(O'Sullivan, Bernie) Estate and Business Success (B-Ok - CC)

Estate & Business
Succession Planning
7th edition
A practical and strategic guide for the trusted adviser
Bernie O’Sullivan, CTA

A Tax Institute Publication

Publisher
Published in Australia in 2015 by
The Tax Institute ABN 45008392372
Level 10, 175 Pitt Street, Sydney, NSW 2000
taxinstitute.com.au
© The Tax Institute 2015

O’Sullivan, Bernie
Estate & Business Succession Planning 2015-16
7th ed. Includes index.
ISBN: 978-0-9943560-0-0
Acts other than fair dealing

Apart from any fair dealing for the purposes of private study, research, criticism or review as permitted
under the Copyright Act 1968 (Cth), no part of this publication may be stored or reproduced or copied
in any form or by any means without prior written permission. Enquiries should be made to the
publisher only.
Important disclaimer
This publication is intended as an information source only. The comments and extracts from legislation
and other sources in this publication contain generalisations, may not be up to date and do not
constitute legal advice and should not be relied upon as such. All readers – whether purchasers of the
book or otherwise – should seek advice from a professional adviser regarding the application of any of
the comments in this publication to a particular fact scenario. Information in this book does not take
into account any person’s personal objectives, needs or financial situations. Accordingly, you should
consider the appropriateness of any information, having regard to your own objectives, financial
situation and needs and seek professional advice before acting on it.
Bernie O’Sullivan and The Tax Institute exclude all liability (including liability for negligence) in
relation to your use of this publication. All readers must rely on their own professional advice.
Currency
The author and the publisher intend that this book is – as far as possible and subject to the above
disclaimer – current as at 30 June 2015.
Circulation
You must not circulate this book in any other cover or binding than its original and you must impose
this condition on any purchaser or acquirer of this book.
iii
Foreword
Bernie O’Sullivan is to be commended on creating this invaluable resource for practitioners of the law,
accounting and financial planning. Now in its seventh edition, after a very successful launch into the
market, Estate & Business Succession Planning is one of the first widely available texts on the topic and
is undoubtedly a fine addition to the library of the busy planning professional.
Available in both hard copy and online, this publication has proven to be a very useful tool for both the
experienced and less experienced adviser in the area of estate and business succession planning.
I would invite the less experienced adviser to peruse the contents pages, which demonstrate the broad
scope of the issues that need to be considered in rendering quality advice to clients. The experienced
practitioner will find it a very worthwhile and up-to-date aide-mémoir.
This text is practical, clearly expressed and based on a sound appreciation of the law in all Australian
jurisdictions. Further, readers are encouraged to enquire more widely through relevant footnote
references to the cases and professional articles.
Lastly, trusts, superannuation funds and family law are comprehensively considered. This is a
significant and valuable point of difference from many other texts on this topic, as these structures
play an increasingly important role in modern family wealth accumulation.
Ken Schurgott, BAppSc, LLB, BA(Acy), MAppFin, MLS, LLM, CTA

Director, Schurgott Noolan Pty Ltd (an incorporated legal practice)
iv
How this book is structured

The text is structured to follow a typical chronology of the estate and business succession planning
processes. It explains the purpose of the documents that underpin the succession planning process,
the traps to be wary of, and the opportunities for effective structuring.
The legislation dealing with much of succession law is complex and differs between jurisdictions in
Australia. The chapters dealing with these topics, such as powers of attorney, wills and intestacies and
claims against estates, all contain tables that highlight the more important issues dealt with by the laws
in each jurisdiction. These chapters then generally discuss the key concepts noting, where appropriate,
exceptions to the general rules.
This book reflects the consideration of over 40 separate state and federal Acts.
This publication is also available online (located at successionplanningonline.com.au),

and includes:
12 months of unlimited access to the 2015-16 online book, with updates;
interactive eLearning with reference links back to the online book (3.5 CPD hours);
access to the eBook version at no extra cost; and
cross-references.
v
Contents
Foreword iii
Preface xxxii
Chapter 1: Succession planning and the professional adviser 1

¶1-100 Introduction......................................................................................................................2
¶1-105 Talking the talk.................................................................................................................2
¶1-110 More than just a will.........................................................................................................2
¶1-115 A team effort and a business opportunity........................................................................3
¶1-120 The starting point: asset ownership.................................................................................4
¶1-125 How assets are dealt with................................................................................................4
¶1-130 Ten questions to ask your client......................................................................................5
¶1-135 The adviser’s role – threshold issues...............................................................................6

Advice point.....................................................................................................................7
Establishing a family trust................................................................................................7
Ongoing service...............................................................................................................8
Breadth of responsibility..................................................................................................8
Legal advice and other restrictions..................................................................................8
Prohibition on offering legal advice............................................................................8
Prohibition on engaging in legal practice...................................................................9
Prohibition on representing or advertising ..............................................................10
FOFA 10
¶1-140 An ongoing process.......................................................................................................10
¶1-145 New legislation and case law.........................................................................................11
Chapter 2: Attorneys and guardians 13

¶2-100 Introduction....................................................................................................................14
¶2-105 General power of attorney.............................................................................................15

vi
What is a general power of attorney?............................................................................15

Is it permitted in all jurisdictions?..................................................................................15
How is a general power of attorney created?................................................................15
Can multiple attorneys be appointed?...........................................................................15
When does it come into effect?.....................................................................................16
Can the attorney’s decision-making powers be limited?...............................................16
How long does it last?...................................................................................................16
Does it need to be registered?.......................................................................................17
What can go wrong?......................................................................................................17
¶2-110 Enduring power of attorney...........................................................................................19

What is an enduring power of attorney?........................................................................19
How is an enduring power of attorney created?............................................................19
Who can witness an enduring power of attorney?........................................................19
Certificate of witness.....................................................................................................19
Can multiple attorneys be appointed?...........................................................................20
Alternative attorney........................................................................................................20
Does it need to be registered?.......................................................................................21
What are the duties of an attorney?...............................................................................21
Can the attorney’s decision-making powers be tailored?.............................................22
How long does an enduring power of attorney last?.....................................................23
Can an enduring power of attorney be revoked?..........................................................23
Revocation if there is more than one attorney...............................................................24
Can the attorney charge a fee?.....................................................................................24
Can an attorney pay certain benefits?...........................................................................24
Liability and indemnities................................................................................................24
SMSFs and enduring powers of attorney .....................................................................24
What can go wrong? .....................................................................................................26
¶2-112 Elder abuse....................................................................................................................26

Are your clients at risk?..................................................................................................26
¶2-115 Medical enduring power of attorney..............................................................................27

What is a medical enduring power of attorney?............................................................27
How is a medical enduring power of attorney created?................................................27
vii
Who can witness a medical enduring power of attorney?.............................................28

Can the medical attorney’s decision-making powers be limited?.................................28
Can multiple medical attorneys be appointed?.............................................................28
What are the duties of a medical enduring power of attorney?.....................................29
How long does a medical enduring power of attorney last?.........................................29
Can a medical enduring power of attorney be revoked or changed?...........................29
¶2-120 Enduring power of guardianship....................................................................................30

What is enduring power of guardianship?.....................................................................30
How is an enduring power of guardianship created?....................................................30
Can the guardian’s decision-making powers be limited?..............................................30
Investment and special superannuation rules...............................................................31
Can multiple guardians be appointed?..........................................................................32
When does an enduring power of guardianship come into effect?...............................32
How long does it last?...................................................................................................32
Can it be revoked or changed?.....................................................................................32
¶2-121 Guardianship and administration boards and tribunals.................................................32
¶2-125 Australian Capital Territory.............................................................................................35

Powers of Attorney Act 2006 (ACT)...............................................................................35
Guardianship and Management of Property Act 1991 (ACT)........................................37
Medical Treatment (Health Directions) Act 2006 (ACT)..................................................38
Testamentary Guardianship Act 1984 (ACT)..................................................................38
¶2-130 New South Wales...........................................................................................................39

Powers of Attorney Act 2003 (NSW)..............................................................................39
Guardianship Act 1987 (NSW).......................................................................................40
Protected Estates Act 1983 (NSW)................................................................................40
Testator’s Family Maintenance and Guardianship of Infants Act 1916 (NSW)...............40
¶2-135 Northern Territory...........................................................................................................41

Advance Personal Planning Act (NT).............................................................................41
Powers of Attorney Act (NT)..........................................................................................41
Aged and Infirm Persons’ Property Act (NT)..................................................................42
Adult Guardianship Act (NT)..........................................................................................42
Guardianship of Infants Act (NT)....................................................................................43
viii
¶2-140 Queensland....................................................................................................................43
Powers of Attorney Act 1998 (Qld)................................................................................43
Guardianship and Administration Act 2000 (Qld)...........................................................44
Mental Health Act 2000 (Qld).........................................................................................45
Succession Act 1981 (Qld).............................................................................................45
¶2-145 South Australia...............................................................................................................45

Powers of Attorney and Agency Act 1984 (SA).............................................................45
Consent to Medical Treatment and Palliative Care Act 1995 (SA).................................46
Guardianship and Administration Act 1993 (SA)............................................................46
Guardianship of Infants Act 1940 (SA)...........................................................................47
¶2-150 Tasmania........................................................................................................................47
Powers of Attorney Act 2000 (Tas).................................................................................47
Guardianship and Administration Act 1995 (Tas)...........................................................48
Guardianship and Custody of Infants Act 1934 (Tas).....................................................49
¶2-155 Victoria...........................................................................................................................49
Instruments Act 1958 (Vic).............................................................................................49
Medical Treatment Act 1988 (Vic)..................................................................................50
Guardianship and Administration Act 1986 (Vic)...........................................................51
¶2-160 Western Australia...........................................................................................................52

Guardianship and Administration Act 1990 (WA)...........................................................52
Property Law Act 1969 (WA)..........................................................................................52
Chapter 3: Wills and intestacy 53

¶3-100 Introduction....................................................................................................................54
¶3-105 Why have a will?............................................................................................................54
¶3-110 Requirements for a valid will..........................................................................................55
¶3-115 Special rules for wills.....................................................................................................57

Informal wills..................................................................................................................57
Wills for minors..............................................................................................................58
Wills for Defence Force members..................................................................................59
¶3-120 Statutory wills................................................................................................................60

ix
¶3-125 Mutual wills....................................................................................................................61

Making mutual wills.......................................................................................................62
How effective are mutual wills?.....................................................................................62
Alternatives to mutual wills............................................................................................63
¶3-130 Who to see when making a will.....................................................................................63

Lawyers and trustee companies....................................................................................64
Will kits...........................................................................................................................64
Internet wills...................................................................................................................64
¶3-135 The role of the lawyer.....................................................................................................64

Taking instructions.........................................................................................................64
Timing............................................................................................................................65
Discussing the options...................................................................................................65
Powers of executors and trustees.................................................................................66
Charging.........................................................................................................................66
Liability...........................................................................................................................66
¶3-140 Undue influence.............................................................................................................67

Burden of establishing undue influence.........................................................................67
Standard of proof...........................................................................................................67
¶3-145 Capacity to make a will..................................................................................................68

Burden of proof of establishing testamentary capacity.................................................68
Standard of proof when establishing testamentary capacity........................................68
What to do when doubts exist regarding capacity .......................................................69
¶3-155 What happens if someone dies without a will?..............................................................70

Intestacy.........................................................................................................................70
Partial intestacy..............................................................................................................70
How is an intestate estate distributed?.........................................................................71
Deceased has no spouse or children......................................................................72
Deceased is survived by one spouse and no children............................................73
Deceased is survived by one spouse and children.................................................75
Personal chattels...........................................................................................................77
Statutory interest............................................................................................................77
Can a distribution under intestacy laws be challenged?...............................................77
Intestate estates of Indigenous persons........................................................................77
x
¶3-160 Executors and trustees..................................................................................................77

Role of executor.............................................................................................................77
Timeframes for claims against the estate................................................................78
Notice to creditors...................................................................................................78
Administering the estate..........................................................................................79
Proper accounts and records..................................................................................79
Role of trustee................................................................................................................79
Proper accounts and records..................................................................................79
Trustee investments.................................................................................................79
Appointing executors and trustees................................................................................79
How many executors and trustees?........................................................................79
Who to choose as executor and trustee..................................................................80
Theft, incompetence and other catastrophes..........................................................80
Complex estates......................................................................................................82
Ongoing trusts.........................................................................................................82
What skills should executors and trustees have?...................................................82
Trustee companies and lawyers....................................................................................83
Accountants and financial planners...............................................................................84
Paying executors and trustees......................................................................................84
¶3-165 A role for the adviser?....................................................................................................85
Chapter 4: Disposing of assets by will 89

¶4-100 Introduction....................................................................................................................90
¶4-105 Legacies.........................................................................................................................91
Drafting issues...............................................................................................................91
So what can go wrong?.................................................................................................91
Inflation....................................................................................................................91
Death of legatee.......................................................................................................92
Decrease in value of estate......................................................................................92
Increase in value of estate.......................................................................................93
Abatement of legacies...................................................................................................93
Interest on legacies........................................................................................................93
¶4-110 Bequests........................................................................................................................94
Drafting issues...............................................................................................................94
xi
So what can go wrong?.................................................................................................95

Property disposed of during lifetime........................................................................95
Death of beneficiary.................................................................................................96
¶4-115 Devises...........................................................................................................................96
¶4-116 Education trusts.............................................................................................................96
¶4-118 Equalisation clauses......................................................................................................97
¶4-120 Use and enjoyment trusts..............................................................................................98

Drafting issues...............................................................................................................99
Upkeep of property..................................................................................................99
Cost of insurance...................................................................................................100
Claim against estate..............................................................................................100
¶4-125 Life interest estates......................................................................................................100

Drafting issues.............................................................................................................101
So what can go wrong?...............................................................................................101
Upkeep of property................................................................................................101
Cost of insurance...................................................................................................101
Claim against estate..............................................................................................101
Capital gains tax issues.........................................................................................101
Income versus capital – tax issues........................................................................102
Income versus capital – practical issues...............................................................102
Investment of trust funds and liability....................................................................103
¶4-130 Protective trusts...........................................................................................................104

Drafting issues.............................................................................................................104
¶4-135 Minors trusts................................................................................................................105

Drafting issues.............................................................................................................105
¶4-140 Superannuation trusts..................................................................................................106
¶4-145 Letters of wishes..........................................................................................................107

Drafting issues.............................................................................................................107
Disputes over access to the letter.........................................................................107
The trustee ignores the letter.................................................................................108
xii
¶4-150 Trustee provisions........................................................................................................108

Investments..................................................................................................................108
Equalisation power......................................................................................................109
Commission.................................................................................................................110
Liability.........................................................................................................................110
¶4-155 Ending the trust............................................................................................................110

The rule against perpetuities........................................................................................110
Automatic termination and asset protection................................................................111
¶4-160 Statutory rules affecting dispositions...........................................................................111

Marriage.......................................................................................................................111
Divorce.........................................................................................................................112
Beneficiary dying within 30 days.................................................................................112
Beneficiary predeceasing leaving children...................................................................112
¶4-165 The treatment of digital assets upon death.................................................................112

What are digital assets?...............................................................................................113
Dealing with digital assets...........................................................................................113
Digital images and video..............................................................................................114
Music and eBooks.......................................................................................................115
Online business............................................................................................................115
Alternative options.......................................................................................................115
Summing up.................................................................................................................116
Chapter 5: Testamentary trusts 117

¶5-100 Introduction..................................................................................................................118
¶5-105 What are testamentary trusts?.....................................................................................118
¶5-110 Income tax advantages................................................................................................119

Excepted trust income.................................................................................................119
Other taxation advantages...........................................................................................120
Streaming of income..............................................................................................120
Tax-exempt entities................................................................................................121
Lower taxed beneficiaries......................................................................................121
No CGT on passing of assets owned by deceased to beneficiary........................121
Public policy and future reform....................................................................................122
xiii
¶5-115 Asset protection advantages.......................................................................................122

Protection from creditors: beneficiaries.......................................................................122
Protection from creditors: trustees and appointors.....................................................122
Protection from divorce...............................................................................................124
Protection from beneficiary..........................................................................................125
Scenario 1....................................................................................................126
Scenario 2....................................................................................................127
Protection for beneficiary.............................................................................................127
¶5-120 Possible disadvantages...............................................................................................127

Cost 127
Loss of main residence CGT exemption......................................................................128
Family trust elections...................................................................................................128
Land tax.......................................................................................................................128
Control.........................................................................................................................128
Transferring control......................................................................................................129
¶5-125 Structuring issues........................................................................................................129

Who should be trustee?...............................................................................................129
Predeceasing beneficiaries..........................................................................................130
How many trusts?........................................................................................................132
¶5-130 Nominating appointors................................................................................................134
¶5-135 Testamentary trust powers..........................................................................................134

Investment powers.......................................................................................................134
Power to lend...............................................................................................................135
Power to amend...........................................................................................................135
Self-dealing..................................................................................................................136
¶5-140 Alternatives to testamentary trusts..............................................................................136
¶5-145 Forward planning and Pt IVA.......................................................................................137
Chapter 6: Disposing of assets in foreign jurisdictions 139

¶6-100 Introduction..................................................................................................................140
¶6-105 Identifying the location of the property........................................................................140
¶6-110 Movable or immovable................................................................................................141

xiv
¶6-115 Domicile.......................................................................................................................141
How to identify domicile..............................................................................................141
Why is domicile important?.........................................................................................142
¶6-120 Grants of administration..............................................................................................142

Where to apply for a grant...........................................................................................143
Who may apply for a grant or reseal?..........................................................................143
¶6-125 Intestacies....................................................................................................................144
¶6-130 Construction of wills....................................................................................................144
¶6-135 Taxation and revenue issues for multi-jurisdictional assets.........................................144
¶6-140 Tax issues for non-residents........................................................................................145
¶6-145 Claims against the estate.............................................................................................146
¶6-150 Strategies to consider if holding foreign assets...........................................................146
¶6-155 Administering an estate with foreign assets................................................................147

Appendix 1 – Inheritance taxes....................................................................................147
Hong Kong.............................................................................................................147
Indonesia...............................................................................................................147
Malaysia.................................................................................................................147
New Zealand..........................................................................................................147
United Kingdom.....................................................................................................148
United States of America.......................................................................................148
Singapore...............................................................................................................148
Appendix 2 – Overview of Islamic inheritance rules....................................................149
Chapter 7: Charitable gifts 151

¶7-100 Introduction..................................................................................................................152
¶7-105 Why is charitable status significant?...........................................................................153

Charitable trusts receive tax and duty exemptions.....................................................153
Charitable trusts can be perpetual..............................................................................153
Enforcing charitable trusts...........................................................................................153
¶7-110 Making charitable gifts by will......................................................................................154
¶7-115 Private ancillary funds (formerly prescribed private funds)..........................................156

What are private ancillary funds?.................................................................................156
xv
Making an application..................................................................................................157
Control.........................................................................................................................157
Form 158
Investment of funds.....................................................................................................158
Accumulation of income..............................................................................................159
Donations.....................................................................................................................159
Grants..........................................................................................................................160
Accounts, financials and audit.....................................................................................160
Winding up...................................................................................................................160
Transitional rules..........................................................................................................160
¶7-118 Public ancillary funds...................................................................................................160

Establishment and maintenance .................................................................................161
Accumulation of income..............................................................................................162
Accounts, financials and audits...................................................................................162
Transitional rules..........................................................................................................162
¶7-120 Cy-près applications....................................................................................................162
¶7-125 Discussing charitable giving........................................................................................164
Chapter 8: Estate planning for blended families 165

¶8-100 Introduction..................................................................................................................166
¶8-105 Relevant legislation......................................................................................................166
¶8-110 Effect on wills where a person marries or registers a deed of relationship.................168
¶8-115 Effect on wills where a person divorces or revokes a deed of relationship.................168
¶8-120 Effect on powers of attorney where a person marries or registers a deed of

relationship...................................................................................................................169
¶8-125 Effect on powers of attorney where a person divorces or revokes a deed of

relationship...................................................................................................................170
¶8-130 Effect on distribution under intestacy where a person is party to a significant

or caring relationship...................................................................................................170
¶8-135 Effect on class of claimants under testator’s family maintenance provisions

where a person is party to a significant or caring relationship....................................170
xvi
¶8-140 Life interest trust strategy............................................................................................170

What is a life interest trust?.........................................................................................170
Balancing competing interest of beneficiaries.............................................................171
Litigation against trustees............................................................................................172
Complex capital gains tax consequences ..................................................................172
¶8-145 Use and enjoyment trust strategy................................................................................172

What is a use and enjoyment trust?............................................................................172
Who should be required to upkeep the property? ......................................................173
Who is responsible for paying insurance on the property? ........................................173
What happens if the beneficiary no longer wishes to reside in
the property?.......................................................................................................173
Uncertain taxation consequences...............................................................................174
¶8-150 Superannuation funds strategy....................................................................................174

Binding nominations....................................................................................................174
Superannuation pensions............................................................................................175
Status of stepchildren..................................................................................................175
Complaints before the SCT ........................................................................................176
¶8-155 Family trusts.................................................................................................................176
¶8-160 Mutual wills..................................................................................................................177
¶8-165 Appointing and directing trustees................................................................................177
¶8-170 Estate and trust accounts............................................................................................178
¶8-175 Cases involving blended families.................................................................................178

Stepchildren.................................................................................................................178
The background facts............................................................................................179
The plaintiffs’ submission......................................................................................179
The defendant’s submission..................................................................................180
The decision...........................................................................................................180
De facto relationships..................................................................................................180
¶8-180 Planning for blended families.......................................................................................181
Chapter 9: Succession planning for primary producers 183

¶9-100 Introduction..................................................................................................................184
¶9-105 An important note........................................................................................................184

xvii
Contacts................................................................................................................184
¶9-110 The business structure.................................................................................................185
¶9-115 Asset rich, cash poor...................................................................................................186

Give an option to purchase the farm...........................................................................186
Give the farm to the children equally...........................................................................186
Equalise gifts through insurance..................................................................................187
¶9-120 Children and marriage breakdown...............................................................................187
¶9-125 Recent developments: water shares, wind turbines and other developments............188
Water rights and water shares.....................................................................................188
Wind turbines...............................................................................................................188
Use of an SMSF to hold land or run businesses.........................................................189
Selling the farm............................................................................................................190
¶9-130 Resulting trusts............................................................................................................190
¶9-135 Constructive trusts.......................................................................................................192
Chapter 10: Insolvency and death 195

¶10-100 Introduction .................................................................................................................196
¶10-105 Why use Pt XI of the Bankruptcy Act?.........................................................................196
¶10-110 What can a creditor do?..............................................................................................197

When can a creditor present a petition under s 244?..................................................198
When can a creditor make an application under s 245?.............................................199
Statement of affairs .....................................................................................................199
¶10-115 What can the LPR do?.................................................................................................199
¶10-120 What is the effect of Pt XI of the Bankruptcy Act on deceased estates?....................200

Commencement of bankruptcy...................................................................................200
Effect on LPR...............................................................................................................200
Divisible property.........................................................................................................201
Liability of LPR ............................................................................................................201
Creditor’s rights............................................................................................................201
¶10-125 What property is not divisible? ...................................................................................201

xviii
¶10-130 When does the bankruptcy of a deceased estate end?..............................................202
¶10-135 Priority of debts............................................................................................................202
Chapter 11: Taxation of deceased estates 205

¶11-100 Introduction..................................................................................................................206
¶11-105 Responsibility for tax returns.......................................................................................206

Liability of legal personal representative......................................................................206
¶11-110 Date of death tax return...............................................................................................207

Tax rates.......................................................................................................................207
Business income..........................................................................................................207
Trading stock...............................................................................................................207
Gifts that trigger a disposal for CGT............................................................................208
Deductions for cultural gifts.........................................................................................209
Deductions for gifts to other charities..........................................................................209
Other deductions.........................................................................................................209
Unapplied capital losses..............................................................................................210
¶11-115 Estate tax return...........................................................................................................210

Income during estate administration...........................................................................210
Deductions...................................................................................................................211
¶11-120 Capital gains tax..........................................................................................................211

CGT and death.............................................................................................................211
Assessment of capital gain to the LPR........................................................................212
Assessment of capital gain to beneficiaries.................................................................213
Adjustments to cost base............................................................................................214
Gifts to certain tax-exempt entities..............................................................................215
Main residence rules....................................................................................................215
Full exemption.......................................................................................................215
Partial exemption...................................................................................................217
Main residence and life interest estates................................................................218
Joint tenancies.............................................................................................................218
Life interest estates......................................................................................................219
Effect of death of life tenant.........................................................................................220
Surrender of life interest or remainder interest............................................................220
xix
Chapter 12: Claims against estates 223

¶12-100 Introduction..................................................................................................................224
¶12-105 The law: the good and the bad....................................................................................224

The good......................................................................................................................224
The bad........................................................................................................................224
¶12-110 Who can claim against an estate?...............................................................................225
¶12-115 How to claim against an estate....................................................................................231

Advising the parties.....................................................................................................235
The claim process........................................................................................................236
¶12-120 Strategies to protect an estate against a claim...........................................................236

The gifting property now strategies.............................................................................238
The joint name transfer strategies...............................................................................238
The trust transfer strategies.........................................................................................238
Superannuation strategies...........................................................................................241
¶12-125 New South Wales notional estate provisions...............................................................242

Who may make a claim?..............................................................................................242
What transactions are caught?....................................................................................242
Are superannuation binding death benefit nominations caught?................................243
Chapter 13: Other estate planning trusts 245

¶13-100 Introduction..................................................................................................................246
¶13-105 Estate proceeds trusts.................................................................................................246

Who can benefit from an estate proceeds trust?........................................................246
How much can be transferred?...................................................................................247
Time limit for establishing an estate proceeds trust....................................................249
Other rules...................................................................................................................249
¶13-110 Superannuation proceeds trusts..................................................................................250

Establishing a superannuation proceeds trust.............................................................250
Rules for a superannuation proceeds trust..................................................................251
Superannuation proceeds trusts as a strategic option................................................251
¶13-115 Insurance proceeds trusts...........................................................................................252

Establishing an insurance proceeds trust....................................................................253
xx
Rules for an insurance proceeds trust.........................................................................253
¶13-118 Employment benefit trusts...........................................................................................253
¶13-120 Special disability trusts................................................................................................253

The nature of special disability trusts..........................................................................253
Benefits to donors........................................................................................................254
Benefits to principal beneficiaries................................................................................255
Establishing special disability trusts............................................................................255
Contributing to special disability trusts........................................................................256
Establishing special disability trusts by will.................................................................256
Taxing of special disability trusts.................................................................................257
Limitations of special disability trusts..........................................................................257
Ending special disability trusts....................................................................................258
Chapter 14: Dealing with family trusts 259

¶14-100 Introduction..................................................................................................................260
¶14-105 What do we mean by a family trust?...........................................................................260

So who owns the assets anyway?...............................................................................261
¶14-110 Why is it important that the right people control a

family trust?.................................................................................................................262
Why deal with the trustee?..........................................................................................262
Why deal with the appointor?......................................................................................262
Guardian and other roles.............................................................................................263
¶14-115 The trust deed..............................................................................................................263
¶14-120 Deciding what to do with a family trust.......................................................................264
¶14-125 Changes to trustee and appointor...............................................................................265

Individual trustee and appointor..................................................................................265
Husband and wife trustees and appointors.................................................................266
Company as trustee.....................................................................................................267
Should decisions be unanimous?................................................................................267
Bankruptcy and divorce...............................................................................................269
¶14-130 Revocable determinations...........................................................................................269
¶14-132 Guardian provisions.....................................................................................................269

xxi
¶14-135 Trust splitting and cloning............................................................................................270

Benefits of splitting .....................................................................................................270
Trust splitting................................................................................................................271
Trust cloning.................................................................................................................272
¶14-140 Loan accounts, family trusts and private companies..................................................272
Chapter 15: Dealing with superannuation 277

¶15-100 Introduction..................................................................................................................278
¶15-101 Superannuation and incapacity...................................................................................278

Incapacity and taxation................................................................................................278
Incapacity and binding death benefit nominations......................................................279
Incapacity and SMSFs.................................................................................................281
¶15-105 What is a superannuation death benefit?....................................................................281
¶15-110 Who can receive a superannuation death benefit?.....................................................282

Restrictions imposed by legislation.............................................................................282
Who is a spouse?..................................................................................................283
Who is a child?......................................................................................................283
Who is an interdependent?....................................................................................284
Who is a financial dependant?...............................................................................285
Restrictions imposed by the trust deed.......................................................................285
Binding death benefit nominations..............................................................................286
Non-lapsing nominations.............................................................................................289
Trustee discretion.........................................................................................................289
¶15-115 Superannuation Complaints Tribunal...........................................................................290
¶15-120 Issues for self-managed superannuation funds...........................................................290

Control of SMSF following incapacity..........................................................................290
Control of SMSF following death.................................................................................290
Death benefit nominations...........................................................................................291
Liquidity of assets........................................................................................................293
¶15-125 How can a superannuation death benefit be paid?.....................................................293

Child death benefits.....................................................................................................294
Grandchild death benefits............................................................................................295
xxii
¶15-130 Commutation of death benefit pensions.....................................................................295
¶15-135 Preservation status of death benefits..........................................................................297
¶15-140 How is a superannuation death benefit funded?.........................................................297

Anti-detriment provisions.............................................................................................297
Future service deductions............................................................................................298
¶15-145 Tax treatment of death benefits...................................................................................298

Lump sum death benefits............................................................................................299
Defence Force and police personnel.....................................................................300
Terminal medical condition benefits......................................................................300
Calculating the untaxed element of a death benefit....................................................300
Reducing tax payable by non-dependent beneficiaries..............................................302
Choosing where to place insurance......................................................................302
Re-contribution strategy........................................................................................302
Pre-death withdrawals...........................................................................................303
Differential allocation to beneficiaries....................................................................304
Death benefit pensions................................................................................................304
Non-dependent beneficiaries................................................................................305
¶15-150 Contribution quarantining............................................................................................305

Capital gains tax on the disposal of pension assets...................................................307
Refreshing the cost base.......................................................................................308
Commuting a death benefit pension............................................................................309
¶15-155 Employer payments made after the death of an employee.........................................309

Accrued annual and long service leave.......................................................................309
Death benefit termination payments............................................................................310
Appendix – SISA and ITAA97 dependency..................................................................311
Chapter 16: Claims against superannuation 313

¶16-100 Introduction..................................................................................................................314
¶16-105 Challenging superannuation insurance claims............................................................314

How insurance and super combine.............................................................................314
Establishing a claim.....................................................................................................315
Assessing the claim.....................................................................................................315
The trustee’s decision..................................................................................................316
xxiii
¶16-110 Challenging death benefit decisions ...........................................................................316

Does the trustee have a discretion?............................................................................316
The nature of the trustee’s discretion and the SISA requirements..............................317
The process used by public offer, industry and corporate (employer-sponsor) funds......
317
The considerations that guide decision making..........................................................319
How to put your client’s case effectively.....................................................................319
¶16-115 Lodging complaints with the SCT ...............................................................................320

What is the SCT?.........................................................................................................320
Functions of the SCT...................................................................................................321
What complaints can be lodged with the SCT............................................................321
Who can make a complaint.........................................................................................321
Complaints the SCT cannot deal with.........................................................................322
SCT’s powers...............................................................................................................322
Conciliation..................................................................................................................323
APRA’s powers.............................................................................................................323
Summary .....................................................................................................................323
¶16-120 Federal Court appeals.................................................................................................324
¶16-125 Case studies: insurance-related disputes....................................................................325

Which version of the trust deed applies?....................................................................325
Is interest payable when insurance payout is delayed?..............................................325
¶16-130 Case studies: death benefit claims .............................................................................326

Webb v Teeling (wife, de facto, daughter and deceased interdependent mother)......326
The trustee’s decision............................................................................................327
The SCT’s decision ...............................................................................................327
The Federal Court’s decision.................................................................................327
SCT determination D03-04\135 – adult children.........................................................327
SCT determination D04-05\094 – minor children........................................................328
SCT determination D03-04\143 – de facto spouse v estranged spouse.....................328
SCT determination D06-07\084 – financial dependency.............................................329
SCT determination D05-06\110 – interdependency – mother.....................................329
SCT determination D08-09\084 – legal personal representative
v de facto.............................................................................................................330
xxiv
Chapter 17: Taxation of non-resident estates 331

¶17-100 Introduction..................................................................................................................332
¶17-105 When will an estate trust be non-resident?.................................................................332

Australian tax residency...............................................................................................332
Individual trustees..................................................................................................332
Company trustees.................................................................................................332
Place of central management and control...................................................................332
Deceased’s residency and asset location not relevant................................................333
¶17-110 Who is taxed?..............................................................................................................333

Accumulation phase – taxation of the trustee.............................................................334
What is taxed to the trustee?.................................................................................334
Source of income...................................................................................................334
Taxable Australian property...................................................................................334
What rate of tax applies?.......................................................................................335
Double taxation agreements..................................................................................335
Accumulation phase – taxation of beneficiaries..........................................................335
Distribution phase........................................................................................................336
Taxation of current year income to which beneficiaries are presently entitled......337
Taxation of other distributions...............................................................................338
Penalty taxation.....................................................................................................339
Accruals taxation...................................................................................................340
Checklist for applying rules..........................................................................................340
Cost base on assets distributed in specie...................................................................340
¶17-115 Other non-resident issues............................................................................................341

What does this mean for the beneficiaries of deceased estates? ..............................341
Chapter 18: Overview of business succession planning 343

¶18-100 Introduction..................................................................................................................344
¶18-105 What is business succession planning?......................................................................344
¶18-110 A multidisciplinary approach – the facilitator...............................................................345
¶18-115 A dynamic process......................................................................................................345
¶18-120 What can be realistically achieved?.............................................................................346

xxv
¶18-125 Why plan?....................................................................................................................347
¶18-130 How and where do I start?...........................................................................................347
¶18-135 Documenting a business succession plan..................................................................349

Documentation and family dynamics...........................................................................351
¶18-136 When do I finish?.........................................................................................................352

What has changed and what have we learned?..........................................................353
¶18-140 Tax issues.....................................................................................................................353

CGT on disposal of assets...........................................................................................353
Pre- versus post‑CGT assets................................................................................353
50% CGT discount......................................................................................................354
Timing....................................................................................................................355
Avoiding the disposal of assets...................................................................................355
Should beneficiaries inherit or buy assets from the executor?..............................356
Trust splitting and cloning......................................................................................356
Transferring control of discretionary trusts............................................................357
CGT small business relief............................................................................................357
Other tax issues on the transfer of assets...................................................................357
Redemption, cancellation or buyback of shares or units............................................359
Demergers....................................................................................................................359
Exotic and other equity interests.................................................................................359
Stamp duty..................................................................................................................360
GST 361
Chapter 19: Buy-sell agreements 363

¶19-100 What is a buy-sell agreement?....................................................................................364
Including other triggers................................................................................................364
Why do we need buy-sell agreements?.......................................................................365
¶19-105 What do the various buy-sell models look like?..........................................................365

Cross-insurance...........................................................................................................365
Share/unit buybacks....................................................................................................366
Trust model..................................................................................................................368
Self‑insurance..............................................................................................................369
What if insurance is not available?..............................................................................370
xxvi
¶19-110 Contractual and drafting considerations.....................................................................370

Problems with mandatory buy-sell agreements..........................................................370
Using conditions precedent...................................................................................371
Using options.........................................................................................................371
Trauma condition...................................................................................................371
¶19-115 CGT on life insurance proceeds..................................................................................372

What is a policy of life insurance?...............................................................................372
Who is an original owner?............................................................................................372
What is the meaning of consideration?.......................................................................373
¶19-120 CGT on trauma cover..................................................................................................373
¶19-125 Paying for the equity under the self-insurance model.................................................374

CGT rules on non-arm’s length transfers.....................................................................374
¶19-130 Where do insurance proceeds go?..............................................................................375
¶19-135 Issues with fixed/bare trusts........................................................................................375
¶19-140 Discretionary insurance trusts.....................................................................................376
¶19-145 Paying the premiums on the policies...........................................................................376

Premiums and private companies...............................................................................376
¶19-150 Using superannuation funds to finance buy-sell agreements........................................ 377

Deductibility of premiums............................................................................................377
Conditions of release...................................................................................................378
Contributions needed to fund retirement.....................................................................378
Tax and proceeds in the fund......................................................................................379
Sole purpose test.........................................................................................................379
TPD and trauma cover – own versus any occupation.................................................379
Deduction for death and disability benefits.................................................................380
Tax on withdrawals......................................................................................................380
¶19-155 Is there a breach of trust?............................................................................................380
¶19-160 GST and stamp duty....................................................................................................381
¶19-165 CGT concessions and buy-sell agreements................................................................381

12-month holding rule – the meaning of agreement....................................................381
12-month holding rule – the asset...............................................................................382
CGT small business concessions................................................................................382
xxvii
¶19-170 How much should I insure for?....................................................................................382
¶19-175 Guarantees and forgiving loans...................................................................................383
¶19-180 Share buybacks and capital reductions.......................................................................383
¶19-185 Fringe benefits tax.......................................................................................................384
¶19-190 Key person insurance..................................................................................................384
¶19-195 Timing of payments for equity.....................................................................................385
¶19-200 The way forward..........................................................................................................386
Chapter 20: Other issues for business succession planning 387

¶20-100 Introduction..................................................................................................................388
¶20-105 Transferring control of family trusts.............................................................................388

Changing trustees........................................................................................................388
Independent third parties.............................................................................................388
Changing appointors...................................................................................................389
Guardians.....................................................................................................................389
Changing company constitutions................................................................................390
Changing shareholders................................................................................................390
Bankruptcy and divorce...............................................................................................390
Agreements for the management of certain assets.....................................................391
How and when to appoint new office holders.............................................................392
Family trust elections...................................................................................................392
Disputes and rights to information...............................................................................392
¶20-110 Remuneration strategies..............................................................................................392

Providing equity...........................................................................................................393
Alternatives to equity...................................................................................................395
Benchmarking remuneration........................................................................................396
¶20-115 Recruitment, skill development and retention.............................................................396

Identifying skill gaps....................................................................................................396
Is the skill gap a problem?...........................................................................................397
Shadow board versus kitchen cabinet........................................................................397
Motivating and rewarding staff....................................................................................398
xxviii
¶20-120 Creating a family office................................................................................................399
¶20-125 Financing......................................................................................................................400
Related party debt.......................................................................................................400
Interest deductibility.....................................................................................................400
Other financing.............................................................................................................401
Inadequate “other assets” for some family members..................................................402
¶20-130 Business planning versus business succession planning...........................................402

