Therese Reined It In

WOULD $5.2M make you update your legacy documents?

THERESE Rein, wife of federal Labor leader Kevin Rudd, bought shares with a market value of $5.2million from the estate of her dead business partner for a tenth of their worth.

When the executors of the estate tried to stop the sale, Ms Rein took them to the Queensland Supreme Court until they relented, a month ago.

Ms Rein filed a lawsuit last July in which she argued that Frances Jane Edwards, a former nun and physiotherapist who helped establish Ms Rein's successful company Work Directions Australia, now known as Ingeus, had agreed to sell her 5200 shares in the company if she died.

Ms Rein and Edwards - the founding shareholders in the company - signed an agreement on or about May 22, 1998, declaring that their shares would be sold to the other, for a pre-determined price of $100 a share, if either of them died.

Under the agreement, if Ms Rein had predeceased her partner, her beneficiaries would have received the same amount.

Ingeus had revenues of $175million last year and employs 1300 people in 66 offices worldwide. The company is the third-largest provider of services to the federal Government's Job Network Agency.

Edwards had been ill for more than 10 years when she died, of cancer and renal failure, on January 21 last year. She was 74, and had never married. Edwards's will - which she actioned two days before her death but was too ill to sign - left the bulk of her estate to her sister, Martha Sirovs.

Within weeks of the Supreme Court granting probate to three executors, Ms Rein gave notice, on June 21, of her intention to buy the Ingeus shares in accordance with the agreement and sent a cheque for $520,000 and a share transfer form the following day.

When the executors blocked the sale, Ms Rein asked the court to enforce the terms of the original agreement and award her costs. Ms Rein - who resigned as chair of Ingeus last year but remains on the board and is understood to now have 13,000 shares in the company - withdrew the lawsuit on January 23.

She last night told The Australian the dispute was resolved out of court when the executors agreed to sell the shares for $520,000. "That agreement was upheld to the letter and honoured and the matter was resolved."

The Australian understands Ms Rein owns 13,000 shares in Ingeus worth $13 million, according to a KPMG valuation from June 2004 filed with the court.

The executors, in a defence filed in the court, had disputed the terms of the agreement, and argued Ms Rein had altered the company so much since 1998 the agreement had become void.

Since Edwards signed the agreement, the company has been renamed, three other directors - including former Queensland premier Wayne Goss - had been appointed to the Ingeus board, shares had been sold to nine other parties and the company was no longer a proprietary company. Furthermore, a new constitution filed in 2002 also departed from the terms of the 1998 agreement.

The executors also noted that Edwards's role in the company had changed and the company's profitability had increased, as had the value of the company and its shares, which, at June 30, 2004, were worth approximately $1000 - 10 times as much as listed in the agreement.

Ms Sirovs said yesterday "there is really no problem with the whole situation" but otherwise would not comment on Ms Rein's pursuit of the shares.

The executors' solicitor, Harrold Littler, confirmed the matter had been resolved out of court.

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THE AUSTRALIAN FEBRUARY 21, 2007 | Sean Parnell, Brisbane

Today, Where There's A Will, There's A Way to Fight Over It

Australia faces a growing battlefield over the distribution of ­deceased estates as more complex family arrangements trigger post-death conflicts, and a “sense of entitlement” by family members results in expensive fights over small amounts. 

Special counsel at Paxton-Hall Lawyers Sharon Winn said that, in Queensland alone, 80 to 90 small estate family provision claims were lodged in the ­Supreme Court every month.
Small estates were those valued at about $500,000 and based around a primary asset such as a house.

Ms Winn said disputes were commonly between a second spouse and children from a first marriage, but the large number also reflected changing social attitudes and greater knowledge of court challenge ­options through legal firms ­advertising no-win, no fee.

“We’re seeing a distinct change in the estate dynamic,” she said. “People nowadays are more materialistic and have more assets worth more money, so families want their share.

“There (also) seems to be a ­societal shift to towards a greater sense of entitlement.”

The comments followed the release of a national report this week calling for community and legal re-education to redress the growing cost of conflict and family fracturing off the back of will disputes.

The research, conducted jointly by the University of Queensland, QUT and Victoria University, found 74 per cent of family challenges to wills were successful, but the disputes were known to drain the entire proceeds of an estate.

