2. A registered caring partner of the deceased; or
  3. Spouse or domestic partner of a child of the deceased only where that child dies within one year of the deceased’s death; or
  4. A member of the deceased’s household.

A child, or children born under a surrogacy arrangement will now be recognised as the child, or children of the commissioning parents under amendments to the Status of Children Act and therefore classified as an “Eligible Person” under the new legislation.

The new amendments also incorporate the present legislative provisions the court has long been required to take into account when considering the merits of a claim under section 91(4) of the Administration and Probate Act 1958.

Who will be affected?

Clients should note that adult children, not falling into the above categories, are still eligible to bring a claim.  However, where this is the case, the Court must have regard to the degree to which that child is not capable of providing adequately for their own maintenance and support.  This approach is consistent with the Court’s requirement for the claimant to demonstrate they have a true “financial need” for provision from the estate of the deceased and are not merely “prospecting”.

People falling outside of the definition of “Eligible Person” will find it difficult to make a successful claim.  Aside from affecting rights of independent adult children, the new provision will make it more difficult for relatives outside of the immediate family group (e.g. nieces, nephews) and ‘friendly neighbours’ or carers (other than registered caring partners) to bring a successful claim.

It will be interesting to see if there is a rise in the number of ‘registered carers’, and also how courts will interpret the meaning of the phrase ‘a member of the deceased’s household’ – case law from other States, such as New South Wales, where this phrase has been in play for some time, will be relevant. It may also see a greater reliance on other avenues for claims, such as constructive trust-type claims.

Generally it is expected that the number of estate disputes will decrease (at least compared to what would have been the case) and certainly we along with most in the legal profession will welcome the reduction in frivolous claims.

Our lawyers have significant experience dealing with estate disputes. If you are seeking advice or are contemplating bringing proceedings against a deceased’s estate please contact our offices.

Contact:

Bernie O’Sullivan
Stephen Hardy

© Bernie O’Sullivan Lawyers

By |December 2nd, 2015|News, Uncategorised|0 Comments

Family Trusts and Family Fights

The rise of family trust disputes

Over recent years there have been a number of high-profile family trust disputes brought to our attention by the media.  One notable example is the drawn out litigation between Gina Rinehart and her family over the Margaret Hope Hancock Trust.

Advisers will appreciate that many of their clients have family trusts which hold considerable assets.  Events such as a client’s incapacity, death or relationship breakdowns can have considerable ramifications on family trusts and the assets within it.  It is vital clients have been informed of the legal and investment consequences of such events.

So, what is a family trust?

‘Family trust’ is the generic term given to a discretionary trust created during a person’s lifetime.  The features of a typical family trust include:

  • The beneficiaries of the trust are a broad group including the Primary Beneficiary, their spouse, children and other lineal descendants;
  • The Primary Beneficiary is a controller of the trust by virtue of their role as trustee and appointor – the latter meaning they can replace the trustee at any time;
  • No beneficiary has a fixed entitlement to income or capital, so the controller has ultimate power; and
  • The trust ends on the ‘vesting date’ which is usually 80 years from when the trust was established (but, as with the Hancock Trust, a shorter period can apply).

What are some key lessons to take away from recent cases?

