The lessons learnt from the recent case of Re Marsella; Marsella v Wareham (No 2) [2019 VCS 65)] are two-fold:
Helen Marsella (“Helen”) and her daughter Caroline were the trustees of a SMSF. Helen was survived by her husband Riccardo and her two children from her previous relationship, including Caroline. Riccardo was the executor of Helen’s Will.
Caroline resolved as the surviving trustee to pay all of Helen’s death benefits to herself. Helen had no valid binding nomination in place. On the same day, Caroline also appointed her husband, Martin, as a co-trustee of the fund and there was a further resolution by Caroline and Martin to distribute the death benefits to Caroline solely. The resolutions stated that the trustees had given due consideration to “the possible interests of all Dependants of the deceased member, the potential eligible Beneficiaries of the Member, and the Member’s Estate”.
Riccardo sought to have:
Riccardo argued that the trustees did not give “real and genuine consideration to the interests of the dependants of the fund and the distribution made from the fund should be set aside”.
Of particular note in this case is that Caroline had been advised to seek specialist advice. She had been made aware of:
The Court was asked to consider:
In setting aside the exercise of discretion, Justice McMillan held that the trustees failed to exercise their discretion with a real and genuine consideration of the beneficiaries of the fund in determining to pay the death benefits to Caroline.
Justice McMillan stated that whilst it wasn’t the Court’s role to consider the fairness or reasonableness of the outcome of the exercise of discretion or usurp the role of the trustee, if the result is “grotesquely unreasonable”, the outcome may form evidence that the discretion was never properly exercised, or was exercised in bad faith. Relevant factors for consideration included:
Here, the trustees ignored Riccardo’s and Helen’s substantial relationship and his relatively limited financial circumstances.
In the judgment, Justice McMillan was particularly scathing of Caroline noting that she had proceeded with the appointment of a co-trustee and distribution of benefits in the context of uncertainty, significant conflict and lack of recommended specialist advice.
Her Honour also determined that in the context of an improper exercise of discretion, conflict and personal acrimony between the parties, Caroline and Martin should be removed as trustees.
Riccardo was required to make submissions to appoint a replacement trustee or corporate trustee.
With cases on death benefit payments becoming more common, there are some key lessons from this decision:
1. Trustee Discretion
Trustees need to be aware that their responsibilities extend to decisions required to be made when paying out death benefits, as part of accepting their appointment as trustee or director of the trustee company. In the absence of a valid binding nomination, factors that are relevant in determining whether the discretion of the trustee is exercised in good faith and upon real and genuine consideration include:
2. Proper and current estate planning
For superannuation fund members who want certainty about who receives their superannuation benefits (particularly in the context of a second relationship where there may be different objectives for different assets and interests), this case illustrates the significance of having a valid binding nomination or reversionary pension in place.
Most people still believe that it is their Will that is the most important document when dealing with the passing of assets on deal and will often prioritise updating or seeking advice on their Will, without thinking about who their superannuation is to end up with.
Thinking about succession to control of a SMSF is also important so as to ensure that the fund has the right people in control on death (and even on incapacity). For example, it is likely that there would have been a different outcome in the exercise of trustee discretion in Re Marsella had there been a company as trustee, of which Helen (as the sole member) was the sole director. Riccardo may have taken control of the SMSF in his capacity as Helen’s legal personal representative and determined to pay all of the death benefits to himself. In this instance, it may also be prudent to have an express authority in the Will for a spouse to claim and receiving death benefits personally and not in his or her capacity as legal personal representative.
Whilst a trustee’s discretion is absolute and unfettered, this case highlights the willingness of the Courts to remove trustees and set aside decisions in instances where trustees have not acted in good faith.
To avoid this, it is recommended that trustees seek advice particularly where there may be some uncertainty or complexity. Proactively though, fund members should regularly review their estate planning to ensure that their documentation accords with their intentions. Where there is a SMSF involved, this potentially includes a current binding nomination, pension documentation, Will and super fund deed.
For more information or expert advice, please do not hesitate to contact us.
In our last issue (What use is a Trust when Family Law gets involved? Part 1 of 2) we focussed on the ability of the Family Court to set aside transactions involving trusts as occurred in Kennon & Spry.
In this issue, we consider the Court’s approach to more ‘routine’ discretionary trust cases and what factors apply when deciding if trust property is property of the relationship for the sake of a family law split.
