When it comes to protecting a family’s wealth in the event of separation, financial agreements under the Family Law Act 1975 (Cth) are an increasingly common and effective tool. A financial agreement is an agreement entered into between spouses (married or de facto) which address how the property and financial resources of the relationship are dealt with at separation. If drafted correctly and carefully it enables parties to mutually contract out of the right to bring a claim against each other in the Federal Circuit and Family Court of Australia (the Court). Financial agreements can be made before or during a relationship or after separation.
A party to a relationship can have a claim for property settlement once married or in the case of a de facto relationship once the parties have been living together for two or more years. There are sometimes exceptions to this rule such as the birth of a child or significant intermingling of finances.
A property settlement order from the Court can take into account inheritances received by one party, and can divide the assets inherited.
If there is no financial agreement in existence, inheritances and gifts received by a spouse directly in a relationship are considered to be property of the relationship to be divided as determined by the Court upon separation. Whilst it is certainly not the case that any inheritance is always divided on an equal basis, a Judge has a wide discretion to apportion inheritances having regard to the particular facts and circumstances of the relationship. In the absence of a financial agreement, there is no guarantee that an inheritance will be protected.
A typical financial agreement is designed to regulate and determine the impact of separation on the entirety of the parties’ financial relationship (i.e. it deals with all assets and liabilities). A common approach is to divide the assets and interests into each parties excluded assets (kept separate in the event of relationship breakdown), and “joint assets” being those assets which are agreed to be divided in the event of relationship breakdown. There can also be agreed on additional payments from one party to the other, depending on the circumstances.
Alternatively, there is nothing that prevents parties having an agreement that is more limited in scope, such as just excluding claims in relation to inherited assets only. This is known as an Inheritance Protection Agreement (IPA).
The significance and value of an IPA is that it specifically deals with possible or expected inheritances, gifts or particular assets and excludes them for the sole benefit of one of the parties. There is no requirement in the legalisation that the IPA contemplates a just and equitable division of all assets. As long as the IPA is compliant and has been carefully drafted in accordance with the requirements set out under Part VIIIA of the Family Law Act 1975 (Cth) it will be enforceable.
The Federal Circuit Court of Australia (FCCA) case of Wood v Grover [2015] illustrates the enforceability of a financial agreement which quarantines future inheritances. The Husband sought to set aside a financial agreement entered into prior to marriage. The financial agreement specifically sought to protect any inheritances that were likely to be received by either of the parties. At the time of signing the agreement, the Husband had approximately $13,500 worth of assets. The Wife had approximately $656,000 and was likely to receive significant inheritances.
The Husband argued that the financial agreement should be set aside as he had not received the requisite advice regarding the terms of the agreement. The Husband also relied upon the grounds of unconscionable conduct, duress and undue influence. Ultimately, Judge Neville found that the financial agreement was valid and took no issue with the exclusion of significant future inheritances.
A financial agreement is a contract, and the Family Law Act 1975 (Cth) requires disclosure as well as prescribing other formalities for the Agreement to be enforceable.
As the parents passing on the inheritance, a preliminary question is the level of disclosure that you are comfortable providing in order to make the agreement binding.
At Moores, we prepare financial agreements as well as IPA’s for all types of relationships. As illustrated in Wood v Grover [2015] FCCA, it is imperative the financial agreement is drafted in accordance with the requirements set out in the legislation. Each agreement needs to be carefully tailored to the circumstances of the relationship and immediate families’ requirements.
We are well versed in the approach and negotiation of financial agreements and would welcome a discussion with you or your clients at any time about the benefits of entering into a BFA.
Please contact us for more detailed and tailored help.
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Disclaimer: This article provides general information only and is not intended to constitute legal advice. You should seek legal advice regarding the application of the law to you or your organisation.
A woman in Shanghai, China recently made headlines when she cut her children out of her Will and instead elected for the major beneficiaries of her fortune to be her cats and dogs. Her reasoning? Her children no longer visited her while her pets were always there for her.
This is not a novel situation.
Had she lived in Victoria, she would have been advised that she couldn’t leave her wealth to her pets, but there may be other steps she could take to ensure they were appropriately cared for following her death.