Revisit the structure.....................................................................................................402
Governance – the cause of much angst......................................................................402
Will a court interfere with decisions of a trustee?........................................................403
Chapter 21: Interaction between family law and estate planning 405
¶21-100 Introduction..................................................................................................................406
¶21-105 How does a court divide property?.............................................................................406
¶21-110 How does a court adjust for “financial resources”?....................................................407
¶21-115 Family law proceedings versus claim against estate...................................................408
¶21-120 Is inherited property at risk in family court proceedings?............................................408
¶21-125 Factors influencing whether inherited property will

be divided....................................................................................................................409
¶21-130 Are future inheritances at risk in family court proceedings?........................................410
¶21-135 Binding financial agreements.......................................................................................412
¶21-140 Strategies to address family law concerns..................................................................412

Family court proceedings commenced before death..................................................413
TFM claims by partner.................................................................................................413
TFM claims by former partner......................................................................................414
Binding financial agreements for a beneficiary............................................................414
Testamentary trust with independent trustees.............................................................415
Single testamentary trust for multiple “primary beneficiaries” ....................................416
Life interest trust..........................................................................................................416
By-pass child...............................................................................................................416
Child and grandchildren trusts.....................................................................................416
Adjusting a family law settlement................................................................................416
xxix
Chapter 22: Finance and accommodation for aged and

disabled clients 417
¶22-100 Introduction..................................................................................................................418
¶22-105 Aged care assessment ................................................................................................418
¶22-110 Costs of aged care.......................................................................................................419
¶22-115 Living arrangements....................................................................................................420
¶22-120 Care plans and packages ...........................................................................................421
¶22-125 Changing living arrangements.....................................................................................422
¶22-130 Home care packages program....................................................................................423
¶22-135 Reverse mortgages......................................................................................................424
¶22-140 Retirement villages.......................................................................................................424

Statistics......................................................................................................................425
Tip for advisers............................................................................................................425
¶22-145 Church, charitable and rental villages..........................................................................426
¶22-150 Demountable home parks............................................................................................427
¶22-155 Residential care ..........................................................................................................427
¶22-160 Reasons for entering aged care...................................................................................428
¶22-165 Supported/concessional residents..............................................................................429
¶22-170 Tips for advisers...........................................................................................................429

Source and control test................................................................................................430
Tip for advisers when clients entering care.................................................................430
Rent the former home and pay DAPs..........................................................................431
Exemptions..................................................................................................................431
Assessments................................................................................................................431
Keeping or selling the family home..............................................................................431
Supported resident eligibility.......................................................................................432
Lowering assessment of income and assets...............................................................432
¶22-175 Pre-paid funeral plans..................................................................................................432
¶22-180 Special disability trusts................................................................................................433
¶22-185 Long-term annuities and care annuities......................................................................435

xxx
Chapter 23: Ten estate planning strategies 437

¶23-100 Introduction..................................................................................................................438
¶23-105 Strategy 1: the nuclear family......................................................................................438
¶23-110 Strategy 2: the wealthy nuclear family.........................................................................442
¶23-115 Strategy 3: problem children........................................................................................445
¶23-120 Strategy 4: the blended family ....................................................................................445
¶23-125 Strategy 5: the blended family and life interest............................................................449
¶23-130 Strategy 6: elderly and single.......................................................................................452
¶23-135 Strategy 7: same-sex couple.......................................................................................453
¶23-140 Strategy 8: dealing with the family trust.......................................................................453
¶23-145 Strategy 9: dealing with public offer superannuation interest.....................................454
¶23-150 Strategy 10: dealing with a self-managed superannuation fund.................................456
Chapter 24: Integrated planning tools 459

¶24-100 Introduction .................................................................................................................460
¶24-105 Client succession checklist..........................................................................................461
¶24-110 Business succession checklist....................................................................................470

xxxi
About the author

Bernie O’Sullivan, CTA, is principal of Bernie O’Sullivan Lawyers – an independent law firm that
advises individuals and family groups in the areas of trusts, wills and estates, tax, litigation and
disputes, business succession planning, superannuation and charitable trusts.
From its head office in Melbourne, the firm advises individuals and families across Australia, helping
them to plan the transfer of wealth from one generation to another in a secure and tax-effective manner.
The firm has strong, collaborative relationships with a large number of accountants and advisers, and
assists them in offering succession planning services to their clients.
Bernie has been appointed as a writer and lecturer at Deakin University in its undergraduate and
postgraduate units in estate planning, and is a regular presenter of seminars for leading accounting and
financial organisations.
Bernie acknowledges the significant contributions of others to this publication (see p ix).
Contacting the author

This book was largely written from the author’s technical knowledge and years of experience in
personally administering complex estate and trust matters. If any reader believes that an important
topic or issue is not covered, or that the commentary is incomplete or even incorrect, they are invited
to contact the author at publications@taxinstitute.com.au.
About the publisher

The Tax Institute is Australia’s premier tax body. Since 1943, The Tax Institute has provided the tax
profession with leading-edge education, information, support and an active forum.
The Institute provides services to more than 35,000 professionals. Membership currently stands in
excess of 15,000, which includes a comprehensive cross-section of leading tax accountants, lawyers, tax
agents, managers, academics and students.
As part of an ongoing commitment to members, the Institute provides the best tax education available
in Australia, delivered by the profession’s leaders. Institute members have access to extensive continuing
professional development (CPD), the highly valued Taxation in Australia journal, the TaxVine
e-newsletter, and a vast array of products and services relevant to tax professionals.
In order to better serve the tax profession, the Institute offers an innovative structured education
program. With a practical and flexible approach delivered by leading tax professionals, the program is
designed to complement existing CPD activities and support tax professionals throughout their careers.
The Institute believes this program will be a prerequisite for all tax professionals.
Any enquiries relating to membership or purchasing options for this or any other publication, please
direct to membership@taxinstitute.com.au.
xxxii
Preface
This publication aims to explain the importance of succession planning and to identify and discuss in a
practical way the issues that professional advisers and their clients should consider when preparing and
implementing a succession plan.
We all spend a great deal of time and effort accumulating wealth but, without a proper succession plan,
it can disappear very quickly. There are many risks involved in succession planning: poor planning,
appointing incompetent or dishonest attorneys and trustees, litigation, lost tax opportunities and lack
of entity succession are just some of these risks.
With so many variables and uncertainties, the reality is that not many people correctly implement
a succession plan. The consequences of not getting it right can be disastrous – elder abuse, children
missing out on inheritances and significant taxation liabilities can result.
Hence, the importance of this publication. If you are an accountant or financial planner, or simply a
trusted adviser to others, this book will alert you to matters that your client needs to be aware of when
building, protecting and disposing of their wealth.
As is evidenced from the acknowledgments, Estate & Business Succession Planning represents the
pooled knowledge and experience of a number of respected and successful practitioners in the field.
Further, this publication is more than just the sharing of information. It is a strategic guide in the
sense that succession planning involves the adviser using the technical information at their disposal
and applying it to their client’s situation. Within this process, there are many traps and uncertainties
which the adviser needs to be aware of in order to properly advise the client. This book identifies these
problems and suggests practical solutions. In addition to the significant body of technical information,
there are examples of the range of things that could go wrong and strategies for dealing with problems
that arise.
xxxiii
Acknowledgments
The following people have made significant contributions to this publication:
Paul Hockridge is the principal writer for chapters 18, 19 and 20. Paul is a partner with Deloitte Touche
Tohmatsu (Melbourne). He is a highly regarded tax practitioner specialising in closely held businesses,
high wealth families, structuring and succession issues.
Denise Honey is the principal writer for chapter 17. Denise is an executive director with Pitcher
Partners (Melbourne) and specialises in international taxation issues.
Bernie O’Sullivan is the principal writer for chapter 11. Acknowledgment and thanks are given to
Joseph Santhosh for reviewing and also adding to this chapter. Joseph is a Melbourne-based lawyer
specialising in taxation.
Bernie O’Sullivan and Kim Cowie are the principal writers for chapter 15. Kim is a Melbourne-based
consultant specialising in superannuation.
Bernie O’Sullivan and Chris Beeny are the principal writers for chapter 7. Chris is a partner at
Maddocks (Melbourne).
Laura Racky and Bernie O’Sullivan are the principal writers for chapter 10. Laura is a
Melbourne-based insolvency lawyer.
Greg Roberts is the principal writer for chapter 22. Greg is a specialist aged care adviser, based in
Melbourne.
The author would also like to acknowledge the exceptionally talented publishing group and
consultants of The Tax Institute who have worked on all aspects of this publication and are helping
to make the Institute the publisher of choice for the tax profession: Alex Munroe (General Manager,
Information Products), Renée McDonald (Publisher), Deborah Powell (Managing Editor),
Louella Brown (Production Manager), Mei Lam (Designer), Stuart Murphy (Online Publishing),
and Kristina Proft (Indexer).
Typeset by Midland Typesetters.
Printed by McPherson’s Printing Group.

1
Chapter 1
Succession planning and the professional adviser
Introduction........................................................................................................................ ¶1-100
Talking the talk................................................................................................................... ¶1-105
More than just a will............................................................................................................¶1-110
A team effort and a business opportunity..........................................................................¶1-115
The starting point: asset ownership................................................................................... ¶1-120
How assets are dealt with.................................................................................................. ¶1-125
Ten questions to ask your client........................................................................................ ¶1-130
The adviser’s role – threshold issues................................................................................. ¶1-135
An ongoing process........................................................................................................... ¶1-140
New legislation and case law............................................................................................. ¶1-145

2 ESTATE & BUSINESS SUCCESSION PLANNING 2015-16
¶1-100 Introduction
If you are an accountant, financial adviser or lawyer with individuals as clients, you are on the precipice
of one of the most exciting times in succession planning. Over the next 20 years, there will be the
biggest intergenerational transfer of wealth ever. It is estimated that the number of Australians aged
between 65 and 84 will double from 2010 to 2050. In that same period, the number of people aged 85
and over is expected to quadruple.1
Your clients will need to talk with someone about succession planning. If you can’t help them, they will
go to someone who can, and that someone might be your competitor!
The websites of many professional services firms state that they have expertise in succession planning,
however experience tells us that many don’t do it all that well.
This book will help you to be one of the few advisers who fall into the successful category. This chapter will
take you through the discussion that you can have with your client about their succession planning needs.
¶1-105 Talking the talk

Death, incapacity, divorce and insolvency. They’re tough topics to talk about and some advisers and
many clients find it near impossible. So how do you raise the subject with your clients?
So, Bob, you could die and your wife could remarry and leave everything to her second husband and your
children would get nothing.
OK, well that’s not how you were planning to broach the topic. But how about:
including articles on topics such as powers of attorney, testamentary trusts, superannuation and
death, asset protection, and business succession planning in your client newsletters;
holding seminars on succession planning for your clients, with expert guest speakers;
when setting up your client records, ask them whether they have an up-to-date will and power of
attorney, when they were planning on next reviewing it – and then put this date in your diary. It’s
always a good excuse to contact your client!
¶1-110 More than just a will

As you read this book, you will realise that succession planning is far more than just making a will. It
involves the succession of other entities your client may control, including superannuation funds and
family trusts. It may also involve tough decisions, such as passing the control of a business and other
assets to certain family members to the exclusion of others.
Succession planning is not limited to death. It should also deal with the transfer of control of assets and
decision-making powers if the client loses capacity.
1 Source: Intergenerational report 2010, circulated by the Hon. Wayne Swan, Treasurer of the Commonwealth of Australia, January 2010.
¶1-100
Succession planning and the professional adviser 3
It is important that a succession plan is well documented and all the parts fit together. In some cases,
it might be appropriate to hold a family conference to explain what decisions have been made and,
if appropriate, discuss why they have been made. Careful thought must be given to the choice of
attorneys, and executors and trustees.
It is also vital that the originals of all documents – in particular, the will – are held in a secure location.
And, of course, it is not much good helping your clients implement their succession plan without
helping them keep it up to date.
¶1-115 A team effort and a business opportunity

The key issue is to help your client get the right advice. This invariably means speaking to a lawyer
experienced in succession planning. An important part of the lawyer’s role is to point out what can go
wrong and then to list some solutions. The client can then talk to you and decide whether to address the
risks. Many risks will not warrant addressing, but the important thing is that it will be the client who
makes an informed decision about which risks, if any, are to be addressed.
Parts of succession planning – especially business succession planning – give rise to complex taxation
issues. Again, the key is to retain someone good at what they do – this will help both you and your client.
A client’s advisers are often an important source of information about the client’s affairs. In the case of
an accountant, it might be information on what assets are held in which entity, details of loan accounts,
and what types of insurance are held. Similarly, a client’s financial adviser may understand the client’s
longer-term objectives and have influence over investments such as superannuation interests.
Good succession planning often involves several parties working together. It does not have to be an
expensive process for the client. Often a little bit of communication between the lawyer, accountant and
financial adviser will lead to a far stronger succession plan and may result in cost savings. Beware the
expert who tells the client that they know everything and there is no need to talk to anyone else!
So what steps might you take when guiding your client through their succession plan? Each plan will be
different, but the first step will always be to gather information from the client. This can then be used as
the basis to develop the succession plan. Chapter 18 of this guide includes a client information template
that is a very useful starting point for the gathering of information.
By talking to your clients about estate and business succession planning, you will strengthen your
relationship with the client, you will receive an opportunity to harvest new business from the client’s
family, and you will protect your own clients from being poached by competitors (see ¶3-165).
¶1-115
¶1-120 The starting point: asset ownership

Your client may own assets in various ways. We say “own”, but be aware that your client may not in fact
be the owner of some assets they control.
Different ways of controlling assets include holding assets in:

a sole name;
joint names;
a partnership;
a family trust; or
a superannuation fund.
Up until the 1970s, succession planning for most people was simply a matter of making a will. A
person’s wealth was generally made up of assets held solely in their own name or jointly with their
spouse. When the person died their solely-held assets would pass according to their will – and joint
assets would pass automatically to the surviving spouse.
From the late 1970s, family trusts started to gain popularity. They have continued to grow in their
appeal because of the increase in the number of people who want the asset protection and taxation
benefits that family trusts offer. The legal title to family trust assets rests with the trustee of the trust.
The beneficial ownership rests collectively with the trust’s beneficiaries. As assets held in a family trust
are not owned personally by a particular individual, the assets cannot be dealt with by an individual’s
will. It is essential, therefore, that your clients deal separately with their family trust when devising a
succession plan.
Assets your client holds in a superannuation fund also do not automatically form part of their estate.
A superannuation fund is a trust. When your client dies, their interest in the superannuation fund
will be paid out as a superannuation death benefit. This benefit might be paid directly to your client’s
dependants, to their estate or to a mixture of both. As with family trust assets, superannuation death
benefits must be dealt with separately in your client’s succession plan.
¶1-125 How assets are dealt with

Asset held in Typically dealt with by the will? However …
Sole name Yes
Partnership No But can dispose of partnership interest
Joint names as No If other joint holder/s die before your client, the
joint tenants asset may be solely held by the client
¶1-120
Asset held in Typically dealt with by the will? However …
Joint names Yes Only the deceased’s share of the asset

as tenants-in-
common
Family trust No The family trust deed may permit important
matters to be addressed in the will – such as the
appointment of successor trustees or appointors
A person may have had loan accounts and either
owed money to the family trust, or was owed
money by the family trust, at the time of death.
These loan accounts should be considered when
writing the person’s will
Superannuation No Superannuation may be paid to a person’s estate,
either because the trustee exercised their discretion
to do so or the client made a binding death benefit
nomination
The will can specifically provide for the receipt of
superannuation moneys – for example, by setting
up a trust with the beneficiaries limited to death
benefit dependants
Insurance Perhaps Depends on whether a beneficiary has been
nominated under the policy or not
Family company The shares – but not the assets The key will be to leave the shares to the intended
– are dealt with by the will. The beneficiaries and, to the extent required, nominate
shares would usually fall under one successor trustees, appointors and guardians
of the headings described above,
depending on the shareholder/s
¶1-130 Ten questions to ask your client

When discussing succession planning with your client, the starting point is usually to address the
following 10 questions:
(1) Who will look after their personal and business affairs if they lose capacity?
(2) Do they have an up-to-date will that covers all contingencies – including the client, their spouse
and children all dying at the same time?
(3) Do any beneficiaries have special needs – for example, are they mentally impaired, do they have a
drug or spending problem or do they require asset protection?
(4) Is there a risk that someone might make a claim against their estate?
(5) Do they hold assets outside the jurisdiction?
(6) Who will control the family trust when they die?
¶1-130
(7) How will their superannuation be dealt with when they die?
(8) Are they interested in giving to charities?
(9) Are they interested in tax-effective succession planning?
(10) How will their business interests be dealt with when they die?
Each of these questions will lead to a range of other issues all of which are discussed in this book.
¶1-135 The adviser’s role – threshold issues

The terms “estate plan” and “estate planning” are regularly thrown around by many lawyers and
advisers as if they are defined terms. They’re not, and so, if you want to talk to your clients about estate
planning, the first thing you need to do is make it clear what you mean by terms such as these. You will
then need to communicate this effectively to your clients. Let’s look at some scenarios.
Example
Establishing a self-managed superannuation fund

Ashley, the adviser, says to Charlie, the client, when setting up a self-managed superannuation fund for
Charlie: “Our firm now also specialises in estate planning.”
What does Ashley think he is saying? And what does Charlie think Ashley is saying?
Let’s look at three of many possible interpretations by Charlie:
Interpretation 1: If you specifically ask us, we will give you advice on estate planning whenever we
make recommendations to you.
Interpretation 2: As specialists in estate planning, we will not make any recommendations without
first asking you whether you would like additional advice on the estate planning
consequences.
Interpretation 3: As specialists in estate planning, we will never do anything without automatically

considering the estate planning consequences to you.
Why is this relevant? Because many transactions that your clients undertake will have estate planning
consequences.
¶1-135
Example
Establishing a self-managed superannuation fund

Your client wants to purchase a house which she tells you she wishes to leave to her eldest daughter because
the daughter has cared for the client far better than the client’s other children have. What estate planning
issues arise from this simple request?
When Ashley recommends that Charlie establish a self-managed superannuation fund, will Ashley do
all or any of the following:
Advice point
Ask if Charlie wishes to make a superannuation death benefit nomination.
Read the superannuation fund trust deed and identify the options for binding, non-lapsing etc death
benefit nominations.
Read the superannuation fund trust deed and identify how a death benefit nomination must be made.
Read the superannuation fund trust deed and identify how a death benefit nomination must be
processed.
Consider the relevant circumstances of the nominated beneficiaries.
Explain what happens if a nominated beneficiary predeceases Charlie.
Identify who will control the fund if Charlie separates or divorces.
Identify what control risks arise if Charlie divorces.
Identify who will control the fund if Charlie becomes incapacitated.
Explain what control risks arise if Charlie becomes incapacitated.
Identify who will control the fund if Charlie dies.
Explain what control risks arise if Charlie dies.
Consider whether moving to a separate fund might reduce any risks.
Identify which fund to move to.
Establishing a family trust

Explain to Charlie that trust assets no longer belong to Charlie. So that $500,000 Charlie just
transferred into the family trust no longer belongs to him!
Explain the importance of the role of appointors and guardians and how they operate.
Identify who will control the trust if Charlie becomes incapacitated.
Explain what control risks arise if Charlie becomes incapacitated.
Identify who will control the trust if Charlie dies.
Explain what control risks arise if Charlie dies.
¶1-135
Ongoing service
If you offer an estate planning service, you must understand that not only does estate planning have
many facets (as discussed above), but also that it involves long-term issues.
So if your firm is enticing clients to engage your firm for estate planning services today, the clients will
probably expect your firm to still be around in years to come and to be offering estate planning services
throughout the journey.
This may have consequences should you decide to sell or merge firms, that is, will you be ensuring that
the new entity will continue to offer estate planning services? If not, will you help your client transfer
relevant information that you hold regarding their estate plan to a new provider?
Breadth of responsibility
Providers of estate planning services need to determine what role they will take in proactively
identifying areas where the client may need estate planning advice.
Example
Your client informs you that his maiden aunt died six months ago. He told you that they had enjoyed a close
relationship over a long period of time and that he had supported his aunt, both emotionally and financially.
He expresses his surprise that his aunt left all of her money to charity and some distant relatives.
In the above scenario, what would you say to your client?
Legal advice and other restrictions

Prohibition on offering legal advice
When offering estate planning advice to your clients, you must ensure that your advice does not
constitute legal advice – unless you are qualified to give such advice.
In New South Wales, Pt 2.2 of the Legal Profession Act 2004 (LPA) reserves legal work and legal titles
for people with particular qualifications. One of the main purposes for the reservation is “to protect
the public interest in the proper administration of justice by ensuring that legal work is carried out
only by those who are properly qualified to do so”.2 Part 2.2 LPA aims to protect the public from poor
legal advice and representation, deception and no recourse to assistance should something go wrong.
Further, it protects the reputation of the profession.
Legal work is reserved via two general prohibitions: a prohibition on engaging in legal practice, and a
prohibition on representing or advertising entitlement to engage in legal practice.
2 S 13 LPA.
¶1-135
Prohibition on engaging in legal practice

A prohibition exists on engaging in legal practice when not entitled. Specifically, a person must not
engage in legal practice in a state or territory of the Commonwealth unless they are an Australian
legal practitioner.3
“Engage in legal practice” is defined to include “practice law”.4 This extremely broad and vague
definition means that reliance is placed on the courts to determine, on a case by case basis, what is
or is not considered to be engaging in legal practice (ie case law). See, for example, Cornall v Nagle5
which broadly classified legal practice as “… doing something which, in order that the public might
be adequately protected, is required to be done only by those who have the necessary training and
expertise in the law”.6 This would include legal services such as giving legal advice.
Work that is undertaken in association with the law or legal practice will not necessarily constitute
engaging in legal practice. Examples include:
clerical or administrative tasks (such as inserting parties’ names in a document which is later
approved by a practitioner);
selling legal documents; and
advising of incidental legal requirements by a person in the pursuit of an occupation other than law,
eg tax agents advising on the requirements of tax legislation.
“Australian legal practitioner” is defined to mean “an Australian lawyer who holds a current local
practising certificate or a current interstate practising certificate”.7 “Australian lawyer” is in turn
defined to mean “a person who is admitted to the legal profession under this Act or a corresponding
law”.8 This means that, not only must a person have been admitted to the legal profession under a
particular Act of parliament, but they must also hold a current local or interstate practising certificate.
Very limited exceptions exist to the prohibition on engaging in legal practice when not entitled.9
The maximum penalty for engaging in legal practice when not entitled to do so is 200 penalty units
(approximately $22,000).10 A person in breach of the legislation is not entitled to recover any amount
in respect of anything they did in contravention of the legislation and must repay any amount so
3 S 14(1) LPA,
4 S 4(1) LPA.
5 [1995] 2 VR 188.
6 [1995] 2 VR 188 at 210.
7 S 6(a) LPA.
8 S 5(a) LPA.
9 S 14(2) and (3) LPA.
10 S 14(1) LPA and s 17 of the Crimes (Sentencing Procedure) Act 1999 (NSW) (CSPA).
¶1-135
received to the person from whom the amount was received.11 Further, a person may recover from
another person as a debt due to the person any amount the person paid to the other person in respect of
anything the other person did in contravention of the legislation.12
Prohibition on representing or advertising

A prohibition also exists on representing or advertising entitlement to engage in legal practice when not
entitled. Specifically, a person must not represent or advertise that they are entitled to engage in legal
practice unless they are an Australian legal practitioner.13 The maximum penalty for doing so is 100
penalty units (approximately $11,000).14
FOFA
The future of financial advice (FOFA) reforms commenced on 1 July 2012 and compliance will be
mandatory from 1 July 2013. The FOFA reforms will impact on both financial planners and accountants
– in other words, all “advisers” (as that term is used in this chapter) will be affected.
The FOFA package of legislation is contained in two separate but related Acts covering several topics,
including “the best interests duty”. ASIC summarises the changes regarding best interests as follows:
“A duty for financial advisers to act in the best interests of their clients, subject to a ‘reasonable
steps’ qualification, and place the best interests of their clients ahead of their own when providing
personal advice to retail clients. There is a safe harbour which advice providers can rely on to
show they have met the best interests duty. This is intended to be the minimum standard of
compliance with the best interests duty.”
ASIC has made it clear that it considers estate planning to be an integral part of advice that will need
to be identified by advisers when providing advice to clients.15 It is imperative that advisers understand
how estate planning fits into advice and the differences between factual, general and scaled advice. Also
significant is ASIC’s emphasis on advisers communicating the service that they are offering.
¶1-140 An ongoing process

For many people, making a will is such an ordeal that they file it away never to look at it again. Others
just never get around to reviewing or updating their will.
11 S 14(4) LPA.
12 S 14(5) LPA.
13 S 15(1) LPA.
14 S 15(1) LPA and s 17 CSPA.
15 ASIC regulatory guide 244: Giving information, general advice and scaled advice, various references. For example, see example 3, p 49,
example 5, p 69 and example 11, p 121.
¶1-140
An out-of-date will can be worse than no will at all. Similarly, an out-of-date succession plan, family
trust deed or binding superannuation death benefit nomination can be disastrous.
You should encourage your clients to review their succession plan regularly. It is a great opportunity
to strengthen the relationship you have with your clients and help to make sure that they keep their
succession plan on track.
¶1-145 New legislation and case law

The laws relating to estate and succession planning are continually changing. In the last year or so there
have been two senate inquiries and a standing committee of Attorneys General report into matters
affecting succession planning. There is a continual flow of cases dealing with critical issues such as
what is trust income and who can claim against an estate. In addition, the 40 or so Acts that deal with
succession planning across all jurisdictions in Australia are subject to regular review and amendment.
It is imperative that you and your clients deal with advisers who are both experienced and up to date in
their relevant fields.
¶1-145
13
Chapter 2
Attorneys and guardians
Introduction........................................................................................................................ ¶2-100
General power of attorney................................................................................................. ¶2-105
Enduring power of attorney................................................................................................ ¶2-110
Elder abuse........................................................................................................................ ¶2-112
Medical enduring power of attorney.................................................................................. ¶2-115
Enduring power of guardianship........................................................................................ ¶2-120
Guardianship and administration boards and tribunals.................................................... ¶2-121
Australian Capital Territory................................................................................................. ¶2-125
New South Wales............................................................................................................... ¶2-130
Northern Territory............................................................................................................... ¶2-135
Queensland........................................................................................................................ ¶2-140
South Australia................................................................................................................... ¶2-145
Tasmania............................................................................................................................ ¶2-150
Victoria............................................................................................................................... ¶2-155
Western Australia............................................................................................................... ¶2-160

Documents such as powers of attorney and powers of guardianship are legal documents by which a
person appoints another person (the attorney or guardian) to make decisions on their behalf. This
power to make decisions can take effect immediately or upon a particular event, such as the donor’s
incapacity. The person making the appointment is referred to as the donor or principal, depending
on the relevant jurisdiction. For consistency we will generally use the term “donor”.
These documents play an important role in succession planning. It is becoming more common for a
person to suffer a period of incapacity – sometimes lasting years – before their death. It is essential that
a person obtains professional advice and implements a formal process for the proper management of
their assets and personal affairs during this period.
There have been a number of recent government reports expressing concern about “elder abuse”, that
is, elderly persons being personally or financially abused. Instruments such as a power of attorney are
important tools in preventing this abuse.
There are four common types of powers:

general power of attorney;
enduring power of attorney;
medical enduring power of attorney; and
enduring power of guardianship.
As with most succession laws, the rules vary significantly from jurisdiction to jurisdiction. Some
jurisdictions do not prescribe all of the above types of powers; others have similar powers which
are described differently. Some jurisdictions, such as Queensland, are considerably more advanced
than others when prescribing rules for matters such as health and personal care matters. In
some jurisdictions the legislation is set out in a single Act; in others it is dealt with under several
separate Acts.
Some of the differences between jurisdictions include:

some jurisdictions, such as South Australia, deal with the impact that decision-making by attorneys
and administrators can have on wills, the wishes of the willmaker and the rights of the beneficiaries;
some jurisdictions, such as Queensland, are very sensitive to the importance of managing people’s
expectations and are demanding in the way that such matters are dealt with; and
most jurisdictions have complex, interrelating laws regarding the management of a person’s affairs
– both personal and financial. This is fertile ground for disputes, sometimes to the detriment of the
incapacitated person.
It would be fair to say that much of this book is centred around the pure financial benefits that can
be gained from successful estate and succession planning. However, we do not retract from the social
¶2-100
Attorneys and guardians 15
observations made in this chapter. When a person is incapacitated – which can be for many years – it is
essential that the right person or people manage their affairs.
In this chapter, we will discuss the rules that broadly apply to each common type of power and then look
at the specific rules that apply in each jurisdiction. Note that the rules are regularly changing and it is
not practical to include every relevant law in the jurisdictional summaries set out in ¶2-125 onwards.
¶2-105 General power of attorney
What is a general power of attorney?

A general power of attorney is a document by which a person (the donor) appoints someone (the
attorney) to make financial and legal decisions on their behalf. It is most commonly used to give an
attorney specific powers for a fixed period of time.
For example, a donor may give a family member a general power of attorney to manage their financial
affairs (for instance, to access their bank account, pay their tax or sell property) while they are overseas.
Is it permitted in all jurisdictions?

All jurisdictions provide for the making of general powers of attorney.
How is a general power of attorney created?

The legislation in each jurisdiction sets out the form a general power of attorney should take. The donor
and the attorney must sign the document. If two or more attorneys are appointed, both or all must sign.
Where the donor is able to sign, the law generally does not require a witness. However, it is often
considered prudent to have someone witness the general power of attorney.
If the donor is unable to sign the general power of attorney, they may direct someone else to sign it in
their presence. Usually in these circumstances, one or more people must witness the signing.
Can multiple attorneys be appointed?

Yes. Where more than one attorney is appointed the attorneys can act jointly (meaning that each
attorney must agree on any decisions and every document must be signed by all attorneys) or severally
(meaning that each attorney can act unilaterally).
Appointing multiple attorneys to act jointly can offer a degree of protection. However, if the purpose is
to act on a particular transaction – for example, to sign a real estate contract, then one attorney would
usually be satisfactory.
¶2-105
When does it come into effect?

A general power of attorney can take effect immediately or from a specified date. In Tasmania it has
no effect until registered and in some other jurisdictions, such as the Northern Territory, it must be
registered before real property can be dealt with under the power.
Can the attorney’s decision-making powers be limited?

Yes. The power can be limited to a particular transaction – such as signing a contract for the purchase
or sale of a property.
If no limitation is included in the power then the attorney will be able to make most financial or legal
decisions on the donor’s behalf.
The attorney cannot, however, make certain personal decisions on the donor’s behalf. For example,
the attorney cannot make a will for the donor or, if the donor is a director of a company, the attorney
cannot act in that role as director.1
Tip
There is often confusion regarding the role of a director and an attorney. It is important to note that while most
company constitutions refer to an attorney being appointed to act on the company’s behalf, this is different to
the attorney acting on a director’s behalf. The general rule is that a director cannot appoint an attorney to act
in their place.
How long does it last?

The general power of attorney will continue until it is revoked by the donor or attorney, or if the
attorney becomes bankrupt or on the death of the donor. It also ends on the incapacity of the donor
(unlike an enduring power of attorney).
While the law allows a donor to revoke a general power of attorney by telling the attorney their power
is withdrawn and destroying the power of attorney document, it is good practice to give the attorney,
and any people likely to have dealt with the attorney, written notice of a decision to revoke the power
of attorney.
An earlier appointment is not automatically revoked by a later appointment.
1 Cheerine Group (International) Pty Ltd v Yeung [2006] NSWSC 1047.
¶2-105
Does it need to be registered?

The rules for registering powers of attorney vary considerably between jurisdictions. In summary:
Legislation Registration
Australian Capital Powers of Attorney Act A power of attorney may be registered in the General
Territory 2006 (ACT) Register of Deeds under s 4 of the Registration of Deeds
Act 1957 (ACT)
New South Wales Powers of Attorney Act A power of attorney may be registered in the General
2003 (NSW) Register of Deeds maintained by the Register-General
(s 4). A power of attorney authorising dealings with land
(except for a lease for a term not exceeding three years)
must be registered (s 52)
Northern Territory Powers of Attorney Act (NT) A power of attorney may be registered (s 7). A power of
attorney is required to be registered if it is likely to be used
in relation to a dealing with land, other than a lease of land
for one year or less (s 8)
Queensland Powers of Attorney Act A general power of attorney may be registered (s 25) as
1998 (Qld) may an enduring power of attorney (s 60). A power of
attorney must be registered before a land instrument can
be registered (s 132 Land Title Act 1994 (Qld))
South Australia Powers of Attorney and There is no requirement to register a power of attorney.
Agency Act 1984 (SA) A power of attorney may be registered under Pt 2 of the
Registration of Deeds Act 1935 (SA)
Tasmania Powers of Attorney Act A power of attorney, irrespective of its purpose, must
2000 (Tas) be registered
Victoria Instruments Act 1958 (Vic) There is no provision for registering a power of attorney
Western Australia Transfer of Land Act 1893 A power of attorney may be registered (s 143 Registration
(WA) of Deeds Act 1856 (WA))
What can go wrong?

Self-evidently one of the risks to a person when appointing an attorney is that the attorney might act
outside the scope of their authority. It is imperative that powers of attorney be reviewed regularly and
kept in a secure location.
There are risks also for persons seeking to rely on the authority of the attorney. For example, there
are risks to financial institutions who rely on the authority of an attorney to redeem an investment,
withdraw funds from an account or give a loan.
¶2-105
Example
In Siahos & Anor v JP Morgan Trust Australia Ltd,2 a son used the power of attorney he held for his parents
to take out a new loan. The new loan was used to refinance an existing loan jointly held by the parents and to
provide additional moneys for “future investment use”.
The lender paid the additional moneys into a bank account in the son’s name. The Court of Appeal held that
the additional sum was not recoverable from the parents as it was a loan that had been made to the son only
and such a loan was not authorised by the power of attorney.
The court also considered whether the lender could rely on the doctrine of ostensible authority and
concluded that it could not as the (disputed part of the) loan was given to the agent without express approval
from the principal or the authorising document.
2
Example
In Spina v Permanent Custodians Ltd,3 a son used the power of attorney he held for his mother to take out
a new loan. The new loan was used to refinance an existing loan jointly held by the son and mother and also
to provide funds for the son’s business. The son signed the loan documentation both in his own right and on
behalf of the mother as her attorney.
At first instance, the Supreme Court held that the son had the necessary authority to bind his mother. The
Court of Appeal however overturned this decision and found that the son only had authority to bind the
mother in respect of one half of the original loan. Interestingly, the Court of Appeal indicated that the decision
might have been different if the mother did not have capacity and the transaction was for her clear benefit.
In a lesson for all financial institutions and other persons relying on the authority of an attorney, Young JA said:
“It is difficult for me to agree that a reasonable person would not see a ‘red light’ when considering the
scenario that the application for finance was being made:
(a) by an 86-year retired lady;
(b) by her son as her attorney;
(c) in circumstances where the son took a benefit;
(d) over the 86-year-old’s major asset;
(e) where there was no material to show the lady personally had been given legal advice; and
(f) where, if the son died or was unable to repay the loan out of his income, the lady’s home was
at risk.”
2 [2009] NSWCA 20.
3 [2009] NSWCA 206.
¶2-105
¶2-110 Enduring power of attorney
What is an enduring power of attorney?

An enduring power of attorney is a document by which a person (the donor) appoints someone (the
attorney) to make financial and legal decisions on their behalf.
It differs from a general power of attorney in that the appointment continues to have effect even if the
donor loses legal capacity.
The importance of choosing the right attorney/s is greater with an enduring power, given that the
donor may be without capacity and unable to monitor the actions of the attorney. The attorney must be
completely trustworthy and have the time and skills to act on behalf of the donor.

All jurisdictions provide for the making of enduring powers of attorney.
How is an enduring power of attorney created?

An enduring power of attorney must be:
signed by the donor or for the donor by a person at the direction and in the presence of the donor;
and
in most jurisdictions, signed and dated by two adult witnesses in the presence of the donor and
each other.
In most jurisdictions, a person is eligible to sign an enduring power of attorney for the donor if the
person is at least 18 years old, and is neither a witness nor a nominated attorney under the enduring
power of attorney.
Who can witness an enduring power of attorney?

A person aged 18 and over may witness an enduring power of attorney unless the person is named as
an attorney.
There are some other rules that apply that vary from jurisdiction to jurisdiction.
Certificate of witness
In some jurisdictions, an enduring power of attorney must contain a certificate signed by each witness.
¶2-110
Can multiple attorneys be appointed?

Yes. As with a general power of attorney, more than one attorney can be appointed jointly (meaning
that each attorney must agree on any decisions and every document must be signed by all attorneys) or
severally (meaning that each attorney can act unilaterally).
As noted above, because an enduring power of attorney can operate when the donor has lost capacity,
the choice of attorneys is critical. There is a growing area in Australian law dealing with elder abuse –
the trend towards children (and others) taking advantage of the elderly or incapable when acting under
the authority of documents such as a power of attorney.
In chapter 3, we discuss at length the importance of appointing the correct people as executors and
trustees of a will. Similar considerations apply regarding attorneys – that is, where it may be appropriate
to appoint at least two attorneys to act jointly or a trustee company or a public trustee. Where more
than one attorney is appointed, it is important that they cooperate with each other and act in the best
interests of the donor.
The attorney’s role is important not only in making personal decisions and managing day‑to‑day
finances, but also in terms of the investment of assets and the sale of assets such as the donor’s home.
The honesty and reliability of the attorney is essential.
Alternative attorney
In most jurisdictions, a donor may appoint an adult person as an alternative attorney in case the first
nominated attorney cannot accept that role. In other jurisdictions, the legislation is silent on this point
and it is not certain whether alternatives can be validly appointed.
Where it is an option, an alternative attorney may act as attorney under the enduring power of attorney in
the event of the death, or during the period of absence or legal incapacity, of the first-appointed attorney.

The enduring power of attorney can take effect immediately.
Alternatively, the enduring power can be made so that it becomes operative on a particular event
occurring – such as the donor’s loss of capacity.
Proving loss of capacity of the donor can be problematic. Some financial institutions may require
regular proof to show that the donor remains incapacitated. This usually requires a doctor’s report on
the donor’s capacity.
In Tasmania, as with a general power of attorney, an enduring power has no effect until it is registered
and in some other jurisdictions, such as the Northern Territory, it must be registered before real
property can be dealt with under the power.
¶2-110
Tip
It is essential that a donor understands exactly when the authority of the attorney commences. For example,
if a person makes an enduring power of attorney appointing their daughter as attorney, with immediate effect,
then it is important that the donor understands that the daughter may be able to hold herself out as attorney
from the date the power was executed.
Does it need to be registered?