Further clues to the issue emerged yesterday with the ­release of survey findings by law firm Slater and Gordon suggesting most Australians did not support funds being left to non-family members. This reinforced the findings of the university ­report, which found a strong sense of entitlement to “family money” in ­Australia.

Earlier Slater and Gordon ­research showed more than a third of Australians had experienced conflict over distribution of assets from an inheritance.

The new research, based on a survey of 2000 people, found 63 per cent of people did not ­believe that a non-relative was entitled to a significant inheritance even if they visited someone regularly, helped with daily tasks and celebrated holidays together.

Slater and Gordon senior ­estate planning lawyer Rod Cunich said people needed to be mindful when they were drafting wills of the potential to create family disputes after their death.

“Clearly, these new figures show that the majority of people feel that assets should stay in the family,” he said. “I see quite often many people who don’t have family, or aren’t close to their family members, so they choose to leave their assets to people who they have forged a strong relationship with — and that’s well within their rights.

“But we must remember that in Australia children have the right to contest a Will, so a willmaker should be very clear and concise about how their assets are to be distributed, why, and the likely consequences.”

Ms Winn suggested parties should avoid emotional distress and save money by exploring other settlement avenues such as mediation.

“What people don’t understand is (that) the legal fees surrounding these seemingly small cases can be upwards of tens of thousands of dollars, and that’s before it’s even been to court,” she said. “These cases are labour-intensive, and the same administrative procedures and standard responses need to be followed, no matter how small the estate.”

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THE AUSTRALIAN, APRIL 10, 2015, Shane Rodgers, Queensland editor

When is $3million Not Enough?

Q: When is $3 million not enough?
A: When you are the secret daughter of a mining magnate.
 
Michael Maynard was a Western Australian mining billionaire who died in 2012, survived by his fourth wife and three adult children.
 
Olivia Mead, dubbed by the media as Maynard’s secret daughter, was born in 1995 to a woman with whom Maynard had a relationship but hadn’t married. As she grew up, Olivia Mead did not have a close relationship with her father, seeing him only sporadically. Maynard did not provide Olivia or her mother with any material support other than the legislated child support requirements. Olivia Mead challenged Maynard’s will, alleging that she was not left adequate provision in the will.
 
Maynard had set up a trust for Olivia, in which she was left $3 million. To put this inheritance into perspective, the three children from his marriage were each left about $400 million.

 
Did Olivia Mead have the right to challenge the will?
The children of a will maker have the right to challenge a will if they haven’t been ‘adequately provided’ for in a will. In this case, the judge remarked: “what is adequate depends on the circumstances of the case - the size of the estate, the nature of the relationship between the claimant and the deceased, the claimant's present circumstances and other legitimate claims.”
 
As the daughter of Maynard, Olivia Mead did indeed have the right to challenge the will.

 
The trust for Olivia Mead
Maynard established a trust specifically for Olivia, in which he specified that she would receive a property worth about $700,000 and cash and property worth up to $3 million. The trust would give the inheritance to Olivia on the date she turned 30 and included some idiosyncratic terms and conditions. The trustee of the trust was a solicitor whom Olivia Mead had never met, but who had total discretion and control of the trust.

 
The Judgement
The judge was heavily critical of the terms of the trust, which would have denied Olivia Mead anything had she been convicted of drink driving or if she changed her religion. Until the age of 30, Mead had absolutely no say in the operation and discretion of the trust. The judge points out that: “But this [trust] structure does not guarantee the plaintiff $3 million. There is a real prospect she might get nothing.”

The judge was also critical of the choice of trustee, a man whom the plaintiff had never met yet exercised almost total financial control over her.  

The judge relied on actuarial evidence to determine what Olivia Mead would need in provision for her lifetime. He did reject Olivia’s assertions that she needed provision for a $250,000 guitar, saying : “No one needs a guitar of that value - particularly a 19-year-old girl who is not now and never will be a professional musician and who has not had guitar lessons for some years.” However, the judge did go on to say that he felt Olivia was not a greedy or narcissistic individual, but rather a 19-year-old girl who had let her imagination run wild.
 