  • Trustees should not seek to control the way which beneficiaries behave. A classic example is a Western Australian case where two uncles controlled a trust. The main beneficiaries of the trust were their nieces.  The uncles made it clear to the nieces that they expected them to live their lives a certain way otherwise they would not receive future distributions.  The Court removed the uncles from their controlling positions.
  • Beware the Family Court. Although beneficiaries only have a ‘discretionary interest’, in some cases the Family Court will treat the interest as ‘property’ resulting in trust assets being allocated to a former spouse. Strategies dealing with this significant risk must be implemented wherever possible.
  • Primary Beneficiaries do not own the trust assets. It is not uncommon for a Primary Beneficiary to mistakenly regard the assets in the family trust as their own.  Two problems arise from this: First, the trustee will breach the significant duties and obligations owed to the trust and beneficiaries, leaving the trustee open to be sued.  Second, many Primary Beneficiaries try to dispose of the family trust assets via their Will when in fact they cannot (because the family trust assets do not form part of their estate!).
  • Amending the deed can amount to a resettlement. Some deed amendments change the nature of the family trust so much that the Commissioner of Taxation will regard the trust to have been wound up and a new trust established. In such an event the trust is said to have been ‘resettled’ and a CGT event to have occurred, giving rise to a potentially significant CGT liability.
  • Be careful with promises. Many family trusts operate family businesses that employ family members.  Take care with promises such as “One day, all this will be yours!” as they can give equitable and legal rights to the promisee. A recent Victorian case went all the way to the Supreme Court of Appeal because of a dispute between a father and a daughter over alleged representations regarding control of the trust upon the father’s death. The father successfully defended the claim, but the cost to all parties (in dollar and emotional/family terms) must have been enormous.
  • Compliance issues. It is not uncommon for family trust to have historical compliance issues relating to matters such as trustee resolutions.  Any such issues can complicate trust litigation.
  • Understand loan accounts. Many family trusts make ‘distributions’ to beneficiaries that are not physically paid but recorded by journal entry as a distribution and then as a loan back to the family trust from the beneficiary.  It is imperative that these distributions/loans be understood because at some stage the beneficiary just might knock on the trustee’s door and ask that the loans be repaid!  Sometimes the beneficiary’s ex-spouse will be delighted to discover that these loans form part of the property pool that can be divided by the Family Court. The loans must also be understood from an estate planning perspective.

Talk with us

Family trusts were first regularly established in the 1970’s and 1980’s.  The time for transfer of control of many of these trusts is now.

It is imperative that clients work in conjunction with a lawyer who has the skills to deal with trust law nuances as well as tax law, Corporations law and a strong litigation capability.

Contact our experienced team if you are interested to learn more about the future control of your family trust and want to reduce risk of costly disputes.

Contact:

Bernie O’Sullivan
Rob Warnock
Patrick Cussen

 

By |November 1st, 2015|News, Uncategorised|0 Comments

You trust your attorney – don’t you?

Because life doesn’t always go to plan, it is necessary to think about how your assets would be managed if you lose the capacity to manage them yourself. A key aspect of this wealth contingency planning is to nominate a personal representative or “attorney” to act on your behalf for financial matters.

The role of an attorney is particularly topical because most of us either have not appointed an attorney or have made an appointment without first considering a range of important legal and personal issues.

The serious consequences of these failings have come to light following the publication of several reports highlighting a number of cases where attorneys have misappropriated or poorly managed assets, resulting in diminished wealth.

This article provides you with details on who you can appoint as your attorney and what issues you may wish to consider before making the appointment.

So what is an enduring power of attorney?

Each Australian jurisdiction has legislation enabling a person (the principal) to appoint by written document a person (the attorney) to make financial decisions on the principal’s behalf. The document is called a power of attorney. It should also be noted that the same enduring power of attorney document can be used to appoint an attorney for personal matters also. However, for the purposes of this article we will be solely focused on financial matters.

The attorney stands in the principal’s shoes and can do most things the principal could do; exceptions include making medical decisions (these are made by a medical attorney) and other personal actions such as making a Will.

 When does the power commence?

The principal must nominate in the power of attorney whether it is to commence immediately or upon some later event – such as when the principal loses capacity.

Whilst there has been debate in the past over what is meant by ‘loss of capacity’, recent changes to legislation have sought to clarify this by creating a rebuttable presumption a principal has decision making capacity in certain circumstances. However, complications can still arise when a person moves “in and out of” capacity, as sometimes happens with sufferers of dementia.

Who to appoint?

Many people simply appoint family members.  Couples often appoint each other as attorney.  If the other is unable to act, one or more children are commonly appointed as “back-ups”.  Professionals such as lawyers, accountants or trustee companies can also be appointed, however for obvious reasons this is less common.

How many to appoint?

It is possible to appoint more than one attorney.