Refer above for requirements in different jurisdictions.
What are the duties of an attorney?

An enduring power of attorney is a legal document. By signing it, the donor authorises the attorney to
make financial decisions for them. The attorney is in an important position of trust, and is subject to a
number of duties. For example, the attorney must:
always act in the best interests of the donor;
act with diligence, care and skill;
act according to any limits or conditions placed on their authority;
obey the donor’s instructions. These instructions may be given in contemplation of granting the
enduring power of attorney, at the time of granting the enduring power of attorney or after granting
the power of attorney (provided the donor still has capacity);
advise the donor if instructions cannot be carried out (if instructions are ambiguous, the attorney is
entitled to act on a reasonable interpretation of the instructions);
give proper instructions to other agents;
take care of the donor’s property;
keep their own finances and property completely separate from the donor’s finances and property.
This will ensure that the attorney is at all times able to separately identify their assets and the assets
belonging to the donor;
not enter into transactions on behalf of the donor that may involve a conflict between the interests of
the attorney and those of the donor (unless the transaction is explicitly authorised by the donor);
not use their position as attorney to make a profit;
keep proper accounts and records;
respect the donor’s right to confidentiality; and
not act in any way that may negate a donor’s will.
If the attorney’s duties are not carried out properly, they may be required to compensate the donor
for any losses occasioned as a result of their actions. However, in practice it can be difficult to identify
¶2-110
occasions of abuse and to bring an action against an attorney – another reason the appointment of an
appropriate attorney is crucial. In addition, even if abuse is identified and action successfully taken, it
may be that the recalcitrant attorney cannot make good any loss.
Professionals acting as attorney, such as licensed trustee companies and public trustees, accountants,
lawyers and financial planners, will be subject to a greater degree of scrutiny than others. Accountants
and financial planners in particular should carefully consider the consequences of taking on the role of
attorney before doing so. Many of these will be similar to those that apply when considering whether to
take on the role of executor (see ¶3-160).
There are also certain things that an attorney cannot do. An attorney is unable to:
exercise any trusts, powers or discretions vested in the donor;
perform any non-delegable duties of the donor;
make a will for the donor (although application for a statutory will may be possible – see ¶3-120);
swear an affidavit in the name of the donor; or
pass on his or her powers and duties to another person.
Can the attorney’s decision-making powers be tailored?

Yes, although it is not common for an enduring power of attorney to be limited, as the purpose is
generally to enable someone to do all things that the donor would otherwise be able to do.
It is also possible for the power of attorney to specifically authorise the attorney to do particular
things, such as make gifts, make certain investment decisions or make payments to the attorney for
their services.
As with a general power of attorney, the attorney cannot make certain personal decisions on the donor’s
behalf. There is some uncertainty regarding exactly what an attorney can and cannot do. In particular,
there are some interesting scenarios relating to superannuation, such as:
can an attorney make a binding death benefit nomination for superannuation purposes? The
Superannuation Complaints Tribunal (SCT) appears to hold the view that an attorney can make a
binding nomination.4 In the author’s view an attorney cannot;
can an attorney cash the donor’s superannuation benefit? In the author’s view the attorney can, unless
prohibited by the power of attorney. However, depending on the terms of the donor’s will, where the
donor had made a binding death benefit nomination any cashing of benefits prior to death may mean
that the nominated beneficiary will lose any entitlement to receive the superannuation benefit;
can an attorney roll over the donor’s superannuation benefit into another superannuation fund?
Again, yes, unless prohibited by the power of attorney. Again, this may affect who will receive the
superannuation death benefit – for example, what if the benefit was transferred to a self-managed
superannuation fund controlled by the attorney?
4 See decision of SCT No. D08-08\30.
¶2-110
The recent changes to taxation of superannuation death benefits give rise to a potentially valuable “angel of
death” strategy for pre-death withdrawal of superannuation benefits, as shown in the following example.
Example
Helen is a widow aged 65 years and no longer has capacity. She has three daughters, the eldest of whom
is her attorney under an enduring power of attorney. One of Helen’s assets is an interest in a superannuation
fund, consisting entirely of a taxed component, valued at $750,000.
Helen’s only beneficiaries are her three children, none of whom are tax dependants.
If Helen died with the money still in the superannuation fund, then the death benefit is paid to her children
from her superannuation fund; it would be taxed at 16.5%.
Helen is close to death. Her attorney decides to withdraw her benefit which is done tax-free. Helen dies one
week later. The $750,000 forms part of her estate and is then distributed to the beneficiaries named in her
will, being her three daughters.
If, at the time of Helen’s death, the $750,000 was still held in her superannuation fund then, on withdrawal, tax
of $123,750 would have been paid as the benefit was not paid to a tax dependant. By withdrawing the whole
benefit shortly before Helen’s death, the attorney has saved this amount.
Note, for a further discussion of this strategy – including risks – and a description of terms such as “taxed
component”, see ¶15-145.
How long does an enduring power of attorney last?

An enduring power of attorney continues to operate and have full force and effect notwithstanding that
the donor subsequently loses capacity. This contrasts with a general power that will cease to have effect
when the donor loses capacity.
An enduring power of attorney is revoked, to the extent of any inconsistency, by a later grant of an
enduring power of attorney.
The enduring power of attorney will continue until revoked by the donor or attorney, the attorney
becomes bankrupt, or the donor dies. It is possible for a court or tribunal to suspend a power in certain
circumstances, or if the donor regained capacity they could revoke the power.
In most jurisdictions, there is one or more statutory authorities that have the power to remove an
attorney, in certain circumstances. An attorney could always be removed by a court.
Can an enduring power of attorney be revoked?

An enduring power of attorney can be revoked or changed in the same way as a general power of
attorney can be revoked or changed, providing the donor has legal capacity.
The donor should inform their attorney that their appointment has been revoked and destroy the
enduring power of attorney document and any copies. It is wise for the donor to formalise their
¶2-110
decision in writing and notify their bank or other relevant institutions that the attorney no longer has
power to make decisions on their behalf. Decisions by the attorney bind the donor until the attorney
has been informed that the enduring power of attorney has been revoked.
Revocation if there is more than one attorney

If two or more people are appointed jointly and severally as attorneys, the revocation of the power in
relation to one attorney does not affect the appointment or powers of the remaining attorneys.
If two or more people are appointed jointly (not jointly and severally) as attorneys, the revocation of
the power in relation to one joint attorney also revokes the power of the other joint attorney which
effectively leaves the donor without an attorney.
Can the attorney charge a fee?

While an attorney is generally able to bind the donor in regard to expenses, this does not give the
attorney the right to charge a fee for their services unless it is a trustee company.
Accordingly, if it is intended that the attorney be paid for their services, it will be necessary to refer to this
in the enduring power of attorney document. Options include permitting the attorney to charge an hourly
fee (and keeping records evidencing time spent), a fixed fee or a fee based on the value of assets under
administration.
Can an attorney pay certain benefits?

It is not uncommon for an attorney to consider that the donor would have wanted gifts to be made to
certain persons. For example, an attorney might see that the donor had consistently made gifts to their
grandchildren for birthdays etc. Ordinarily, however, such gifts cannot be made by the attorney without
an express power to do so in the enduring power of attorney document.
Liability and indemnities

It is also possible for a donor to limit the liability of the attorney or give certain indemnities to the
attorney. In practice, this usually occurs in limited instances such as where the role of the attorney
includes making difficult decisions such as decisions relating to the running of a business.
SMSFs and enduring powers of attorney

It is a requirement of self-managed superannuation funds (SMSFs) that each member of the SMSF be a
trustee, or a director of the corporate trustee, of the SMSF. Section 17A of the Superannuation Industry
(Supervision) Act 1993 (SISA) sets out an exception to this requirement. Under s 17A(3)(b)(ii), a person
who holds an enduring power of attorney granted by a member may be a trustee, or a director of the
corporate trustee, in place of that member without causing the SMSF to breach the SISA.
¶2-110
The wording of s 17A(3)(b)(ii) is less than clear. It refers to a legal personal representative who has an
enduring power of attorney in respect of the member. The definition of “legal personal representative”
is broad but the relevant part for this purpose reads “a person who holds an enduring power of attorney
granted by a person”. The term “enduring power of attorney” is not defined.
The ATO sets out its views on the operation of s 17A(3)(b)(ii) in SMSFR 2010/2. According to the ATO:
the attorney must be appointed as a trustee, or a director of the corporate trustee, of the SMSF. This
means that the attorney performs their duties pursuant to the appointment to the position of trustee
or director, rather than in the capacity as attorney for the member and, as a result, any prohibitions
on trustees delegating their powers by way of power of attorney are not relevant;
the attorney assumes the duties, responsibilities and obligations as trustee in their personal capacity
and not as agent for the member;
the power of attorney document must be current and in accordance with the legislation in the relevant
jurisdiction. It must authorise the attorney to act in relation to the donor’s financial, business and
property affairs or the donor’s superannuation affairs;
particular attention must be given to the trust deed to ensure it allows for the appointment of a
person who is not a member of the fund as a trustee in place of the member; and
where a member has appointed more than one attorney, only one of those persons may be appointed
as trustee, or director of the corporate trustee, in the member’s place.
It is interesting that the ATO is of the view that a member does not have to be incapacitated before
the member’s attorney is able to step into the shoes of the member. This means among other things
that if the power of attorney has immediate effect (eg if it is not expressed to commence only upon the
member’s incapacity) then the attorney could replace the member as trustee of the SMSF even though
the member has not lost capacity (but see below). This is somewhat at odds with one of the purposes of
s 17A which was to help ensure SMSF members had a hands-on role in the management of their SMSF.
Practitioners need to remember that the legislation dealing with enduring powers of attorney varies
between jurisdictions. For example, in the Australian Capital Territory an enduring power of attorney
operates as a general power of attorney while the donor has decision-making capacity.5 This casts some
doubt as to when a person appointed as attorney in the ACT can be said to hold an enduring power of
attorney for a member under an enduring power of attorney where the member has not lost capacity. It
might be argued that even if the attorney is said to be acting under a general power of attorney, they still
“hold” an enduring power of attorney for the member and on that basis would satisfy s 17A(3)(b)(ii), but
the position is far from clear.
5 See note to s 8 of the Powers of Attorney Act 2006 (ACT).
¶2-110
What can go wrong?

As is the case with general powers of attorney, one of the key risks to a person when appointing an
enduring power of attorney is that the attorney might act outside the scope of their authority. This is
even a greater risk in the case of attorneys acting under an enduring power because if the donor no
longer has capacity there might not be anyone to supervise the actions of the attorney. It is imperative
that powers of attorney be reviewed regularly and kept in a secure location.
There are risks also for persons seeking to rely on the authority of the attorney. For example, there
are risks to financial institutions who rely on the authority of an attorney to redeem an investment,
withdraw funds from an account or give a loan.
¶2-112 Elder abuse
Are your clients at risk?

In recent times, there has been significant publicity concerning “elder abuse”.
The term is used to describe the situation where a vulnerable person is taken advantage of emotionally,
physically and/or financially.
We are living longer and more and more of us are likely to become more reliant on others at a time
when our own faculties are diminishing, and it is expected that the incidence of elder abuse will
continue to increase.
The following example draws on a case which our practice came across recently.
Example (note: modified for privacy reasons)
Heather has three children: two sons who live interstate and a daughter Deidre, a nurse, who lives nearby.
Heather is becoming increasingly dependent on Deidre. She consults her lawyers and decides to make
Deidre her sole financial and medical attorney.
The next year, Heather became increasingly frail and Deidre found herself having to reduce her normal
working hours in order to look after Heather.
After two years of an ever-increasing workload caring for Heather, Deidre had no option but to place Heather
into a high-care nursing home. As attorney, Deidre sells Heather’s house to fund the bond for the nursing
home. The house – which was in a suburb that was traditionally regarded as average but had recently
become popular – surprisingly sells for $1m and, after payment of the nursing home bond, Deidre has
$850,000 in the bank.
Deidre has never had so much money. She looks at the situation of her two brothers who are both financially
secure and convinces herself that Heather would have wanted her to have a “reward” because of all the
sacrifices she has made. Deidre “borrows” $200,000 to pay off her mortgage.
Over the next six months, Deidre then starts frequenting the pokie section of the local “Lucky Strike” Tavern.
¶2-112
Example (cont)
A year later, after Heather’s death, her sons discover that Deidre has gambled away all of the $850,000, as
well as her own house. They decide not to pursue Deidre.
The financial abuse is never reported and never included in statistics regarding the incidence or extent of
such abuse.
A recent Victorian report into financial abuse and what advisers should consider when caring for
elderly clients can be located at www.seniorsrights.org.au.
¶2-115 Medical enduring power of attorney
What is a medical enduring power of attorney?

A medical enduring power of attorney allows the donor to appoint someone to make medical treatment
decisions on their behalf when they are no longer able to make decisions.
The legislation in each jurisdiction varies significantly.

In Victoria and South Australia, a person is able to appoint a medical attorney. The Australian Capital
Territory has more limited powers. In New South Wales, Tasmania and Queensland, a person can
appoint an enduring guardian who can make certain decisions relating to medical matters. In Western
Australia and the Northern Territory, a relevant authority may appoint a person to make medical
decisions on a person’s behalf.
In some jurisdictions, documents such as advance care directives or living wills have no express
legislative base but are recognised under common law.
Details of the varying powers in each state and territory are set out at ¶2-125 onwards.
How is a medical enduring power of attorney created?

The relevant jurisdictions each have a prescribed form of medical enduring power of attorney. The
legislation in the Australian Capital Territory and Queensland refers to the donor’s understanding
of the appointment. The legislation in other jurisdictions refers to a witness’s view of the donor’s
understanding.
¶2-115
Tip
If there is a risk that a person will challenge the validity of a power of attorney, the time to address that risk is
before the time of signing. Ensure that the witnesses are independent and satisfied that the donor understood
the nature and effect – including the commencement date – of the power. Where necessary, consider having
a registered medical practitioner as one of the witnesses – preferably the donor’s usual practitioner – or
obtaining a medical certificate as to capacity.
Who can witness a medical enduring power of attorney?

Most jurisdictions require:
a qualified person to be the witness or one of two witnesses. The attorney cannot be a witness; and
one or both witnesses to write on the document that they believe that the donor is mentally
competent and understands the nature and effect of the medical enduring power of attorney.
Can the medical attorney’s decision-making powers be limited?

The attorney will be able to make any medical treatment decisions on the donor’s behalf, unless
prohibited by the law.
In several jurisdictions, prohibited procedures include medical procedures that are likely to lead to
infertility, procedures that are carried out for medical research, termination of pregnancy or removal of
tissues for transplants.
Can multiple medical attorneys be appointed?

In jurisdictions apart from the Australian Capital Territory, it is not permitted to appoint more than
one medical attorney; however, an alternative attorney can be appointed. An alternative attorney can
make a decision about medical treatment if the original attorney has died, is deemed incompetent, or
cannot be contacted, or when the attorney’s whereabouts are unknown.
In the ACT, one or more persons can be appointed to attend to “personal health care matters” or
“health care matters”.

The medical enduring power of attorney only comes into effect when the donor is unable to make
medical treatment decisions for themselves. This may occur temporarily (for example, if the donor
becomes unconscious as the result of an accident) or permanently (for example, if the donor suffers
from acute dementia).
¶2-115
What are the duties of a medical enduring power of attorney?

A medical enduring power of attorney is a legal document. By signing it, the donor authorises the
attorney to make medical treatment decisions for them. The attorney is in an important position of
trust, and is subject to a number of duties. For example, the attorney must:
always act in the best interests of the donor;
act with diligence, care and skill;
make decisions regarding medical treatment for the donor, such as having an operation or any other
medical procedure; and
refuse medical treatment if it would cause the donor unreasonable distress or it is reasonably
believed that the donor would not have chosen to have the treatment.
There are also certain things that an attorney cannot do. Again, the rules vary from jurisdiction to
jurisdiction – see ¶2-125 onwards.
In very general terms, in most jurisdictions, an attorney is unable to:

refuse palliative care, which includes:
the provision of reasonable medical procedures for the relief of pain, suffering and discomfort; or
the reasonable provision of food and water; and
make decisions regarding:
medical procedures that are likely to lead to infertility;
procedures that are carried out for medical research;
termination of pregnancy; or
removal of tissues for transplants.
Invariably, an attorney will need to make decisions whether to buy, sell or hold investments and other
assets. Attorneys need to be aware of the risks in not properly performing this aspect of the role (eg
see ¶2-120).
How long does a medical enduring power of attorney last?

The medical enduring power of attorney will continue until it is revoked by the donor, the donor dies or
the attorney’s authority is removed by an authority or court in the relevant jurisdiction.
Can a medical enduring power of attorney be revoked or changed?

A donor can revoke or change a medical enduring power of attorney in the same way as a general power
of attorney can be revoked or changed (see ¶2-105).
A donor will be unable to revoke a medical enduring power of attorney once they lose legal capacity.
¶2-115
An earlier appointment will be automatically revoked by a later appointment. However, it is prudent for
the donor to notify the first nominated medical attorney that their appointment has been revoked.
¶2-120 Enduring power of guardianship
What is enduring power of guardianship?

An enduring power of guardianship allows the donor to appoint someone to make personal, lifestyle
and sometimes medical decisions on their behalf.

Most jurisdictions allow for what are commonly referred to as enduring powers of guardianship.
How is an enduring power of guardianship created?

The relevant jurisdictions prescribe the form an enduring power of guardianship should take. The
donor must sign the document and the guardian must complete and sign some form of acceptance.
Both the donor and the guardian must sign in the presence of two witnesses – except in the Australian
Capital Territory where no witness is required for the guardian. At least one of the witnesses must be a
person authorised by law to take and receive statutory declarations (for example, a doctor or solicitor).
The guardian cannot witness the document.
The witnesses must certify that both the donor and the proposed guardian signed the document freely
and voluntarily and that they both understood the effect of the enduring power of guardianship.
Can the guardian’s decision-making powers be limited?

Yes. The guardian’s powers can be limited by deleting powers the donor does not wish the guardian
to exercise. If no limits are imposed, the donor will be considered to have authorised the guardian to
exercise the full powers of a guardian under the relevant legislation.
In most jurisdictions, a guardian can exercise all the powers that a parent may exercise in respect of his
or her child, including:
to decide where they live;
to decide with whom they live;
to decide whether they should work and, if so, where, the type of work and other work-related
matters;
to restrict visits that would adversely affect the donor; and
to consent to medical and dental treatment that is in the donor’s best interests.
¶2-120
If the donor has also appointed a medical enduring power of attorney, the donor’s medical agent’s
decision will have priority over the guardian’s decision.
Investment and special superannuation rules

Guardians may also be responsible for investment decisions. Guardians need to be alerted to the
special taxation rules in s 292-95 Income Tax Assessment Act 1997 (Cth) (ITAA97) that apply in regard
to receipt of payments for personal injuries damages. These rules make it possible for a guardian to
contribute the proceeds of a personal injuries settlement or court order into a superannuation account
of the represented person without breaching the non-concessional contributions cap. However, to
exclude a contribution made from the proceeds of a court ordered damages payment the sums must be
paid into superannuation within a 90-day timeframe.
The 90-day timeframe commences from the latter of the date of the court order or the date the payment
was made to the guardian – see ID 2008/142. Where an amount is paid from the court to the Office
of Protective Commissioner who then directs the payment to the guardian, the 90-day timeframe
commences from the payment to the guardian – see ID 2007/224.
As with any fiduciary – especially those who hold themselves out as professionals – guardians need to
be aware of all rules such as these or risk being sued for negligence.
Example
In Re CAC,6 the guardian (a licensed trustee company) received a payout of some $5m in respect of a
represented person.
The trustee company formulated an investment plan but did not appear to consider the investment opportunity
under s 292-95 ITAA97, at least until after the 90-day timeframe had expired.
A complaint was brought against the guardian before the Guardianship and Administration Tribunal. The
tribunal held that the trustee company had not properly modelled the investment structure for the client and
had not considered the advantages of making a superannuation contribution under s 292-95 ITAA97.
6
However, where a payment is made to a trustee (eg pursuant to a court order), it may be that the trustee
does not have the power to make a contribution to a superannuation fund, as such a transaction would
equate to the trustee divesting itself of a legal estate in the money.7
6 Re CAC [2009] QGAAT 63.
7 See, for example, the decision in McInnes (by her next friend Gayle McInnes) v Insurance Commission of Western Australia [2011]
WADC 17.
¶2-120
Can multiple guardians be appointed?

In the Australian Capital Territory, New South Wales and South Australia, it is possible to appoint
more than one guardian and to also nominate alternative guardians. In other jurisdictions, only one
guardian can be appointed but an alternative guardian can also be nominated. An alternative guardian
will take the place of a guardian if the latter becomes incapable of acting or is absent for a period.
In New South Wales and the Australian Capital Territory, you can have more than one guardian.
When does an enduring power of guardianship come into effect?

The enduring power of guardianship only comes into effect when the donor is unable to make decisions
for themselves.
How long does it last?

The enduring power of guardianship will continue until it is revoked by the donor, the donor dies,
the guardian loses capacity or dies (assuming no alternative named) or a state authority finds that the
guardian is not acting in the donor’s best interests.
Can it be revoked or changed?

A donor can revoke or change an enduring power of guardianship in the same way as a general power
of attorney can be revoked or changed (see ¶2-105).
A donor will be unable to revoke a power of guardianship once they lose legal capacity.
An earlier appointment will be automatically revoked by a later appointment. However, it is prudent to

notify the first nominated guardian that their appointment has been revoked.
¶2-121 Guardianship and administration boards and tribunals

Each state and territory has a statutory body whose role is to deal with matters involving guardianship
and administration.8 For convenience, we will refer to these in this section as “the tribunal”.
(See ¶2-125 and onwards for legislative references and other information.)
The role of the tribunal is to protect persons (represented persons) aged 18 years or over who, as the
result of a disability, are unable to make reasonable decisions about their personal circumstances or
their financial and legal affairs. The tribunal does this by making an order giving another person the
ability to make decisions on behalf of the represented person.
8 ACT and NSW: Guardianship Tribunal; NT: the Public Guardian; Qld: Guardianship and Administration Tribunal; SA, Vic and WA:
Guardianship Board; Tas: Guardianship and Administration Board.
¶2-121
An order will only be made if a person has a disability and their disability significantly affects their
ability to make decisions for themselves. A disability is usually defined and may include:
intellectual impairment;
mental disorder/mental illness;
brain injury;
physical disability; and
dementia.
As a result of their disability, a represented person:

may not appreciate fully all of the consequences of his or her decisions;
may lack a full understanding of his or her or others’ actions; and
may take unreasonable risks affecting his or her health or welfare.
Self-evidently, the tribunal has extremely important powers, as orders will diminish a person’s
civil liberties by removing their right to manage their own affairs or to make lifestyle decisions.
Understandably, significant evidence must be produced to the tribunal before it will make orders.
Although there are some differences from jurisdiction to jurisdiction, the tribunal usually has the
power to make orders appointing a person:
to make lifestyle decisions (eg where to live, who has contact etc) and medical treatment decisions on
behalf of the represented person; and
to manage the financial, property and legal affairs of the represented person.
In most jurisdictions, the order can be a full order (giving a wide range of powers) or a limited order
(limited to a particular act or event).
Applications to the tribunal may be made for orders appointing a guardian or an administrator, although
again this varies from jurisdiction to jurisdiction. Any appointment may override the power an existing
attorney has over the affairs of the represented person.
The decisions a guardian can make may include:

changing an accommodation facility if the needs of the represented person change;
changing the residence of the person if need be; and
making other lifestyle-related decisions, such as who can visit the represented person.
The decisions an administrator can make may include:

taking control over the person’s income (such as a disability or old age pension) and from this paying
rent, providing an allowance for food, clothing and other expenses and investing any surplus;
paying debts (where sufficient funds are available);
selling or buying a property;
¶2-121
purchasing furniture;
leasing or letting a property; and
issuing or defending legal proceedings.
The legislation in each jurisdiction sets out the matters that the tribunal must satisfy itself with before
making orders. This will usually include evidence that:
the represented person has a disability – this will be ascertained by medical evidence;
the represented person is unable, because of the disability, to make reasonable judgments about their
legal, financial or accommodation decisions;
there are decisions that need to be made and that there is no alternative arrangement for making
these decisions that is less restrictive on the represented person. For instance the tribunal will
consider whether there is an enduring power of attorney appointed or whether a family member
could take on more involvement in the represented person’s life;
the orders will assist to improve the represented person’s quality of life;
the proposed guardian or administrator is over 18 years of age and consents to the appointment;
the proposed guardian or administrator will act in the best interests of the proposed represented
person;
existing family relationships will be preserved – as indicated earlier, if there is family conflict the
tribunal may appoint an independent person;
there is a satisfactory degree of compatibility between the represented person and the proposed
guardian or administrator; and
the proposed guardian or administrator possesses the necessary qualities and experience for the task.
The guardian/administrator will often be a family member or close friend. If there is no suitable
or willing family member or friend, or if there is a conflict within the family, the tribunal will
appoint a statutory body, such as the public trustee (in Victoria, state trustees), a trustee company
(as administrator) or the public advocate (as guardian).
The tribunal will look at a number of matters prior to making an order or rejecting an application,
including:
what the wishes of the represented person would have been if he or she had not become mentally
incapacitated (where this can be determined);
the present wishes of the represented person – if these can be expressed;
whether or not existing informal arrangements for the treatment and care of the represented person
are adequate, and should not be disturbed; and
which decision or order would least restrict the represented person’s rights and personal autonomy,
while still ensuring his or her proper care and protection.
The tribunal will usually be required to review orders every one, two or three years.
¶2-121
A wide range of information is publicly available about the processes for appointing administrators and
guardians in each jurisdiction – see the following websites:
Jurisdiction Office Website address

ACT Public Advocate of the ACT www.publicadvocate.act.gov.au/index.php
NSW Office of the Public Guardian www.lawlink.nsw.gov.au/lawlink/opg/ll_opg.nsf/
pages/OPG_index
NT Office of Public Guardian www.health.nt.gov.au/index.aspx
Qld Office of the Adult Guardian www.justice.qld.gov.au/91.htm
SA Office of the Public Advocate www.opa.sa.gov.au/cgi-bin/wf.pl
Tas The Office of the Public Guardian www.publicguardian.tas.gov.au
Vic Victorian Civil and Administrative Tribunal www.vcat.vic.gov.au
WA Guardianship and Administration Board www.justice.wa.gov.au
¶2-125 Australian Capital Territory
Powers of Attorney Act 2006 (ACT)

Who can make a power of attorney? An adult (s 13(1))
Can a company be appointed? For property matters only, a statutory trustee company or public
trustee can be appointed (s 14(1) and (2))
Can a child be appointed? No (s 31(3))
Can the public advocate be appointed? For “personal care” or “health care” matters only (s 14(3))
Can a person who is bankrupt or who No (s 14(1)(b))
has executed a personal insolvency
agreement be appointed?
Is the attorney’s role affected by Yes, the Guardianship Tribunal may make orders affecting the
the subsequent appointment of authority of the attorney (ss 75 to 79)
a guardian?
Who can sign the document? The donor or, at the direction of the donor, an “eligible person”
(s 20)
Are witnesses required? Two adult witnesses in the presence of the donor and each other
(s 19(2)(a))
¶2-125
Is a witness certificate required? Yes – a witness certificate must be signed (s 19(2)(b))

Power of attorney must include certificates signed by each witness
stating that the donor signed the power voluntarily in the presence
of the witness and appeared to the witness to understand the
effect of making the power (s 22)
Similar rules apply where the donor authorised another to sign for
the donor (s 22)
Who can be a witness? A person other than the eligible person, the attorney or a child
(s 21(1))
Can a relative be a witness? Only one witness can be a relative of either the donor or one of the
attorneys (s 21(2))
Must witnesses be qualified? One witness must be a person authorised to witness signing of
statutory declarations
Acceptance of attorney Enduring power must be accepted to be valid
Can the attorney benefit? Only if the power of attorney expressly authorises (s 34)
What generally can’t an attorney do? An attorney cannot exercise power in relation to:
special personal matters – making or revoking a will, making
a power of attorney, voting, consenting to marriage or to
adoption of a child; or
special health care matters – such as removal of non-
generative tissue for donation, termination of pregnancy,
treatment for mental illness
(s 37)
Can an attorney make gifts? Only if the power of attorney expressly authorises. If general
authority is given then the value must be reasonable (ss 38 and 39)
Can an attorney pay for living expenses Under an enduring power of attorney, yes, but only if the power of
for someone other than the attorney or attorney expressly authorises payment for a named person
dependant? Unless stated, only reasonable costs relating to certain types of
expenses are authorised (s 40)
Can an attorney pay for maintenance of Under an enduring power of attorney, yes. Unless the power of
dependants? attorney says otherwise, expenditure must be reasonable in the
circumstances (s 41)
Are there special rules if an attorney No
disposes of items bequeathed in the
donor’s will?
Must an attorney keep records? Yes (s 47)
Can an attorney resign? Yes, but if the donor has impaired decision-making capacity
resignation can only happen with the leave of the Guardianship
Tribunal (s 53)
Can irrevocable power be granted? No (s 54)
¶2-125
What happens if a donor marries? Power of attorney is revoked unless either the attorney is the
new spouse or the power of attorney expressly states that it is to
continue (s 58)
What happens if the donor divorces? If the attorney was the spouse then power is revoked (s 59)
What happens if an attorney becomes The power of attorney is revoked to the extent it gives power to the
bankrupt or executes a personal attorney (s 62)
insolvency agreement?
What happens if the attorney loses The power of attorney is revoked in relation to the attorney (s 63)
capacity?
Are powers of attorney from other Yes
Australian jurisdictions recognised? See chapter 6 of this book for more detail
Guardianship and Management of Property Act 1991 (ACT)

This Act gives the Guardianship and Management of Property Tribunal (the tribunal) certain powers,
summarised as follows:
Who can the tribunal appoint? A guardian (ss 7 and 7A ) or a manager (s 8) in respect of a person with
impaired decision-making ability
What powers can be given to a The power to make decisions such as where, and with whom, the
guardian? donor is to live, what education or training the donor is to receive,
whether the donor can work and the power to consider certain
medical procedures (s 7)
What can’t a guardian do? A guardian cannot:
consent to prescribed medical procedures
vote in an election
make a will
consent to adoption of a child, or
consent to marriage
(ss 7 and 7A)
What powers can be given to a A manager can make decisions regarding the donor’s property (s 8)
manager?
What effect does the appointment The tribunal can revoke part or all of the enduring power of attorney
of an enduring power of attorney and give the guardian the power to consent to treatment. The guardian
in relation to health care have on a must consider the terms of the enduring power of attorney (s 8B)
guardian or manager?
Who can be appointed as a The public advocate or an individual can be appointed as a guardian.
guardian? The public advocate must not be appointed if a suitable individual has
consented to act (s 9(1) and (3))
¶2-125
Who can be appointed as a The public advocate, an individual, the public trustee or a statutory
manager? trustee company can be appointed as a manager. The public
advocate, public trustee or statutory trustee company must not be
appointed if a suitable individual has consented to act (s 9(2) and (4))
Who can be appointed as a health A person who has a close relationship with the protected person –
attorney? such as domestic partner, carer, or close relative – may be treated as
a “health attorney” by a health professional for the purpose of giving
consent to medical treatment (s 32D)
Must accounts be filed? Yes – a manager, other than the public trustee, must file accounts with
the public trustee (s 26)
Medical Treatment (Health Directions) Act 2006 (ACT)

This Act aims to protect the rights of patients to refuse unwanted medical treatment and to ensure the
right of patients to receive relief from pain and suffering where reasonable.
It provides that an adult can make a “health direction” to refuse or require the withdrawal of medical
treatment generally or specifically. A health direction cannot be made by a person for whom a guardian
is appointed under the Guardianship and Management of Property Act 1991 (ACT).
Testamentary Guardianship Act 1984 (ACT)

Under this Act, each parent and each guardian of a child may, by will, appoint one or more people to be
a guardian of the child.
Where the appointor is survived by a parent of the child the appointment takes effect:
if the instrument shows an intention to take effect on the appointor’s date of death, on that date; or
on the date of death of the parent.
Where the appointor is not survived by a parent of the child the appointment takes effect on the
appointor’s date of death.
Note that the Supreme Court’s powers to make orders regarding the guardianship and custody of
children remain unaffected by this Act.
¶2-125
¶2-130 New South Wales
Powers of Attorney Act 2003 (NSW)

Allow personal care powers of No – the donor must appoint an enduring guardian under the
attorney? Guardianship Act 1987 (Sch 3)
Allow health care powers of No – the donor must appoint an enduring guardian under the
attorney? Guardianship Act 1987 (Sch 3)
Signing requirement – donor Must be signed by the donor (Sch 3)
Witnessing requirements One witness. If an enduring power, the witness must be a “prescribed”
witness
Who can be a witness? Anyone over 18 years of age
Qualifications of witnesses A prescribed witness includes a person who is a lawyer, barrister,
registrar of the local court, licensed conveyancer or statutory trustee
company/public trustee employee
Witness certificates A prescribed witness must say that they explained the effect of the power
to the donor, and the donor appeared to understand it
Can the attorney benefit? Only if the instrument creating the power expressly authorises this
(s 12)
Can an attorney make gifts? Only if the instrument creating the power expressly authorises this
(s 11)
Are there special rules if an Yes. A beneficiary has an interest in sale proceeds, following the donor’s
attorney disposes of items death (s 22)
bequeathed in the donor’s will?
Can an attorney resign? Yes – they may renounce their power (s 5(b))
What happens if an attorney The attorney’s position is vacated (s 5(d))
becomes bankrupt?
What happens if an attorney The attorney’s position is vacated (s 5(f))
loses capacity?
Are powers of attorney from Yes, although limited (s 25)
other Australian jurisdictions
recognised?
Can power of attorney be Yes if the instrument expresses this and is given for valuable
irrevocable? consideration
Is power of donor suspended Yes (but not terminated) (s 50)
when a guardianship order is
made?
¶2-130
Guardianship Act 1987 (NSW)

This Act gives individuals and the Guardianship Tribunal certain powers to appoint guardians.
Who can appoint a guardian? A person 18 years of age or older may, by written instrument, appoint a
person to be their guardian or two or more people – jointly, severally or
jointly and severally – to be their guardian (ss 6 and 6D)
The tribunal may appoint a guardian (s 14)
Who can review the The tribunal and the court each have power to review an appointment
appointment? and appoint substitute guardians (ss 6J, 6L and 6MA)
Who can make financial The tribunal can make financial management orders – ie order that the
management orders? estate of a person be managed under the Protected Estates Act 1983
(s 25E)
What effect does an order have An order may operate so as to suspend any power of attorney (s 25E;
on power of attorney? and see s 76 of the Protected Estates Act 1983)
What medical and dental A “person responsible” for another may consent to medical or dental
decisions can be made? treatment for the donor for the sake of their health and wellbeing. “Person
responsible” can include a person with parental responsibility, guardian,
spouse, carer and others. A hierarchy applies.
The tribunal can also give consent (Pt 5)
Protected Estates Act 1983 (NSW)

This Act empowers the court, where it is satisfied that a person is incapable of managing his or her
affairs, to make a declaration to that effect and subject the person’s estate to management under the Act.
The power to make orders extends to the estate of a missing person also.
Management may be given to the Protective Commissioners and private managers who have, and
may exercise, all such functions as the protected person has and can exercise or would have and could
exercise if under no incapacity.
The Act sets out extensive rules relating to the Protective Commissioner’s powers and responsibilities.
Testator’s Family Maintenance and Guardianship of Infants Act 1916

(NSW)
Under this Act, the father or mother of a child may, by deed or will, appoint a person to be a guardian
of a minor after the parent’s death.
The guardian appointed must act jointly with the surviving parent unless the surviving parent objects.
In that situation, or where the guardian considers that the parent is unfit to have custody of the minor,
the guardian may apply to the court for an appropriate order.
Note that the court retains a range of powers regarding removal of guardians and granting certain
persons – such as grandparents – rights of access.
¶2-130
¶2-135 Northern Territory
Advance Personal Planning Act (NT)

The Advance Personal Planning Act was passed by the Northern Territory Parliament in November
2013 and came into effect on 17 March 2014. It enables a person to make a document called an “advance
personal plan” under which a “decision-maker” is appointed. The decision-maker can be authorised to
make decisions relating to the donor’s health, and financial and lifestyle preferences in the event that
the donor loses capacity.
The Northern Territory Attorney-General summarises the use of an advance personal plan as follows:
“ Advance consent decisions are legally binding consent decisions relating to your
future health care. By completing an advance consent decision as part of your Advance
Personal Plan, you will control how and what treatment you are provided once you have
lost decision-making capacity. Medical professionals are legally bound to abide by your
decisions.
Advance care statements detail your beliefs, views and wishes as to how you want to
be treated in relation to any future health, financial or lifestyle matter. Unlike advance
consent decisions, they do not provide directives for future treatment; they simply
provide guidance as to your personal views relating to lifestyle matters.
Appointment of a substitute decision-maker/s is probably the most important part of
your Advance Personal Plan. The person/s you appoint should be someone you trust
to act in your best interests; for example, a spouse/partner, parent, adult child, close
relative or friend. You can nominate separate decision-makers for different purposes, for
example, a person for health and lifestyle decisions and a different person or institution
to manage your financial affairs.”
An advance personal plan will only take effect upon the donor losing capacity. The plan can be
registered at the Office of the Public Trustee. The plan must be registered at the Lands Titles Office
before any dealings with land.
Powers of Attorney Act (NT)

Signing requirement – donor Signed by the donor or on the direction in presence of the donor
(s 6(2))
Witnessing requirements Where power of attorney is signed by direction there must be two
witnesses present (s 6(4))
Where power of attorney is an enduring power there must be one witness
who cannot be the donee or near relative of the donee
Must an attorney keep records? Yes (s 11)
Can an attorney resign? Yes, but where there is an enduring power of attorney they must have
leave of the Supreme Court
¶2-135
What happens if an attorney The power is revoked (s 16(d))

becomes bankrupt, insolvent
or enters into compounding
arrangements with creditors?
What happens if an attorney The power is revoked (s 16(b))
loses capacity?
What happens if a protection order The power is revoked to the extent to which it authorises the donee to
is made under the Aged and Infirm deal with property that is the subject of the order (s 18, subject to s 19)
Persons’ Property Act?
Aged and Infirm Persons’ Property Act (NT)