On a practical level, a gift left in a will to a pet directly would fail.
Unfortunately for many pet lovers out there, the position of the law is that a pet is a ‘chattel’ or ‘personal property.’ This means that practically, a pet cannot own property or be a beneficiary of a Will – even though they are very much part of the family!
If the Will does not provide for other beneficiaries in the event a gift cannot take effect, the most likely outcome is that the default statutory intestacy laws would apply instead. These laws operate to distribute your estate to your next of kin, and apply where you do not leave a Will, or your will is unable to effectively deal with your estate.
This may be very different to how you envisaged your estate being distributed. In addition to your wealth potentially passing to the very people you meant to exclude, it may also mean that your pet doesn’t end up being looked after by the right person or in the way you expected after your death.
To avoid this, some alternative options to ensure your pet/s are taken care of after your death include:
Succession law in Victoria is largely guided by the principle of ‘freedom of testation’. This means that subject to certain limitations like not being able to leave assets directly to pets, a person largely has the freedom to make a Will that leaves their property as they please.
This freedom is however qualified by the risk of challenge to a Will or estate by disappointed family members.
Under Victorian law, certain “eligible persons” (as defined by the Administration and Probate Act 1958) can make a claim seeking provision or additional provision from your estate, if they can establish that you had a moral obligation to provide for him and did not discharge that obligation by your will. This is known as a family provision claim.
Importantly, a moral obligation is usually assumed in the case of spouses, partners and children. There is no equivalent moral obligation to provide for one’s pets (although many people naturally wish to do so).
A willmaker who prioritises their pets over immediate family members in their Will therefore runs the risk that their estate may up end up defending a claim from one or more disappointed family members.
However, this does not mean that your Will should not consider the future care and well-being of feathered, furry or scaly family members after your death, if this is important to you. In this situation, it is important to consider your objectives carefully and obtain specific legal advice when making your Will.
This will enable you to plan appropriately, to ensure that:
The Wills, Estate Planning and Structuring team at Moores is one of the largest in Australia and we can help you prepare your Will to ensure that everyone in your family is cared for, including your beloved pets.
In recent decades, family trusts have become a popular vehicle for Australians to protect and grow their wealth, owing to the flexibility, asset protection and tax efficiency advantages they provide. However, the succession and control of trusts on the death of the original family members who established them is often poorly understood and inadequately planned for, despite the sometimes significant assets at stake.
Trusts hold assets externally from an individual. Those assets do not pass in accordance with the will of the person who established or controls the trust.
The governing document of a trust is a trust deed. The trustee of a trust is bound to act in accordance with the trust deed. Key considerations when considering succession of family trusts as part of an overall succession plan include:
As circumstances change, a trust deed needs to be flexible enough to permit it being changed to meet those circumstances, but often they are not.
Often a trust deed will provide a mechanism for a trustee to vary its terms but the extent to which these variation powers are permissive or restrictive varies from trust to trust and sometime does not exist at all. But can a trust deed be varied if the trust deed is silent on a power of variation? In some circumstances the beneficiaries may be able to consent to changes. In others, the Court’s assistance may be required.
The Court has the power to vary the terms of trusts1, and this was highlighted in two judgments: W E Pickering Nominees Pty Ltd & Ors v Pickering & Ors [2016] and Re The Pickering Family Trusts [2024] stemming from the same subject matter.
Two brothers, Ted and George, operated a large and successful business through a unit trust. The units of that trust were held respectively by two discretionary family trusts; ‘Ted’s Trust’ and ‘George’s Trust.’
Ted’s Trust named Ted, Ted’s wife, their children, and their grandchildren as beneficiaries. George’s trust followed suit for his own family. Ted died in 2012. George died in 2020.
For business and tax planning reasons, the trustee and existing beneficiaries of each trust sought to expand the beneficiary class beyond those named in the trust deeds.
The trustees and adult beneficiaries were able to agree on amendments to the trust deeds; however, neither trust deed gave the trustee the power to vary the deed or expand the classes of beneficiaries. The trustee and beneficiaries required the assistance of the Court to give effect to their proposed amendments to the trust.
