A Tale of Marriage for Money

November 27, 2014 Mark Westcott

J. Howard Marshall was an American multi-millionaire who graduated top of his class at Yale Law School and went on to own one of the most successful oil companies in the United States. However, it is perhaps his third marriage and death soon thereafter that made him most famous. At the age of 89, he married 26-year-old model Anna Nicole Smith. When he died 14 months later, a bitter dispute erupted over his estate, worth almost $500 million, between Smith and his son from a previous marriage. Until her own death of a drug overdose, Smith was often accused of marrying Marshall for his money.
Perhaps Smith did marry Marshall for his money, targeting an old man whose previous wife had died years earlier. Did Marshall know what he was doing when he married Smith? Did he really promise to leave her half of his considerable wealth? Ultimately, the lawsuit ended up in the United States Supreme Court.
You may be surprised to hear that this scenario happens here with regularity, even among people who don't have vast reserves of wealth. Often we see an senior gentleman marrying a much younger woman who immediately sets out to enjoy, and sometimes outright steal, his money. Usually the children of the gentleman discover the disappearing money too late and a bitter dispute is played out before the courts.

How does this happen?
The main reason this scenario is common is because someone's capacity to consent to be married is arguably more relaxed than the test of capacity for someone to sign a will. This means that a person who may suffer from cognitive dysfunction can still consent to be married. In succession law, the act of marriage revokes any previous will which is the first victory for any unscrupulous new spouse. From here it is relatively easy to gain access to bank accounts, assets and even to have him sign a new will.
At Mitchells Solicitors, we believe this scenario is actually a form of elder abuse. If elder abuse can be defined as "any act within a relationship of trust that results in harm to an older person" then exploiting an older person financially clearly falls within this definition.
It is vitally important to address financial exploitation through marriage while the older person is still alive. The court will only award a statutory will (a court-appointed will made when the older person is deemed unable to make their own will) while the person is still alive. Even then, there must be obvious and significant mental impairment for the court to take this step.
Perhaps the best method of seeking to address the problem is to seek an annulment of the marriage. An annulment may be given under the Family Law Act (Commonwealth) if one person is deemed to be mentally incapable of giving consent to be married, or if the marriage occurred under duress.
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?

November 18, 2014 Mark Westcott

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.

New Changes to Estate Litigation

October 27, 2014 Mark Westcott

On 21 October 2014 the Justice Legislation Amendment (Succession and Surrogacy) Bill 2014 Act (the Act) received assent – it is now official, the landscape for Estate litigation has changed.

What is the impact?

The Act changes the law as to who can challenge an Estate in Victoria (Estate claim). The Act comes into effect from 1 July 2015 and will apply to :

an estate of any person who dies on or after this date; and
any claims made after this date.

Up and until 1 July 2015, any person can continue to bring an Estate claim on the basis that the Estate (either by Will or the intestacy laws) does not adequately provide for them. The range of persons who can claim can be as wide as children, domestic partners, step children, grandchildren, carers, related family members and non-family members (such as friends, neighbours).

Who can claim?

From 1 July 2015, essentially two categories of persons will be able to claim. Only those who are ‘eligible’ and who fit into a defined category will be able to claim, they are:

Group one – related/immediate family members :

a spouse or domestic partner;
a child or stepchild of any age with or without a disability;
a person who for a substantial period during the life of the deceased believed that the deceased was his/her parent and was treated by the deceased as a natural child of any age; and
a former spouse or domestic partner (only if no property settlement reached).

Group two – others :

a grandchild;
a registered caring partner;
a spouse or domestic partner of a child of the deceased (including a step child or person who for a substantial period during the life of the deceased believed that the deceased was his/her parent) if the relevant child of the deceased dies within one year of the deceased’s death; and
a person who, at the deceased’s death is a member of the household in which the deceased was also a member (or had been in the past and would have been likely again in near future have the deceased not died).