According to this Act, a person, their spouse or de facto partner or the public trustee may, with the
permission of the Supreme Court, make an application for a protection order in respect of the estate of
any person.
In general terms, the Supreme Court will not make an order unless it is satisfied that, due to the
person’s age or health, it is in the person’s best interests for an order to be made.
Under an order, the public trustee or another person is appointed as manager. Joint managers may be
appointed. A manager may take possession of and manage an estate as a trustee.
Adult Guardianship Act (NT)

Under this Act, a person may be appointed to act as guardian. The role of guardian can be separate to
that of manager or can extend to the management of a person’s affairs. When appointing a guardian the
court must have regard to the compatibility of the guardian with any manager.
Who may apply to the court for a The Public Guardian, a near relative of, or a person who has provided or
guardianship order? is providing substantial care for a person under a disability (s 8(1))
Who may act as guardian? A person who is at least 18 years of age and who is suitable having
regard to the criteria in the Act (s 14)
What power can the guardian A guardian may be conferred power to decide where the represented
have? person lives, with whom they live, whether they work and whether they
have health care other than a major medical procedure (s 17)
What rules apply regarding If there is a full or conditional order appointing a guardian to a person, no
medical and dental procedures? major medical procedure can be carried out on them unless the court
has consented (s 21)
¶2-135
Guardianship of Infants Act (NT)

This Act includes a range of provisions regarding the care of infants and rights of recognition of parents.
In the context of succession planning, the father or mother of a child may, by deed or will, appoint a person
to be a guardian of a minor after the parent’s death. The guardian appointed must act jointly with the
surviving parent unless the surviving parent objects. In that situation, or where the guardian considers that
the parent is unfit to have custody of the minor, the guardian may apply to the court for an appropriate order.
Note that the court retains a range of powers regarding removal of guardians and granting certain
people – such as grandparents – rights of access.
¶2-140 Queensland
Powers of Attorney Act 1998 (Qld)

As with the legislation in the Australian Capital Territory, Queensland has extensive provisions dealing
with powers of attorney. One notable feature of this legislation is the different tests that apply when
assessing a donor’s ability to make an enduring power of attorney and an advance health directive.
These different tests are also reflected in the provisions dealing with the donor’s ability to revoke a
power or directive.
The Act also authorises a “statutory health attorney” for an incapacitated adult’s health matter.
Allow advance health directives? Yes (Pt 3)

Can a company be appointed? For enduring powers of attorney the only company that can be appointed
is a statutory trustee company or the public trustee
Other rules as to who can be an For enduring power, an attorney must be a public trustee, a statutory
attorney trustee company, a person who is over 18 years of age, not a paid
carer or similar and – if the person would have financial powers – not
a bankrupt or similar (s 29(1))
For an advance health directive, the person must be over 18 years ofage and
not a paid carer or the like, the public trustee or an adult guardian (s 29(2))
Signing requirement – donor Signed by or at the direction of the donor
An enduring power not signed by the donor must satisfy the following:
be signed by an “eligible signer” (defined as over 18, and neither a
witness nor the attorney); and
signed and dated by an “eligible witness” (defined as notary public or
lawyer). The following are not able to be eligible witnesses:
the eligible signer, attorney, relative or donor
an attorney of the donor, or
a paid carer or the like, if it relates to personal matters
(ss 41, 30 and 31)
¶2-140
Other formal requirements An enduring power of attorney must be in an approved form (s 46(1))
An advance health directive must be in writing and may be in the
approved form (s 46(2))
Must witness certificates be Yes for enduring powers – whether signed by or at the direction of the
included? donor (s 44(4) and (5))
Yes for an advance health directive. They must be signed and dated by a
doctor – other conditions apply (s 44(6))
Revocation by donor A donor can revoke a power or directive only if the donor has capacity to
give a power or directive (ss 47 and 48)
Revocation of an enduring power must be in the approved form (apart
from in regard to revocation of a health directive) and signed by the donor
or an eligible signer on the instruction of the donor (s 49)
Revocation by attorney An enduring power is revoked to the extent it gave power to an attorney
upon that attorney’s resignation, impaired capacity, bankruptcy or
insolvency, death or upon becoming a paid carer or health provider or
service provider for a residential service where the donor is a resident
(Div 3)
Who will be the statutory health It is a matter of working through a list, in order, starting with a spouse
attorney? and ending with a close friend over 18 years of age who is not a paid
carer (s 63)
What health matters can the Any matter relating to health care of the donor other than “special health
statutory health attorney deal care” (Sch 2)
with?
What is “special health care”? Removal of tissue for donation, sterilisation, termination of pregnancy,
and others (Sch 2)
What happens when there The Guardianship and Administration Act (Qld) prevails (see ss 23 and 66
is conflict between the role of that Act) (s 6A(4))
of attorney and the role of a
guardian appointed under the
Guardianship and Administration
Act 2000?
Guardianship and Administration Act 2000 (Qld)

The Act is a substantial piece of legislation that sets out in considerable detail the appointments
that can be made by the Guardianship and Administration Tribunal and the rules relating to these
appointments.
What appointments can be The tribunal can appoint one or more guardians for personal matters or
made? one or more administrators for financial matters (ss 13 and 14)
When will the order override Where the tribunal (in the knowledge that an enduring power gave power
enduring power of attorney? in respect of a non-health matter) makes an order giving the guardian or
administrator that power, then the attorney may exercise power only to
the extent authorised by the tribunal (s 23)
¶2-140
What if the court, guardian and/or The guardian’s or administrator’s power is suspended pending a review
administrator was unaware of the (s 23)
enduring power?
When will the guardian or Upon death or, if they were married to the principal, divorce, or in the
administrator’s power cease? case of the administrator, upon bankruptcy or insolvency (s 26)
Are health matters dealt with? Yes
See chapter 5 onwards. Note that attorneys may have a role (s 66)
Mental Health Act 2000 (Qld)

This Act provides for the involuntary assessment and treatment, and the protection, of persons who
have mental illnesses. It applies to adults as well as children.
The Act gives the Mental Health Tribunal the authority to make an involuntary treatment order, in
certain circumstances.
Succession Act 1981 (Qld)

This Act provides that a parent or guardian of a child may, by will, appoint a person as a guardian of
the child. If the appointor is not survived by a parent of the child, the appointment takes effect on the
appointor’s death. If the appointor is survived by one or more parents of the child, the appointment
takes effect (1) if the will shows that the appointor intended the appointment to take effect on the
appointor’s death, on that date, or (2) otherwise, on the death of the last surviving parent.
¶2-145 South Australia
Powers of Attorney and Agency Act 1984 (SA)

The brevity of the South Australian legislation is in stark contrast to the Queensland legislation.
It is, however, notable that this Act includes rules that specifically deal with what happens if an attorney
disposes of items bequeathed in the donor’s will.
What happens if the donor The administrator, manager etc appointed under the other Acts are
becomes subject to an order deemed to be the donor of the power of attorney (s 10)
under the Mental Health Act 1977
or the Aged and Infirm Persons’
Property Act 1940?
Are there special rules if an Yes. The Supreme Court may make orders to protect the beneficiary
attorney disposes of items (s 11)
bequeathed in the donor’s will?
¶2-145
Consent to Medical Treatment and Palliative Care Act 1995 (SA)

This Act deals with consent to medical treatment and aims to regulate medical practice so far as it
affects the care of people dying and others.
The Act provides that a person over 16 years of age may make decisions about their own medical
treatment as validly and as effectively as an adult.
What directions can be given A person over 18 years of age may give a direction about the treatment
about future medical treatment? the person wants or does not want if they are in the terminal phase of
a terminal illness and incapable of making decisions about medical
treatment (s 7(1))
How must directions be given? In the form set out in the regulations witnessed by an authorised witness
(s 7(2))
Who is an authorised witness? A justice of the peace, commissioner for taking affidavits, member of the
clergy or registered pharmacist (s 4)
What other directions can be Medical power of attorney can be given by a person over 18 years of age
given? in prescribed form witnessed by an authorised witness (s 8(1) and (2))
Who can be appointed as an A person who is over 18 years of age but not someone responsible for or
agent? involved in the medical care or treatment of the donor (s 8(5))
What can the agent do? Make decisions about the medical treatment of the donor if the donor is
incapable of making such decisions (s 8(6))
What can’t the agent do? Refuse the natural provision or natural administration of food and
water, refuse administration of drugs to relieve pain or distress or refuse
treatment that would result in the donor regaining capacity (s 8(7))
Guardianship and Administration Act 1993 (SA)

This Act deals with the guardianship of persons unable to look after their own health, safety or welfare
or to manage their own affairs. The Act establishes the Guardianship Board which makes appointments
and also the Public Advocate whose functions include overseeing programs to meet the needs of
incapacitated persons.
Again, the Act is notable in that it specifically addresses succession issues not dealt with in similar
legislation in some other jurisdictions, such as the dealing with property by the administrator that
disadvantages a beneficiary under the will, and the making of testamentary dispositions by the
protected person.
Who can be a guardian? The Guardianship Board may by order place a person under a limited or
full guardianship (s 29(1))
A guardian must be a natural person but cannot be a person who cares
for the protected person on a professional basis. The Public Advocate
may be appointed guardian (s 29)
¶2-145
What decisions can a full Decisions as to where and with whom the represented person lives,
guardian make? whether the represented person can work, may consent to certain health
care and may restrict visits to the represented person (s 24)
What decisions can a limited As set out in the tribunal order (s 25)
guardian make?
Who can be appointed The Guardianship Board may appoint the public trustee, a trustee
administrator? company or any individual the board considers suitable to act as
administrator. However, only the public trustee may be appointed sole
administrator (s 35)
Access to wills and other records Subject to the terms of appointment, an administrator is entitled to view
and take an extract from or copy of any will or testamentary disposition of
the protected person (s 40)
What if the administrator disturbs Where at the death of a protected person it appears that, as a
entitlements of beneficiaries? consequence of actions of the administrator, a person’s benefit under the
protected person’s will has been affected, the Supreme Court may make
orders addressing the matter (s 43)
Are health matters dealt with? Yes – medical and dental treatment (Pt 5)
Can testamentary dispositions Yes – with the direction of the Guardianship Board and in compliance
still be made by the protected with precautions set out by the board (s 56)
person?
Guardianship of Infants Act 1940 (SA)

Similar to equivalent Acts in other jurisdictions, this Act provides that the father or mother of a
child may, by deed or will, appoint a person to be a guardian of a minor after the parent’s death. The
guardian appointed must act jointly with the surviving parent unless the surviving parent objects. In
that situation, or where the guardian considers that the parent is unfit to have custody of the minor, the
guardian may apply to the court for an appropriate order.
¶2-150 Tasmania
Powers of Attorney Act 2000 (Tas)

Signing requirement – donor Must be signed by the donor (Sch 3)
Witnessing requirements Enduring power must have two witnesses, neither of whom is a party,
both signing in the presence of donor and each other.
Other powers of attorney must have one witness who is not a party and
signs in the presence of the donor (s 9)
Peculiar signing requirements Yes. For example, the power must be on A4-sized paper, have each page
consecutively numbered, alterations must be initialled etc (s 9)
Is a witness certificate required? No, but a registration certificate is required for lodgment with the
Recorder of Titles
¶2-150
Other special rules Special form for appointing public trustee

When does an attorney’s Upon revocation by the donor or upon the death, bankruptcy or
authority cease? insolvency of the donor (s 27)
Interaction between power of The Guardianship and Administration Board may vary, revoke or
attorney and Guardianship and substitute a power of attorney (s 33)
Administration Act 1995
Guardianship and Administration Act 1995 (Tas)

This Act enables people with a disability to be represented by a guardian or administrator and to provide
for medical and dental treatment for people with a disability. It establishes the Guardianship and
Administration Board and provides for the making of guardianship orders, administration orders and to
facilitate medical and dental treatment of people incapable of giving informed consent to such treatment.
Who can be guardian? The Guardianship and Administration Board may by order place a person
under a limited or full guardianship (s 20(1))
A person over 18 years of age (provided the board is satisfied that the
person will act in the represented person’s best interests) is suitable and
will not be in a position where there is a conflict of interests (s 21)
What decisions can a full Decisions as to where and with whom the represented person lives,
guardian make?
Can a person appoint an Yes, a person over 18 years of age may by written instrument appoint a
enduring guardian? person or two or more people jointly to act as enduring guardian
The appointment must be in the prescribed form witnessed by two or
more witnesses and accepted by the guardians (s 32)
Who can be an enduring A person who is not in a professional or administrative capacity, directly
guardian? or indirectly responsible for, or involved in, the medical care or treatment
of the appointor (s 32)
Interaction between power of Appointment of attorney will generally take precedence unless
attorney and administration emergency order is required (s 53)
orders
Who can be appointed The Guardianship and Administration Board may appoint the public
administrator? trustee, the public guardian, a trustee company or any individual the
board considers suitable to act as administrator (s 54)
How does an administration Where a proposed represented person has granted an enduring power of
order affect enduring power of attorney under s 11A of the Powers of Attorney Act 1934 (Tas) or s 30 of
attorney? the Powers of Attorney Act 2000 (Tas), it is not competent for the board
to make an administration order in respect of his or her estate so long as
the enduring power of attorney is in force unless the order is made under
Pt 8 (s 53)
¶2-150
What if the administrator disturbs Where action by the administrator is likely to affect a likely interest under
the entitlements of beneficiaries? a will the board may give directions including to hold money in a separate
account and to keep a record of such proceeds (s 60)
Are health matters dealt with? Yes – medical and dental treatment (Pt 6)
Guardianship and Custody of Infants Act 1934 (Tas)

Similar to equivalent Acts in other jurisdictions, this Act provides that the father or mother of a child
may, by deed or will, appoint a person to be a guardian of a minor after the parent’s death.
However, the Act appears to give the father greater power to appoint a guardian to act jointly with the
mother than it gives the mother to appoint a guardian to act jointly with the father. In the latter case,
it must be shown to the satisfaction of the court that the father is for any reason unfit to be the sole
guardian of his children.
¶2-155 Victoria
Instruments Act 1958 (Vic)

Signing requirement – donor May be signed by the donor or at the direction of the donor (ss 106 and
123(2)(b))
Witnessing requirements For general power, no requirement (s 107 and Sch 12)
For enduring power it must be signed and dated by two adult witnesses in
the presence of the donor and each other. A witness cannot be the donor or
attorney. Only one witness can be a relative of the donor. One witness must
be a person authorised to take statutory declarations (s 125)
Is a witness certificate required? Yes (ss 123(5) and 125A)
Must an attorney sign a Yes (s 125B)
statement of acceptance?
Who can be an attorney under an Any person over 18 provided they are not insolvent (ss 119 and 121)
enduring power?
How does the role of the attorney An enduring power does not authorise the attorney to make a decision
interact with that of guardian? about medical treatment. If any decision by a guardian conflicts with the
decision of the attorney, the guardian’s decision prevails (s 125F)
How does the role of the Where the tribunal has made an administration order the attorney may
attorney interact with that act only to the extent authorised by the tribunal (s 125G)
of the administrator?
¶2-155
How is an enduring attorney Orally or in writing or by other means

revoked? Powers expressed to be irrevocable and granted to secure a proprietary
interest or the performance of an obligation generally require the consent
of the donor before being revoked
The donor of an enduring attorney may revoke by executing an approved
form, or the enduring power may cease according to its terms – eg time
period expired – but will expire on the death of the donor
The attorney may resign by signed notice to the donor. However, if the
donor no longer has capacity the attorney must obtain leave of a court or
tribunal. Power is revoked to the extent it confers power on an attorney
who ceases to have legal capacity or becomes insolvent or dies
The tribunal may revoke (ss 125I to 125Q)
What powers does the tribunal In addition to the power to revoke, the tribunal has broad powers including
have? to direct an attorney and vary the effect of an enduring power (Div 6)
Medical Treatment Act 1988 (Vic)

Who is an authorised witness? At least one of the witnesses must be a person authorised by law to take
and receive statutory declarations (s 5A(2)(a))
What can the agent do? Make medical decisions including a decision to refuse medical treatment.
This is on the condition that:
the medical treatment would cause unreasonable distress to the donor,
or
there are reasonable grounds for believing that the donor, if they had
been competent, would consider that the treatment is unwarranted
after giving serious consideration to their health and wellbeing
(s 5B)
What conditions apply? A registered medical practitioner and another person must be satisfied
that the agent or guardian was properly informed before making the
decision. If refusing medical treatment, the agent or guardian must
complete a certificate in the prescribed form (s 5B and Sch 3)
Can a person have two or more Not acting at the same time. An alternate agent can be appointed (s 5A)
medical agents?
What type of decisions cannot be An agent cannot refuse palliative care – defined to be the provision
made by an agent? of reasonable medical procedures for the relief of pain, suffering and
discomfort or reasonable provision of food and water (Sch 3)
¶2-155
Guardianship and Administration Act 1986 (Vic)9

Who can be a guardian? The Guardianship Board may, by order, appoint a plenary guardian or a
limited guardian (s 23(1))
A person over 18 years of age (provided the Guardianship Board
is satisfied that the person will act in the represented person’s best
interests) is suitable and will not be in a position where there is a conflict
of interests (s 23 (1))
What decisions can a plenary Decisions as to where and with whom the represented person lives,
guardian make?
Can a person appoint an Yes, a person over 18 years of age may by written instrument appoint a
enduring guardian? person or two or more persons jointly to act as enduring guardian
Appointment must be in the prescribed form and witnessed by two or
more witnesses and accepted by the guardians (s 35A)
Who can be appointed Any person over 18 years of age provided the Guardianship Board is
administrator? satisfied that the person:
will act in the represented person’s best interests
will not be in a position where there is a conflict of interests, and
has the expertise to administer the estate where there is a special
relationship
(s 47)
What if the administrator disturbs Heirs, executors, devisees, legatees etc are given certain rights in proceeds
entitlements of beneficiaries? of property. The administrator must keep a separate account (s 53)
Can the tribunal look at the will? Yes – the tribunal may open and read any will or alleged will (s 54)
Are health matters dealt with? Yes – medical and dental treatment
Special rules apply to medical research procedures (Pt IVA)
9 The Victorian Law Reform Commission is currently (2011) conducting a review of this Act.
¶2-155
¶2-160 Western Australia
Guardianship and Administration Act 1990 (WA)

When can a tribunal make a If it is satisfied that the person has attained the age of 18 years, and is:
guardianship order? incapable of looking after their own health and safety
unable to make reasonable judgments in matters relating to their
person, or
in need of overseeing, care or control
(s 43)
What order can be made? A plenary or limited guardian can be appointed. An alternative can be
appointed. Two or more joint guardians can be appointed (s 43)
Who may be appointed? Any person over 18 years of age provided the Guardianship Board is
satisfied that the person:
will act in the represented person’s best interests
is suitable, and
will not be in a position where there is a conflict of interests
(s 44)
What can the guardian do? A guardian may be conferred power to decide:
where the represented person lives
with whom they live
whether they work
whether they have certain health care
what education they receive, and
with whom they associate
(s 45)
Can the tribunal appoint an Yes (s 40)
administrator?
Who can be appointed An individual over 18 years of age or – with consent of any individual
administrator? otherwise eligible to act – a corporate trustee who the tribunal thinks will
act in the best interests of the person and is suitable (s 68)
Can enduring powers of attorney Yes (s 104(1))
be made?
How must enduring power of By two witnesses, both of whom are authorised to take declarations
attorney be witnessed? (s 104(2))
Must attorneys accept an Yes (s 104(2))
appointment?
Property Law Act 1969 (WA)

Part VIII of this Act describes the authority of the attorney, the rules that relate to an irrevocable power
of attorney for value and the role of corporations as attorneys.
¶2-160
53
Chapter 3
Wills and intestacy
Introduction........................................................................................................................¶3-100
Why have a will?.................................................................................................................¶3-105
Requirements for a valid will.............................................................................................. ¶3-110
Special rules for wills......................................................................................................... ¶3-115
Statutory wills..................................................................................................................... ¶3-120
Mutual wills......................................................................................................................... ¶3-125
Who to see when making a will..........................................................................................¶3-130
The role of the lawyer.........................................................................................................¶3-135
Undue influence................................................................................................................. ¶3-140
Capacity to make a will...................................................................................................... ¶3-145
What happens if someone dies without a will?..................................................................¶3-155
Executors and trustees......................................................................................................¶3-160
A role for the adviser?........................................................................................................¶3-165

After years of working hard and accumulating wealth, it is surprising that many Australians don’t have
an up-to-date will.
This chapter explains why it is important to make a will. If you are an adviser, such as an accountant or
financial adviser, you will learn why making a will should be important to your clients and how you can
help them go about it.
This chapter examines the legal requirements for making wills. These requirements vary between
jurisdictions but the key principles are similar. We also look at exclusions to the normal rules, including
informal and privileged wills.
We then look at statutory wills and mutual wills, both of which are almost certain to grow in popularity
and play an increasingly important part in succession planning.
We also look at what happens if a person dies intestate – that is, without a will – and how their estate
would be distributed in different jurisdictions.
Finally, we finish off by discussing the all-important question of executors and trustees – who should be
chosen and why.
¶3-105 Why have a will?

There is no legal obligation to make a will. However, having a will offers many benefits, both financial
and personal.
The advantages of having a will include the following:

you can help ensure that your hard-earned assets go to the people you want to benefit. If you don’t
have a will, your estate will be distributed according to the laws of intestacy, which may not be what
you want;
you can help ensure that your beneficiaries take their inheritance at the time you think they will be
able to deal with it. For example, you may not want your child receiving an inheritance of $1m at the
age of 18, so by making a will you can direct that they receive the inheritance at a later age and/or in
staggered allotments;
you can omit from your will people who would receive a distribution if you died intestate – although
they may still have the right to make a claim against your estate;
you get to choose the executor and trustee. This is especially important if assets are to be held in trust
for minors or for beneficiaries whose disability prevents them from managing their inheritance;
your estate will most likely incur fewer costs. Dying without a will usually means that additional
documents must be submitted to the court and this can be costly;
¶3-100
Wills and intestacy 55
your estate is likely to be administered more quickly. Gathering information for the additional
documents usually means more time is spent in the administration process; and
in most jurisdictions, it is possible to appoint a guardian of children by will.
We often hear people say: “I don’t need a will because I don’t have any assets.” In reality, that is often not
correct. Most people do have some assets that they may have forgotten about, or that may not be payable
until their death, such as life insurance. Many of us are worth more dead than alive! In addition, the
person’s superannuation (which most likely will also include a life insurance component) might be paid
to their estate. Regardless, the problem with saying “I don’t have any assets” is that it is a statement
made about the present and may not be accurate when the person dies. By that time, the person may
well have acquired assets – including, for example, by way of inheritance. For these reasons, it is
difficult to imagine why a person should not have an up-to-date will.
¶3-110 Requirements for a valid will

Each jurisdiction has its own legislation that sets out the procedure for making a valid will. Although
the rules vary, following the steps below should result in the valid signing of a will:
(1) The willmaker and two witnesses are present at the same time and remain present (see Table 1)
throughout steps 2 to 4.
(2) The two witnesses are adults – not beneficiaries of the will or a relative of a beneficiary of the will.
The witnesses don’t need to read the will or know that it is a will. However, if the will is disputed –
for example, on the grounds that the deceased did not intend it to be their will – it may be useful
if the witnesses could say that the deceased told them that the document was intended to be the
deceased’s will.
(3) The willmaker and the two witnesses sign the will at the “foot” or end of the will. They should sign
with their usual signatures. Where, as is usually the case, the will is more than one page in length
then it is good practice (but not essential) for the willmaker and both witnesses to sign each page.
This helps protect the will from any tampering, such as the insertion of an additional page. It is also
good practice for the full names and addresses of the witnesses to be stated. This helps the executor
contact the witnesses if they are needed to help the executor prove the validity of the will.
(4) The will is dated.
While the rules in each jurisdiction state that the will must be in writing, Table 1 shows how the rules
about the presence of the two witnesses vary.
¶3-110
Table 1
Where Act Form Test

ACT Wills Act 1968 Will must be in writing (s 9(1)) Two or more witnesses, present at the
same time, sign and attest to the will
(s 9(1)(d))
NSW Succession Will must be in writing (s 7(1)) Two or more witnesses attest and sign
Act 2006 will. Witnesses must be in presence of
willmaker but not necessarily the other
witness(es)
NT Wills Act Will must be in writing (s 7(1)) Two or more witnesses attest and sign
will. Witnesses must be in presence of
witness(es) (s 8(2))
Qld Succession Will must be in writing (s 10(2)) Two or more witnesses attest and sign
Act 1981 will. Witnesses must be in presence of
witness(es) (s 10(4))
SA Wills Act 1936 Will must be in writing (s 8) Two or more witnesses attest and sign
witness(es) (s 8)
Tas Wills Act 2008 Will must be in writing (s 10) Two or more witnesses, present at
the same time, sign and attest the will
(s 10(b))
Vic Wills Act 1997 Will must be in writing (s 7(1)) Two or more witnesses attest and sign
witness(es) (s 7(1)(d))
WA Wills Act 1970 Will must be in writing (s 8) Two or more witnesses, present at the
same time as the willmaker signs or
acknowledges, sign and attest to the
will (s 8(c))
The main difference is that in the Australian Capital Territory, Tasmania and Western Australia the
willmaker and the witnesses must all be present at the same time. In contrast, in the other jurisdictions
it is possible for the willmaker to sign the will in the presence of one witness (who then signs) and then
acknowledge their signature in the presence of a second witness (who then signs).
¶3-110
¶3-115 Special rules for wills

Informal wills
Until recently, a will that did not meet the formal signing requirements was held to be invalid. This
often resulted in home-made wills being invalid, which sometimes led to unfair and inequitable results.
To address this, legislation in all jurisdictions has been amended to include provisions that enable a will
to be admitted to probate even though the formal requirements have not been met. These wills are often
referred to as “informal wills”.
Table 2 shows the laws that make it possible for informal wills to be admitted to probate.
Table 2
Where Act Form Test

ACT Wills Act 1968 A document purporting to embody Court must be satisfied that this was
the testamentary intentions of the the intention of the deceased. Evidence,
deceased may amount to a will, an including statements made by the
amendment to a will or a revocation deceased, may be considered (s 11)
of a will (s 11)
NSW Succession A document purporting to embody Court must be satisfied that this
Act 2006 the testamentary intentions of the was the intention of the deceased.
deceased may amount to a will, an Evidence, including statements made
amendment to a will or a revocation of by the deceased, may be considered
a will (s 18A(1)) (s 18A(2))
NT Wills Act A document purporting to embody Court must be satisfied that this was
amendment to a will or a revocation deceased, may be considered (s 10(3))
of a will
A “document” is defined to include
anything from which sounds, images
or writings can be reproduced (s 10(1)
and (2))
Qld Succession A document purporting to embody Court must be satisfied that this was
Act 1981 the testamentary intentions of the the intention of the deceased. Evidence,
amendment to a will or a revocation deceased, may be considered (s 18)
of a will
A “document” is defined to include
anything from which sounds, images
or writings can be reproduced (s 18)
¶3-115
Table 2 (cont)
Where Act Form Test
SA Wills Act 1936 A document purporting to embody Court must be satisfied that this
the testamentary intentions of the document expresses testamentary
deceased may amount to a will, as intentions and that the deceased
may a document intended to revoke a intended the document to be their last
will or codicil (s 12(2) and (3)) will (s 12(2))
Tas Wills Act 2008 A document purporting to embody Court must be satisfied that this was
amendment to a will or a revocation of deceased, may be considered (s 26)
a will (s 26)
Vic Wills Act 1997 An informal document Court is satisfied that this was the
willmaker’s intention
WA Wills Act 1970 A document purporting to embody Court must be satisfied that this was
the testamentary intentions of the the intention of the deceased (Pt X)
deceased may amount to a will.
Similar rules apply to alteration,
revocation and revival (Pt X)
The definition of the term “document” varies between jurisdictions. This could be critical when
determining the potential breadth of the informal will rules. For example, in New South Wales the
word “document” has the broad meaning given to it by the Interpretation Act 1987 and therefore
includes video and tape recordings. In contrast, recordings would be excluded from evidence in some
other jurisdictions. The Northern Territory and Queensland also have broad definitions of “document”.
Wills for minors

In all jurisdictions except Western Australia:
a person can apply to the court for an order permitting a will to be made for a minor – that is, a
child under 18 years old; and
it is possible for a married minor to make a will.
A minor may wish to apply to the court for an order enabling a will to be made if they have significant
assets.
Example
Jenna is a star swimmer. At the age of 16, she has already accumulated significant wealth and this is likely
to continue over the next two years at least. If she were to die without a will then under intestacy laws her
estate would pass to her parents equally. She does not want that to happen because her mother has raised
and supported her during her lifetime, after Jenna’s father walked out on the family many years ago. Jenna
could apply to the court for an order enabling her to make a will under which she could leave her estate to her
mother and others of her choosing.
Table 3 shows the rules that apply in each jurisdiction.
¶3-115
Table 3
Where Act Who Authority

ACT Wills Act 1968 A minor who is or has been married The Supreme Court may make an
may make or revoke a will order enabling a minor to make or
A person under 18 can make a revoke a will (s 8(3)-(6))
privileged will if those circumstances
apply (see Table 4) (s 8(2))
NSW Succession A minor who is or has been married The Supreme Court may make an
Act 2006 may make or revoke a will (s 6) order enabling a minor to make a will
A minor may make a will in (s 6A)
contemplation of marriage (s 6B)
NT Wills Act Court may on application by or on
behalf of a minor make an order
authorising the minor to make, alter or
revoke a will (s 18)
Qld Succession Court may on application by or on
Act 1981 behalf of a minor make an order
revoke a will (s 18)
SA Wills Act 1936 A minor who is or has been married Court may on application by or on
may make or revoke a will (s 5) behalf of a minor make an order
revoke a will (s 6)
Tas Wills Act 2008 A minor who is or has been married Public trustee or the court may approve
may make or revoke a will (s 6(2)) a minor making a will (ss 7 and 8)
A minor may make a will in
contemplation of marriage (s 6(3))
Vic Wills Act 1997 A minor who is or has been married Court may on application by or on
may make or revoke a will (s 6) behalf of a minor make an order
A minor may make a will in authorising the minor to make, alter
contemplation of marriage (s 6) or revoke a will (s 20)
WA Wills Act 1970 Only applies to the extent a person
was able to make a privileged will (s 19)
Wills for Defence Force members

In some jurisdictions active members of the Defence Force are able to make wills, regardless of their
age. They are also generally able to make oral wills. These wills are sometimes referred to in legislation
as “privileged wills”. In Tasmania, the benefit of these rules is extended to mariners and seamen.
Several jurisdictions no longer provide for privileged wills, as is illustrated by Table 4.
¶3-115
Table 4
Where Act Condition

ACT Wills Act 1968 Members of the Defence Force, certain persons rendering assistance to the
Defence Force and certain prisoners of war or persons interned can make a will
either in writing or orally (Pt 3)
NSW Succession
Act 2006
NT Wills Act
Qld Succession
Act 1981
SA Wills Act 1936 Any person on active service as a member of a military, naval or air force may
dispose of property by nuncupative will (ie oral will) (s 11)
Tas Wills Act 2008 A member of the naval, military or air forces of the Commonwealth or a mariner
or seaman being at sea may dispose of their estate by written or oral declaration
(s 9)
Vic Wills Act 1997
WA Wills Act 1970 Abolished in 2008 but grandfathering provisions apply to privileged wills made
prior to this date (s 17)
¶3-120 Statutory wills

In all jurisdictions, legislation has recently been introduced to enable a person to request the court
to make a will for a person lacking in testamentary capacity. Such wills are generally referred to as
“statutory wills”.
There are some important differences in the legislation in each jurisdiction but, as a generalisation, the
court must be satisfied that the proposed will is likely to one that the person would have made had they
had testamentary capacity. The case of Re Matsis1 demonstrates that, in Queensland at least, the statutory
will provisions can be utilised to give effect to a will that provides better asset protection and taxation
consequences for the beneficiaries.
The need for statutory wills has given rise to considerable debate. On one hand they are seen as a
cost‑effective way of ensuring that a person’s property is disposed of in a manner that, in the view of the
court, is likely to accord with the person’s wishes. On the other hand, statutory will legislation has been
described by some critics as interventionist and paternalistic. Critics also point out that if an incapacitated
person does not have a valid will then, when they die, any “deserving claimant” would, in theory, have a
right to make a claim against the estate under the family provision legislation in the relevant jurisdiction
or, if there is no will and they are closely related, rely on intestacy law. This, of course, assumes that the
deserving claimant has an entitlement under family provision or intestacy legislation.
1 Re Matsis; Charalambous v Charalambous & Ors [2012] QSC 349.
¶3-120
The recent tragic case involving Maria Korp provides an example of how statutory will provisions can
be utilised.
Case study
Mrs Korp was found assaulted and in a coma in February 2005 and remained in the coma until her death on
5 August that same year.
She had made a will that left the whole of her estate to her husband, Mr Korp. In the event that he predeceased
her, the will directed that her estate should go to her two children – a son and a daughter – equally.
Mr Korp’s mistress was accused of the attempted murder of Mrs Korp.
During Mrs Korp’s incapacity, her daughter was appointed administrator of her estate. During this period,
Mrs Korp’s daughter applied for a statutory will to be made that removed Mr Korp as executor, trustee
and beneficiary.
The court accepted that such a will reflected the likely intentions of Mrs Korp and authorised the making of
such a will.
It is important to be aware of the rules relating to statutory wills, as they potentially affect:
individual estate plans – understanding the possibility that a person may apply for a statutory will to
be made for you if you become incapacitated; and
the role of the attorney or administrator of another person’s estate. Does performing this role mean
that the attorney or administrator needs to consider whether the person’s will adequately reflects
their wishes? If it doesn’t, should the attorney or administrator consider applying for a statutory will
to be made? An application by an attorney who is a beneficiary gives rise to special considerations.2
¶3-125 Mutual wills

Mutual wills is the term used to describe an arrangement whereby two people, typically husband and
wife, agree to make identical wills and to not change their respective will without the consent of the
other. Following the death of the first of them, the survivor is – theoretically – unable to change their will.
Mutual wills can be particularly useful for married couples if one of them has children by an earlier
marriage.
However, as seen below, they can give rise to problems and there will usually be better alternatives.
2 Boulton v Sanders [2003] VSC 405.
¶3-125
Example
Kien is married to Li. Both are aged 60 and will not be having children in the future. While Li has no children,
Kien has two sons by an earlier marriage. Kien wishes to leave all of his estate to Li, but on the condition that,
if she survives him, she will leave the whole of her estate to his two children.
Kien and Li could make mutual wills leaving property to each other, but if the other has predeceased then to
Kien’s two sons.
It is also possible for a couple to make mutual wills without leaving any property to each other.
Example
Mary and Petro are married with three children. They are both aged 60 and have a substantial number of
assets held in their sole names as well as their joint names.
Mary and Petro have been saddened to see friends of theirs die, only for the survivor to remarry, then die,
leaving the family assets to the second spouse. Sometimes the second spouse and the deceased’s children
are not close and the children may not receive any inheritance upon the death of the second spouse.
To address this, Mary and Petro agree to make mutual wills whereby they each leave the whole of their
respective estates to their three children equally.
Making mutual wills

It is important that there is clear and satisfactory evidence of the parties’ intentions to make mutual
wills. This can be done by stating in the will that:
the will is a mutual will; and
the will must not be amended without the agreement of the other party.
Depending on the circumstances, the parties may wish to execute a separate contract or deed that
confirms their intention to be bound by their mutual wills. Any such contract or deed could impose
other conditions on the surviving spouse – such as limiting the manner in which the surviving spouse
may deal with the property that is the subject of the agreement.
How effective are mutual wills?