Ultimately, the judge awarded Olivia Mead the sum of $25 million, which was due to be paid within 60 days. The figure was based on the actuarial evidence, but the judge admitted that it was largely a discretionary sum, saying:

“The one factor which has influenced me most is the size of the estate. This award will set up the plaintiff and her children and perhaps their children for their lives. Wisely invested the fund will provide enough income so the plaintiff and her relatives will never want for anything again. All that against a background of the award making no difference whatever to the position of the other beneficiaries.”

 
What can we learn from this?
 
Will makers are obliged by the law to make adequate provision for family members, including spouses, children, grand-children, step-children and in some cases others who might be ‘dependent’ upon them.   
 
And the larger the estate the greater the chances of an applicant being entitled to more. Sometimes the wisdom is not what's in the will, but in how the wealth is owned.

Bryan Mitchell is an Accredited Specialist in succession law (wills and estates including estate planning).

Why is Making a Will Expensive?

It’s too expensive!
 
These are often the famous last words of regular people when advised to seek the services of a lawyer to draft a will. Yet a recent case handed down by the Supreme Court of Queensland highlights exactly why a specialist succession lawyer is a vital part of any estate plan.
 
Fernando Masci and Elizabeth Masci were married later in life, after previous marriages and each had children of their own. They did not have any children together. Mr Masci died in 2012. Mr and Mrs Masci decided to draft a will together in 2006, on a pre-printed form. In the document, they appointed Mr Masci’s son and Mrs Masci’s daughter as co-executors of the will. The will was short and not very clear, but appeared to give each other the right to reside in the family home until both had died, whereupon the proceeds of the home and other assets would be equally split between the couple’s children.
 
Problem 1.
 
Mr Masci’s son, Graham and Mrs Masci’s daughter, Susan, named co-executors of the will, could not agree on how to administer the will. Graham asked for Susan to be removed as executor from the will as part of his application, while Susan asked that they both be removed as executors and a solicitor be appointed as administrator instead.
 
Problem 2.
 
Because the will was homemade and it’s intentions not clear, the court was required to make sense of it in order to grant probate. Justice Dalton remarked that: “the drafting of the will in this case is so poor that I wondered whether or not I could sensibly give any effect to it.”
 
Problem 3.
 
Was the will executed together by the Masci’s considered a mutual will? A mutual will is when a couple make a certain will on the understanding and expectation that the last person to die will not change their will. In most instances, the agreement is that the assets will pass to the surviving spouse first, then to the beneficiaries. Mutual wills become most tricky when, as in this case, there are children from previous relationships. If the court finds that it was a mutual will, the beneficiaries are afforded some legal protections in the event that the surviving spouse does not honour the mutual will.
 
The Court’s Findings
 
Problem 1.
 
Justice Dalton agreed that it was impossible for Graham and Susan to continue as co-executors and considered whether to remove both as executors and appoint a solicitor to take over the task. However Justice Dalton remarks: “a paid administrator would be a significant imposition on what will remain of the funds of the estate…..I am conscious that even if an unpaid executor is left in charge….they will need to consult lawyers because of the complexity of the problems still to be dealt with, and that legal costs will therefore necessarily be incurred in any event.” Justice Dalton eventually appointed Graham as sole executor. However, the message here is clear: the inability of the executors to agree has and will continue to cost the estate dearly.
 
Problem 2.
 
Justice Dalton was required to interpret the will, given it was unclear, in order to grant probate. He agreed to grant probate, after considering the intentions of the will-makers. However there was a great deal of argument over the wording contained in the will. The executors could not agree on what the term “stay in the house” or “handle all monies” meant or how it should be handled. It’s imperative to understand at this point that it is prohibitively expensive to have the court determine what these terms mean, rather than having a specialist succession lawyer draw up wills which clearly deal with these matters.
 
Problem 3.
 
Justice Dalton had to answer the question as to whether the will could be construed as a mutual will. The question of whether it is or isn’t revolves around whether the will-makers agreed not to revoke their wills without giving the other notice. There does not have to be an express declaration of this, but is implied in the making of a joint will. Justice Dalton found this to be the case and this decision gives some protection to Mr Masci’s beneficiaries. Mrs Masci is conscience-bound by the mutual will to ensure that Mr Masci’s beneficiaries receive an inheritance as he intended.
 
What can we learn from this case?
 