Bailey involved sixth generation farmers. The trust was held to be for the benefit of the wider family and not property divisible in the marriage. Crucially, the accountant was the trustee and gave evidence that the husband’s deceased Dad, who established the trust in the ‘60’s, had told him the trust was for all the generations in perpetuity, so he would definitely not distribute capital to the husband.
Therefore, the court simply took into account the income stream of the trust as a financial resource available to the husband in the family law split.
Differently, in Goodwin, the husband as appointor effectively controlled the trust for his benefit. In the circumstances that trust was treated as property of the parties available for division between them.
Ward involved the husband’s mother establishing a testamentary trust for him and his children. The husband in the witness box admitted that his mother had removed him as trustee and executor two days before she died – to make sure the wife didn’t get a share of her money!
The new trustees were his sister and a solicitor, so the judge was satisfied that in reality they would make sure the husband got the trust money; therefore this was treated as property in the family law split.
In Bailey, two helpful checklists detail the considerations relevant to treating trust property as property of the parties’ relationship, including:
How trusts are set up, and how they are administered will be relevant to the Family Court’s powers and how they are exercised. At the set up phase relevant considerations should be around who controls the trust and who can benefit from it and to what extent. Broadly, the less control or benefit a party to the marriage can receive the better.
It is not just the set up of trusts that will be relevant. How the trust is used and who routinely benefits, is also an important factor.
Having said that, if certainty is required, the best planning tool is the use of Binding Financial Agreements or Inheritance Protection Agreements.
If you or your clients have any questions about any of these matters, our expert Family Law team would be delighted to assist. Please do not hesitate to contact us.
On 19 December 2018, the Guardianship and Administration Bill 2018 (“the Bill”) was introduced. An overview of the Bill can be found in our first article of the series here.
This article is the third in our series, and will focus on the new regime of supported decision-making, a key change under the Bill.
Supported decision-making is a concept of growing importance in line with changing views on disability.
As distinct from “substituted” decision-making – where a third party makes a decision for the represented person – supported decision-making enables encourages individuals with disabilities to make their own decisions about their lives with the support of others. It offers an alternative to guardianship or administration orders, which recognises that individuals with a disability can often preserve their autonomy with support.
Supported decision-making is becoming preferred over substituted decision-making where possible. The provisions of the Bill reflect similar reforms implemented in several pieces of recent legislation including the Powers of Attorney Act 2014 (Vic) (POA Act) and the Medical Treatment Planning and Decisions Act 2016 (Vic) (MT Act).
The Bill introduces the concept of supportive guardians and supportive administrators. VCAT will have the power to appoint these supportive roles under orders.
When making supportive orders, VCAT will need to consider the following:
Unlike guardianship and administration orders, supportive roles will only be able to take action to support the individual to make decisions as opposed to making decisions on their behalf.
Supportive guardians and administrators have a broad range of duties which include a duty to:
Supportive guardians and administrators cannot be remunerated for their role. They must also advise VCAT of the death of the supported person in writing as soon as practicable.
Supportive guardians and administrations that act dishonestly to obtain a financial advantage or cause loss to the supported person or another person are liable for a maximum of 5 years imprisonment or 600 penalty units or both.
A supportive order may be more suitable than a guardianship or administration order if the supported individual has the capacity to make decisions, albeit with the support of others.
This could include individuals suffering from early cognitive decline who might need help accessing accounts or remembering passwords or individuals with a physical disability that require assistance in collecting information or enacting decisions.
The process for determining and applying for a supportive order is complex and individuals should consider obtaining legal advice.
If an individual has decision-making capacity, they can continue to appoint a “supportive attorney” of their choosing, without going to VCAT. For information about “supportive attorneys”, please see our previous article here.
If you seek further advice about these matters, please do not hesitate to contact us.
This article is part of our Guardianship and Administration Bill series:Click here for Guardianship and Administration Bill 2018 – OverviewClick here for Guardianship and Administration Bill 2018 – Administrator liability and new offences
Schools registered in Victoria must be not for profit and not be party to prohibited arrangements in order to maintain registration – Education and Training Reform Regulations 2017 (Vic)
Consistent with its new Guidelines to the Minimum Standards, the VRQA is prioritising audit of matters relating to:
Schools which are up for review might consider that they are on notice from the VRQA that many arrangements with ELCs and school systems are considered to be in contravention of the above requirements.
Other schools should consider their arrangements, consistent with the requirements of the new Guidelines to the Minimum Standards which take effect from 1 July.