Mutual wills can be problematic and may not ultimately provide the type of protection sought. It is
essential that their possible shortcomings are understood.
Potential problems include:

someone might seek to override the mutual will agreement by applying for provision under family
provision legislation. However, where a claim is made against the estate of a person who had entered
¶3-125
into a mutual will arrangement, the court may take the contract attached to mutual wills into account
when assessing whether adequate provision was made for the proper maintenance of a claimant;3
the surviving party might simply decide to dispose of, or grant interests in relation to, the property
that was the subject of the agreement;
the surviving spouse might enter into a relationship, or have children, giving rise to competing claims;
and
the cost involved in seeking to enforce a mutual wills agreement may be so high – compared to the
value of the assets concerned – that it may not be worth the intended beneficiaries attempting to
enforce the agreement.
Alternatives to mutual wills

Mutual wills can be a useful tool in helping ensure that property is distributed in a particular manner.
However, because of potential problems, other strategies may warrant consideration. These alternative
strategies include:
if one spouse currently holds most of the assets, they could grant the other spouse a life interest
(see chapter 4) over the assets. However, this option generally only works if the assets are held in
the sole name of one party. In addition, the surviving spouse would usually have the right to apply
for greater provision from the estate. If the court granted the surviving spouse a greater outright
benefit, the result might be even worse from the viewpoint of the deceased; and
if an asset such as real property is currently held jointly between the parties, as joint tenants, the
assets could be transferred into their names as tenants in common. This, however, can lead to
difficulties in terms of disputes between the surviving co-owner and the beneficiaries ultimately
inheriting the deceased’s share of the property.
¶3-130 Who to see when making a will

There are numerous options available to a person wanting to make a will. The right decision will largely
depend on individual circumstances. The cost may vary considerably depending on the option chosen
and the complexities involved.
In some instances, a person may wish to discuss the need to make a will with their accountant or
financial adviser as a result of a professional service being provided which may affect their succession
plan. Many accountants and financial advisers have existing relationships with lawyers experienced in
estate and succession planning matters.
3 Hills v Chalk & Ors [2008] QCA 159.
¶3-130
Lawyers and trustee companies

In almost all cases a person wishing to make a will should ultimately speak with a lawyer experienced
in wills, a trustee company or the public trustee (in Victoria, state trustees). Not only should these
providers be able to prepare a will properly, they should also be able to give advice regarding succession
planning issues generally.
Will kits
Will kits are available from many newsagents. These kits can be problematic for several reasons,
including:
the will kit instructions may not fully explain everything that a person should know before making
their will. For instance, does the willmaker understand about the relationship between their will
and their superannuation? Does the willmaker know that certain people can claim against their
estate and the options they may wish to consider to avoid this? It is very difficult for these and other
important issues to be properly explained in a standardised kit;
no-one checks what is written by the willmaker. As a result, mistakes may remain unnoticed until
the willmaker dies and then significant costs may be incurred in rectifying (or beneficiaries fighting
over) the mistake. This cost will often far exceed the cost of having a will professionally drafted; and
the willmaker is left to arrange the execution of the will. Sometimes this is not done correctly, again
resulting in expensive additional costs.
For these reasons, will kits are rarely a preferred option.
Internet wills
There are also a number of will products available from the internet. In the absence of online assistance
from a suitably qualified lawyer, internet wills may lead to the same problems as will kits.
¶3-135 The role of the lawyer

If a person sees a lawyer – whether working as a sole practitioner, in a law firm or with a trustee
company or public trustee – when making a will, there are several things that the lawyer should do to
ensure that the will reflects the willmaker’s wishes.
Taking instructions
The first step is to collect all the willmaker’s personal details. A thorough instruction form should be
completed, capturing details of the person’s:
assets and potential assets;
family members;
superannuation, family trust and other “non-estate” assets;
¶3-135
intended beneficiaries;
wishes about guardianship of children; and
wishes about organ donation, funeral and burial.
Tip
When taking details of assets, ask the willmaker about promises made to or by them.
As noted at ¶9-130 and ¶9-135, people sometimes make promises regarding:
future ownership of assets registered in their own name; or
future control of assets belonging to other entities – such as a family trust.
For example, a parent might make a promise to a child in circumstances where the child is working in
the business. The classic example is that of a child working on the farm (often for less than market-rate
remuneration).
Of course, many such promises will be unenforceable, but you won’t be able to help your client understand
their position unless you raise it with them!
Timing
It is important that the person preparing the will does so in an appropriate timeframe. Difficulties can
arise if a person dies (or loses capacity) between the time of giving instructions and the time the will
is prepared and ready for signing. In such circumstances, the person’s intended will is unlikely to be
valid. There has been a recent case where it was argued that a newly prepared will that was not signed
amounted to an informal will. This was rejected by the court.
From the lawyer’s perspective, an unreasonable delay may result in them being sued. Therefore a lawyer
taking instructions should explain to the willmaker that a new will does not take effect until it has been
finalised and signed. They should also preferably give the willmaker some idea as to how long that will
take and abide by that time guide.
Discussing the options

A lawyer should be able to thoroughly explain how an estate plan will work and detail the options that a
willmaker may wish to consider. This includes discussing the issues that are covered in this book such as
the relevant tax issues, options for dealing with non-estate assets, choosing the correct type of gift – for
example, a legacy as compared to a share of the residue – and choosing the right executor and trustee.
The willmaker should also be advised on a range of practical non-financial matters.
¶3-135
Tip
Although a willmaker may set out their burial wishes in their will, people are often buried before anyone looks
at their will. They should not, therefore, rely solely on giving instructions in their will. They should also tell the
people who will most likely be responsible for arranging their funeral about their wishes.
If a person is concerned that their wishes might not be followed, they could consider entering into a pre‑paid
funeral arrangement.
Powers of executors and trustees

A lawyer should explain what powers the executor and trustee will have. These powers can be modified
to reflect the wishes of the willmaker.
Some powers are given to the executor or trustee under legislation. Other powers must be given by the
will. Some of the key issues that should be discussed include:
investment powers – what assets would the willmaker want the trustee to be able to sell and invest in?
powers to advance moneys to minor beneficiaries – when can this happen and should there be
any conditions?
lending – is it prudent to give the trustee the power to lend moneys to beneficiaries? If so, on what
terms – for example, secured or unsecured – and at what rates (for example, market rates only)?
What if the executor and trustee are themselves beneficiaries – might problems regarding conflict
of interests arise and, if so, should there be an independent executor and trustee?
use of estate property – is it possible for beneficiaries to make use of assets owned by the estate, such
as a holiday house? If so, on what terms?
Charging
Often wills contain a clause permitting the executor and trustee to charge a fee or commission. It is
important that any such clauses are properly explained to the willmaker. It may be prudent to include a
limit as to what can be charged – see ¶3-160.
Liability
In some instances, a willmaker may wish the liability of non-professional executors and trustees to be
limited – for example, if a spouse trustee was inadvertently negligent. It is essential that the effect of
any such provision be properly explained to the willmaker. Clauses limiting liability are generally not
appropriate in the case of professional trustees.
¶3-135
¶3-140 Undue influence

Invariably, every lawyer will at some time be confronted with a situation where they are not certain
whether the willmaker is acting on their own accord or under the influence of someone else.
Example
A lawyer receives a telephone call and the caller says, “Mum wants to make a new will, I’ll be bringing her
in tomorrow”. The lawyer gets out the mother’s current will and sees that it was made only a year ago. The
lawyer also notices that the current will is similar to her previous wills in that, apart from some minor bequests,
she leaves the residue of her estate to her two children in equal shares and names both as executors and
trustees.
At the interview the next day, the mother (in the presence of the child who rang) tells the lawyer that she wants
to make a new will leaving the whole estate to the child present, “because she has always been the one who
looks after me and she doesn’t have as much as her sister”. The lawyer notices how much the mother has
aged and feels that there is a chance that the child present may have influenced her thinking. What does the
lawyer do?
While the answer will depend on the exact circumstances of the case, the lawyer in this example should,
at the very least, talk with the mother alone and ask her some detailed questions about the exact reasons
behind the change to her will.
Burden of establishing undue influence

It is usually up to the person alleging undue influence to prove it. This is often a difficult task, as it
invariably relies on circumstantial evidence. A suspicion of influence can arise where a person with a
position of influence over the willmaker was involved in the will process, but this certainly does not
automatically prove undue influence.
Standard of proof
A recent Victorian Supreme Court decision4 summarised the standard as follows:
“The test to be applied may be simply stated: in cases where testamentary undue influence is
alleged and where the court is called upon to draw an inference from circumstantial evidence
in favour of what is alleged, in order to be satisfied that the allegation has been made out, the
court must be satisfied that the circumstances raise a more probable inference in favour of what
is alleged than not, after the evidence on the question has been evaluated as a whole.”
And added:
“The strength of the evidence necessary to establish a fact or facts on the balance of probabilities
may vary according to the nature of what it is sought to prove.”
4 Nicholson & Ors v Knaggs & Ors [2009] VSC 64 at 127-128.
¶3-140
Tip
If there is a concern that undue influence will be raised by an aggrieved claimant, a willmaker should protect
themselves by engaging an independent lawyer or trustee company to take instructions and attend to the
signing and witnessing of the will. The lawyer or trustee company should be informed of the willmaker’s
concerns, and should take a record of the circumstances in which instructions were taken. This should
certainly be done in the absence of any potential influencing party. Often the issue of capacity will also need
to be addressed (see ¶3-145).
¶3-145 Capacity to make a will

It is also likely that during their career a lawyer will be confronted with a situation where they are not
certain whether the willmaker has testamentary capacity – that is, the mental state that is required to be
able to make a valid will.
As more and more testators are becoming elderly, the incidence of questions arsing in regard to
testamentary capacity is increasing.
Burden of proof of establishing testamentary capacity

At first instance, the burden falls on the persons named as executors to justify submitting the will to the
court for probate. If there is any doubt as to the validity, the named persons must satisfy the court that
probate should be granted.
Standard of proof when establishing testamentary capacity

It is usually not sufficient to simply establish that the deceased suffered a mental illness.
The standard was expressed in Kanto v Vosahlo5 to be (note: “testatrix” is the legal term for a female
willmaker):
“For purposes such as the present, where the court has to be satisfied affirmatively of the capacity
of the testatrix to make a valid will, the burden of proof or, more precisely, the standard of
proof therefore remains the same, that is, upon the balance of probabilities, but the court is
not to reach such a conclusion unless it has exercised the caution appropriate to the issue in
the particular circumstances by a vigilant examination of the whole of the relevant evidence. If
that process results in the court being affirmatively satisfied that the testatrix had the necessary
testamentary capacity at the appropriate time to make the propounded will, then a grant of
probate should be made.”
5 [2004] VSCA 235 at [22].
¶3-145
What to do when doubts exist regarding capacity

The test often used when determining testamentary capacity is an assessment of the willmaker’s
understanding of:
the nature of the act;
the extent of the property which is the subject of the will; and
who the willmaker might ordinarily be expected to provide for, and ensuring that there are not
insane reasons for not making provision for any such persons.
This last issue is divided into two separate tests. First, an understanding about who might be able to
claim against the willmaker’s estate. Second, are there any delusions that influence the dispositions made
by the will in a manner that the willmaker – if they had been of sound mind – would not have wanted?
Although this test has been generally accepted as appropriate, its genesis is an old case and the
circumstances of that case were that the deceased suffered from a serious mental illness.
The reality today is that there are many people with mental health issues. Sometimes these have no
effect on their testamentary capacity. It is also possible for a person to drift in and out of testamentary
capacity, or to manage their mental health problems with medication. The application of the test by any
court examining a will might vary depending on the exact circumstances of the case.
A lawyer who has doubts as to a client’s capacity is in a difficult position: should the lawyer refuse to
proceed with preparing/signing the will or to proceed with preparing/signing the will plus draft a file
note setting out the reasons behind the lawyer’s doubts? The latter may be the safest approach as it still
leaves open the possibility of the will being struck out as a result of a challenge. Indeed, in New Zealand
the courts have made it clear that a lawyer refusing to complete a will because of concerns about the
capacity of the client may be held liable to the intended beneficiaries should a court later rule that the
client had the necessary capacity.6
There are strategies to lessen the likelihood of a successful challenge being made on the grounds that
the willmaker did not have testamentary capacity.
The instructing lawyer could ask the willmaker a series of questions that address the criteria for
testamentary capacity. For example, they could ask the willmaker:
What are their main assets?
Have they got an existing will, when was it made and what does it say?
Why are they seeking to change their existing will?
Do they understand what making a will means?
Are there reasons for not including people as beneficiaries who, on any objective view, might be
expected to be named as a beneficiary?
6 See, for example, Public Trustee v Till [2001] 2 NZLR 2001.
¶3-145
The lawyer should be particularly wary of undue influence being exercised by those near to the
willmaker.
The lawyer could also:

have a doctor witness the will and make a statement and/or evaluate the willmaker’s capacity, such
as by way of a detailed assessment of the cognitive functions specific to the testamentary process;7
take statements from others – such as nurses or nursing home staff – regarding the willmaker’s
capacity; and
if time permits, take instructions on one day and return another day with the prepared will and ask
the willmaker to repeat the instructions.
¶3-155 What happens if someone dies without a will?

Intestacy
If a person dies without a will, they are said to have died “intestate”.
Each jurisdiction has legislation that prescribes how a person’s estate must be distributed if they
die intestate. This intestacy legislation varies significantly between jurisdictions. There will often be
undesirable consequences if a person dies intestate – hence it is important that everyone has a will.
Partial intestacy
It is also possible for a person to make a will that does not deal with all of their estate. In this case, the
person is said to have died “partially intestate”.
Example
Anna decides to make her will. She decides to leave the whole of her estate equally to her closest relatives –
her first cousins Joe and Tony. As both Joe and Tony are much younger than Anna, and in far better health,
she does not envisage for one moment that she would outlive either of them, and so she does not cater for
that possibility in her will.
Sadly, Tony dies shortly before Anna’s death. As a result, Joe still receives his half share of Anna’s estate. The
remaining half share, however, must be divided according to the laws of intestacy in the jurisdiction in which
Anna lived. This might mean, for example, that all of Anna’s first cousins (who live all over the world) need to
be identified and located – and will receive Tony’s share equally between them.
7 See Nicholson & Ors v Knaggs & Ors [2009] VSC 64 at 391.
¶3-155
Note
In some jurisdictions, such as Tasmania, the above example would not apply as legislation would operate to
make Joe entitled to the share that was originally left to Tony.
How is an intestate estate distributed?

The laws regarding the distribution of an intestate estate are complex. They vary depending on the
deceased’s circumstances – in particular, where they were domiciled, where their assets are located and
whether they are married and have children. In some jurisdictions, the size of the estate also affects the
distribution of assets. The following tables summarise the relevant law.
Note that in each jurisdiction the legislation usually defines terms such as “spouse” and “child” and
while these definitions will often be similar they are not always identical.
For example, in several jurisdictions it will be more correct to read the references to “spouse” in the
tables below as “partner”. In New South Wales, Queensland, Victoria and Western Australia the term
spouse includes a de facto, putative or domestic partner.
Other jurisdictions specifically provide for a domestic partner which is usually defined to mean a
person who was in a continuous relationship for at least two years immediately prior to the deceased’s
death. In South Australia, the period is five of the last six years. A parent of the deceased’s minor child
will also be regarded as a domestic partner in some jurisdictions. Analysis of the rules invariably
requires cross-referencing to other state/territory-based legislation such as Interpretation Acts and, in
some cases, Relationships Acts.
As might be imagined, there can be difficulty in establishing the exact time span over which a
non-marital relationship existed. This can often lead to problems and disputes.
¶3-155
Deceased has no spouse or children

Table 5
Where Act Provisions

ACT Administration First entitled are parents of deceased
and Probate Then brothers and sisters and children of deceased brothers and sisters
Act 1929 per stirpes
Then grandparents
Then aunts and uncles and children of any deceased aunts and uncles
per stirpes
NSW Probate and First entitled are parents of deceased
Administration Then brothers and sisters of whole blood or children of brothers and sisters of
Act 1898 whole blood per stirpes
Then brothers and sisters of half blood or children of brothers and sisters of
half blood per stirpes
Then grandparents
Then uncles and aunts who are brother or sister of whole blood to one
of parents
Then uncles and aunts who are brother or sister of part blood to one
of parents
NT Administration First entitled are parents of deceased
and Probate Then brothers and sisters and children of deceased brothers and sisters per
Act stirpes
Then grandparents
per stirpes
Qld Succession Act First entitled are parents of deceased
1981 Then brothers and sisters and children of deceased brothers and sisters
per stirpes
Then grandparents
per stirpes
SA Administration First entitled are parents of deceased
and Probate Then brothers and sisters and children of deceased brothers and sisters per
Act 1919 stirpes. However, if no brothers and sisters survive, but children from brothers
and sisters do, then such children take per capita
Then grandparents
per stirpes. However, if no aunts and uncles survive, but issue from aunts and
uncles do, then such issue take per capita
¶3-155
Table 5 (cont)
Where Act Provisions
Tas Administration First entitled are parents of deceased
and Probate Then brothers and sisters and issue of deceased brothers and sisters
Act 1935 per stirpes
Then grandparents
Then aunts and uncles and issue of any deceased aunts and uncles
per stirpes
Then according to degree of kinship, eg grandparents then brothers
and sisters of grandparents
Vic Administration First entitled are parents of deceased
and Probate Then according to degree of kinship, ie brothers and sisters and issue of
Act 1958 deceased brothers and sisters per stirpes provided at least one brother or
sister has survived
If no brothers and sisters survive then to grandparents
If no grandparents then to issue from deceased brothers and sisters
per capita
Then grandparents and aunts and uncles
Then cousins and grandchildren of deceased brothers and sisters where
parenting child of brothers and sisters is also deceased
WA Administration (1) If parents survive but no brothers or sisters or children of brothers or
Act 1903 sisters, whole of estate to parent, or
(2) Parents entitled to first $6,000 plus half the remainder; other half to
brothers and sisters or children of deceased brothers and sisters and
children of deceased brothers and sisters per stirpes, or
(3) If no parent then whole of estate to brothers and sisters or issue of
brothers and sisters per stirpes
Then grandparents
Then aunts and uncles and issue of aunts and uncles per stirpes
Deceased is survived by one spouse and no children

Table 6
Where Act Spouse* Other

ACT Administration Whole of estate, but if there was more
and Probate than one partner, then special rules
Act 1929 apply
NSW Probate and Whole of estate but, if there was more
Administration than one spouse, then spouses can
Act 1898 share as agreed, per a court order or
equally
* See commentary above regarding the term “spouse”.
¶3-155
Table 6 (cont)
Where Act Spouse* Other
NT Administration Personal chattels plus first $500,000 If applicable, half remainder to
and Probate plus half remainder. Or whole of parents equally or, if none, to
Act estate if no one per next column. De brothers and sisters equally, with
facto may take instead of spouse. issue of deceased brothers and
Marriage in accordance with customs sisters sharing per stirpes
of Aboriginal or Torres Strait Islander
people is recognised
Qld Succession Act Whole of estate but, if there was more
1981 than one spouse, then special rules
apply
SA Administration Whole of estate, but if there was more
and Probate than one spouse, then the spouses
Act 1919 share
Tas Administration Whole of estate but, if there was a
and Probate partner within the meaning of the
Act 1935 Relationships Act 2003 or if the
deceased was in a caring relationship
that was the subject of
a deed, special rules apply
Vic Administration Whole of estate but, if there was more
and Probate than one partner or a relationship
Act 1958 agreement in place under the
Relationships Act 2008, then special
rules apply
WA Administration Household chattels plus first $75,000 Of the remaining half share, parents
Act 1903 plus half remainder. Or whole of estate receive first $6,000 plus half of
if no one per next column what then remains, with balance to
If there was a de facto, then special brothers and sisters equally, with
rules apply issue of deceased brothers and
sisters sharing per stirpes
If no parents survive, then whole of
half remainder to brothers and sisters
equally, with issue of deceased
brothers and sisters sharing per
stirpes
* See commentary above regarding the term “spouse”.
¶3-155
Deceased is survived by one spouse and children
Table 7
ACT NSW NT Qld SA Tas Vic WA

Administration Probate and Administration and Succession Administration Administration Administration Administration
and Probate Administration Probate Act 1969 Act 1981 and Probate and Probate and Probate Act 1903
Wills and intestacy
Act 1929 Act 1898 No 13 Act 1919 Act 1935 Act 1958
Spouse Personal If children are Personal chattels Personal Personal If children are Personal Household
chattels plus children of the plus first $120,000 chattels plus chattels plus children of the chattels plus chattels plus
first $200,000 spouse, the plus: first $150,000 first $100,000 spouse, the first $100,000 first $50,000
plus: spouse takes (a) if only one child plus: plus half of the spouse takes plus one-third of plus:
(a) if only one the whole or only issue of (a) if only one remainder the whole the remainder (a) if only one
child or only estate one predeceased child or only estate No right to take child or only
issue of one If children are child, then half of issue of one If children are matrimonial issue of one
predeceased not children of the remainder predeceased not children of property. Right predeceased
child, then the spouse, the (b) in any other child, then the spouse, the to purchase child, then
half of the spouse takes case, one-third of half of the spouse takes half of the
remainder the personal the remainder remainder the personal remainder
(b) if two or effects, a (b) in any effects, a (b) if two or
more children statutory other case, statutory legacy more children
or one child legacy of one-third of the of $350,000 or one child and
and issue $350,000 remainder (indexed). issue of another
of another (indexed) and half the predeceased
predeceased and half the remainder child or issue
child or issue remainder, and of two pre-
of two pre- has the right to deceased
deceased purchase any children,
children, one- main residence one-third of the
third of the remainder
remainder
¶3-155
75
76
Table 7 (cont)
¶3-155
Children If value of Nothing if the If value of estate If value of If value of Nothing if the If value of If value of
estate (ex children are (ex personal estate (ex estate (ex children are estate (ex estate (ex
personal children of chattels) is less personal personal children of the personal household
chattels) is less the spouse than $120,000, chattels) is less chattels) is less spouse chattels) is less chattels) is less
than $200,000, Otherwise then nil than $150,000, than $100,000, Otherwise than $100,000, than $50,000,
then nil take half the Otherwise: then nil. then nil take half of then nil then nil
Otherwise: remainder (a) if one child or Otherwise: Otherwise the remainder Otherwise two- Otherwise:
(a) if one child after spouse issue of one child, (a) if one child one-half of that after spouse thirds of that (a) if one child
or issue of bequest and then one half of or issue of one amount over bequest and amount over or issue of
one child, one legacy (see the remainder child, then $100,000 legacy (see $100,000 one child,
half of the above) one-half of the above) one-half of the
(b) in any other
remainder case, two-thirds of remainder remainder
(b) if two or the remainder (b) in any other (b) if two or
more children case, two- more children
or one child thirds of the or one child
and issue remainder and issue
of another of another
predeceased predeceased
child or child or
issue of two issue of two
predeceased predeceased
children, two- children, two-
thirds of the thirds of the
remainder remainder
Interest on
statutory
amount from
date of death
to payment
date applies
Note: In some jurisdictions, where spouse receives fixed $ amount, interest at prescribed rates is to be added.
ESTATE & BUSINESS SUCCESSION PLANNING 2015-16
Personal chattels
In all jurisdictions except Tasmania, the spouse is entitled to receive the personal or household chattels.
Of those jurisdictions, all apart from New South Wales and Queensland define the relevant term. As
might be imagined, the decision as to whether an item is or is not a personal or household chattel can
give rise to a dispute between beneficiaries. It is not just in cases of intestacies where this is a problem –
a will might include a gift of “my personal chattels” to a particular beneficiary.
Statutory interest
A spouse receiving a statutory legacy is entitled to receive interest in the Australian Capital Territory,
New South Wales, Tasmania, Victoria and Western Australia. The interest is calculated from the date of
death and is payable from the estate.
The Northern Territory, Queensland and South Australia make no provision for interest on a statutory
legacy.
Can a distribution under intestacy laws be challenged?

Yes – it is important to remember that the laws of intestacy may be overridden by a successful family
provision claim (see chapter 12).
Intestate estates of Indigenous persons

In addition to provisions in Northern Territory legislation, Western Australia has special rules dealing
with estates of Indigenous persons who die intestate – refer to the Aboriginal Affairs Planning Authority
Act 1972 (WA). However, amendments introduced by the Aboriginal Affairs Planning Authority Act
2012 (WA) mean that all Aboriginal families have the same right as other persons to administer the
estate of a deceased family member. As such, the involvement of the Western Australian public trustee
is not automatic
¶3-160 Executors and trustees

Although the roles of executor and trustee are distinct, it is usual for the same person or persons to act
as both executor(s) and trustee(s). If different trusts – such as testamentary trusts – are being created, it
might be more appropriate for each trust to have different trustees.
Role of executor
The role of the executor is to step in after a person’s death and administer their estate. This means that
an executor is responsible for matters such as:
arranging the funeral. Although, in practice, the family or next of kin usually take on this role, the
responsibility rests with the executor. If the body is cremated, responsibility for dealing with the
ashes also rests with the executor;
¶3-160
determining the estate assets and liabilities. This can be a time‑consuming task, particularly if the
executor was not close to the deceased. If the deceased had an accountant or financial adviser, then
they will usually be a good source of information for the executor. The executor may wish to
check recent taxation returns and bank records of the deceased to help determine what assets the
deceased held;
applying for a grant of probate. The application for a grant of probate must include an inventory
of assets held by the deceased and particulars of valuations as well as other documents prescribed
by the court. Usually these documents are finalised by a lawyer. This application is made to the
Registrar of Probates of the Supreme Court in the relevant jurisdiction. The grant of probate
confirms the validity of the will and gives the executor authority to deal with the assets. Probate
is usually granted around two weeks after application, but this can vary between jurisdictions.
The Registrar of Probates may requisition further information if it is not satisfied that all of the
information has been supplied or if there is any reason to doubt the validity of the will;
discharging the estate’s liabilities. This includes checking the bona fides of any creditors and paying
all debts. If there is a risk that the estate might be insolvent, the executor should seek professional
advice about the ranking of creditors; and
finalising the taxation position of the estate. This includes lodging a final taxation return for the
period up to the deceased’s date of death and lodging a final estate taxation return (see chapter 11).
Timeframes for claims against the estate

A person for whom the deceased had a responsibility to make provision has a right to contest the
terms of the will, arguing that the deceased did not make any or any adequate provision for them in
the will (see chapter 12). Such a claim must be made within a prescribed period. This varies between
jurisdictions – from three months from the date of grant of probate to 18 months from the date of
death. In certain situations the court may order that an extension of time be given.
An executor will be protected from certain claims against the estate, provided the estate has not been
distributed within the prescribed period and the executor is not aware of any claims having been made.
In certain situations an executor may consider making distributions sooner than six months after
probate has been granted, if all beneficiaries have legal capacity and agree to indemnify the executor for
the distribution.
Notice to creditors
After a grant of probate has been issued, it is usual practice to advertise a notice to creditors. This is
done so that any creditors who may have a claim against the estate are given an opportunity to prove
their claim and seek payment from the estate. When a notice to creditors is advertised, any person
making a claim must do so within a prescribed notice period from the date of advertisement. This
usually means that distributions to beneficiaries should not be made until the notice period has expired.
¶3-160
Administering the estate

As soon as probate is granted and provided there are no challenges to the will, the executor then
proceeds to administer the estate in accordance with the terms of the will.
Proper accounts and records

The executor must provide beneficiaries with a copy of the will if a request is made. The executor must
also keep a complete financial record of the estate’s administration and provide this information to
beneficiaries if requested. Note that only certain beneficiaries, usually “residuary” beneficiaries, are
entitled to demand copies of accounts.
Role of trustee
The primary role of a trustee is to manage the trust fund for the benefit of the beneficiaries. A trustee is
bound to observe the rules of the trust set out in the will and comply with legislation governing trustees
– principally the Trustee Act – in the relevant jurisdiction.
Proper accounts and records

Like an executor, a trustee must provide information about the trust and allow beneficiaries access to
certain trust records. However, only certain beneficiaries are entitled to receive these accounts and
records. Trustees may also be able to refuse to hand over certain records – such as copies of minutes
– showing why they exercised their discretion in a particular way. This can be a hotly contested issue,
especially for discretionary testamentary trusts, and the law in this area is continually evolving.
Trustee investments
Under the Trustee Acts in each jurisdiction, a trustee can – in theory at least – invest the trust funds
in any form of investment. Broadly, the legislation requires any investment to be one that a “prudent
person” would consider appropriate, subject to any requirements set out in the will.
Appointing executors and trustees

One of the key decisions when making a will is choosing the executors and trustees.
An executor and trustee has wide-ranging powers to deal with the willmaker’s property. Although the
executor and trustee is obliged to act in accordance with the instructions set out in the will – and abide
by the law – in practice they are generally able to operate with a limited amount of scrutiny.
How many executors and trustees?

The answer will, of course, depend on the circumstances.
¶3-160
Where there is one main beneficiary of the estate who is an adult, it is often appropriate to appoint
that person as the sole executor and trustee. So, in the case of a “normal” married couple who want to
leave the whole of their estate to each other, it is usually satisfactory for them to appoint each other as
executor and trustee. This means that when the first of them dies, the survivor will be the sole executor
and trustee. Care has to be taken to note the age and health of the client and to make sure that one or
more alternatives are nominated in case the survivor is unable to take on the role (eg because they lack
capacity or have predeceased).
Where, however, ongoing trusts are involved, especially for minors or incapacitated beneficiaries, a
prudent willmaker should strongly consider appointing two executors and trustees, a trustee company
or the public trustee, in order to reduce the risk of mismanagement or misappropriation of trust assets.
So, in the case of the normal married couple, their wills could provide that on the death of the survivor
two individuals or a trustee company act as executor and trustee.
Who to choose as executor and trustee

The role of executor and trustee can be quite onerous. Factors that may complicate the roles include:
whether the will establishes any ongoing trusts;
the number of beneficiaries and their relationship to each other;
whether the deceased carried on a business at the time of death;
whether there is likely to be a dispute over the deceased’s will; and
whether there is any animosity between beneficiaries.
Theft, incompetence and other catastrophes

As you read this, it is in my view almost certain that someone (be they a lawyer, trustee company
employee or lay trustee) in Australia stole money today from a trust account under their control. In
recent years there have been many instances of trust account theft. It is, however, difficult to accurately
measure the extent of theft because some beneficiaries are never aware of the theft. In addition, where
the trustee is not a professional (eg where the trustee is a family member) beneficiaries often do not
report or prosecute theft because the offending trustee has spent the money and there is nothing to be
gained financially from prosecuting them.
Some recent examples of trust account theft include:

between 2003 and 2007, 45 people lost $4.5m from a South Australian law firm’s trust account as a
result of an employee’s fraud and deception. Even worse, the law industry compensation scheme did
not compensate the victims;
in 2008, a well-known trustee company announced that an employee had stolen $7m from its
Queensland trust accounts;
¶3-160
in 2011, a Victorian lawyer was jailed for embezzling $2m from a trust account; and
in 2011, a New South Wales lawyer was jailed for stealing from a trust fund established for a
deceased client’s two children.
A separate issue is that of incompetent investment performance by trustees. Especially where trust
moneys are invested over a long period of time (eg for minor beneficiaries), having a professional
investment approach can make a significant difference to the value of the ultimate inheritance received
by the beneficiaries.
Example
$1m with compound earnings over 15 years at 5% would grow to $2,080,000.

$1m with compound earnings over 15 years at 8% would grow to $3,170,000.
In addition, any truly professional trustee will either itself have expertise in investing coupled with
advanced administration systems or will outsource the investment function to an appropriate third
party that has these skills and resources. This will enhance investment performance because they result
in better decisions, better investment monitoring, speedier reinvestment of distributions etc.
So what can we learn from this?
With the advantage of over 30 years’ experience in both trustee companies and law firms, I tell my
clients the following:
(1) appointing two or more individuals to the position of trustee decreases the risk of trust moneys
being stolen;
(2) in a typical husband/wife scenario, it is often useful to have one trustee from each side of
the family;
(3) appointing a subservient trustee adds no value;
(4) appointing an independent trustee is often a good option; and
(5) most trustee companies have good procedures (eg internal audit) to discourage theft.
So, when considering who to appoint as executor and trustee – or attorney for that matter – think
carefully about the risks.
¶3-160
Tip
When nominating executors and trustees, careful consideration should be given to choosing the right
executor(s) and trustee(s):
There will always be a risk that a trustee will steal from the trust or will be negligent with the administration
and investment of trust property. That risk can be reduced by choosing the best executors and trustees.
Just because someone is competent, honest and able to act as an executor and trustee today does not
mean that they will possess these qualities throughout the term of the trust.
Complex estates
If the administration of the estate is likely to be complicated because of the nature of the assets, or
because of animosity between beneficiaries, then it will often be appropriate to appoint:
an independent person to act with another family member;
two independent people, such as the willmaker’s accountant and lawyer; or
a trustee company or the public trustee, either solely or with a family member.
Ongoing trusts
If the will creates ongoing trusts, such as a life interest estate, it might also be appropriate to appoint
two executors and trustees, a trustee company or the public trustee.
The role of trustee can be particularly challenging. In the case of an ongoing trust, the trustee is often
looked on with some resentment by the beneficiaries. For example, a life tenant8 thinks the trustee
has no right to check how the house is being maintained; a holder of a life interest cannot understand
why a greater portion of the trust funds is not invested in cash or high-yielding investments while
the remainder beneficiaries think the opposite; and a protected beneficiary often sees the trustee as
standing between them and their money.
What skills should executors and trustees have?

Executors and trustees should have many attributes, including:
an understanding of their obligations – it is not much good appointing a person to the role if they do
not understand what it is that they have to do;
a willingness to accept the role – if the trustee’s heart is not in the role, the chances are this will
be reflected in the way the estate or trust is administered. Always ask a person if they would be
agreeable to acting as executor and trustee before appointing them in the will;
strong character – again, there is no point in appointing a nice person to be executor and trustee if
that person is not going to be forthright in protecting the assets;
8 See ¶4-125 for a definition.
¶3-160
some financial sense – at least one of the trustees of an ongoing trust should have a good grasp of
finance and investments. This does not mean that the trustee should, for example, be able to actively
invest directly into the stock market. It does, however, mean that at least one of the trustees should
be able to understand how to obtain and then interpret investment recommendations;
empathy and diplomacy – it is not unusual for a trustee to be approached with requests that cannot
be agreed to. The task of rejecting a request for a distribution – and at the same time making the
enquirer feel as if the request has been properly considered – can require some tact; and
willingness to seek advice – not only should trustees have the ability to seek advice, they have an
obligation to do so in certain circumstances. It is important that trustees are aware of this9 and the
limitations that apply.10
Tip
The Trustee Act in each jurisdiction gives trustees the right to approach the court for advice. This can give
valuable protection to trustees. For example, it is generally the case that trustees will only be entitled to
recoup costs from the trust if those costs were properly incurred. So, if ever trustees are in some doubt as
to whether it would be proper to incur certain costs (eg costs to commence or defend litigation) they may be
able to approach the court for advice. If the court says it is appropriate for the trustees to do the particular
act, the trustees can proceed knowing that they will not be personally liable for reasonable costs incurred.
Trustee companies and lawyers

Trustee companies and public trustees (in Victoria, state trustees) are organisations that have specific
authority under legislation to act as executor and trustee of deceased estates and have a long history
of successfully performing this function. They provide the advantages of independence, experience,
skill in managing a range of asset classes and have good record-keeping systems. In addition, unlike
individuals, they don’t get sick, lose capacity etc.
From mid-2010, trustee companies (apart from public trustees (state trustees in Victoria)) began to be
regulated by the Australian Securities and Investments Commission (ASIC). These trustee companies
are now required to hold an Australian Financial Services (AFS) licence that authorises them to provide
traditional trustee company services. Chapter 5D has been inserted into the Corporations Act 2001 and
prescribes some existing and new obligations for these licensed trustee companies. These obligations
include having to give clients a Financial Services Guide, having to provide beneficiaries with copies of
accounts and other information, and being subject to an external dispute resolution mechanism.
9 Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of the Macedonian Orthodox
Diocese of Australia and New Zealand & Anor [2008] HCA 42.
10 Re Atlantis Holdings Pty Ltd in its capacity as trustee of the Bruce James Lyon Family Trust [2012] NSWSC 112.
¶3-160
Lawyers are sometimes appointed as executor and trustee, usually in conjunction with a co‑executor
and co-trustee. Some of the benefits of appointing a lawyer will be different to the benefits of appointing
a trustee company.
Accountants and financial planners

It is not uncommon for a client to want to appoint their accountant or financial planner as an executor
and trustee. Quite often this will be an appropriate choice and the adviser will perform the role with
distinction.
However, advisers should carefully consider a number of factors before agreeing to act as executor and
trustee, including:
are they able to accept appointment? For example, an accountant who is auditor of a client’s business
may be prohibited from accepting appointment as the client’s executor and trustee. Similarly, a
financial planner who is an authorised representative may be prohibited by the AFS licensee from
accepting appointments;
the roles of executor and trustee are fiduciary in nature. One of the duties of fiduciaries is to avoid
conflicts of interests. Will they have a conflict if they accept the appointments?
does their insurance protect them from any liability that might arise from these roles?
acting as executor and trustee is not their core expertise. Do they really want to spend time
performing this “secondary” role? Will they receive adequate remuneration?
often the reason a client wishes to appoint the adviser is that the client anticipates family disputes.
Do they want to risk becoming embroiled in such disputes, which can often be petty and unpleasant,
as well as time consuming?
do they wish to risk having to appear in court to give evidence about their conduct?
Paying executors and trustees

Any person acting as executor and trustee has a right to apply to the court for remuneration. Whether
they are successful will depend on the circumstances of their particular application.
Trustee companies and public trustees are authorised by legislation to charge a commission for acting
as executor and trustee. Limits are imposed by legislation and most, if not all, trustee companies take
less than this statutory maximum on a sliding scale.
Lawyers will usually include a charging clause in wills that enables them to take a commission where
they act as executor and trustee – the clause might authorise a rate of commission at their normal
charge-out rates or a rate equivalent to the maximum trustee company scale.
¶3-160
Tip
Regardless of who is being appointed as executor and trustee, if they have a right to take a fee it is important
that you understand what services will be provided in exchange for the fee, as these can vary considerably.
For example, some professional executors might regard cleaning out the deceased’s house as beng part of
their duties which is covered by the commission they are charging against the estate. Others, however, may
regard this chore to be outside of their role and might engage a third party to do this work, at the expense of
the estate. It is also important to understand what maximum rates will apply and whether GST applies to fees.
¶3-165 A role for the adviser?