In the 2016 case, the trustee and adult beneficiaries requested three variations to the trust deed:
The Applicants argued that the Court had power under sections 63 and/or 63A of the Trustees Act 1958 (Vic) to give effect to the variations sought. The Court declined to do so, saying that ‘conferring on the trustee a power to vary the terms of the trust is neither expedient nor in the management or administration of trust property’2. Additionally, the Court was not persuaded that it was authorised to use section 63A to ‘grant a general power to amend or a power to appoint an appointor.’3
The matter returned to Court and the expansion of the class of beneficiaries was re-addressed.
A new arrangement was proposed which would name the beneficiaries and potential beneficiaries of one family trust as beneficiaries and potential beneficiaries of the other. It was reasoned that a reduction in potential entitlement in one trust should be expected to be accounted for by an increase of potential entitlement in the other trust.4
By applying to Court together, each trustee gave undertakings as to how the trusts would be administered, and those representations gave rise to further possible financial benefits for beneficiaries for whom the Court’s consent was required.5
The Court accepted that the new arrangement was beneficial to the beneficiaries for whom its consent was to be extended and that it was a proper and fair one.
Too often trusts and other entities are established to own substantial family wealth without proper consideration of whether the trust deed and other key documents are fit for purpose, flexible enough to change as circumstances change, and work within the broader succession plan.
Once established, it is critical that ongoing specialist advice is sought to ensure that the trust’s “settings” can do the job that is desired of it.
Moores has one of the largest specialist estate and trust law teams in Australia. Our team is a market leader in designing and implementing complex succession and wealth planning solutions and resolving disputes concerning trusts and estates.
1 Trustee Act 1958 (Vic), s63A.
2 W E Pickering Nominees Pty Ltd & Ors v Pickering & Ors [2016] VSC 71, paragraph 77-78.
3 Ibid, paragraph 60.
4 Re The Pickering Family Trusts [2024] VSC 5, paragraph 84.
5 Ibid, paragraph 92.
A Mutual Wills Agreement (MWA) is an agreement between two people to make their Wills in particular terms and to not alter those terms in the future.
A MWA does not arise merely by a couple executing Wills together but requires an actual agreement to limit the future alteration of the Wills. This agreement is generally set out in a separate contract or referenced in the Wills themselves. However, in the recent decision of Re Miglic the Supreme Court of Victoria found a verbal agreement made nearly 30 years prior to death constituted a binding and enforceable MWA.
There was no written record of any MWA.
In support of the MWA:
Against the MWA:
The Supreme Court of Victoria found that Kurt and Marilyn had entered into a binding verbal MWA at the time of executing their 1993 Wills. The findings further noted:
The outcome of the finding is that Marilyn’s 2018 Will remains valid, but her estate is subject to a trust that reflects the terms of the 1993 Will. Lisa and Andrea will therefore receive the vast majority of her estate.
This case highlights the complexities in planning for blended families.
It also highlights the importance for a couple to be clear around whether they intend that their Wills could be changed in the future as circumstances or objectives change, or if they intend to be bound to the agreed plan. If the latter is the case, then this needs to be recorded in a written MWA. While a verbal agreement was upheld in this case, it is likely that this is the exception rather than the rule.
For expert advice or guidance regarding Estate Planning and whether a Mutual Wills Agreement may be appropriate, contact our team.
Following our article published in 2023 on the proposed superannuation tax increase, the government has now released detail on the (as yet) unlegislated taxation of earnings on an individual’s total super balance over $3m.
The calculation of ‘earnings’ is complex and requires accounting advice but for simplicity, earnings are effectively the movement in value of the individual’s balance – adjusted for withdrawals and contributions – and (controversially) includes unrealised gains.
Once legislated, the additional 15% tax will come into force from 1 July 2025 and affect the 2025/26 and subsequent financial years. The $3m limit is static – it will not be indexed. Within the superannuation fund, balances on earnings less than $3m will continue to be taxed at the concessional rate of 15%.
The proposed new tax will be levied on the individual/member. It will not be able to be reduced by deductions, offsets or losses. A member can apply to release funds from super to pay the tax.