ELCs are not considered to be schools under the legislation (Education and Training Reform Act 2006 (Vic)), so payments to them are treated as payments to third parties. (“Schools” provide education to children aged 5 to 17, which are the compulsory school attendance ages in Victoria).
Evidence that ELC arrangements are not in contravention will need to include:
Payments to school systems can also contravene the Regulations, if payments made are used for other schools in the School system and are not otherwise able to be justified as consistent with the system’s permitted activities under the Regulations.
Evidence that system arrangements are not in contravention will need to include:
If you would like further information about the required agreements, policies and accounts matters, please do not hesitate to contact us.
Is there recourse against an administrator or guardian who fail to appropriately manage a represented person’s affairs? The answer is yes. The existing law of negligence allows a claim in damages to be brought against an administrator. The Guardianship and Administration Bill 2018 (“the Bill”) will also bring in new compensation provisions and offences where a guardian or administrator dishonestly uses their powers to obtain a financial advantage.
Guardians and administrators are appointed by the Victorian Civil and Administrative Tribunal (VCAT). A guardian makes lifestyle decisions (where to live, medical treatments) and an administrator makes financial and legal decisions on behalf of a represented person. This article deals with administrators’ liability.
A represented person is and remains entitled at common law to claim compensation from an administrator in negligence. There are few reported Court decisions of claims against an appointed administrator – the majority resolve prior to issuing proceedings or prior to hearing. In practice, examples of administrators’ breaches of duty of care include a failure to secure a represented person’s assets, failure to adequately manage a represented person’s estate or failing to invest their assets in their best interests.
The Bill will in some respects now make it simpler for compensation claims to be brought against an administrator, whether the claim is made by the represented person or by an interested party. Interested parties will include an executor of the represented person’s deceased estate, the nearest relative of the represented person, the Public Advocate or any other person determined to have a special interest in the represented person’s affairs. The compensation provisions in the Bill will apply even if an administrator is convicted of an offence, the represented person has died, or the order appointing the guardian or administrator is no longer in force.
Section 181 will allow the Supreme Court or VCAT to order an administrator to compensate a represented person for losses caused by them by contravening the Bill when acting as administrator. This provision mirrors the attorney compensation provision (section 77 of the Powers of Attorney Act 2014 (Vic)). An administrator will be entitled to seek to be excused from personal liability if they establish that they were acting honestly and reasonably and ought fairly be excused.
Section 78 of the Bill allows the represented person themselves or an interested person to apply to VCAT on “any matter arising out of a dealing or transaction in relation to that financial matter” and VCAT will have broad powers to “make any order in relation to the application which VCAT considers appropriate”. An interested person can include anyone who would be entitled to the property of the represented person, or a share of that property under any law.
Individuals or organisations that are involved with represented persons or their family members should note:
If you have any questions regarding a guardian or administrator abusing their powers for their financial advantage or any other matter mentioned in this article, please do not hesitate to contact us.
This article is part of our Guardianship and Administration Bill series:Click here for Guardianship and Administration Bill 2018 – Overview.Click here for Guardianship and Administration Bill 2018 – Supported Decision-Making
Sometimes trusts are great at protecting assets during family law disputes, other times not. This two part series will start with a High Court case involving variations to a trust deed, and conclude with details of exactly what factors are important in deciding if trust assets are in or out of the matrimonial pool.
As a starting point, the Family Law Act says that the Court can only make orders in relation to “property” of the parties to the relationship (married or not). Hence the trust assets must be effectively property of a party if both parties are to clearly get a share.
The Family Court has a number of powers that can be used when trusts are involved including:
The High Court case of Kennon v Spry is a significant decision that predated the ability of the Court to make orders against third parties. The issue in this case was around setting aside transactions.
The case involved Dr Ian Spry – a famous barrister who wrote textbooks on trust law. Dr Spry first created his trust in 1968 by declaring an “oral trust”. After the marriage in 1978, he formalised this with a trust deed in 1981. He was the trustee, and the beneficiaries were himself, the wife and their 4 children. He could alter the trustee in his absolute discretion.
In 1983 he removed himself as a beneficiary of the trust. In 1998, when the marriage was in trouble, he amended the trust deed again, appointing two daughters as trustees and irrevocably excluding himself and his wife from any further distributions.
In 2001 they separated and Dr Spry then established another four trusts, controlled respectively by the four children, and he distributed the assets of the original trust equally between those four trusts.