While some important aspects of estate administration are legal in nature, many are more accurately
described as being commercial or related more directly with the accounting, taxation or investment
professions.
If you are an accountant, tax agent or financial planner, you have skills that will enable you to assist
your clients who have been appointed executor and trustee of an estate (as distinct from being
appointed yourself as executor and trustee).
Tip
If you are not a registered legal practitioner, be careful not to give legal advice (or hold yourself out as being
able to give such advice) (see ¶1-135).
The following are some tips to guide you if you are interested in building this type of practice. Additional
guidance should be obtained by consulting with a lawyer who has experience in the estate administration
field. It is important to note that the list below is a general summation only and not exhaustive.
Step 1: You are advised by your client that a family member/friend has died and they are the
executor named in the will
You should inform your client that:

They should immediately obtain advice from a suitably qualified lawyer on what to do (and what not
to do) and the risks and responsibilities of taking on the role of executor.
They should not intermeddle with the administration of the estate if they are not interested in
taking on the role.
They should secure assets and important documents (including the last will).
They have responsibility for the funeral (see ¶3-160).
¶3-165
They should make an inventory of personal possessions, taking custody of valuables (or placing
them in safe custody) and ensuring that assets are insured and secured (eg it may be necessary to
change locks on real property).
They may or may not be required to “prove the will” (take out a grant of probate) – it depends on the
nature and size of the estate assets.
If probate is to be applied for, numerous documents must be lodged with the Probate Office which
is effectively a “branch” of the Supreme Court. Most or all of these documents must be drafted in
accordance with strict court guidelines which will probably necessitate a lawyer to be engaged.
Some of the documents will be in the form of an affidavit which the executor must swear as to the
correctness of the contents. It is imperative that the contents are correct and that no omissions have
been made.
Some Probate Offices are quite pedantic. While in some cases, this is arguably evidence of
bureaucracy gone mad, in many cases, it is understandable because by granting probate the court
is effectively giving the executor the authority to take control of the deceased’s assets – the Probate
Office therefore has to ensure that everything is in order.
One of the documents that must be lodged is an inventory of assets (see ¶3-160). Generally, each
asset and liability must be described in some detail and a value attributed to each.
If there are doubts surrounding the authenticity of the will, for example, if it was not executed in
line with the prescribed requirements (see ¶3-110), the court will requisition additional information
such as affidavits from witnesses who can explain any discrepancies by way of affidavit.
Additional affidavits may also be required if there are discrepancies such as misspelling of the
deceased’s name or marks on the will (such as a paperclip or staple) which suggest that another
document (an amendment or codicil) was attached to the will.
In most jurisdictions, it is necessary to also lodge an advertisement giving creditors notice of death
and an opportunity to lodge a demand for outstanding amounts with the executor.
Step 2: Your client’s lawyer advises that probate has been granted by the court
This means that your client has formal title to act as executor. Most likely, the will also appoints
them as a trustee, although this is not always the case. Any action taken by your client to date will,
generally speaking, be recognised as being authorised. Being an executor or a trustee carries significant
responsibilities to both the court and the beneficiaries. If there is any doubt as to what they need to do,
they should obtain legal advice.
The next steps that your executor client would usually take are:
To transmit assets into their name “as executor of the estate”. Some registries (such as share and land
registries) may not be willing to record the trust relationship.
To open a bank account for the estate (a TFN should be applied for) and start realising estate assets
such as by closing bank accounts and collecting proceeds of life insurance.
If required, to lodge a final taxation return and pay liabilities.
¶3-165
Tip
The estate will be taxed like an individual (see ¶11-115). This gives rise to numerous potential strategies to
reduce taxation as a result of the sale of any assets. If you are a tax agent or an accountant, you will be able
to add real value at this stage. Taxation rules give rise to an opportunity to attribute tax to the estate and/or
realise investment gains or losses in a way that is beneficial.
To consider handing over specific bequests (eg gifts of jewellery – see ¶4-110) or making
distributions of legacies (see ¶4-105). However, generally, it is not wise to make any distributions
unless the timeframe in which a person may make a claim against the estate has passed (see
“Timeframes for claims against the estate” at ¶3-160).
They could ask beneficiaries whether they wish to take their inheritance by way of an “in specie”
(physical) transfer of assets or if they would prefer assets to be sold. Again, timing issues may give
rise to different taxation consequences. In addition, the executor must remain aware as to how each
asset is treated for CGT purposes.
Example
John dies and leaves his estate equally between his sons Jim and Bob.
The estate comprises two assets – a main residence valued at $1m and a holiday house also valued at $1m.
Jim asks to take the main residence as he intends living there. Bob is happy to take the holiday house which
was acquired in 2002 for $400,000.
While, on face value, the executor may think the beneficiaries are being treated equally, that is not the case.
Jim is taking an asset which, if realised, would not give rise to any CGT. However, Bob is taking the holiday
house “pregnant” with a capital gain and, if he sells the house (in the absence of a property price collapse),
the gain will be crystallised and tax may be payable.
Accounts should be kept and, in some cases, may need to be lodged with the court.
Tip
Keeping proper accounts is obviously a service that falls squarely in the domain of a tax agent or an
accountant. You can provide an independent service, add value to the estate and give a level of comfort
to beneficiaries.
¶3-165
Step 3: Your client’s lawyer advises that the estate has been finalised and the timeline for claims
against the estate has passed without any claim being made
Your client now ceases to be an executor and adopts the role of trustee.
Income will be taxed to any trust or the beneficiaries personally.
Assets can be distributed to beneficiaries or transferred to a trust established by the will.
Your client should be mindful of the obligations that the Trustee Act imposes regarding matters
such as the investment of trust funds. This is particularly relevant where any long-term trusts (such
as testamentary trusts) are established.
Tip
If you are a licensed investment adviser, this gives you a real opportunity to sell your services to your client.
This is because your client will, in certain circumstances, be afforded protection if they follow the investment
advice of a qualified adviser.
For example, in all jurisdictions, the Trustee Act requires (subject to the trust instrument) the trustee to
regularly review investments and to always have regard to a number of factors before investing trust funds.
The Trustee Act then goes on to say that any trustee will receive certain protection in the event that they
invest trust funds when acting on the advice of a professional adviser.
The above is only a general overview of the roles and responsibilities of an executor and trustees and the
ways in which an adviser can add value.
If you are an accountant or financial adviser, you should investigate the (non-legal) role that you can
play in your client’s estate planning and trust administration.
¶3-165
89
Chapter 4
Disposing of assets by will
Introduction........................................................................................................................¶4-100
Legacies............................................................................................................................. ¶4-105
Bequests............................................................................................................................ ¶4-110
Devises............................................................................................................................... ¶4-115
Education trusts................................................................................................................. ¶4-116
Equalisation clauses.......................................................................................................... ¶4-118
Use and enjoyment trusts.................................................................................................. ¶4-120
Life interest estates............................................................................................................ ¶4-125
Protective trusts................................................................................................................. ¶4-130
Minors trusts...................................................................................................................... ¶4-135
Superannuation trusts........................................................................................................ ¶4-140
Letters of wishes................................................................................................................ ¶4-145
Trustee provisions.............................................................................................................. ¶4-150
Ending the trust.................................................................................................................. ¶4-155
Statutory rules affecting dispositions................................................................................¶4-160
The treatment of digital assets upon death....................................................................... ¶4-165

Once someone decides to make a will, they need to understand and consider the options available to
them. A lawyer will have an important role in identifying and explaining these options.
This chapter sets out the options for gifting assets and discusses a range of issues that a willmaker
should consider before deciding how to dispose of their assets.
The willmaker’s accountant or financial adviser will often help drive this process. This reflects the
growing desire of willmakers to have their advisers play a role in succession planning. It is also often
beneficial for the future management of the willmaker’s affairs. For example, if the willmaker has
bequeathed a certain asset in their will – such as shares in the ANZ Bank – then it is important that the
willmaker’s financial adviser is aware that the willmaker does not want to dispose of these shares.
If – for whatever reason – the shares are disposed of, the willmaker needs to be reminded to review
their will.
Many willmakers want to make a simple will, such as leaving all of their assets to their spouse or – if
their spouse has predeceased them – to their children in equal shares. However, a good lawyer will take
the willmaker through a number of hypothetical situations that will identify risks with even the most
straightforward will. The willmaker can then make an informed decision as to which, if any, of these
risks should be addressed.
This chapter begins by looking at the various ways in which a willmaker can dispose of property and
the types of trusts that can be established. We also explain the important rules of priority that apply to
each different type of gift and highlight the problems that can attach to them. Note that discretionary
testamentary trusts are dealt with in chapter 5 because they are a particularly popular estate-planning
tool and warrant special attention.
This chapter will also examine some of the special powers that a willmaker might want to give the
trustee and any duties that might be imposed on the trustee.
Remember, the first step is to identify which assets will (or may) form part of the willmaker’s estate –
see ¶1-100.
The diagram below provides an example of a timeline for an estate with a variety of gifts and trusts.
¶4-100
Disposing of assets by will 91
¶4-105 Legacies
A legacy is simply a cash gift – a gift expressed as a dollar amount.
It is more common for willmakers to give cash gifts to charities or family members other than immediate
family. This is because immediate family, such as their spouse and children, usually receive a share of the
residue of the estate or have a trust created for their benefit.
Legacies are often given to:

a relative such as a godchild or favourite grandchild, niece or nephew;
charities (which may or may not be deductible gift recipients – see ¶4-115); and
siblings who are not as well‑off as the willmaker.
Drafting issues
An example of a common form of legacy clause is: “I give $10,000 to Patrick de Kuyer.”
Tip
To reduce the risk of any doubt about the deceased’s intentions – and reduce the risk of an error in drafting –
the amount should be specified in words as well as numbers and the relationship of the recipient should
be described:
“I give the sum of ten thousand dollars ($10,000) to my nephew, Patrick De Kuyer of 1 Smith Street,
Geraldton, Western Australia.”
So what can go wrong?

Despite being a relatively simple form of gift, legacies may pose a number of problems. Any will that
provides for legacies should be reviewed regularly.
Inflation
Inflation can erode the value of the legacy. Although inflation can be measured in different ways,
we will refer to the common measurement of movements in national average weekly ordinary time
earnings (AWOTE) in the examples. There are two ways of addressing the inflation problem, both of
which have their own challenges.
One solution is to insert a provision in the will that automatically increases the value of the legacy
in line with AWOTE. The difficulty with this is that the willmaker may not have the necessary
information, such as AWOTE data, to enable the value of the legacy to be easily determined at any
particular time.
¶4-105
Example
Betty makes a will in which she leaves a $50,000 legacy to the Heart Foundation. Betty’s lawyer discusses
the potential effect of inflation and she decides to include a clause that automatically increases the legacy in
line with AWOTE from the date of the will to her date of death. Five years later, Betty reviews her will. Because
of the indexing reference, it is difficult for her to calculate what the $50,000 is now worth. She ends up having
to pay an adviser $200 to calculate this for her and put her mind at rest.
Another way of addressing the inflation problem is for the willmaker to review the will every few years
and make a new will or a codicil if necessary. This, however, assumes that the willmaker remembers to
review the will and has capacity to do so. Making a new will also involves incurring a cost.
Death of legatee
The willmaker should consider what happens to the legacy if the legatee dies before them. Possible
options include giving the legacy to the legatee’s spouse or children, or letting the legacy lapse and
become part of the residue of the estate.
If the legatee is a charity and has ceased to exist – including because it has merged and become part of
a larger charitable organisation – then special rules may apply. It may be possible for the gift to remain
active and pass to the merged organisation or to a charity with similar purposes to the one that ceased
to exist. For more on the survival of charitable gifts, see ¶4-120.
Decrease in value of estate

Legacies will generally take priority over other gifts. This can produce unintended consequences if there
is a decrease in the value of the willmaker’s estate between the time the will is made and the date of
death, as demonstrated by the following example.
Example
Stuart is worth an estimated $2m. He wants his brother, Jake, to be the main beneficiary of his estate.
However, he has three other siblings and feels compelled to provide for them – but not to the same extent
that he does for Jake. On the suggestion of his lawyer, Stuart leaves three of his siblings a legacy of $200,000
each and gives the balance of his estate to Jake.
Over the next few years, Stuart’s various business ventures fail and at the time of his death his net estate
is only worth $700,000. As legatees receive priority over other gifts, three of Stuart’s siblings each receive
$200,000 and Jake is left with only $100,000.
¶4-105
Increase in value of estate

If there is a significant increase in the value of the willmaker’s estate between the time the will is made
and the date of death, the amount of the legacy may no longer reflect the wishes of the willmaker.
Tip
All wills should be updated regularly, but this especially applies to wills with legacies. Up until the 1990s, it
was not uncommon to see wills made back in the 1960s leaving a legacy of £200 to a grandchild, which at
the time the will was made would have been a substantial sum – but at date of death was only $400.
Abatement of legacies
A legacy is said to abate when there is not enough money in the estate to pay the whole amount of
the legacy.
Example
In Stuart’s case in the example above, if the value of his estate was only $420,000 then there would be a
shortfall of $180,000 for all of the legacies. As a result, Jake would receive nothing and Stuart’s remaining
three siblings would each have their legacy reduced to $140,000.
Interest on legacies
There are complex rules that determine whether or not interest should be paid on a legacy and, if so,
from what point in time.1 This can be important if, for example, the legatee is a minor or there is a delay
in the payment of the legacy. The following general rules apply:
If the legacy is made by the parent or guardian of a child – or there is an intention expressed that the
legacy could be used to maintain the legatee – then interest is payable on the legacy from the date
of death.
If there is a reason for the delay in paying the legacy – such as a delay in obtaining probate of the
will – then interest will be paid one year from the date of death.
If the above does not apply and the legacy is only payable at a future date – such as when the legatee
reaches 18 years of age – then interest is only calculable from the payment date.
1 The legislation in some jurisdictions prescribes a rate of interest. See, for example, s 84A of the Wills, Probate and Administration Act 1898
(NSW) and s 37 of the Trustee Act 1958 (Vic).
¶4-105
¶4-110 Bequests
A bequest is a gift of property. If the property is real property, the bequest is often referred to as a
devise. These are discussed at ¶4-115.
Bequests usually involve items of property that have sentimental or significant dollar value.
Drafting issues
The item being bequeathed must be described in sufficient detail to make it easy to identify and avoid
any dispute about what is being bequeathed. Subjective descriptions, such as “my favourite Pro Hart
painting” should be avoided – instead a detailed description should be made such as “my Pro Hart
painting of ‘Pelicans at dusk’ oil on canvas measuring 150 cm x 130 cm …”.
As noted in ¶3-115, legislation in most jurisdictions contains a definition of “personal chattels” or

“household chattels”. In cases where the willmaker wishes to make a bequest of “all my personal
chattels” it is important that they understand what is covered by that term. The willmaker may wish to
exclude some items that may otherwise be deemed to be a personal chattel – such as a motor vehicle.
Where a particular personal chattel has a significant dollar or sentimental value, it is suggested
that it would be prudent to specifically refer to it in the will to avoid any doubt as to the willmaker’s
intention. Items that often trigger disputes between beneficiaries, usually because of confusion as to the
willmaker’s intentions when using terms such as “my chattels”, include:
domestic animals;
motor vehicles – unless used for business purposes – which is increasingly common, at least
part usage;
a wine collection;
items subject to security interests under the Personal Property Securities Act 2009 (Cth);2
artwork; and
family photo albums.
Tip
If there is likely to be a dispute over ownership of family photos, videos or DVDs, a willmaker might wish to
make copies and hand them out prior to their death, or instruct the executor to do that and pay for it from
the estate.
2 For example, see s 34A of the Succession Act 1981 (Qld).
¶4-110

As with legacies, while a bequest appears to be a simple way in which to dispose of property, there are
some important issues that the willmaker should understand.
Property disposed of during lifetime

If a willmaker makes a specific bequest but then disposes of that item, the bequest will usually (but not
always – see exception below) fail; it is said to have “adeemed”.
Example
Kurt makes a bequest of “my shares in Rio Tinto Ltd to my niece Louise”. Before Kurt’s death, he sells his
shares in Rio Tinto Ltd and at the time of his death Kurt held no shares in that company. In this case the
bequest will have adeemed.
Accordingly, a willmaker making a bequest needs to be aware that it will most likely fail – and the
beneficiary may miss out – if the item bequeathed has been disposed of or no longer exists at the time
of death.
An exception to this rule may exist where a willmaker provides for a specific bequest of property that is
subsequently sold after the willmaker loses capacity (eg by their attorney) without their knowledge and
contrary to their likely wishes and where the proceeds (or remaining proceeds) of sale remain traceable
(such as placed into a separate bank account). In such as case, a court may rule that the ademption rule
should not apply and that the proceeds should be distributed to the beneficiary of the specific gift.3
If a bequest is expressed in general rather than specific terms, it might be assumed that the willmaker
intended the gift to be made – regardless of whether they owned the asset when they died. In this case,
the executor would be required to purchase the asset from the deceased’s personal estate.
Example
Kurt makes a bequest: “I give 500 shares in ANZ Bank Limited to my niece Louise.” At the time of his death,
Kurt owns no ANZ Bank Limited shares. Kurt’s executor would be required to purchase 500 ANZ Bank
Limited shares for Louise.
3 See, for example, Re Viertel [1996] QSC 66 and Simpson v Cunning [2011] VSC 466, but note that there have been conflicting decisions as
well.
¶4-110
Death of beneficiary
Again, a willmaker should consider what they want to happen if a beneficiary predeceases them.
Options include giving the bequest to the beneficiary’s spouse or children, or letting the bequest lapse
and become part of the residue of the estate.
¶4-115 Devises
A devise is a gift of land. Because they deal with real property, devises will usually be a specific devise. For
example, “I bequeath my property described as 1313 Mockingbird Lane, Mockingbird Heights to my son,
Eddie”. It is good practice to set out the full title details of the property just in case the address changes.
As it is a specific devise, the gift lapses if the property is disposed of during the willmaker’s lifetime.
If the land has a mortgage over it, then the beneficiary of the devise will be responsible for the mortgage
unless the will expresses a contrary intention.
As with legacies and bequests, it is important that the willmaker considers the possibility that the property
is disposed of during their lifetime or that the intended beneficiary predeceases them.
¶4-116 Education trusts

If one or more of the willmaker’s children have not completed their education, the concept of an
education trust should be discussed with the willmaker. Establishing such a trust can help the willmaker
to benefit the children equally, as the examples below demonstrate.
Example
Phil and Claire have three children, Hayley (aged 18 years and completed school), Alex (15) and Luke (12).
Phil and Claire’s estate is valued at $900,000.
They want to leave their estate to each other, then to the three children equally.
The issue is: they have already paid for Hayley’s schooling and so, if they both died now and all three children
received an equal share of their estates, Hayley would be getting an advantage over Alex and Luke.
Phil and Claire could elect to set up a trust (from the estate of the last of them to die) to cover education
expenses for Alex and Luke. The strategy would look like this:
¶4-115
Example (cont)
Upon both Luke and Alex completing their schooling, any remaining balance in the education trust could pass
down to the three children equally. (The clause for the education trust could be drafted to cover other types
of education expenses, eg university/trade school fees. The trust does not have to be limited to education
expenses.)
¶4-118 Equalisation clauses

A client who has assets tied up in “non-estate” entities (such as a family trust or a superannuation fund)
might be concerned with the possibility that:
pre-death gifts or distributions are not equalised;
the value of post-death distributions made by those entities will not accord with their intentions;
and/or
the control of an entity will not pass to the intended persons.
A client might want a “catch-all” clause included in their will that seeks to alter distributions under the
will to negate any unexpected post-death distributions or changes in control.
The drafting of such a clause must be carefully considered. As part of my practice I review wills for
clients who have paid a lot of money to have them drawn up but want a third party to check to make
sure they do what they are supposed to do. In my experience, many equalisation clauses fail to do what
they purport to do and often raise more questions than they answer.
Some common shortcomings include:

No mention of the “time benefit” of pre-death gifts. For example, son Johnny received a gift of
$250,000 in 1990 which is to be equalised. He used the gift to buy a house in 1991 that is now worth
$1m. What amount is to be equalised – $250,000 or $1m?
¶4-118
No mention of the tax consequences of a gift. For example, child A (a death benefit dependant)
received $750,000 of the death benefit and child B (a non-dependant) received $250,000 less
16.5% tax. In equalising these distributions, is the tax paid in respect of child B’s benefit to be
taken into account?
No mention of non-monetary benefits. For example, daughter Jessica has been living in the house
owned by the family trust for the past eight years. Is this a benefit that should be adjusted? Another
example is interest-free loans by a trust.
The lack of understanding by willmakers as to how the clause operates (or even worse, that the
clause is even there). I wonder how many willmakers might subsequently make a gift (eg to a child
who, for whatever reason, deserves or needs the gift), without remembering that their will directs
the gift to be equalised upon their death.
Warning
The concept of an equalisation clause is appealing but make sure it is well drafted, that the willmaker
understands how it operates and the importance of not forgetting that it is there.
¶4-120 Use and enjoyment trusts

Sometimes a willmaker may want a person to enjoy the benefit of a certain asset – usually a dwelling –
for a particular period of time. In such cases, the willmaker can establish a trust where the asset is held
on trust for the beneficiary to enjoy the asset during their lifetime. The term often used to describe this
type of trust is a “use and enjoyment” trust.
A use and enjoyment trust is usually established for a family home. For example, a home owner can
make a will giving their spouse the right to live in the house until a certain trigger event occurs, such
as when:
the spouse dies;
the spouse remarries; or
the spouse no longer uses the property as their main residence.
The will should direct how the property should be dealt with when the stipulated event occurs – usually
the property passes to remainder beneficiaries, typically the willmaker’s children.
Use and enjoyment trusts are particularly common in second marriage situations where the remainder
beneficiaries are the children of the willmaker and their step-parent is given use and enjoyment of the
home. These trusts can be an appropriate way of providing some security for the surviving spouse while
at the same time protecting the interests of the willmaker’s children.
¶4-120
Drafting issues
Use and enjoyment trusts generally only deal with use and enjoyment of the main residence owned by
the deceased. They can, however, extend to other property, such as a holiday house. One important issue
for a willmaker to consider is whether to give the trustee power to dispose of the property and acquire
another property.
Example
Betty dies and her will gives her second husband, John, use and enjoyment of her main residence. The will
provides that John’s interest expires when he dies.
The residence is a four‑bedroom home with large gardens. John is 70 and is struggling to cope with
maintaining the property.
It would have been useful if Betty’s will had given the trustee the power to sell the residence and buy a
smaller, more appropriate residence for John. Betty’s will should also state what is to happen with any
excess cash following the sale/purchase. Should it be invested with John receiving the income or should it be
distributed to the remainder beneficiaries?
Tip
It is increasingly common for spouses such as John to remarry. What would Betty want to happen in this
event? This should be raised with Betty – she may be comfortable with that thought or she may think that it
should be a trigger that brings the trust to an end with the property passing to her children at that point.

Despite their limited nature, use and enjoyment trusts can give rise to a range of problems.
Upkeep of property
Who should pay for repairs and the upkeep of the property? Usually expenses are divided between
those of an income nature and those of a capital nature. In the absence of a contrary direction in
the will:
expenses of an income nature, such as painting and general garden maintenance, are expenses of the
use and enjoyment beneficiary; and
expenses of a capital nature – for example, structural improvements, such as a new fence – are met
by the remainder beneficiaries.
¶4-120
However, problems often arise for two reasons:

the line between income and capital expenses can – as in tax law – be difficult to distinguish and
result in disputes, especially if there is friction between the use and enjoyment beneficiary and the
remainder beneficiary (and there often is!); and
it is not uncommon for the use and enjoyment beneficiary to let the property run down, especially if
they do not have significant income to meet expenses or – as they get older – are unable to physically
attend to gardening and the general upkeep of the property.
Cost of insurance
Ideally, the will should state who is to pay for insurance. If it doesn’t, the cost – for buildings and fittings,
but not the use and enjoyment beneficiary’s furniture – will usually fall on the trustee. But what if the
property is the only asset of the trust – where does the trustee get the money to pay for the insurance?
One option for the trustee is to ask the remainder beneficiaries to meet the cost. In some situations, it
might be necessary for the trustee to borrow to meet the expense. Although trustees generally do not
have a positive duty to insure trust property, it would arguably be imprudent not to do so.
Many wills state that the use and enjoyment beneficiary must pay for insurance costs, but fail to give
any direction about how this can be monitored. This can place the trustees in a difficult position and
put the trust property at risk if, for example, the use and enjoyment beneficiary refused to give the
trustee evidence that insurance had been paid.
Tip
Problems like these with use and enjoyment estates – and also with life interest estates (see ¶4-125) – are
reminders of two things. First, the role of trustee for these types of trusts can be a difficult one. Any situation
where there are disputes can be a real burden for a lay trustee – so choose trustees carefully and think
carefully before accepting a trusteeship. A trustee company may be a good option. Second, the time to
address these problems is when the will is being drafted. This is why it is important to have an experienced
lawyer draft the will.
Claim against estate

A willmaker should be reminded that giving someone a use and enjoyment benefit does not preclude
them from making a claim for a greater share of the estate. It might even trigger a claim.
¶4-125 Life interest estates

If a willmaker wants a beneficiary to enjoy use of all assets – not just a residence or other real property
– they will usually create a life interest estate for the beneficiary. An example would be enabling the
beneficiary – usually referred to as the “life tenant” – to live in the property or rent it out and take the
¶4-125
income. A life interest estate is a term used to describe a trust created over any asset, not just real estate,
so it can often extend to receiving the income from other assets of the estate such as shares. It will
usually be prudent to dispose of some assets directly as it is not workable to hold them in a life interest
trust, such as personal chattels and non-valuable furniture.
Drafting issues
It will usually be prudent to exclude some assets from the life interest – such as personal chattels – as
these cannot be easily monitored by the trustees during the term of the trust.
In a life interest estate the life tenant is able to receive the benefit of a variety of assets, for example:
the life tenant can reside in real property or ask the trustee to rent it out in which case the life tenant
will receive the net income; and
other assets, such as investments, are held by the trustee and the income paid to the life tenant.
The life tenant will usually want the trustee to invest assets in a way that maximises income. In contrast,
the beneficiaries who take on the life tenant’s death will usually want the trustee to maximise capital
growth. This potential for conflict reinforces the importance of nominating competent trustees (preferably
one independent) and, where practicable to do so, giving directions and guidelines to the trustees.

Upkeep of property
The same issues apply as for use and enjoyment trusts – see ¶4-120.
Cost of insurance
Claim against estate

Capital gains tax issues

It is not uncommon for the life tenant and remainder beneficiaries to agree to wind up the trust. In such
cases, the parties might agree to divide the assets between themselves. Taxation legislation is deficient
in that it does not clearly deal with the CGT consequences of creation and termination of life interests.
The ATO has issued several determinations and rulings on these arrangements.4 The following is a
general summary of the ATO’s current treatment where a life tenant surrenders their life interest:
4 See, for example, TD 93/37 and TR 2006/14.
¶4-125
CGT event E1 applies on the creation of a life interest, which is said to occur when administration of
the estate is completed (see ¶11-115). The cost base to the life tenant will be the market value at that
time;
if the life tenant subsequently surrenders the life interest then CGT event A1 occurs. Any legal fees
incurred in regard to the surrender can be added to the cost base;
if the life tenant receives market value consideration for the surrender or release of their interest, that
amount will be used to calculate the life tenant’s capital gain or loss; and
if the life tenant receives more or less than the market value consideration for the surrender or
release, market value consideration will be used to calculate the life tenant’s capital gain or loss.
While these and other taxation consequences are not necessarily reasons to avoid creating a life interest
estate, a willmaker should be aware of them in the event that it is anticipated that the life interest estate
will be prematurely terminated by all of the beneficiaries. In that case, it might be prudent to consider
alternative forms of gifts. Refer to ¶11-120 for a discussion on these issues.
Income versus capital – tax issues

As with many trusts where there are different income and capital beneficiaries, a life interest estate can
give rise to uncertainty as to who should be taxed on any capital gains. This uncertainty essentially
arises because the ITAA36 and the ITAA97 do not clearly operate to enable capital gains to be taxed
to the trustee or the remainder beneficiaries. While tax law may require the income beneficiary to be
taxed, this clearly is not an appropriate outcome as the income beneficiary is generally not entitled to
the capital gains.
In a pragmatic response to the problem, the ATO announced by way of a practice statement that it
would accept one of three approaches to taxing a capital gain, including taxing the trustee or the
remainder beneficiaries.5 However, this practice statement was withdrawn following the decision in
Bamford.6 Trustees should consider utilising s 115-230 ITAA97 which allows the trustee to choose to be
assessed on capital gains in circumstances similar to those in the withdrawn practice statement.
Income versus capital – practical issues

The existence of different income and capital beneficiaries means that the trustee needs to distinguish
between income and capital receipts during the administration of the trust. This is because different
beneficiaries will be entitled to the proceeds – although the capital beneficiaries will have to wait until
the life tenancy has terminated.
Some investments – such as fixed interest securities – do not give rise to problems distinguishing
between income and capital. Others, such as shares in Australian Stock Exchange (ASX) listed
companies where the shares are held for the long term, might also be relatively non‑contentious.
5 PS LA 2005/1 (GA).
6 See PS LA 2010/1 and ATO decision impact statement for the decision in FCT v Phillip Bamford & Ors [2010] HCA 10.
¶4-125
The most problematic examples of distinguishing between income and capital arise where shares are
held in private companies – especially where a business is carried on – and there is an opportunity for
tax-driven and other less transparent transactions. Special care must be taken to balance the interests
of the income and capital beneficiaries.
The timing of a sale – or purchase – can also have dramatic consequences for the different classes of
beneficiaries.
Example
Julius is trustee of his brother Marty’s estate. Marty left a life interest for his wife, with his children being the
remainder beneficiaries. Julius is about to sell $50,000 worth of Commonwealth Bank Limited shares. The
bank has declared a dividend, but the stock is not yet ex-dividend.
Julius must decide whether to sell the shares now – in which case the dividend, to some extent, would
arguably be reflected in the sale proceeds so the capital beneficiaries would benefit more – or wait until the
shares have become ex-dividend and then sell them, in which case his sister‑in‑law would receive the benefit
of the dividend and the sale proceeds could be expected to be lower.
Investment of trust funds and liability

We live in an increasingly litigious society. Remainder beneficiaries are likely to closely scrutinise the
investment strategy of the trustees when they finally receive their benefit after the life tenant dies.
The problem for the trustees is that beneficiaries will have the benefit of hindsight when assessing the
investment strategy that the trustee adopted over the years that the trust was in existence.
The following example is based on a New Zealand case. The relevant trust law in New Zealand at the time
was very similar to the law that now applies in Australia.
Example
Mr Mulligan, a farmer, died in 1949 leaving his widow a large legacy and a life interest in a farm. His nieces and
nephews were the remainder beneficiaries. The trustees were the widow and a trustee company.
In 1965, the trustees decided that it was appropriate to sell the farm and invest the proceeds. The trustee
company gave significant weight to the wishes of the widow when investing the proceeds – most were
invested in interest-bearing securities. Remember, however, that this was the mid-1960s when investment in
shares was not as prevalent as it is today. Also, the widow was in her 60s at that time and perhaps did not
have a long life expectancy. When the widow died in 1990, the remainder beneficiaries successfully sued
the trustees for breach of trust because the trustees failed to take into account the effect of inflation when
investing the trust moneys.
Ask yourself whether you would really want to be trustee of a trust, responsible for the investment of
your nieces’ and nephews’ inheritances – especially in turbulent times such as we have seen in recent
¶4-125
years? Remember also that the beneficiaries and the court have the benefit of hindsight when looking at
trustee investment decisions. The Mulligan case is also a lesson for trustees to act personally and not to
be subject to the direction of another party, such as a beneficiary or co‑trustee.
Tip
Trustees can gain some protection if they seek advice from a suitably qualified adviser. This is an opportunity for
financial advisers to provide a service to their clients who act as trustees.
¶4-130 Protective trusts

Protective trust is a generic term for trusts established for people who, for a range of reasons, are unable
to look after their own affairs.
Perhaps one of the most sobering experiences for any practitioner is to have the elderly parents of a
child with an illness such as Down Syndrome asking for advice about what they should do to make sure
their child will be cared for after their death.
Protective trusts are most commonly established for a willmaker’s children, but they could equally be
established for any beneficiary with special needs, such as a grandchild or non-relative.
Drafting issues
One of the key features of a protective trust is the lack of real-time accountability that a trustee will
often have. Although the majority of trustees probably do a very good job, it is important to explain
to the willmaker what can go wrong and suggest alternatives to address this risk if the willmaker is
interested. One thing that can go wrong is that the trustee will inadvertently, negligently or fraudulently
deal with the trust property. One of the ways to address this risk is to appoint a trustee company as the
trustee of the trust. In such situations, it is sometimes desirable to appoint a family member or other
person as a co-trustee so that at least one trustee is close to the beneficiary and has personal knowledge
of their circumstances.
The will should give clear guidance as to how the trustee can expend capital – for example, on
renovations to a dwelling to make it a more suitable home for the beneficiary. Often a letter of wishes is
made to give informal guidance to the trustee – see ¶4-145.

We have already mentioned the risk of loss through inadvertence, negligence or fraud. Some other
factors to consider are:
¶4-130
the need for the trustees and the beneficiary and/or the beneficiary’s carer to be able to communicate to
maximise the benefit that the trust can provide to the beneficiary;
the longevity of the trustee – if the trustee is an individual they may not always be able to act. An
alternative trustee or trustees should be appointed;
investments – how broad should the trustee’s powers be? For example, should the trustee be
empowered to invest in derivatives and other synthetics?
should trustees have the power to invest into superannuation on the beneficiary’s behalf so that the
beneficiary receives the benefit of the concessional rates of tax that apply to superannuation?
¶4-135 Minors trusts

Trusts for minors are one of the more common types of trusts established by will. As a simple example,
minors trusts would be established where a will says “I leave my estate to my children in equal shares”
and one or more of the children are under 18 at the date of the willmaker’s death. Minors trusts can
also result from an intestacy. For example, as seen in chapter 3, when a person dies without a will
leaving a child, then that child will usually receive part of the person’s estate under intestacy laws. In
that case, if the child is a minor they cannot take their inheritance until they are 18 and until that time
their inheritance would be held on trust.
Distributions to minors will be taxed at the beneficial rates that apply to excepted trust income – that
is, taxed at adult rates.
Drafting issues
Issues that need to be considered when drafting terms for a minors trust include:
possible inclusion of a power to permit the trustee to make distributions of income or income
and capital for the benefit of the minor before they reach 18 years of age. Such distributions could
help pay for certain expenses, such as school fees. Note that legislation in some jurisdictions gives
trustees a power to apply income towards the maintenance, education, advancement or benefit of a
minor beneficiary;7
possible inclusion of a provision enabling the trustee to rely on the receipt of a person – such as the
minor’s guardian – as being a valid receipt. In some circumstances, it may be appropriate to further
provide that the trustee has no obligation to see that the distribution is expended in a proper manner;
in the absence of a provision to the contrary, a minor will take their inheritance at age 18. Consider
whether it would be more appropriate for a later age to be nominated, or possibly staggered
distributions; and
giving the trustee the power to distribute or loan moneys to the guardians to ensure they are not
financially disadvantaged – see example at ¶4-150.
7 For example, s 37 of the Trustee Act 1958 (Vic).
¶4-135

Similar types of risks arise to those that relate to protective trusts. For example:
the need for the trustees and the minor’s guardian to be able to communicate and act in the best
interests of the minor (see also the discussion at ¶3-100);
the longevity of the trustee – if the trustee is an individual and for whatever reason cannot continue
to act in that role, then who should be the new trustee or trustees?
investments – how aggressive can or should the trustee be? For example, if the minor is five years old
then a prudent investment strategy could make a significant difference to the inheritance that the
minor ends up taking at, say, 25 years of age. Does the trustee have the right qualities? Should the
will express a wish or a direction that the trustee seek investment advice from a professional adviser?
¶4-140 Superannuation trusts

A will can establish a separate trust into which superannuation death benefits can be paid. Remember
that superannuation death benefits do not automatically form part of the estate – see ¶4-115. One reason
for establishing such a trust is to take advantage of the tax exemption that applies to superannuation
death benefits paid to the deceased’s death benefits dependants. A feature of these trusts therefore is that
the beneficiaries of the trust are limited to death benefits dependants – generally a spouse, a child under
18 and any person with whom the deceased had an interdependency relationship. In such cases, the
Commissioner of Taxation will adopt a look-through approach and tax the superannuation death benefit
as if it had been paid directly to the death benefits dependant – see ¶15-145.
Until the recent abolition of reasonable benefit limits (RBLs), it was relatively common for a will to limit
the amount of the superannuation death benefits that are paid into a will superannuation trust to the
deceased’s RBL. Any amount in excess of the deceased’s RBL would then usually pass to other trusts
established by the will with beneficiaries other than tax dependants.
Tip
Check whether your will refers to RBL limits. If so, it is important that you review your will to understand the
effect of the removal of RBLs. For example, it might be the case that the whole of your superannuation death
benefit would now be paid into the will superannuation trust and result in a windfall benefit to your death
benefit dependants. Alternatively, it might be that none of the superannuation death benefits would be paid
into the will superannuation trust.
¶4-140
¶4-145 Letters of wishes

In addition to making a will, some people set out certain wishes in a separate document. Although
the document can take many forms, it is often referred to as a “letter of wishes” or “memorandum of
wishes” – we will use the former term.
A letter of wishes can be a useful document in which a willmaker can:

express a wish that the trustee of their estate does, or doesn’t do, certain things; and
disclose personal information to the trustee that the willmaker wanted to keep private – and
therefore does not want included in the will.
A letter of wishes can also be used to set out financial wishes not directly related to a person’s will.
Example
Heidi’s will provides a protective trust to be established for her son Luka who suffers from a psychiatric
disorder. In the past, Luka has been able to trick Heidi and others into giving him money for bogus purposes.
Accordingly, Heidi wants to give the trustees of her will information to help them determine whether Luka really
needs trust distributions. Heidi makes a letter of wishes setting out examples of things that have happened in
the past and includes other information that will help the trustees perform their role. Heidi instructs her solicitor
to hold the letter until Heidi’s death and then hand it to the trustees. Including this information in a private letter
of wishes is more appealing to Heidi than setting the information out in her will which may become a public
document.
Drafting issues
It is important for a letter of wishes to be addressed to the right person and to clearly set out the nature
of the wishes. A poorly written letter can lead to interpretation problems – and the author certainly
won’t be around to clarify any doubts.
Sometimes people make letters of wishes that seek to allocate items of property – such as furniture and
personal effects – to certain beneficiaries. Care should be taken in using letters of wishes in this way as
they may amount to an informal codicil or addition to the will. This could result in the Probate Court
requesting that the letter be submitted as an informal codicil – and this would incur costs. As a general
rule, if a willmaker really wants to make bequests this should be dealt with in their will.