If an eligible person forms part of group two :

that person must be wholly or partly dependent on the deceased for proper maintenance and support; and
the Act casts an obligation upon the Court to assess that person’s ability to, by reasonable means, provide for their own proper maintenance and support.

The Act is not as restrictive for adult children/step children as what was contemplated in the Bill. For instance, the requirement that an adult child or step child be wholly or partly dependant on the deceased for their maintenance and support has been removed.

It is likely that there will be a significant number of claims issued leading up to 1 July 2015.

Post 1 July 2015 it is likely there will be a significant increase in the number of persons who become a registered carer, with Births, Deaths and Marriages. Those persons who can be registered as a ‘registered caring partner’ do not need to be a direct family member.

There is also likely to be an increase in executors or administrators delaying applications for a grant of probate or letters of administration for a deceased Estate so as to avoid claims being brought before the commencement of the Act. This may well result in different litigation being issued to force an executor/administrator to apply for a grant of representation, rather than stall.

The positive outcome is that a Willmaker’s fundamental rights to leave their estate as they see fit is strengthened and deceased estates will be less susceptible to opportunistic claims.

To read the full article, please click here.

If you have any queries please either contact Sam Frey, Jennifer Maher or Sharon Favero.

2014 © Kliger Partners Lawyers
280 Queen Street, Melbourne Victoria 3000 Australia
T +61 3 8600 8888 www.kligers.com.au

Steve's Story

October 15, 2014 Mark Westcott

Jeff Hawks, a Real Estate Agent from the USA, tells an unfortunate story reiterating the importance of forward planning regarding your legacy and estate. Saving your spouse and family additional grief at the time they least need it.

Conditional Gifts in Wills - How Far Can You Go?

September 30, 2014 Mark Westcott

Often clients may wish to "rule from the grave" by attaching special conditions to a gift in their Will – but how far can they go in terms of the conditions still being valid?

This issue was recently tested in Hickin v Carroll & Ors (No 2) [2014] NSWSC 1059, in which a father made gifts under his Will to his four children - conditional upon them attending his funeral and becoming Roman Catholic within three months of his death.

The children were the children of the father’s marriage to his former wife. Around the time of separation, the former wife was baptised as a Jehovah's Witness, and in the following years so were each of the four children, who each remained active members.

The executors of his Will applied to the Court seeking a Declaration that the conditions attached to the gifts were void and of no effect so that the gifts were absolute gifts.

However, the Court decided that the requirement to become a Roman Catholic was a condition precedent which was not void for uncertainty, impossible nor contrary to public policy. Since none of the children became a Roman Catholic within three months of their father's death, their shares in his estate were instead divided among the other residuary beneficiaries named in the Will. In reaching this decision, the Court observed (amongst other things) that:

•       A person has the right to dispose of their worldly goods to whomever and however they please, including upon conditions. This of course is subject to their Will being challenged under the family provision legislation (such as Chapter 3 of the Succession Act 2006 (NSW)), especially in relation to any eligible persons that one might consider the deceased has a moral duty to provide for, such as the deceased's own children

•        A condition does not fail for uncertainty of expression simply because it lacks clarity of expression. The fact that the wording is so unclear as to require a reference to the court does not render the condition void for uncertainty. Also, a condition is not void for uncertainty merely because there is some difficulty in ascertaining its application to the facts - the Court's task is to try to give effect to it, and it is only when that can't be done that the condition is uncertain.

•        Whether a condition has to be satisfied before receiving a gift (a "condition precedent") or after receiving a gift (a "condition subsequent") is critical. So in this case, because the conditions had to be satisfied before receiving the gift, they were conditions precedent and, because they were not uncertain, the Court held that the gifts had never vested in the children. As a result, by not becoming Roman Catholic they had not become entitled to receive their gifts and so their portions could go to the other residuary beneficiaries. But if the conditions had been ‘conditions subsequent’, then legally the gifts would have already been made to the children, so that if the conditions were uncertain, and therefore void, their portions would nevertheless have remained vested in them.