Consequently, the trust could no longer be property of the parties as it was out of their control. However, the Court then looked as section 106B of the Act. This provides that if someone has made an instrument or disposition, which may have the effect of putting assets out of the reach of a Family Law Court order, whether intentionally or not, then the Court can set aside the instrument or disposition.
The Court easily decided that this had indeed happened. They set aside the variations of trust made in 1998 and 2002, leaving in place the 1983 variation with the wife a beneficiary and the husband the trustee. The Court then said, since he had control of the trust and had the power to appoint all the trust property to the wife, the trust property could be treated as property of the parties and divided pursuant to the Family Law Act.
Planning Issue: Restructuring and other transactions taking place during a relationship are more likely to be at risk of being set aside by the Family Court.
In our Next issue, we will describe the characteristics of trusts which make them more or less open to family law assault. Click here to read Part 2 of 2.
If you have any questions about any of these matters, or if your client needs to explore this, please do not hesitate to contact us.
In the last year or so, how many of your family, friends, clients, colleagues or acquaintances have got married? And of those newlyweds, was reviewing their estate planning at the forefront of their minds, as something they should attend to before or soon after the nuptials? Would they be aware that the act of getting married could drastically affect what happens to their estate if they die?
The Australian Bureau of Statistics (ABS) reported in November 2018, that there were a total of 112,954 marriages registered in Australia in 2017, with 30,129 of these being registered in Victoria. The figures from previous years are around the same, give or take a few thousand.
However, the total number of marriages taking place each year could be expected to increase in the future, now that marriage is no longer limited to heterosexual couples. In just the first six months after the amendment in December 2017 to the Marriage Act 1961 (Cth), allowing marriage between two persons regardless of their gender, the ABS reported that 3,149 same-sex marriages took place across Australia.
Subclause 13(1) of the Wills Act (Vic) 1997 (“the Wills Act) states that marriage revokes a Will, the entire Will. This could mean that the minute they “tie the knot”, over 224,000 people each year (regardless of their gender) could be joining the ranks of those in Australia who don’t have a valid Will in place.
One exception in the Wills Act is that, a marriage that was contemplated in the Will does not revoke the Will. This gives couples the chance to plan well in advance.
There are some further exceptions in the Wills Act, including that if you make a gift to someone to whom you are not married to at the time of making your Will or appoint them as your executor, the gift or appointment will not be revoked if you are married to that same person at the date of your death.
However, unless the Will is made in contemplation of marriage, all gifts to any other people or appointments of other people as the executor will instantly be revoked by the marriage.
If a person either dies without a valid Will in place or their Will does not dispose of their entire estate, the assets not effectively dealt with become subject to the “intestacy rules” in the Administration and Probate Act (Vic) 1958. The intestacy rules set out who receives the estate of someone who dies without a valid Will.
Where a Will has been revoked due to marriage, this could mean that loved ones such as children from the relationship or other family members or friends, could miss out entirely on an intended gift.
Whilst children from a previous relationship may still receive some benefit under the intestacy rules, it could be far less (or perhaps far greater) than what was intended.
The happy couple should preferably consult an estate planner and a wedding planner at the same time. If this doesn’t happen, they should take steps to ensure that they have a valid Will in place as soon as possible after the marriage.
We have specialised estate planning lawyers who can advise and assist anyone who has recently married or is preparing to marry. Please do not hesitate to contact us.
The team at Moores recently delivered a highly topical seminar on the issue of challenging school enrolments and the growing complexity between interactions with parents and students. During this seminar, our team carefully guided our clients through an engaging session with information to equip Schools to effectively deal with problem parents, tricky enrolments, discrimination and school building funds.
Many independent and Catholic schools have great stories to tell about the increasing complexities of enrolments. Not only are families becoming more complex, many parents are growing in their willingness to assert their position and challenge schools regarding enrolment decisions.
We are seeing a high level of activity from parents in the areas of waitlist jumping, illusory sibling priorities and discounts, breaches of scholarships terms and conditions, claims of discrimination, and plain old bad behaviour.
What we also see is that many schools are not equipped with robust documentation which allows them to assert their position.
Given that the VRQA has mandated the online publication of enrolment documents with effect from 1 July 2019, now is the time to review and upgrade any documents which may contain ambiguity or lack of compliance.
Lastly, the VRQA Guidelines will require boards, management and compliance to implement new documentation by 1 July 2019. Please see our article here for more information.