Disputes over access to the letter
A beneficiary who becomes aware of the existence of a letter of wishes may try to obtain a copy.
Although the general position is that a trustee has no obligation to provide a discretionary beneficiary
¶4-145
with a copy of a letter of wishes that is not binding on the trustee,8 the law, in regard to what documents
a beneficiary can or cannot access, is continually evolving. Beneficiaries may have a right to see a letter
of wishes if the letter can be interpreted as being binding on the trustee – just as they would have a right
to see any other document that sets out the terms of the trust.
In some cases, directing the trustee to keep the letter secret and confidential might help to keep
beneficiaries from having a right to see the letter.
The trustee ignores the letter

There will not usually be any way of forcing a trustee to follow the wishes expressed in a letter of wishes.
It might be that the trustee is the only person who knows that the letter exists. If the purpose of the
letter is to give directions to the trustee that are paramount to the operation of a trust, consideration
should be given to including the directions in the will so as to ensure that they can be enforced.
¶4-150 Trustee provisions

Once a decision has been made as to the types of gifts and trusts, the willmaker should consider what
powers and duties the trustee should have.
Investments
Trustee legislation in each jurisdiction gives trustees a range of trustee powers – including the power
to invest, sell and appropriate funds and to appoint agents. The legislation in each jurisdiction is not
identical but is similar and the powers given to trustees are generally broad.
Despite these broad provisions, there are some powers that a willmaker might need to include in their
will. These include a power to:
retain certain investments, regardless of the prudence of that decision;
lend money on other than arm’s length terms, including loans to beneficiaries (even if they
are trustees) or a child’s guardian for nil interest or low interest, with or without the need to
provide security;
obtain a benefit from the trust;
appropriate – in those jurisdictions where statute does not give such powers;
insure trust assets – in those jurisdictions where statute does not give such powers; and
draw a commission or be paid a fee.
An example of where it might be appropriate to allow a loan to be made to a trustee is where the trustee
is the guardian of the deceased’s children.
8 Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405. See also Schmidt v Rosewood Trust Ltd (Isle of Man) [2003] UKPC 26.
¶4-150
Example
Alice and XYZ trustee company are executors of her late brother Tom’s will and trustees of his estate. Despite
having two very young children of their own, Alice and her husband have accepted the role as guardian of
Tom’s children – three boys aged 12, 14 and 17.
The life changes for Alice and her family are significant. Among other things, they have to move to a bigger
house and buy a bigger car.
Fortunately, Tom’s will made it clear that the trustees could give Alice an interest‑free loan of up to $1m to
purchase a bigger house – the loan to be secured by a first mortgage – and gave Alice the power to purchase
and retain in the estate a motor vehicle up to the value of $80,000.
Tip
A properly drafted will would also stipulate when a loan has to be repaid – for example, when Alice’s youngest
child reaches 25 years of age.
Equalisation power
Over the last few years, a trend has developed in will writing whereby the will gives the trustee a
broad power to “equalise distributions”. In theory, this seems a useful power – for example, it could help
result in beneficiaries being treated equally and it might also reduce taxation. Examples that come to
mind are:
where beneficiaries include superannuation death benefit dependants (see ¶15-145) and non-death
benefit dependants. In that situation, the trustee might stream the superannuation benefit to the
death benefit dependants and distribute other assets to the non-death dependants; and
where one or more beneficiaries had already received advances during the deceased’s lifetime – the
estate could be divided in a manner that evens up the distributions.
While such a power seems attractive, it may mean that the beneficiaries ultimately have to rely on the
trustee exercising a discretion in order to get their fair share of the estate. It also raises the question as
to what factors the trustee can take into account when equalising distributions – for example, is the
time value of inter vivos distributions a factor to take into account?
Some wills include provisions directing that inter vivos advances (ie advances made during the
deceased’s lifetime) or non-estate distributions (eg death benefit payments from superannuation funds)
are equalised. Although appealing on their face, such provisions need to be treated with considerable
care and it is another area where legal advice should be sought.
¶4-150
Commission
As discussed at ¶3-160, wills can authorise a trustee is to be remunerated. Lawyers usually include
clauses in wills that enable them to charge a fee or commission if they act as executor and trustee. The
charging clause may prescribe a maximum rate that is not necessarily a proper reflection of the amount
of the work involved. Trustee companies may not include such a clause as they are empowered by
legislation to charge for administering estates, but they should explain the charges to a willmaker before
the will is signed.
Tip
Be clear as to whether your executor and trustee can charge and if so how much this can be. Also, clarify
what the fee covers – some executors and trustees might do much more than others for the same fee.
Liability
As also mentioned in chapter 3, when nominating non-professional executors and trustees it might, in
limited circumstances, be appropriate to include a clause that limits the liability of the trustees.
For example, if the estate was likely to be complicated with a number of disputes and litigious
beneficiaries, it might be appropriate for the trustees – if they are family members – to be indemnified
for losses, apart from those arising from fraud or theft.
The issue of trustee liability is often not addressed in wills. However, in a society that is becoming
increasingly litigious, the inclusion of such a provision may make it less daunting for the nominated
trustee to accept the position. In the case of a fee-charging trustee – such as a lawyer or trustee
company – it is difficult to see how a liability limitation clause could be justified.
¶4-155 Ending the trust

The rule against perpetuities
Most jurisdictions have a rule against perpetuities to ensure that trust property vests within 80 years
of the trust being created. If property does not vest within this time, the gift may be declared void. The
aim of the rule is to prevent a willmaker from ruling beyond the grave generation after generation.
In South Australia the rule has been abolished. However, parties have a right to apply to the court for
orders to vary a disposition of property if it is clear that interests will not vest within 80 years.
¶4-155
Automatic termination and asset protection

When creating a trust under a will, it is possible to set an end date for the trust. Sometimes this is
done just by the wording in the will; for example, “I give my nephew Tom the sum of $10,000 upon his
attaining 21 years of age”. Until Tom reaches 21, the money will be held on trust for him. When he is 21,
the trust will terminate and the sum held will be paid to him.
A termination trigger can be a particular date, such as when Tom turns 21, or upon a particular event
– such as when a life tenant dies. Consideration should be given to the asset protection risks that arise
as a result of the trust terminating and the beneficiary obtaining a vested interest in the property. For
example, if the beneficiary is in the process of a relationship breakdown or being sued at the time they
become fully entitled, their inheritance may be at risk.
¶4-160 Statutory rules affecting dispositions

Legislation in most jurisdictions includes provisions that override gifts in wills in certain
circumstances. For example, in most cases, marriage will revoke a will, unless the will was made in
anticipation of marriage.
Such legislation is designed to prevent unfair results where the willmaker’s circumstances alter
significantly after making the will. These provisions can be complex and are somewhat contentious –
for example, technically they amount to legislation second-guessing the intentions of the willmaker. In
addition, the rules in each jurisdiction vary. It is important to note, however, that these rules generally
operate subject to a contrary intention appearing in the will.
The following is an overview of some of these provisions.
Marriage
Marriage will generally revoke a will unless the will was made in contemplation of marriage.9 However,
in Victoria and the Northern Territory gifts made to the spouse, or appointment to a particular role –
such as executor – are not invalidated.
Example
Peter makes a will leaving his estate to his parents and naming them as executors and trustees. He then
marries Lindy and dies without making a new will. Peter’s will is deemed to have been revoked upon
his marriage.
9 See, for example, various Wills Acts: ACT s 20; NSW s 15; NT s 14; Qld s 21; SA s 25; Tas s 27; Vic s 16; WA s 14.
¶4-160
Divorce
Except in Western Australia and Tasmania, if a willmaker is divorced after making a will, the general
rule is that their will is to be administered as if their spouse had predeceased them (that is, died before
they died). In Western Australia, the will is deemed to have been revoked upon divorce except where
a contrary intention appears in the will. In Tasmania, the will is deemed to have been revoked upon
divorce, or revocation of a deed registered under the Relationships Act 2003, except where a contrary
intention appears in the will. 10
Beneficiary dying within 30 days

A gift to a beneficiary will usually lapse if the beneficiary predeceases the willmaker (see below).
Some jurisdictions have decided that it would be unfair for a gift to remain valid even where a
beneficiary dies within 30 days of the willmaker’s death. The reasoning appears to be that the beneficiary
could not have received the gift – because of the time it necessarily takes to obtain a grant of probate and
dispose of assets – and it is assumed that the willmaker would want someone else to benefit from it. In
these jurisdictions, the will is to be administered as if the beneficiary had predeceased the willmaker.11
Beneficiary predeceasing leaving children

In all jurisdictions legislation operates to override the general rule that a gift will lapse if a beneficiary
predeceases the willmaker in circumstances where the beneficiary was the willmaker’s child who died
leaving a child or children of their own.
Example
Ted makes a will leaving his estate to his two children, Ali and Clare. He makes no provision for the possibility
that either (or both) might predecease him, leaving a child or children of her own. Ali predeceases Ted leaving
two children.
Upon Ted’s death, Clare will receive half of his estate. The other half will pass equally to Ali’s two children.
If Ali had died without children, or if neither of her children had survived Ted, then Clare would have received
all of Ted’s estate.
¶4-165 The treatment of digital assets upon death

Since the introduction and development of computer technologies and the Internet, the world is
becoming more and more digitised. The ever-changing technological landscape has continued to
provide a steady stream of new digital mediums that people are readily choosing to engage with.
10 See, for example, various Wills Acts: ACT s 20A; NSW s 15A; NT s 15; Qld s 181; SA s 20; Tas s 20; Vic s 16; WA s 14A.
11 See, for example, various Wills Acts: ACT s 31C; Qld s 32; Vic s 26.
¶4-165
Our online activity, and the use of these types of technologies, creates data. This data is now commonly
being described as a person’s “digital assets”.
What are digital assets?

The definition of “digital assets” is not certain, and it will of course be required to change as new
technologies arise. However, for now, it encompasses a wide range of items.
Digital assets are all of the data or digital files that are contained within a hard storage device, such as
laptops and mobile devices, as well as a person’s online accounts, memberships and subscriptions. This
extends to data, text, email, audio, video, electronically stored documents, usernames, passwords, and
other like items.
Therefore, photos and videos shared through social media accounts such as Facebook and Twitter,
emails sent and received through accounts like Gmail, data held in digital storage accounts with
host facilities such as Dropbox, and currency sitting in a PayPal account, along with the accounts
themselves, are just a few examples of the types of digital assets that people are now commonly
accumulating.
Dealing with digital assets

Some digital assets (such as money stored in PayPal accounts or website domain names) may be
of significant commercial value, while others (such as personal photos and videos) might be of
purely sentimental value. Regardless, as we accumulate more and more digital assets, it has become
increasingly important to consider how these assets might be dealt with upon incapacity or death.
The most common way of dealing with our assets upon death is to leave or “bequeath” them to another
in a will. However, laws in relation to privacy, copyright and intellectual property, among others,
intertwine to muddy the waters as to what an individual actually has the right to do with their digital
assets upon their death.
Unlike more traditional assets, such as cars and houses, for which there are well-established practices
in place for transferring ownership upon death, digital assets are a relatively new concept for which best
practices in relation to accessing and distributing them are yet to emerge.
However, the concept of “digital estate management plans” has been devised to bring some guidance to
the area. These plans are designed to ensure that the wishes of the client in relation to how they would
ideally like their digital assets to be dealt with are clearly set out.
Crucial to such a plan is that the executor of an estate is able to locate and access the digital assets, and a
list or inventory should be created so that each asset is accounted for.
As is widely advised, most people will have a number of different “login details” such as usernames
and passwords for their various accounts. Although this helps to keep digital assets secure during a
¶4-165
person’s lifetime, it can complicate the process of accessing digital assets upon their death. Accordingly,
a testator may wish to consider making a list detailing the various login details and any other
information that would enable an executor to access and properly administer the digital assets. Due to
its sensitive nature, it would be wise to have this information kept in a sealed envelope in a secure place.
Of course, if any of those details change during the lifetime of the testator, then the list can be updated
to reflect those changes and the envelope resealed.
It may be that it is not necessary to detail certain information (such as bank account logins and
passwords) because there is no real need for an executor (or enduring financial attorney) to know that
information and/or because the consequences of the information being illegally accessed is severe.
A power of attorney or will should be carefully drafted to ensure that the attorney or executor has
sufficient power to deal with the digital assets, in line with the client’s wishes. These wishes should be
clearly described, taking into consideration the transferability of any digital assets that may be held.
Any need to deal with digital assets may impact on the choice of attorney or executor. While
individuals will have digital estates that vary significantly in complexity and volume, attorneys and
executors are going to require at least a basic understanding of the technologies involved so they can
themselves administer them or seek appropriate guidance where necessary.
The above considerations are merely an introduction to the steps that should be taken to ensure as best
as possible that people’s digital assets are dealt with upon death. However, even if adequate precautionary
measures are taken, there is still no guarantee that their digital estate will be administered effectively.
Digital images and video

The rise of social media is one of the driving factors behind the rapid growth in many people’s pool
of digital assets. The majority of users of social networking sites such as Facebook and Twitter upload
a large volume of personal photographs and videos to their account. More specific social networking
sites, such as Instagram and YouTube, are dedicated entirely to the uploading and sharing of digital
images and video content.
The law of copyright provides that any photograph or video taken belongs to the individual that
captured the content. Therefore, that individual retains legal ownership of all of their own photos and
video uploaded to social media sites and other accounts, and is entitled to bequeath their photo and
video content within their will.
However, an issue that now commonly arises is that the “terms of service” agreements that many
companies (such as Facebook) require users to accept before creating an account often prohibit an
account holder from transferring their account to another. This means that, unless external copies of
the content are kept, it may become inaccessible upon death unless a testator has provided its executor
with login details that can be used to extract the data. Facebook has shown its reluctance to divulge
account holder data in the event that this has not been done, using privacy laws to justify their
non-disclosure.
¶4-165
Music and eBooks

Another common example of a digital asset that many people would hold is their account with digital
music and book providers such as iTunes and, more recently, music streaming services such as Spotify
and Pandora.
The payment structure of each of these accounts works differently. For example, Spotify charges
“premium” users a monthly subscription fee, while iTunes prefers to charge for individual songs,
albums or audio books downloaded. However, what many people might not be aware of is that at no
time does the user actually own any of the music that these providers grant them access to. Generally
speaking, the ownership of the music remains with the particular artist, author or company, as they
retain the copyright. Instead, the user is paying for a licence that entitles them to listen to the music,
rather than acquiring any legal ownership. Their rights are therefore enforceable during life, but not
after death.
Accordingly, as people never have ownership of the digital music content in their accounts, it cannot
be left for anyone in their will. Furthermore, due to similar terms of agreement to Facebook, iTunes
accounts themselves cannot be transferred. It should also be noted that any unused funds held in an
iTunes account are not redeemable for cash and cannot be transferred.
Online business
The number of businesses receiving orders through the Internet (known as “Internet commerce”)
has also significantly increased in recent years, reaching 30% in 2012-13 according to a study by the
Australian Bureau of Statistics. The study also showed that 26% of businesses have developed social
media presences.
Particularly in the case of small businesses, in the event that the business owner or a key online account
manager dies, it is crucial that there are safeguards in place to ensure that the business can continue
to operate. Accordingly, it is important that access details, along with instructions for how an online
business should be dealt with upon death, are left by the testator.
Alternative options
There is a gradual trend towards digital service providers giving account holders, or in some cases,
relatives or friends of users, some choice as to what they would like done with their account and data
upon death.
Facebook now offers a memorial feature that entitles relatives or friends of a deceased to apply to have
an account either immediately deleted or “memorialised”, which maintains an account in a sort of
frozen state. Users can also nominate a “legacy contact” which can administer a memorialised account.
However, this feature is not yet available in Australia.
¶4-165
Google has implemented a program called “Inactive Account Manager” which enables users to direct
the way Google handles their data upon death. Along with the simple option of having an account and
all of its data deleted, users can nominate a “trusted contact” and the specific data that they wish for
that trusted contact to receive. All emails sent and received through Google’s Gmail accounts will be
accessible through this feature, and documents held in Google Docs and Picasa photo albums, among
others, can be shared with a trusted contact.
The modern testator may need to consider such options now and in the future, as it seems likely that
more of these services will be made available to account holders.
Summing up
The law in Australia is still very unclear and untested in relation to digital assets and their management
upon death. Necessity will inevitably dictate that Australian laws will need to be updated to reflect the
rapidly growing area of digital estates and to accommodate their posthumous administration.
Interestingly, some parts of the United States have begun taking steps towards implementing uniform
laws that control the way in which digital estates are dealt with, and it is widely hoped that Australian
lawmakers are not too far behind them.
In the meantime, testators and estate planners alike must prepare as best they can by giving adequate
consideration to digital assets to ensure that they are comprehensively dealt with upon death.
¶4-165
117
Chapter 5
Testamentary trusts
Introduction........................................................................................................................¶5-100
What are testamentary trusts?...........................................................................................¶5-105
Income tax advantages...................................................................................................... ¶5-110
Asset protection advantages............................................................................................. ¶5-115
Possible disadvantages..................................................................................................... ¶5-120
Structuring issues.............................................................................................................. ¶5-125
Nominating appointors.......................................................................................................¶5-130
Testamentary trust powers................................................................................................¶5-135
Alternatives to testamentary trusts.................................................................................... ¶5-140
Forward planning and Pt IVA............................................................................................. ¶5-145

In this chapter, we discuss one of the most popular succession planning strategies today – testamentary
trust wills. Testamentary trust wills can deliver significant taxation and asset protection benefits to
beneficiaries and are a common subject of discussion between accountants, financial advisers and
their clients.
Any trust established under a person’s will is technically a testamentary trust. However, the term
“testamentary trust” is commonly used to describe a discretionary trust established by a will that
operates in a similar way to a family trust, in that the trustee has a broad discretion to distribute income
and capital among a wide class of beneficiaries. In this chapter, the terms “testamentary trust” and “a
testamentary trust will” are used in this context.
This chapter will also refer, from time to time, to the term “primary beneficiary”. We use that term to
describe the person who is intended to be the main beneficiary. For example, when a husband dies, his
wife will usually be the primary beneficiary of a testamentary trust established under his will. When
the wife dies – if her will establishes a separate testamentary trust for each of her children – each
child will usually be the primary beneficiary of their own respective trust. It is not essential to have a
particular primary beneficiary, but in practice – just as is the case with family trusts – it is common for
each trust to have one as it helps with the operation of the trust.
¶5-105 What are testamentary trusts?

Testamentary trusts are simply trusts established under a will. Because a will only operates upon the
death of the willmaker, a testamentary trust only comes into operation (if at all) after the willmaker’s
death – generally when the executor first transfers assets into the trust. A will may make provision for
one or more testamentary trusts.
A will can be drafted so that the testamentary trust is effectively bypassed. It is possible to draft a
will that provides for a testamentary trust but, at the same time, allows a beneficiary to elect to take a
distribution directly and avoid the expense of operating a testamentary trust.
Cost is a factor when considering testamentary trusts, both at the willmaking stage and when the trust
is established following death. Willmakers should understand that the cost of a testamentary trust
will is usually considerably more than the cost of a normal will. The cost can vary significantly, but
generally tends to be in the range of $1,500 and above. Once created, a testamentary trust will incur
certain ongoing annual costs – such as the cost of lodging a taxation return. These costs can also vary,
but would generally be at least $400 per annum per trust.
Whether it is worthwhile making a testamentary trust will usually depend on the following factors:
the size of the estate – the annual operating costs usually make the cost of a testamentary trust
prohibitive if the trust will have less than about $300,000 in assets;
¶5-100
Testamentary trusts 119
the protection needs of the primary beneficiary. If a beneficiary is at risk of bankruptcy or suffering
a disability, then it will generally be worthwhile making a testamentary trust will – regardless of the
likely value of the assets; and
the personal needs of the beneficiary. If the beneficiary has no need for protection and will simply
use the funds to pay off their mortgage, then the cost of maintaining a testamentary trust will may
not be justified.
¶5-110 Income tax advantages

The taxation advantages of a testamentary trust can be significant.
Excepted trust income

The main advantage arises because minor beneficiaries – that is, beneficiaries under 18 years of age –
are taxed at normal adult rates on excepted trust income distributed to them.1 This means that minor
beneficiaries are not taxed at the penalty rates2 that generally apply to minors. They are taxed as adults
and therefore receive the benefit of the progressive taxation rates, including the tax-free threshold. Income
earned on assets forming part of the trust will generally be “excepted trust income”.
Although the extent of the taxation benefit will vary depending on the circumstances of the willmaker
and the beneficiaries – and the tax rates and law at the relevant time – the tax benefit derived from
testamentary trusts can be substantial.
Example
Chang dies leaving an estate comprising an investment portfolio valued at $1.2m.

Chang leaves his whole estate to his widow Li, who already earns $120,000 per annum. Li is glad that Chang
left her the investment portfolio which she will use to look after their three children, aged between eight and 14.
In the first year after Chang’s death, Li receives income of $72,000 from the investment portfolio.
As she already has income of $120,000, the tax that Li will pay on the $72,000 will be approximately $30,500.
If Chang had established a testamentary trust instead, Li could have distributed the $72,000 trust income in
that first year equally between the three children – that is, each child would have received $24,000 income.
As each child would be taxed as an adult, the tax payable per child could be said to be:
Tax on $24,000 = approximately $700
Total tax payable 3 x $700 = $2,100
The tax saving would be $30,500 – $2,100 = $28,400 in one year alone!
1 S 102AG(2)(d)(i) ITAA36.
2 Penalty rates are imposed by Div 6AA ITAA36. The penalty rates provide that the first $416 of “eligible taxable income” is tax-free, the
amount between $416 to $1,455 is taxed at 46% and any excess is taxed at 47%.
¶5-110
Example (cont)
The savings over a number of years would be highly significant.
Other taxation advantages

Testamentary trusts can be used to deliver other tax-related benefits to certain beneficiaries, similar to
the benefits enjoyed by family trusts.
Streaming of income
Testamentary trusts can be used to stream different categories of income – such as franked dividends
– to different beneficiaries. Having this flexibility can help reduce the overall taxation burden of
beneficiaries.
Example
Bridget is trustee of a testamentary trust that has earned income of $6,000 in interest and $6,000 in fully
franked dividends. She wishes to distribute $6,000 to each of two beneficiaries. One beneficiary, Yuval, is a
minor with no other income. The other beneficiary, Isabella, is an adult with $20,000 in other income. Bridget
can choose to help Isabella obtain a better tax position by distributing the interest income to Yuval and the
dividend income – with franked credits attached – to Isabella.
¶5-110
Tax-exempt entities
By naming tax‑exempt entities – whether charitable or not – as a class of beneficiaries in a testamentary
trust, a trustee will be able to distribute pre-tax income from the trust to a tax‑exempt entity. This can
deliver a better outcome for a beneficiary who otherwise might have given their own after-tax income to
the tax‑exempt entity.
Example
John wishes to donate money to the Collingwood Football Club. Being a tax‑exempt entity, the Collingwood
Football Club is also a beneficiary of the testamentary trust of which John is trustee. Instead of making
a personal donation of after-tax income to the club, John can make a distribution directly from the
testamentary trust.
Lower taxed beneficiaries

The discretionary nature of a testamentary trust also enables the trustee to distribute income to adult
beneficiaries whose marginal taxation rate is low. This provides the flexibility to distribute income to,
for example, the spouse of a primary beneficiary.
No CGT on passing of assets owned by deceased to beneficiary

Division 128 ITAA97 does not make it clear whether a CGT event arises when assets owned by the
deceased are transferred to the beneficiary of a testamentary trust. It has generally been argued
that there should not be a taxing point at that time based on the intention of the government when
introducing the legislation as evidenced by (among other things) the explanatory memorandum to
s 160X ITAA36 (the precursor to s 128-15 ITAA97).
In 2003, the ATO issued PS LA 2003/12 in which it acknowledged the uncertainty surrounding this
issue and confirmed that the ATO “will disregard any capital gain or capital loss that arises when
an asset owned by a deceased person passes to the ultimate beneficiary of a trust created under the
deceased’s will”.3
In the 2011 federal Budget, the government announced that it would amend legislation to reflect the
ATO’s approach. However, it now seems that the amendment will not be implemented. Nonetheless, in
August 2014, the ATO republished PS LA 2003/12, confirming again that it will disregard any capital
gain or capital loss.
Note that gains or losses are not disregarded where the gift passes to a tax-advantaged entity under
s 104-215 (see ¶11-120).
3 Para 3 of PS LA 2003/12.
¶5-110
Public policy and future reform

The taxation advantages of a testamentary trust can be significant. It is possible that they will be the
subject of legislative reform.
Governments in Australia – on both sides – have traditionally shied away from making any type of reform
that involves death and taxes. Perhaps such changes are perceived to be election risks, often as a result of
“death duty” scaremongering. It will be interesting to see if, in the future, a government forms the view
that the excepted trust income rules require legislative reform.
¶5-115 Asset protection advantages

Testamentary trusts also offer significant asset protection advantages. A beneficiary does not own the
assets in a testamentary trust so this provides scope for asset protection, similar to that which a family
trust provides. However, there is a degree of uncertainty about the extent of protection that will extend
to trusts in certain circumstances.
Protection from creditors: beneficiaries

Creditors pursuing a person who is a beneficiary of a testamentary trust generally will not be able to
access the assets of the testamentary trust as these assets are not owned personally by the beneficiary.
As the testamentary trust is a discretionary trust, a beneficiary does not have a proprietary right in
the assets of the trust – they only have a right to ensure that the trust is properly administered. The
beneficiary, therefore, does not have a right that can vest in the trustee in bankruptcy4 and the assets of
the trust cannot be accessed by creditors. However, some commentators5 have noted that the beneficiary
has a right to ensure that the trust is properly administered. Arguably, this is a personal right that could
vest in – and be exercised by – a trustee in bankruptcy. If this is the case, the trustee in bankruptcy
might be able to cause the trustee and beneficiaries some discomfort by seeking to be satisfied that
the trust is being properly administered. However, the trustee in bankruptcy would still have no
entitlement to, or real control over, the trust assets.
Protection from creditors: trustees and appointors

Often the primary beneficiary will also be, or control, the trustee and appointor of the testamentary
trust. The question that arises is whether the trustee in bankruptcy can step into either or both roles
and help cause income or assets to be distributed to the beneficiary – which would expose the income
or assets to the trustee in bankruptcy. There is little doubt the trustee in bankruptcy could not step
into the trustee’s shoes and act in this manner. The Bankruptcy Act 1966 carves out property held by
the bankrupt on trust for another person. Arguably the trustee in bankruptcy would, in any event, be
4 See, for example, Gartside v Inland Revenue Commissioner [1968] AC 553; Dwyer v Ross (1993) 34 FCR 463.
5 See, for example, the paper by G Halperin, “Defending the trust ramparts”, presented at The Tax Institute’s Victorian State Convention,
2007, available at taxinstitute.com.au.
¶5-115
restrained from taking on the role of trustee because of the clear conflict of interest that would arise if
they did.
There is strong authority6 to support the view that the role of appointor is also fiduciary in nature and
does not give rise to proprietary rights that could vest in the trustee in bankruptcy. It is unlikely that a
trustee in bankruptcy could step into the shoes of a bankrupt appointor and use the appointor powers
to appoint a new trustee who would then act in accordance with the trustee in bankruptcy’s wishes.
The view that the role of appointor is fiduciary in nature does not appear to be shared by the Family
Court (see below), and it remains to be seen whether other courts will take a similar approach in
the future.
Decisions of the Family Court – and, arguably, cases such as Richstar7 – serve as a warning to advisers
and their clients. The view of the courts towards trusts and protection of assets is understandably
influenced by the circumstances of each particular case. There is a risk that the level of protection to
beneficiaries from creditors traditionally associated with family trusts may deteriorate. It might be
argued that the historical notion of equity protecting the rights of beneficiaries is being challenged by
the modern‑day use of trusts to avoid responsibilities in some cases. Note the following comments by
Justice Young in Gregory v Hudson:8
“During argument, I remarked that the discretionary trust set up in the instant case was one
which makes a Judge in Equity in 1997 wonder why equity courts are bothering with this sort of
trust at all. Trusts, and at an earlier time, uses, were enforced by courts of equity because it was
against the conscience of the holder of the legal estate not to carry out the promise that had been
made to hold the property concerned on the trust expressed in the instrument. However, where
the trustee can virtually designate who is to be the beneficiary, this ground has no validity at
all. When one sees that discretionary trusts are used for the anti-social purpose of minimising
taxation or defeating the rights of wives (see for example Re Davidson’s Trust No 2 [1994] FLC
¶92-469), there does not seem to be any reason in conscience why a court of equity should
take any notice of them at all. Counsel were surprised that any judge should take this view and
accordingly I announced during the argument that I would not seek to develop it in this case,
but I believe that the message should be put abroad that the time may well have come where
equity will have to reconsider its attitude to enforcing this sort of trust.”
Tip
To reduce the possibility of creditors having access to the assets of a testamentary trust, a willmaker might
consider appointing two appointors and trustees – who truly act jointly – or including provisions in the trust
term that terminate a person’s role as trustee and appointor if they are declared bankrupt.
6 See, for example, Re Burton; Ex parte Wily v Burton (1994) 126 ALR 557; Pope v DPR Nominees Pty Ltd and Ors [1999] SASC 337.
7 Richstar Enterprises Pty Ltd v Carey [2006] FCA 814.
8 [1997] NSWSC 140.
¶5-115
Protection from divorce

In recent years, the Family Court has shown a willingness to treat assets held in a family trust as property
of a party in circumstances where that party (directly or indirectly) controlled the trust or otherwise
treated the assets of the trust as their own property. In these cases, the Family Court has either:
regarded the assets of the trust to be a “financial resource” of the party, which were taken into
account when the court divided the property pool;9 or
regarded the assets of the trust as part of the property pool that can be divided between the parties.10
One question that arises is whether the Family Court will distinguish between a person’s interest
in a family trust created by another person during that person’s lifetime or a person’s interest in a
testamentary trust.
In Ward & Ward,11 the husband was one of three siblings. His mother amended her will and instead of
giving him a one-third share of the estate absolutely the one-third share was to pass to a testamentary
trust, the beneficiaries of which were the husband and his two children and the trustees of which were
the husband’s sister and the mother’s solicitor. The husband admitted under cross-examination that
the purpose of the change was to put the inheritance out of reach of his wife. The mother died in 2003
and the family law case came before the court in 2004. The court said that the trust assets would not be
brought into the marital property pool, but were a financial resource. Notwithstanding this decision,
in my view a court would not hesitate to regard assets held in a testamentary trust as being part of the
divisible property pool if that was required in order to produce a just outcome for the parties.
The following principles (some of which are not new) emanate from the cases referred to above:
if a person controls a trust as appointor or trustee, the Family Court can regard the assets of the
trust as effectively belonging to that person, and make orders which affect the trust (eg ordering the
trustee to distribute assets from the trust to the person’s spouse);
the Family Court can regard a person to be in control of a family trust even if the person is not
trustee or appointor (eg where the person’s accountant or sibling is appointed to those positions);
the Family Court can make orders affecting a trust even where the trust has been established and
funded by the person’s parent(s) (ie it is not necessary for the assets of the trust to be accumulated
through the efforts of the parties of the marriage, during the marriage – see Ogden & Ogden12 and
also Essex & Essex13); and
9 See, for example, Essex & Essex [2009] FamCAFC 236 and Ogden & Ogden [2010] FMCAfam 865.
10 See, for example, Kennon v Spry [2008] HCA 56; Ashton v Ashton (1986) FLC ¶91-777; Goodwin v Goodwin (1991) FLC ¶92-192; and
Davidson v Davidson (1991) FLC ¶92-197.
11 [2004] FMCAfam 193.
12 [2010] FMCAfam 865.
13 [2009] FamCAFC 236.
¶5-115
where several people control a single trust but the will/trust deed gives certain beneficiaries the
power to control a portion of the trust (eg the power to appoint a separate trustee to “their” portion
of the trust) the court can treat each “portion” as property belonging to a sibling (this was the case
in Ogden) and make orders which affect a sibling’s “portion”.
So, what does a willmaker do if they are concerned their child might, after receiving their inheritance,
suffer a relationship breakdown which will result in the ex-spouse getting a share of that property?
Options may include:
if the willmaker has several children, establish a single testamentary trust with all children as joint
controllers (but without the ability to control portions, as per Ogden). However, this assumes the
children will get on well enough to successfully manage the trust, including making decisions
regarding investments and distributions. And what happens if one child dies? Careful planning and
drafting is required;
appointing a truly independent trustee, perhaps accompanied by a letter of wishes. Is this worth the
cost and lack of control for the children?
giving the children only a limited interest (eg income only) in the trust;
by-passing the children by setting up trusts for the grandchildren; and
suggesting to the child that they and their partner enter into a binding financial agreement.
See chapter 21 for a more detailed discussion of family law issues and strategies.
Recent changes to relationship laws in Australia mean that a de facto (including same sex) partner may
have an entitlement to assets of a trust following a relationship breakdown.
Tip
The Family Court has very broad powers and can direct trustees of trusts to make provision to parties of a
relationship that has broken down.
It is crucial that clients are made aware of all of the relevant issues.
Protection from beneficiary

If a primary beneficiary has a problem such as gambling or drug dependency, a testamentary trust
controlled by an independent trustee can protect the assets from being wasted. At the same time, the
trust can be used to look after the long‑term interests of the beneficiary, as well as others such as the
beneficiary’s children.
¶5-115
Example
Mika makes a will leaving her estate (valued at $3m) to her three children equally. Sadly, Mika dies soon after.
Shortly after Mika’s death:
her eldest son Zoran, an accountant, was sued by a client and his inheritance formed part of a settlement
with the client;
her daughter Marina used her inheritance to pay off the mortgage on her marital home. Unfortunately, her
husband was awarded half of the value of the home when they divorced some years later; and
her youngest son Novac wasted his inheritance on drugs. He is now reformed, but regrets squandering
the money.
If Mika had established three testamentary trusts:
Zoran’s inheritance would have been protected from creditors;
Marina’s inheritance may have been out of her husband’s reach (but may not – see ¶21-110); and
Mika could have appointed an independent trustee of the trust for Novac and prevented him from wasting
his inheritance on drugs.
Tip
It may be prudent to suggest to clients that they (or their children!) consider entering into binding financial
agreements in an attempt to protect the inheritance.
Scenario 1
¶5-115
Scenario 2
Protection for beneficiary

If a beneficiary is unable to manage their inheritance, a testamentary trust with independent trustees
will help protect the assets and provide for the beneficiary’s long‑term needs.
As noted above, a willmaker may wish to encourage a beneficiary to enter into a binding financial
agreement in order to protect a planned inheritance. Binding financial agreements should be prepared
by a family law lawyer and the same lawyer/law firm must not advise both parties.
Advisers need to be aware of situations that may give rise to a conflict of interests.
¶5-120 Possible disadvantages

It is important to be aware of the possible shortcomings of testamentary trusts. These will not be
relevant to every testamentary trust.
Cost
In addition to the likely additional cost borne by the willmaker when making a testamentary trust
will, establishment and operating costs will be incurred by the testamentary trust itself. For example,
taxation returns must be lodged for each testamentary trust and, in most cases, separate accounts need
to be kept. These costs are relevant when considering not only whether to establish a testamentary trust
but also how many to establish – see Michael’s example in ¶5-125.
¶5-120
Loss of main residence CGT exemption

Depending on the structure of the testamentary trust, the main residence CGT exemption may not be
available in respect of a dwelling held by the trust – see ¶11-120.
Family trust elections

A non-fixed trust – which a “typical” testamentary trust will be – will need to make a family trust
election in order to transfer trust losses. Making a family trust election may of course impact on a
trustee’s ability to make distributions.
Land tax
In certain jurisdictions, holding land in a testamentary trust may give rise to land tax issues.
Control
Always be aware that the trustee of a testamentary trust has significant discretions and usually there is
little or no real-time monitoring of their activities. This may not be an issue where the alternative (to
establishing a testamentary trust) was to leave the inheritance directly to the “controller” – either way
they could misappropriate/waste the money. However, where the intention is to benefit beneficiaries of
the testamentary trust other than the controller, the selection of trustees is particularly important. Of
course, trustees can be overseen by an appointor.
Tip
It is possible to limit the trustee’s discretion by inserting certain default provisions in the terms of a
testamentary trust, such as a provision directing that each child and their descendants receive a fixed share
of the capital and even income of the trust.
Trap
However, this may make a fixed share more likely to be regarded as property of the marriage of the relevant
child by the Family Court – see ¶21-110.
¶5-120
Transferring control
The discretionary nature of a testamentary trust necessarily means that there will be risk that at some
stage the control of the trust will rest with people who may not be the most appropriate trustees or
appointors – see ¶5-125 onwards.
¶5-125 Structuring issues

Many of the features of a testamentary trust are similar to those of a family trust. Matters such as
the discretionary nature of the trust, the presence of broad investment powers and the nomination
of appointors’ provisions are usually features of both types of trusts. However, this should not
automatically be the case. The terms of a testamentary trust should be tailored according to the
willmaker’s wishes, which are usually influenced by the beneficiary’s likely needs.
Who should be trustee?

In many cases, it will be appropriate for the primary beneficiary to be nominated as trustee of “their”
testamentary trust. However, the nomination happens at the time the will is made and so the usual
caveat applies. Lots of things can happen between then and the date of death, so a willmaker should
always consider the possibility that circumstances may change during that time – and these changes
could make it inappropriate for the primary beneficiary to be the sole trustee of the testamentary trust.
As discussed at ¶5-115, the changing attitude of the courts also suggests that it may be worthwhile
considering appointing two trustees and appointors to reduce the risk of the trust assets being regarded
as the primary beneficiary’s own property.
This leads to other issues – if a second trustee and appointor is going to be named, who should it be? If the
concern is that the primary beneficiary may divorce, then clearly it should not be their spouse. Often it is
appropriate to appoint an independent person, such as the primary beneficiary’s accountant or adviser –
see the discussion on appointing executors and trustees in ¶3-160.
If the primary beneficiary is a minor, or not at an age at which the willmaker would want them to
take control of their inheritance, it is common for the willmaker’s executors to act as trustees of the
testamentary trust until the beneficiary reaches the appropriate age. Further consideration could be
given to not making the child’s appointment as trustee automatic in case the child is experiencing
problems at that time – for example, family law or creditor issues.
A will should clearly set out the process to be followed when appointing new trustees. Explaining these
options to the willmaker and carefully drafting the will is a critical part of planning for testamentary
trusts. For example, the will can name who is to become the trustee if the nominated trustee is unable
to act or continue to act. Alternatively, the power to appoint additional or replacement trustees can rest
with the appointed trustees.
¶5-125
Example
Jessica has two children, Emma and Josh. She wishes to make a will under which separate testamentary
trusts will be created for them. The executors and trustees of Jessica’s will are her siblings, Mike and Jenny.
Jessica is confident that Emma, aged 21, is a mature and stable young woman. Josh is 18 years of age but
has some behavioural issues and Jessica is concerned that he has some friends who could easily manipulate
him. Jessica would prefer it if Emma took control of their inheritance when she reached 25 years of age and
that Josh never had sole control of his trust. However, Jessica would like Josh to feel that she at least trusted
him to have a role in the management of his trust.
Jessica could choose to structure trusteeship so that:
Mike and Jenny act as trustees of each trust until the primary beneficiary turns 25;
when Emma turns 25, she becomes the sole trustee of her trust; and
if either Mike or Jenny cease to be a trustee before Josh turns 25, Emma steps in. When Josh turns 25,
both Emma and Josh become trustees of Josh’s trust.
By making this arrangement, Jessica is confident that Josh will not waste his inheritance. She could also
consider providing that Josh becomes the sole trustee of his trust at a later age, such as 35.
Predeceasing beneficiaries
It is always important for a will to cater for the possibility of a beneficiary either predeceasing the
willmaker or dying before attaining the age at which they inherit their gift or take control of any
testamentary trust. In the context of testamentary trusts, one option of addressing this risk is to make
the establishment of the testamentary trust conditional upon the beneficiary attaining the age at which
they take control of their trust. However, many wills are drafted so that the testamentary trust is created
upon the death of the willmaker. This raises the question as to what should happen if the beneficiary does
not live to attain the age at which they can control their trust. In the example above, if Emma died at the
¶5-125
age of 24 – leaving a child of her own – who would control her trust and what risks would arise? Having
considered these risks, does the willmaker wish to address them?
Example
Emma dies at the age of 24 and is survived by a son Harry, aged one. Harry is cared for by Emma’s partner
Tom.
Assume that the will directs Mike and Jenny to continue to act as trustee of the trust until Harry is 25 years
old. What can go wrong and how might this be addressed?
Risk How addressed

Mike and Jenny always disapproved of Tom and If this is a concern, then Jessica could consider
don’t feel particularly close to Harry. In reading the appointing an independent trustee if Emma dies and
trust deed one night they were delighted to discover was survived by a child.
that their own children are included in the class
of general beneficiaries – because they are first
cousins of the primary beneficiary, Emma. Mike and
Jenny decide to pay income to their own children
with only a paltry amount to Harry.
Mike and Jenny have little idea about investments, Jessica could consider appointing an independent
but regularly receive emails from a friendly chap in trustee with expertise in investments and excellent
Nigeria who seems to need a bit of help. account‑keeping procedures. She could require
the trustee to provide Mike, Jenny, and/or her
accountant with regular statements.
Alternatively, Jessica could appoint Mike and Jenny
as trustees and clearly direct them to consult with
her financial adviser before making any material
investment decision for the trust.
Mike and Jenny are already well into their 60s and Jessica could provide for the automatic appointment
are not likely to still be alive by the time Harry turns of an independent trustee following the death or
25. Already their memories are starting to falter. incapacity of either Mike or Jenny – or when they
reach a certain age.
This example demonstrates a key component of the succession planning process – identifying risks
and solutions and then considering whether the willmaker wishes to spend time, effort and money to
eliminate or reduce those risks. Some people will look at risks and be willing to spend a reasonable
amount to get their succession plan right. Others’ eyes will glaze over and they will simply say that near
enough is good enough. There is really no right or wrong decision – the critical thing is:
if you are an adviser – you look after your client’s interests by telling them what can go wrong and
how it can be addressed; and
if you are the willmaker – you make an informed decision.
¶5-125
How many trusts?