•        A condition is not impossible just because its performance is highly improbable, or because it is not totally in the power of the person receiving the bequest, or even out of any human power, to ensure its performance.

•        Assuming that it is not uncertain or impossible, the law will uphold a testamentary gift which is conditional upon the person receiving the gift adhering to, embracing or renouncing certain religious beliefs, unless that condition infringes some other aspect of public policy which the courts consider should take precedence over the freedom of the testator to prepare their Will as they wish. In this regard, outside the area of employment, there is no general protection under Commonwealth law from being discriminated against on the basis of religion or belief.

So this case provides useful guidelines as to how far a person can go in terms of imposing conditions upon gifts in their Will.

http://www.townsendslaw.com.au/

Who follows up to ensure things get done?

September 25, 2014 Mark Westcott

This week I was in North Queensland discussing business succession planning with clients. Interestingly when I spoke to their solicitor he advised that he had prepared a partnership agreement for them some 8-9 years ago and on reflection he advised that it had still not been signed. Obviously with my questioning he was quick to suggest that he would immediately contact the clients again to update their instructions. But as in all these cases it is too little, too late.

What it does is reflects on the fact that solicitors are not paid nor do they have a habit of following up when instructions are not completed, signed and followed through. Naturally when I turn up on the scene rattling the can, everyone gets very nervous and goes into overdrive to protect their own reputation.

But the main point here is it was 8-9 years ago that the draft was sent to the legal firm by the clients and the clients have never taken action and no one has ever tried to follow up the clients to ensure this document was completed.

As well, a separate issue with these clients was that insurance policies had been set up to fund the buy-sell agreement. In fact that agreement had never been completed. To top it off the life insurance policy ownership was set up to be owned by the company so in fact if one of the partners had died all that would have achieved is to have injected a whole lot more money (let’s say $1 million) into the business. That would lead to the remaining partner having to find another $500,000 to buy the now inflated share of the deceased.

As you can see these things lead to absolute disasters, and that’s why it’s so important to make sure that the documentation, the ownership and the funding is all reviewed by an independent person who doesn’t have a vested interest in any of the individual issues.

iPhone used to make a Will – what next?!

September 24, 2014 Mark Westcott

A court case last year ruled that a Will made on an iPhone was valid. The deceased died on 2 September, 2011. He took his own life. Here’s some of the detail:

Section 18 of the Succession Act provides that if the Court is satisfied that a person intended a document to form the person’s Will, then it will be such if it purports to state the testamentary intentions of the deceased person. To this point in time there was no authority as to whether or not such a purported Will (or any other Will recorded on an electronic device) could be accepted as such. His Honour considered:

First, was the writing contained in the iPhone a “document”? The definition of “document” in the Acts Interpretation Act includes “any disc, tape or other article, or any material from which writings are capable of being produced or reproduced, with or without the aid of another article or device”. His Honour was satisfied that the electronic data stored on the iPhone was a “document” within the meaning of that definition.
Second, did the document purport to state the testamentary intentions of the deceased i.e. what is to be done with the deceased’s assets and property on his death? In the matter before the Court the contents of the electronic Will purported to identify the disposal of all of the assets of the deceased and purported to appoint an executor which was a sufficient indication.
Third, did the deceased intend that the document form his Will? That is, did the deceased intend that document be legally operative so as to dispose of his property upon his death? His Honour held that it was so intended in the case before him, particularly as the document started by reciting, “This is the last Will and Testament …”. Further the instructions in the document were identified as becoming operative on the deceased’s death.

In the result the Court accepted the “document” as the deceased’s Will.

A taste of things to come?? The contents of a client’s smartphone must be regarded as a digital asset – have you ensured their estate plan will pass on the access codes to this asset?

Queensland Law Reporter 2013 - Re Yu [2013] QSC 322