The ATO are reviewing school building funds, here are our top tips:
School Building Fund:-
If you have any questions or would like more information on navigating the new VRQA Guidelines and School Building Funds, please do not hesitate to contact us .
“...it was engaging and informative“- Risk and Compliance Leader, Independent School in Melbourne
“Thanks for the briefing today, it was one of the best I have attended…” – Corporate Services Manager, Independent School in Melbourne
“Your sessions are always so valuable and helpful. You are all so warm and welcoming and don’t speak ‘legal jargon’ that we can’t understand!” – Enrolments Manager, Independent faith-based School in Victoria
Following on from Part 1 & Part 2 we conclude with summarising how NFP directors can protect themselves:
Indemnity:
Many organisations indemnify their directors against any liability incurred in good faith by the director in the course of performing his or her duties.
Of course, an indemnity is only effective to the extent that the organisation has sufficient assets to cover the loss. This is where Director and Officer Insurance is important.
Director and Officer Insurance:
Director and Officer Insurance (D&O Insurance) is designed to protect directors and officers against personal liabilities, in relation to claims that arise from decisions they make while carrying out their roles (and in the scope of their authority).
The coverage will vary depending upon the policy obtained, will generally contain limits and will exclude loss resulting from certain conduct (such as dishonest breaches of duties).
An insurance broker will be able to clarify what is and is not covered in a particular policy.
Other protections:
Avoiding any breach in the first place is the best protection against personal liability. Some important ways of avoiding a breach is to:
Click here for Part 1 – Introduction and duties and liabilities of directors
Click here for Part 2 – Tax and superannuation, Occupational Health and Safety Laws (OH&S Laws),Employment laws, Child safety laws, Competition and Consumer Laws
For more information or not-for-profit legal advice, please do not hesitate to contact us.
Following on from Part 1, we continue to summarise the key duties of a NFP director based on the standards in Victoria. Directors should ensure they are familiar with the rules in their states, which may vary.
Tax and Superannuation:
Directors should always take reasonable care to ensure that the tax affairs of the organisation are in order. While NFPs do not generally pay income tax, there are other tax obligations that may apply.
In particular, directors should ensure that the organisation is meeting its obligation to pay superannuation and pay as you go withholding tax (PAYGW). In certain circumstances, the ATO can require a director to pay for outstanding superannuation and PAYGW liabilities.
Directors may also be liable where the organisation is found to have committed a tax offence (such as making false or misleading statements to the ATO). This will generally only occur where the director was involved in the offence, including by aiding, abetting, counselling or procuring the act or omission that led to the offence.
Occupational Health and Safety Laws (OH&S Laws):
Broadly, the organisation, as an employer, has obligations to eliminate or minimise the risk of harm to the health and safety of workers.
Directors should take steps to make sure that the organisation is complying with its OH&S obligations. For example, by understanding the risks and hazards associated with the organisation’s operations and making sure that it is properly resourced to eliminate or minimise those risks.
If the organisation breaches that duty because a director failed to take reasonable care, the director may be guilty of an offence.
Breaches of OH&S laws can lead to civil or criminal penalties as well as personal liability for any loss suffered and imprisonment in very serious cases.
Employment laws:
Directors should be aware of laws regarding the responsibilities of employers and the rights of employees.
The Fair Work Act 2009 (Cth) covers a range of employment issues, including unfair dismissal, the National Employment Standards, adverse action and redundancy.
Generally, a board is not directly involved in the daily considerations of work conditions and pay. However personal liability may arise where a director is involved in a contravention (e.g. by aiding, abetting, inducing or being knowingly concerned with the contravention).
Child Safety Laws:
In Victoria, organisations that exercise care, supervision or authority over children have a responsibility to reduce the risk of child abuse. Broadly, if a person knew of a substantial risk of child abuse by someone associated with the organisation; and had the power or responsibility to reduce or remove the risk, but negligently failed to do so, that person may be charged with a criminal ‘failure to protect’ offence.
Competition and Consumer Laws:
There are various protections for consumers under Australian consumer laws including prohibitions on price fixing, cartel conduct or engaging in false or misleading conduct.
A director may be liable where they were in some way involved in the contravention (for example, if they aided or abetted, induced or were knowingly involved in the contravention).
Click here for Part 1 – Introduction and Duties and liabilities of directors
Click here for Part 3 – How can directors protect themselves?