Where more than one attorney is being appointed, the principal can authorise them to act:

  • Severally – meaning that any of the attorneys can do things on behalf of the principal (this can be problematic if the attorneys are not in agreement or fail to communicate);
  • Jointly – meaning that all attorneys must agree on any decision (this is often sensible, but it gives each attorney a power to veto any decision); or
  • by majority, where there are more than 2 attorneys (although this option is not available in some jurisdictions).

As mentioned above, it is also possible to appoint alternate or “back-up” attorneys in the event one of the first choice attorneys is unable to act.

What can go wrong?

As stated above, the cases where attorneys are failing to act in the principal’s best interests are on the rise.

One risk to your wealth is that if you lose capacity there will be no-one to oversee the actions of your attorney.  This is a slight generalisation, however it is certainly true in a “real-time” sense – i.e. while it is always possible to have a wayward attorney removed from their position, this usually occurs only after the offending activity has taken place.

We remind clients that often attorneys start out with good intentions, only for things to happen that derail the process.  The following is a case we handled, with names and a few details altered for obvious privacy reasons:

Heather had three children: two sons who lived interstate and a daughter Deidre who lived nearby. Heather became increasingly dependent on Deidre.  In 2009 Heather made a power of attorney appointing Deidre as her sole financial attorney.

By 2010, Heather had become very frail, dementia set in and she lost capacity.  Deidre had to reduce her normal working hours in order to look after Heather and eventually had no option but to place Heather into a high-care nursing home.

As Heather’s attorney, Deidre sold Heather’s house to fund the bond for the nursing home. The house – which had appreciated considerably over the last 15 years – sold for $1.5m and, after payment of the nursing home bond, Deidre suddenly had responsibility for $1.3m.

Deidre had never had so much money. She looked at the situation of her two brothers who were both financially secure and convinced herself that Heather would have wanted her to have a “reward” because of all the sacrifices she has made.  Deidre made a gift to herself of $200,000.

Over the next year, Deidre started frequenting the pokies section of the local “Lucky Strike” Tavern and the whole of Heather’s remaining $1.1m evaporated, along with Deidre’s own savings.

It was only after Heather died in 2012 that her sons realised what Deidre had done.

Like the majority of cases, this was never reported to authorities. This is not uncommon – especially where there are no assets to pursue.  It is suggested that this type of event is far more common than is recognised.

How can you protect your wealth?

There are a range of strategies that lawyers experienced in this field will be able to guide you through to help minimise or possibly avoid the risks that incapacity poses to your wealth.  Appointing two attorneys to act jointly, along with an alternate, is a good first step. But there are other nuances to the role of an attorney that must be considered.  As part of your planning take time to reflect on what your attorney will be required to do and whether they have the financial and emotional skills to perform these functions.

For example:

  • is your attorney capable of taking responsibility for the management of a self-managed superannuation fund? This includes reviewing the investment strategy and making other decisions, such as whether to withdraw your superannuation pre-death and avoiding death benefits taxes;
  • is your attorney capable of taking responsibility for non-superannuation investment decisions?;
  • is your attorney capable (financially and emotionally) of making decisions regarding the sale (or retention) of significant assets such as the family home?;
  • do you want your attorney to have power to make distributions to others, such as your spouse and children?;
  • is there a possibility that your attorney will be unduly influenced by a third party – such as their spouse?
  • will your attorney take control of your family trust and have power to distribute all assets from the trust to themself?
  • are there likely to be family tensions, or complications arising from a ‘blended family’ environment?
  • will your attorney work effectively with your existing advisers such as your financial adviser and accountant?
  • does your attorney understand the importance of seeking advice where necessary, and who to obtain the advice from?
  • will your attorney be able to work collaboratively with your medical attorney or guardian regarding matters such as medical care and accommodation?;
  • is your attorney aware of the terms of your Will? For example, does your Will bequeath assets that you do not want sold by your attorney?

A Valuable New Year Resolution?

Having in a place a power of attorney could be one of your best and most responsible financial resolutions.  Contact one of our experienced team members to discuss making your power of attorney or Will.

Contact:

Bernie O’Sullivan
Stephen Hardy
Thalia Dardamanis

 

© Bernie O’Sullivan Lawyers

 

 

 

By |October 1st, 2015|News, Uncategorised|0 Comments