· Homemade wills invariably do not save money. Whilst in the short term, it is tempting not to spend money on receiving expert advice, in the long term, estate litigation is much more expensive. In this case, to such an extent that even the judge urged the parties to reach agreement or “none of them will have any of the benefit which their parents intended for them.”
 
· Homemade wills are often unclear or lead to confusion. No matter the purity of the will-maker’s intentions, it may be difficult to interpret what they mean after they've passed away. This is especially true when no legal advice has been sought by the will-maker, and they haven’t known what they should cover in the document. In this case, while Mr & Mrs Masci probably thought the term “all monies” was clear, the co-executors couldn't agree on its meaning to the extent that they required the court to decide the meaning. This is a very expensive exercise.
 
· Blended families bring a level of complexity to estate planning. If ever there was a situation that requires careful thought and planning, it’s a blended family situation. A specialist succession lawyer can provide the protection of beneficiaries and flexibility required to cover many of the possibilities that could arise.

This situation is very complex and requires specialist advice from a lawyer experienced in Succession Law. 

Bryan Mitchell, Accredited Specialist in Succession Law (wills and estates including estate planning). Mitchells Solicitors, Brisbane.

Who Needs a Trust?

Who needs a trust and why?
What does a trust have to do with a will? 
What is a discretionary testamentary trust?
 
A discretionary testamentary trust is a type of trust that is created under a will and comes into existence upon the death of the will maker. There are advantages to establishing a trust like this, which include tax minimisation, protection of assets and flexibility.
 
A discretionary testamentary trust must have a trustee: a person/s or company who will be charge of the trust.
 
The trust will own assets under the will, and assets can include cash, real estate, shares, cars, boats, artworks or any other assets.
 
The trust will have beneficiaries – those people who may benefit under the trust; usually family members and can be other persons or entities.
 
The trustee has discretion to distribute income or capital from time to time in varying proportions, amounts and categories to the beneficiaries of the trust. The trustee has the discretion to make distributions so any appointed trustees should be reliable and trustworthy.
 
Advantages of a Discretionary Testamentary Trust
Often one of the biggest assets owned by someone is their life insurance policy. When owned by the trust (by being paid out into the estate of the person whose life was insured), the income from the proceeds of such life insurance policy can be split among children and others rather than one person paying all the tax on it (at much higher rates). This is because the recipient of the income pays the tax, rather than the trust. From a tax point of view, sharing the taxation burden makes sense. Tax is still paid; just paid at much lower rates.
A discretionary testamentary trust can protect assets is from bankruptcy. Because the owner of the assets is the trust, they cannot be liquidated if one of the beneficiaries goes through a bankruptcy.
There could also be protection if a beneficiary enters a relationship that ultimately fails. If there is a property settlement, it is less likely that the assets of the trust will form part of the marital pool of assets that will be divided.
There are also advantages in the area of capital gains tax. The sale of an ordinary asset will trigger a capital gains tax event. But if the asset is held in a trust, it can quite often be moved to a beneficiary without triggering a capital gains tax event.

Overall discretionary testamentary trusts offer more flexibility, especially when catering for a myriad of ‘what-if’ events.
 
Case Study
 
John and Judy establish a discretionary testamentary trust which comes into effect upon their deaths. They have a son, Peter, who will be the trustee of the trust. Beneficiaries of the trust include Peter, his wife Sarah, their children and grandchildren.
The assets in the trust include both life insurance proceeds, the family home, an investment property and some cash. When Peter assumes control of the trust after the death of his parents, he is able to split income from the life insurance proceeds to his children and grandchildren at low tax rates.
Later, he will also be able to transfer the family home and investment home to his children (if he chooses to do that) without paying capital gains tax on the asset transfers.
Should he, his children or grandchildren face bankruptcy proceedings, the assets held by the trust should not be liquidated, offering protection for future generations.
Should Peter and Sarah divorce, there is a better chance that the assets in the trust will be protected from the property settlement.
 
The benefits of a discretionary testamentary trust will only come into effect upon your death, but it is worth considering to protect assets for future generations. You should seek specialist advice when considering establishing a trust.
        
Bryan Mitchell is an Accredited Specialist in succession law (wills and estates including estate planning). Mitchells Solicitors has a second, brand new location. You can visit us by appointment only at: Riverside Centre Level 18, 123 Eagle Street, Brisbane.

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