This is likely to create particular issues for self-managed super funds (SMSF) that have lumpy assets like business real property, or assets that are not readily able to be realised.
Reversionary pensions are usually put in place when the pension income stream commences.
The effect of a valid reversionary nomination is when the member passes away, their reversionary beneficiary (usually a spouse) will continue (automatically) to receive their tax-free income stream, which doesn’t count toward the beneficiary’s transfer balance account for 12 months after the member’s death. In other words, two potentially tax free income streams can apply (where the pensioner or recipient is over 60 years) until the beneficiary withdraws or commutes their own pension back to accumulation.
The hitch with the new legislation is that although the additional tax will not apply to the deceased member in the year of death, it immediately counts towards the receiving beneficiary/spouse’s total super balance account. This could tip the recipient’s total superannuation balance over $3m at the next 30 June, in which case the proposed new law would apply. The reason for the difference is that the 12 month delay applies to the transfer balance cap (the maximum allowable pension) whereas the new tax applies to the individuals total super balance (which is a different definition and is calculated at 30 June each year).
For example:
Homer and Marge Simpson have a self-managed super fund with $3.5m in total assets.
Homer’s total super balance on 28 June 2025 when he passed away was $1.9m (including $1.7m in pension and $200,000 in accumulation). Homer had nominated Marge as reversionary beneficiary when he established his pension account.
Because Homer’s total super balance is under $3m, the additional tax is not applicable – and even if his total was over $3m at 30 June in the year of his death, he would be exempt because of his death.
Prior to Homer’s death, Marge’s total super balance is $1.6m (all in pension phase). But as reversionary beneficiary of Homer’s pension, Marge’s new total super balance at 30 June 2025 is now $3.3m, representing both her and Homer’s pensions, tipping her above the $3m threshold.
The new tax requires a re-think of:
Although the legislation takes effect from 1 July 2025, advice should be sought early to leave enough time to implement any changes prior to that date.
Stay informed about the legislative updates and contact the Estate Planning team for expert advice and guidance in navigating the evolving landscape of superannuation.
If you are unable to make a decision on your medical treatment, a health practitioner may need the consent of your Medical Treatment Decision Maker (MTDM) before they provide treatment.
Appointing a person to make medical decisions for you can be just as important as appointing an attorney to act for financial and personal matters. In Victoria, unlike some other Australian States, a MTDM is appointed under a separate document to that of a financial or personal attorney. The relevant legislation is the Medical Treatment Planning and Decisions Act 2016 (Vic) (Act).
As part of an estate planning matter, we talk to our clients about the importance of having the right people making decisions for them if they were to lose capacity – this includes consenting to or refusing medical treatment. Here are the 5 most commonly asked questions on matters relating to medical decisions.
You can appoint an adult person to make medical decisions for you provided you have decision making capacity at the time of the appointment. You may decide to appoint one of your family members, another close relative or a friend. Your MTDM should be someone who you trust, can communicate effectively, and who is willing to accept the responsibilities of the role. Your MDTM does not need to be the same person you appoint as your financial and personal attorney.
Only one person can act as your MTDM at any time. If you want to appoint more than one person to act, the decision-maker is the first person listed who is available, willing, and able to make the decision at the relevant time.
The appointment of a MTDM must be made in writing in the prescribed form. It must be executed and witnessed in accordance with the requirements of the Act. A person appointed as your MTDM must also accept their appointment.
If you do not appoint a MTDM, or your appointee is not available and willing and able to make a decision for you, then a guardian appointed by the Victorian Civil and Administrative Tribunal (VCAT) with the power to make medical decisions can act for you.
If there is no VCAT appointed guardian, your MTDM will be the first of the following who is in a close and continuing relationship with you:
A MTDM must make the medical treatment decision that they believe is the decision you would make if you had decision-making capacity, subject to any conditions or limitations specified in a MTDM document. This includes consenting to treatment on your behalf, or refusing treatment. Your MTDM must consider:
There are some exceptions to consent. Consent is not required from a health practitioner in the event of an emergency to save your life, prevent serious damage to your health or prevent you from suffering significant pain or distress.
A MTDM also cannot:
If you have capacity and you decide that one or more of the people you have appointed as your decision maker is no longer appropriate, you can revoke the appointment of your MTDM. You can do this by:
VCAT also has the power to revoke an appointment of a MTDM.
If you revoke your MTDM, you should inform your MTDM and any people who know of the appointment, such as your health practitioner or hospital.
In Victoria, you can make an advance care directive. This is a document where you can set out your binding instructions or preferences and values in relation to your medical treatment.
You can give an advance care directive if:
An advance care directive must comply with certain formal requirements. To be binding, the directive must be in writing, contain certain particulars, be signed by the person giving it and witnessed by two adults, one of whom must be a medical practitioner.
Some of the matters which you can address in an advance care directive are:
Any statement about palliative care in an advance care directive is regarded as a values directive. You cannot provide directions on voluntary assisted dying in an advance care directive.
You can amend or revoke an existing advance care directive, or make a new advance care directive should you change your mind or wish to record further directions.
Appointing a MTDM allows you to control who will make medical decisions for you if you are not able to make them yourself. Your estate planning should incorporate a discussion on medical treatment decisions and the preparation of documentation to appoint a decision-maker. We can advise on, and prepare a MTDM as part of attending your estate planning.
Planning for a loved one with a disability is challenging. From 1 July 2023, further stamp duty and land tax exemptions regarding the primary residence of a person with a disability have been introduced by The State Taxation Acts Amendment Act 2023 (Vic).
SDTs can hold assets on behalf of an eligible person with a disability while exempting those assets (up to a cap) from any pension means testing – these have been a useful planning option for some time. You can find further information regarding SDTs in our previous article series.
Previously, there has been a stamp duty exemption available for a transfer of property to a SDT up to the value of $500,000 – with duty payable to the extent the property exceeds that value. New Section 38A of the Duties Act 2000 (Vic) now provides that:
The additional requirements are that:
Additionally, the Capital Gains Tax (CGT) exemption in Section 118.85 of the Income Tax Assessment Act 1997 (Cth) remains applicable and is uncapped as to value.
The transfer of a home directly to an eligible person with a disability may also be exempt from stamp duty up to the value of $1,500,000. This exemption is similar to the SDT exemption outlined above, except that it allows the disabled person to own the home directly, rather than it being held on their behalf via a SDT.
In addition to the requirements outlined above, the transferee must have, prior to the transfer, an assessment from Services Australia or the Department of Veterans’ Affairs that confirms that they would be eligible to be the beneficiary of a SDT.
This exemption is not available if there will be joint owners who are not both eligible persons with a disability.
The potential benefit of this option is it allows people to take advantage of the duty concession without the trouble of creating a SDT, which can have associated administrative burden and cost. However, it means that the property is then under the direct control of the person with a disability – and consequently available for them to sell, transfer or otherwise dispose of as they wish (and form part of their estate upon their death). So, if they are not a person who should reasonably be managing their own assets, then this option would not be appropriate.
The CGT implications of a transfer would need to be considered and the specific exemption available for a transfer to a SDT does not appear to have been updated to be consistent with this duty exemption.
A primary residence is exempt from means testing regardless of whether it is held in a SDT or personally, so direct ownership will not in itself impact pension eligibility – although the value of other assets exempted from means testing will change subject to whether the disabled person is a home owner.
A home owned by an immediate family member that is used as the primary residence of an eligible person with a disability is now exempt from land tax under Section 54(1)(c) of the Land Tax Act 2005 (Vic).
The requirements are that:
This provision should provide relief where a residence is held for the use of a disabled family member. With appropriate estate planning, such residence could potentially be passed to a SDT (or other form of protective trust) via Will on the death of the property owner – a scenario which likewise has applicable stamp duty and CGT exemptions and could therefore be cost effective.
Providing an appropriate residence for a person with a disability is often a key aspect of estate planning. There are now further cost effective options as to the ownership of their primary residence, but care needs to be taken in assessing the appropriate structure.
For expert advice or guidance regarding Estate Planning and Special Disability Trusts, please do not hesitate to contact us.
Disclaimer: This article provides general information only and is not intended to constitute legal advice. You should seek legal advice regarding the application of the law to your organisation.