Some people spend a lot of time on proper structuring (or expensive restructuring) of their affairs, but
then fail to get it right when establishing testamentary trusts.
For example, wills for a married couple often provide that – on the death of either of them – a single
trust is established for the survivor. On the death of the survivor, separate trusts are set up for each of
the children. In this situation, when the surviving spouse dies, there will be:
an existing testamentary trust that arose after the first spouse died; and
new testamentary trusts for each of the children arising from the will of the spouse who died second.
One potential problem here is the control of the existing testamentary trust. Dealing with this requires
an analysis of issues similar to those that apply when dealing with transferring control of a family trust
(see chapter 14). However, the need to deal with this might have been avoided if – when the first spouse
dies – a number of testamentary trusts mirroring the number of children are established. The surviving
spouse could maintain control of each trust – as trustee/appointor – but the terms of each trust could
provide that when he or she dies each child automatically becomes trustee and appointor of their
respective trust.
Example
Michael and Jane make wills leaving the whole of their respective estates in a testamentary trust to be
controlled by the survivor. When the survivor dies, their assets are to be split into three equal shares and held
in a testamentary trust for their children – Jack, Annie and Joseph.
Let’s look at what happens when the first of them, Michael, dies:
Figure 1
The potential issue this creates is that – when Jane dies – control of the testamentary trust needs to be
transferred to Jack, Annie and Joseph. This may not be prudent – for example, they may not get on with
each other.
¶5-125
Example (cont)
If Michael had established three testamentary trusts instead, he could have named Jane as trustee and
appointor of all three trusts during her lifetime – and nominated one child as the new trustee and appointor of
each trust after her death.
Figure 2
There are other advantages of this strategy – but also some disadvantages and risks. The advantages
include the following:
If Jane advances money for a particular child, she can do that from the trust allocated to that child.
This is a neat way of ensuring that each child is treated equally – assuming that this is desirable – and
removes the need for complex recording of transactions. It also eliminates the risk of disputes arising
about adjustments for inflation if different children receive distributions or loans at different dates.
If one child, such as Jack, predeceased Jane – leaving children of his own – then Jane could appoint
independent trustees to take over trusteeship on her death so that the trust benefits Jack’s children.
If there was a single trust, it could be more difficult to ensure that Jack’s children are provided for.
For example, Annie and Joseph might have control of the single trust and look after themselves to
the detriment of Jack’s children and spouse.
Some disadvantages and risks with this strategy include:

the cost of operating multiple testamentary trusts;
the possibility that Jane will invest the money in each trust differently, resulting in the children
receiving unequal amounts;
the possibility that Jane will not take equal drawings from each of the trusts, resulting in the
children receiving unequal amounts; and
is there an increased risk that the Family Court will treat property of a trust as a financial resource
or property of the relevant child?
¶5-125
¶5-130 Nominating appointors

It is common, but not essential, for a testamentary trust to create the position of appointor and to
nominate the first appointor – typically the primary beneficiary. The role of appointor is important as
they have the right to replace the trustee. This means that they generally have the real control over a
trust fund. A properly drafted appointor clause can also help ensure that control of the trust passes to
the desired person when the original appointor dies.
When drafting an appointor clause, you need to consider:

empowering the appointor to appoint a replacement on their death or incapacity. Death is often
dealt with but incapacity overlooked, which means that the trust has no active appointor during any
period in which the appointor is incapacitated;
naming an alternative appointor in case the preferred appointor dies or becomes incapacitated
without appointing a replacement;
empowering the appointor to appoint and remove additional appointors;
directing whether decisions by multiple appointors must be unanimous or by majority; and
setting out rules for meetings of multiple appointors.
Tip
Although the role of the appointor is a valuable one, don’t forget that the trustee also has significant powers.
For example, by the time the appointor becomes concerned that the trustee may be acting inappropriately,
the trustee may have already resolved to distribute most of the assets to a particular beneficiary. The
appointor could still exercise their right to remove the trustee, but by then it might be too late – the resolution
would usually stand.
¶5-135 Testamentary trust powers

Investment powers
When drafting a testamentary trust, you need to consider if it is desirable to:
expressly forbid certain investments or limit the trustee’s power to vary investments;
impose a different standard of care on the trustee when investing trust funds – this level could be
higher or lower than that which would otherwise apply; and
remove or vary the requirement that trustee legislation imposes on trustees to review the
performance of trust investments at least annually.
¶5-130
Power to lend
Another issue to consider is whether the trustees should be permitted to lend moneys to beneficiaries –
including a trustee/beneficiary – and, if so, on what terms and with what security.
For asset protection reasons, a loan to a beneficiary may be preferable to a capital distribution.
Example
James is a beneficiary of a trust and has recently married. He asks the trustees to make a capital distribution
from the trust to enable him and his wife to buy a house. The trustees could simply make a distribution, but
a better result for James (and other beneficiaries) might be for the trustees to provide an interest-free loan
secured by a first mortgage over the property.
By doing this, the loan from the trust would be repayable and, hopefully, able to be repaid, if James
subsequently divorced. James might then have the opportunity to benefit from the repaid capital at some
time in the future. This contrasts with the situation where a capital distribution has been made to finance
the purchase, in which case James’s spouse might end up with a percentage of the property as part
of the divorce settlement (although see comments at ¶5-115 regarding rights of spouses in relationship
breakdowns).
Tip
Consider whether the first mortgage can be entered into at a rate of interest payable “on demand”. This might
further protect the testamentary trust in the event of divorce as the amount owing to the trust would – once the
demand is made – increase above the original principal amount by the inclusion of accrued but unpaid interest.
Power to amend
Many testamentary trust wills in the marketplace include a broad amending power. However, it is not
clear whether such a power is valid. A testamentary trust is part of a will and it is unusual for anyone
to have power to amend a will after the willmaker’s death. Therefore, care needs to be taken on this
issue. Rather than rely on the existence of an amendment power, it is better to include all the necessary
clauses in the first place.
Assuming that such an amending power is valid, how broad should the power be? Should the trustee
have the power to add or remove beneficiaries? Would that infringe the rule against delegation of
testamentary power14 – at least in those jurisdictions where the rule remains?15 The New South Wales
decision of Gregory v Hudson16 stands as authority that a will can gift property to an existing family
trust without breaching the rule against delegating testamentary power. This is despite the fact that the
14 As enunciated in Tatham v Huxtable (1950) 81 CLR 639.
15 Currently NSW, WA and SA.
16 [1997] NSWSC 140; then on appeal [1998] NSWSC 582.
¶5-135
trustee of the family trust had the power to vary beneficiaries. In that case, the family trust contained a
clause giving the trustee power to add anyone as a beneficiary – apart from the settlor, his legal personal
representative and his children.
Self-dealing
The self‑dealing rule is different to the fair dealing rule.17 Together these rules properly fall under a
discussion of conflict of interests – a topic beyond the scope of this book.
A common feature of a typical testamentary trust is that a trustee is also a beneficiary. Obviously
this gives rise to a conflict of interests. But a trustee has a duty to avoid a conflict of interest – so how
can a person remain as both a trustee and a beneficiary? The answer is that the trust instrument has
authorised the beneficiary to be a trustee, notwithstanding the conflict.
But what about a situation where a primary beneficiary was not an original trustee of a trust and the
trust instrument does not expressly authorise the trustee to distribute income to themselves? In that
case – if the primary beneficiary becomes the trustee – could the primary beneficiary distribute income
or capital of the trust to themselves? It is likely that they couldn’t.
Another situation that needs to be considered is if the trustee wishes to purchase trust property or
borrow from the trust. In such cases, is it enough for the trustee to rely on a clause in the will that
empowers the trustee to sell an asset to a beneficiary or to lend trust moneys to a beneficiary – on the
basis that the trustee themselves is a beneficiary? The better view is that the will should expressly give a
trustee that power.
¶5-140 Alternatives to testamentary trusts

If a person has a family trust, one alternative to establishing a testamentary trust is to name the family
trust as a beneficiary of the estate. Income from assets that pass to the family trust that is distributed
to minors would be taxed concessionally.18 However, entitlement to concessional rates of taxation
will generally be limited to income from the transferred assets – and not from any asset subsequently
acquired. This is in contrast to a testamentary trust where all the income of the trust estate is able to be
taxed concessionally.19
There may be other disadvantages in transferring assets into a family trust. These include:
uncertainty surrounding the control of the family trust at the time of death;
possible liabilities of the family trust – especially if it carries on a business; and
17 For a useful description of the two, see Tito v Waddell (No. 2) [1977] Ch 106 at 241.
18 S 102AG(2)(d)(i) ITAA36.
19 S 102AG(2)(a) ITAA36.
¶5-140
possible disputes in the family trust – such as claims by disaffected children or claims by a
former spouse.
Also, as the family trust will have been established prior to the deceased’s date of death, the vesting date
for the family trust will necessarily be sooner than the possible vesting date of any testamentary trust
that the deceased might have established.20
¶5-145 Forward planning and Pt IVA

One of the peculiarities of testamentary trust planning is that they are often created for wealthy
willmakers. However, for asset protection reasons, wealthy willmakers, such as professionals and
business owners, tend to hold very few assets in their own name. As we have seen above, the benefits
that flow from a testamentary trust are maximised where assets of a significant value form part of the
estate – such as assets in the willmaker’s sole name.
This gives rise to the question: when is it possible to move assets into a person’s name to take advantage
of benefits that flow from testamentary trusts?
Example
Michael and his wife, Cate, are both partners in a leading law firm. On the advice of their accountant, Michael
and Cate have been careful to structure their affairs for asset protection purposes. Michael has a family trust
that holds $5m in investment assets.
Michael is diagnosed with cancer and the doctor tells him that he has three months to live. His immediate
thoughts are for Cate and their two young children. His accountant tells him that he could transfer $3m cash
and other investments from the family trust into his sole name with minimal CGT consequences.
Michael is attracted to the tax advantages that a testamentary trust would provide to Cate. The $3m transfer
is made from the family trust into his sole name. He makes a will that establishes a testamentary trust to be
controlled by Cate.
Would the ATO have concerns about this arrangement from a Pt IVA perspective? What was the dominant
purpose?
There are many alternatives to the above types of strategies, and the involvement of other family
members (such as parents) and other asset-holding vehicles such as superannuation can add to
their complexity.
Suffice to say, if any planning strategies are entered into, consider documenting the reasons behind
the strategy and, where appropriate, seek expert advice on the possible Pt IVA consequences.
20 Although note that SA does not have a statutory perpetuity period.
¶5-145
139
Chapter 6
Disposing of assets in foreign jurisdictions
Introduction........................................................................................................................¶6-100
Identifying the location of the property..............................................................................¶6-105
Movable or immovable....................................................................................................... ¶6-110
Domicile............................................................................................................................. ¶6-115
Grants of administration.....................................................................................................¶6-120
Intestacies.......................................................................................................................... ¶6-125
Construction of wills...........................................................................................................¶6-130
Taxation and revenue issues for multi-jurisdictional assets..............................................¶6-135
Tax issues for non-residents..............................................................................................¶6-140
Claims against the estate...................................................................................................¶6-145
Strategies to consider if holding foreign assets................................................................¶6-150
Administering an estate with foreign assets......................................................................¶6-155

It is becoming common for people to own assets in more than one jurisdiction. This is because of
several factors, such as people becoming increasingly wealthy, people being more likely to reside in
several jurisdictions during their lifetime, and investment strategies often demanding investing across
a number of jurisdictions.
The existence of varying laws in different legal jurisdictions can have a dramatic effect on a succession
plan. Interpreting how these laws interact requires a careful analysis of complex regulations and
procedures (including rules relating to conflicts of laws, legislation and common law provisions in
different jurisdictions) as well as the impact of the Hague Convention.
In Australia, each state and territory is a different jurisdiction and there can be occasions where
this gives rise to problems, such as determining in which state or territory a grant of probate
should be obtained. Fortunately, each Australian jurisdiction has relatively similar legislation that
facilitates recognition of interstate grants of administration – such as a grant of probate or letters
of administration. As a result, where a person has made a will and has left assets in more than one
Australian jurisdiction, major problems are unlikely to arise. On the other hand, intestacies can give
rise to issues where real property is held in more than one jurisdiction.
More particularly, however, the real problems can arise where assets are held outside Australia. This
chapter will provide an overview of the rules that must be considered where a person owned assets in
multiple jurisdictions, in particular those outside Australia.1
¶6-105 Identifying the location of the property

Identifying the location of assets will be important for three reasons:
(1) determining whether property is movable or immovable;
(2) determining where to apply for a grant of representation; and
(3) determining who may apply for a grant of representation.
In Australia:
land and leases on land are said to be located in the jurisdiction where the land is situated;
shares are said to be located in the jurisdiction where the company is incorporated; and
chattels – such as furniture, jewellery and personal effects – are said to be located in the jurisdiction
where the chattels are (at date of death).
1 This chapter has benefited from the material contained in the paper “Looking beyond jurisdictional boundaries” by Barry Fry of
Maddocks, available at www.maddocks.com.au.
¶6-100
Disposing of assets in foreign jurisdictions 141
¶6-110 Movable or immovable

Property is classed as either movable such as chattels or immovable such as land. More commonly, we
might describe property as personal property or real property, but we will use the legally correct terms of
movables and immovables for the sake of consistency with cases and articles referred to in this chapter.
Issues regarding immovable property are generally dealt with in accordance with the law where the
property is situated. In contrast, issues regarding movables are determined according to the law where
the deceased was domiciled which, as we will see, is not always easy to identify.
In Australia, the following criteria apply:

land is immovable;2
leases are immovable;3
shares are movable;
chattels are movable;4 and
in jurisdictions outside of Australia, different results may arise depending on the laws of
that jurisdiction.
Determining whether property is movable or immovable can be important for a number of reasons.
For example, if a person dies intestate leaving land in different jurisdictions then the laws of each
jurisdiction will usually determine how the land will be dealt with. This will not always be the case
where the land is situated in a non-common law country.
¶6-115 Domicile
A person’s domicile is generally the country in which they reside with an intention to remain for an
indefinite period.
How to identify domicile

The common law is still the primary source of the rules used to identify a person’s domicile, despite the
existence of the Domicile Act 1982 (Cth) and various state/territory-based legislation.
The common law and the legislation recognise three types of domicile:
(1) domicile of origin: the true, fixed, and permanent home that attaches at birth to an individual by
force of law. A domicile of origin does not now revert back to a person upon loss of their domicile
of choice or dependence;5
2 Haque v Haque (No. 2) (1965) 114 CLR 98 at 138.
3 Duncan v Lawson (1889) 41 Ch D 394.
4 Haque v Haque (No. 2) (1965) 114 CLR 98 at 138.
5 S 7 of the Domicile Act 1982 (Cth).
¶6-115
(2) domicile of choice: a true, fixed, and permanent home acquired by a person who intends to surrender
his or her old domicile and establish a new domicile, and who is physically and lawfully present in that
place with the intention of remaining there indefinitely;6
(3) domicile of dependency: the true and permanent home of one who lacks the capacity to acquire
their own fixed residence through independent choice.7
Why is domicile important?

Domicile is important when determining certain matters. For example:
when construing a will, the law of the deceased’s domicile at the time the will was made may be the
relevant law, although this is a rebuttable presumption;8
in relation to revocation of wills, the general rule is that the law of a person’s domicile when the will
was made or the law where the will was executed will govern the question of revocation;
where a person dies intestate owning movables, succession of the movables will be determined
according to the law in the place of the deceased’s domicile.
¶6-120 Grants of administration

When a person dies they lose legal status and someone has to be appointed to act on their behalf. The
appointee is known as the legal personal representative (LPR) and will be either:
an executor, named in the deceased’s will and confirmed by the court; or
an administrator, appointed by the court where the deceased did not have a will or had a will that
did not appoint an executor.
A court issues an executor with a “grant of probate” and an administrator with “letters of
administration”. In this chapter, “grant of administration” covers both terms. 9
So, by issuing a grant of administration a court gives the LPR authority to enable them to administer
the deceased’s estate. A grant of administration generally gives the LPR authority to deal with the
deceased’s assets only in the jurisdiction the grant was issued. However, courts in many jurisdictions
are able to recognise foreign grants of administration and acknowledge the authority of the foreign
grant by “resealing” it – which enables the LPR to deal with the property in the resealing jurisdiction.
Ultimately, whether a court agrees to reseal a grant of administration – or requires a new application to
be made for a fresh grant of administration – will depend on a number of issues including the rules of
6 S 10 of the Domicile Act 1982 (Cth).
7 S 9(1) of the Domicile Act 1982 (Cth).
8 Re Lungely [1965] SASR 313.
9 For further details, see Issues Paper 21, Law Reform Commission of NSW, 2002.
¶6-120
the particular jurisdiction, whether immovables are located there and whether a separate will was made
dealing with property in there.
Where a person dies with assets in more than one jurisdiction, it is often necessary to decide in which
jurisdiction the initial grant of administration should be obtained and whether it is necessary or
possible to then reseal the grant in other jurisdictions.
Where to apply for a grant

All Australian jurisdictions apart from Queensland,10 the Australian Capital Territory11 and the
Northern Territory12 require property to be located in the jurisdiction before the court in that
jurisdiction will issue a grant of administration. The legislation in the two territories require the court
to be satisfied that the grant is necessary and, arguably, the Queensland legislation has similar effect.
Notwithstanding this power, it seems that it would be rare for a court to issue a grant where no property
was located in the jurisdiction.
For those jurisdictions that require property to be located, it does not matter whether the property is
immovable or movable. For example, in In the Goods of Rowley,13 the only property was money in a safe
deposit box in Melbourne. That was enough for the court in Victoria to issue a grant of administration.
Who may apply for a grant or reseal?

The right to apply for a grant will depend on whether the estate includes immovables. If only movables
are in the jurisdiction in which the grant is being sought, the court will usually issue a grant to the
person entitled to it in the place of the deceased’s domicile. The process for reseals is similar.
Except in South Australia, if immovable property is located in an Australian jurisdiction, the court in
that jurisdiction will not automatically issue a grant to the holder of a grant from another jurisdiction.14
The reason is that the issuing of a grant not only appoints the administrator but it also confirms how the
immovable property will be dealt with. This could be inappropriate where, for example, the law of the
jurisdiction in which the immovable is located does not recognise the validity of the will that is the subject
of the grant from another jurisdiction. In South Australia, if movables and immovables are located in that
jurisdiction the court will usually act in accordance with the law of the deceased’s domicile.
10 S 6 of the Succession Act 1981 (Qld).
11 S 9(2) of the Administration and Probate Act 1929 (ACT).
12 S 14(2) of the Administration and Probate Act (NT).
13 (1863) 2 W & W (IE & M) 115.
14 Lewis v Balshaw (1935) 54 CLR 188.
¶6-120
¶6-125 Intestacies
Where a person dies intestate owning immovables in more than one jurisdiction, the immovable
property in each jurisdiction will be dealt with in accordance with the intestacy laws in that jurisdiction.
Example
John dies intestate owning a house in South Australia and an apartment in Noosa, Queensland. He is
survived by his wife, Penny, and daughter, Rose. In this situation, Penny would receive the statutory legacy
component under the intestacy laws in both Queensland and South Australia – see ¶3-155.
¶6-130 Construction of wills

A will may be wholly or partially invalid on the grounds that it lacks either formal or essential validity.
Formal validity relates to the mode of execution and the form of the will – for instance, whether it was
properly signed and witnessed. At common law, formal validity of a will disposing of movables was
determined by the law of the deceased’s domicile.
Formal validity of a will disposing of immovables was determined by the law where the property was
situated. However, legislation in all Australian jurisdictions extends the formal validity of a will that
disposes of immovables in a range of circumstances, including:
where the will is valid in its place of execution; or
the domicile of the deceased at the time the will was executed or the time of death.
Essential validity relates to the ability of the will to dispose of assets. In the case of immovables, the
relevant law is the law where the property is situated. Accordingly, in some jurisdictions – such as
France or Indonesia – the law may effectively override a willmaker’s gift of land.
¶6-135 Taxation and revenue issues for multi-jurisdictional assets

Set out in Appendix 1 to this chapter are details relating to jurisdictions of Hong Kong, Indonesia,
Malaysia, New Zealand, the United Kingdom, the United States of America and Singapore, though
broadly speaking there is no inheritance tax in Hong Kong, Indonesia, Malaysia or New Zealand. There
are duties in Singapore but only in respect of deaths prior to 15 February 2008.
It is imperative that Australian LPRs and their legal advisers are aware of the impact of foreign
inheritance or estate-type duties.
For example, in the UK transfer of UK assets on death is subject to inheritance tax which currently
applies at the rate of 40% on assets in excess of £325,000. The crucial issue is not where the individual is
“resident” but where they are “domiciled”:
¶6-125
if the individual is or is deemed to be UK domiciled (even though they are a resident outside the UK
and the estate is outside the UK) then inheritance tax will apply to their worldwide assets;
if the individual is not UK domiciled then their non-UK estate is not chargeable to UK inheritance
tax; however, any UK assets may be subject to inheritance tax;
if a UK asset is also chargeable to an equivalent tax in their country of residence they may get relief
against their overseas liability for the UK tax incurred, subject to the terms of any double tax treaties
in force.
Tip
If a willmaker has overseas assets they should obtain advice from a professional adviser to ascertain the
tax and duty obligations in relation to the overseas assets. If the willmaker was domiciled in an overseas
jurisdiction the consequences may be more significant as all of their assets may be subject to foreign duty.
¶6-140 Tax issues for non-residents

A number of tax issues arise where a beneficiary of a deceased estate is a non-resident for tax
purposes. In particular, CGT may apply to the transfer of assets in a deceased’s estate to a non‑resident
beneficiary. The gain arises in the deceased’s final tax return and is paid by the deceased’s estate.
By way of example, in a situation where a deceased estate includes shares in a publicly listed company
and Australian real estate and a non-resident is the sole beneficiary of the estate, then:
CGT is imposed on the estate upon transfer of the shares to the non-resident. This is even though
these shares are not “taxable Australian property” in the hands of the non-resident beneficiary and
will not be subject to Australian taxation on the subsequent disposal by the non-resident; and
no CGT will be imposed on the estate upon transfer of the Australian real estate to the non-resident
beneficiary. For the estate, the normal CGT rollover on death will apply in relation to transfer of
assets that are “taxable Australian property”. The non‑resident however, will be subject to Australian
tax on the subsequent disposal of the Australian real estate on the basis that the asset is “taxable
Australian property”.
Where a beneficiary is a non-resident, tax is paid by the estate unless the will provides otherwise. This
has obvious implications when drafting a will.
¶6-140
Example
Anna made a will leaving all of her shares to her daughter, Lily, and the remainder of her estate to her son,
Marcus. At the time of Anna’s death, Lily had been living in Canada for some years and was deemed to be a
non-resident for tax purposes. As a result, Anna is deemed to have disposed of her shares immediately prior
to her death and a significant CGT liability is created. Unfortunately for Marcus, Anna’s lawyer was unaware
of this issue and had not included a clause in the will that required Lily to pay the CGT liability. So Marcus
effectively pays for the whole liability from his share.
¶6-145 Claims against the estate

Common law jurisdictions usually have legislation that enables persons to make a claim against an
estate. Other jurisdictions give automatic entitlements to relatives of the deceased.
In Australia, issues arise where assets are held outside a jurisdiction and a claim is made against the estate.
In certain cases, it will be necessary for a separate claim to be made in each jurisdiction. This was the
case in Re Paulin15 where the deceased, domiciled in Victoria, left movable and immovable property in
Victoria and immovable property in New South Wales. The claimant – the widow – wanted to claim
against property in both jurisdictions. It was decided that the Victorian court could not make an order
affecting the New South Wales immovable property. The position is not quite the same in New South
Wales and South Australia.
Where there are assets all over the world, it may well be possible to limit claims against an estate by
making separate wills in each jurisdiction. For example, in many jurisdictions the scope of eligible
claimants will be narrower than, say, in Victoria.
Tip
Where multiple wills are made, care must be taken when revising those wills so as not to revoke all previous
wills. Any codicil should clearly identify the will to which it relates.
¶6-150 Strategies to consider if holding foreign assets

If a person holds foreign assets, there are several strategies that can be implemented to reduce the
complexity and cost in the administration of their estate:
15 [1950] VLR 462.
¶6-145
Disposing of A willmaker may wish to dispose of foreign assets prior to their death and repatriate the
foreign assets proceeds to Australia or another jurisdiction. However, there may be compelling reasons
why this cannot be done, including lack of time, adverse taxation consequences,
exchange rate issues etc
Separate wills It is worth considering making a separate will dealing with the assets in another
jurisdiction. By doing this, the willmaker can appoint an appropriate executor and
trustee in the other jurisdiction
Insolvent estates Another reason to make a will dealing separately with assets in a foreign jurisdiction is
if the willmaker faces insolvency in a particular jurisdiction. By making separate wills
creditors may be unable to recover debts from assets held in another jurisdiction
For a brief overview of some of the rules and complexities that arise in Muslim societies, see Appendix 2.
¶6-155 Administering an estate with foreign assets

If you are advising a client who is a beneficiary or an executor of an estate that holds foreign assets,
you should seek advice immediately from a professional adviser to ascertain the consequences of the
holding. In some countries such as the United States, there can be significant penalties if returns are not
lodged within a prescribed timeframe.
Appendix 1 – Inheritance taxes
Important note
The following is only a summary of some features of inheritance tax laws in certain jurisdictions. Readers
should check source material before relying on this information as it alters frequently.
Hong Kong
Inheritance tax or estate duty has been abolished since 11 February 2006. So the dependants of a
person who died on or after 11 February 2006 are not subject to inheritance tax or estate duty.
Indonesia
There is no inheritance tax in Indonesia.
Malaysia
No inheritance or gift taxes are levied in Malaysia.
New Zealand
There is no inheritance tax in New Zealand.
¶6-155
United Kingdom
Transfer of UK assets during a taxpayer’s lifetime or death is subject to inheritance tax (IHT), which
likewise governs taxes on gifts. For the 2014 tax year, the IHT rate is 0% on the first £325,000 (the
nil-rate band), and 40% on the rest of the value, at death, of an individual’s tax estate. The nil rate
band rises annually; tax is only payable on the value of an estate above the nil rate band. Transfers
between spouses are exempt from tax if both are domiciled in the UK.
Married couples and registered civil partners can effectively increase the threshold on their estate
when the second partner dies – to as much as £650,000 in 2011-12. Their executors or personal
representatives must transfer the first spouse or civil partner’s unused inheritance tax threshold or
“nil rate band” to the second spouse or civil partner when they die.
The tax estate includes:
all of the deceased’s assets, whether real estate or personal estate, and includes even small-value
items such as the contents of his or her home;
any gifts made by the deceased in the seven years before death;
some assets which were not owned by the deceased but which are affected by the death (the most
common example is a life interest in a trust, technically known as an interest-in-possession); and
gifts with preservation of benefit.
There is also a charge on “lifetime chargeable transfers” into certain trusts (and a recalculation
of those charges if the giver dies within seven years), and trusts themselves have an inheritance
tax regime.
There are deductions for certain gifts such as gifts to charities.
United States of America

Assets of US citizens, wherever located and regardless of the citizen’s place of residence, are subject
to US estate taxes. Exceptions may apply, such as for transfers to qualified domestic trusts.
Australian citizens living permanently in the US may be taxed on the value of any assets wherever
located. Exceptions may apply, such as for transfers to qualified domestic trusts or gifts to qualified
charities.
Australian citizens not living in the US who own US property are subject to estate tax on the value
of their US property. Regard should be had to the US–Australia estate tax treaty.
State governments also impose their own taxes on inheritances.
Singapore
Singapore abolished estate duty for deaths on or after 15 February 2008. For deaths prior to
15 February 2008, estate duty applies in respect of property located in Singapore.
Singapore has one of the lowest tax rates and highest exemption limits among countries with
estate duties or inheritance taxes.
¶6-155
Appendix 2 – Overview of Islamic inheritance rules
Important note
The following is only a summary of some features of Islamic inheritance laws. It has been drafted by Shahriar
Mofakhami. Readers should obtain advice from Sharia scholars in providing advice to clients.
In Muslim societies, a person’s ability to make testamentary disposition is constrained by compulsory

Islamic inheritance rules. There are two components involved in the distribution of wealth under
Islamic succession laws: compulsory distributions and optional bequests.
Under Islamic inheritance rules, optional bequests may not exceed one third of an estate and may not
be made in favour of any person who qualifies as a legal heir, unless the other heirs give their consent.
The remaining two-thirds of the estate is distributed according to fixed and compulsory rules among
the class of heirs. These compulsory rules have their basis in Qur’anic verses (and under Sunni
interpretative traditions date to pre-Islamic customary succession laws in the Arabian peninsula) that
divide beneficiaries into effectively three categories: “sharers” and “residuary heirs” and the “outer
family”. Generally, disqualification of an heir may only arise in two situations, difference of religion and
homicide. Complications can arise depending on the different interpretations of the rules.
Generally, sharers are those persons whom the Qur’an specifies a fractional interest of the estate. There
are 12 sharers, namely, father, grandfather, the husband and maternal half‑brother, daughters (in the
absence of sons), fathers, mothers or spouse – and, in the absence of children, one or more siblings.
Under Sunni traditions, the second group being residuary heirs are arranged in a series of hierarchical
classes. In effect, if the shares of the Qur’anic heirs do not exhaust the estate, then any residue goes to
the residuary heirs.
For example, if a man dies leaving his wife, one son, and one daughter, then the wife inherits one eighth
of the estate and, of the remainder, the son inherits two-thirds and the daughter one‑third according to
Qur’anic principles – the share of the male is equal to that of two females. The distribution can become
complicated if the man’s father, grandparents and siblings survive him. By way of further example,
a father’s share is generally one-sixth if the deceased is survived by a son. In addition, an heir’s share
may vary depending on the ascendants of the deceased. For example, if the man dies without any
children, his wife’s share is a quarter, rather than one‑eighth. Similarly if the man dies without any
male ascendants, a father’s share can be more than one-sixth. The calculation of each heir’s portion of
the estate can become complicated and Sharia scholars will generally be appointed to determine the
apportionment of the estate.
¶6-155
As a result of the Islamic inheritance laws, in theory, a Muslim is powerless to affect the relevant
entitlement of their beneficiaries and heirs. It is no surprise that early in the history of Islam work
was undertaken by Islamic jurists to establish legal methods for preserving estates for immediate
ascendants. This resulted in ways to circumvent the compulsory inheritance rules. By distinguishing
between post mortem and inter vivos transactions, Islamic jurists argued that the inheritance rules only
apply to property owned by the deceased at the moment of death and that the person is free to dispose
of their property in any way they wish prior to that moment. In this context, Muslim communities
were among the first users of estate planning techniques to avoid the application of compulsory Islamic
inheritance rules.
Just as trusts have been used under Western legal traditions to preserve estates for the benefit of
successive generations, Islamic jurists sought the protection of the institution of Waqf – endowment.
The principle of perpetuity is a unique feature of Waqf. It is thought that the institution of Waqf is based
on two key Islamic legal principles; first, the distinction between real property (asl) and the revenue
for use or usufruct (manfaa) generated on that property and, second, the notion that real property
could be held (on trust) in perpetuity. Like the modern trust, Waqf as a simple gift in perpetuity has
made it possible for a Muslim to legally remove part or all of his estate from the effects of the Islamic
inheritance laws.
¶6-155
151
Chapter 7
Charitable gifts
Introduction........................................................................................................................ ¶7-100
Why is charitable status significant?................................................................................. ¶7-105
Making charitable gifts by will.............................................................................................¶7-110
Private ancillary funds (formerly prescribed private funds).................................................¶7-115
Public ancillary funds..........................................................................................................¶7-118
Cy-près applications.......................................................................................................... ¶7-120
Discussing charitable giving.............................................................................................. ¶7-125

This chapter examines the importance of charitable giving and explains the options that should be
reviewed when individuals are considering making charitable gifts.
Australia has a long and proud history of charitable giving – ranging from modest gifts on flag days
to charitable trusts whose endowments now measure in the hundreds of millions of dollars. The
introduction of legislation in 2000, allowing for the establishment of private ancillary funds (originally
named prescribed private trusts), encourages individuals to establish charitable trusts during their
lifetime.
Many well‑known charitable trusts have been established by wills. These include trusts that give cash
awards for the arts, such as the Archibald Prize and the Miles Franklin Award, as well as trusts that
make significant gifts to museums and art galleries, such as the Felton Bequest, estimated to have been
responsible for the acquisition of around $1b worth of artworks by the National Gallery of Victoria. In
addition, there are many significant trusts that make cash gifts to various charities. The regulation of
charitable trusts history draws heavily on English law, which dates back hundreds of years, but with
Australian legislative1 and case law overlays.
Perhaps surprisingly, the law of charities is somewhat more complex than is generally thought to be the
case. For example, a significant amount of the law is not codified in legislation and applies principles
derived from the preamble to The Statute of Charitable Uses, passed in 1601 – two years before the
death of Queen Elizabeth I of England! That statute was intended to clarify the law as to what was or
was not a charitable purpose (that is, the purpose for which a gift was to be used). It included purposes
that were obviously burning issues in their day, such as gifts “for mariages of poore maides” and “for or
towards reliefe stocke or maintenance of howses of correction” – issues that hopefully no longer have
relevance today.
That 1601 classification of charitable purposes has now coalesced into four principal purposes:
the relief of poverty;
the advancement of education;
the advancement of religion; and
other purposes beneficial to the community.
However, in order for a purpose to be charitable at law (other than the relief of poverty), the purpose must
also be for the public benefit. This is an issue that has been considered many times, particularly in relation
to gifts and trusts for educational purposes. For example, a gift for the advancement of education for the
children of employees of a particular company has been held not to be charitable.2
1 For example, the Charitable Trusts Act 1993 (NSW), the Charities Act 1978 (Vic), the Charitable Trust Act 1962 (WA) and the Charitable
Funds Act 1958 (Qld).
2 Oppenheim v Tobacco Securities Trust Co Ltd [1951] AC 297.
¶7-100
Charitable gifts 153
¶7-105 Why is charitable status significant?

Charitable trusts receive tax and duty exemptions
Charitable gifts and charitable trusts must necessarily be for the benefit of the public. It is, therefore,
hardly surprising that as a matter of government policy they attract a variety of tax and revenue
concessions both at state and federal level. In most Australian jurisdictions, charitable organisations
receive privileged treatment in respect of payroll tax, land tax and stamp duty. However, unfortunately
there is a lack of uniformity of approach. In addition, at the federal level privileges for charitable
organisations in respect of income tax, FBT and GST – not to mention gift deductibility – vary between
charitable organisations depending upon function and structure.
There is also an added overlay of legislative provision at the federal level. For example, some
organisations that are not technically charities (for instance, the RSPCA) may nonetheless attract
concessions otherwise only available to charitable organisations.
In addition to this, and stemming from the public benefit derived from charitable gifts, the law has been
said to adopt a benign approach to the construction of such gifts.
In practical terms, this means that:

where there is ambiguity as to whether or not a gift is charitable, a court will favour a charitable
interpretation, as long as this does not involve departing from the natural construction of the gift;
charitable gifts to incorrectly named organisations can be given effect by using extrinsic evidence
(that is, material other than the will or trust deed) to identify the intended recipient; and
where the intended recipient of an intended charitable gift has ceased to exist, courts and state
attorneys may generally have jurisdiction to implement a cy‑près scheme (see ¶7-120). This allows
the charitable gift to be used by the closest approximating organisation.
Charitable trusts can be perpetual

Another privilege is that charitable trusts can exist for an indefinite period so long as they are
established for a charitable purpose. They don’t need to have identifiable beneficiaries – a charitable
purpose is what is required. This situation is to be contrasted with conventional trusts (including
discretionary trusts) that must have identifiable beneficiaries and are also subject to limitations on their
duration as a result of the so‑called rule against perpetuities or rule against remoteness of vesting. Most
commonly, this latter aspect is seen in Australian trusts by their being limited to a maximum period of
existence of 80 years or a “life in being plus twenty‑one years”.
Enforcing charitable trusts

The desirability of there being a beneficiary to enforce the terms of a trust against the trustee
or trustees, should this be necessary, is self-evident. In the case of a charitable trust, the
attorney-general of the relevant state or territory has the role of enforcing charitable trusts.
¶7-105
This role also includes an oversight function. For example, should trustees of charitable trusts
without adequate powers of amendment seek to vary the terms of the trust or enlarge their powers
for some reason, the relevant attorney-general is the defendant in the proceedings commenced to
achieve this purpose, and will normally form a view as to the desirability of any such change and
whether or not it should be opposed.
¶7-110 Making charitable gifts by will

Quite apart from personal inclination, many people are encouraged to some degree to make provision
for a charitable organisation by will. Schools, colleges, hospitals and innumerable other worthy
organisations have active fundraising programs.
Fundraisers recognise that a gift by will – where the availability of a tax deduction is not an issue –
provides the opportunity for a much broader range of funding uses than where the donor is looking for
a tax deduction. Hence, building funds with deductible gift recipient (DGR) and income tax‑exempt
charity (ITEC) status are popular for ongoing fundraising activities, but gifts by will are encouraged for
other purposes – particularly general funding.
There is no magic in a charitable gift. The subject matter of the gift needs to be appropriately
identified, as does the recipient organisation. It is always worthwhile double-checking as to the
proper name of the organisation concerned – which may well have interstate siblings that can
confuse things – as well as the organisation’s preferred destination for the gift. For example, many
charitable organisations prefer their donations to be made to foundations that they have established
themselves rather than directly to the parent organisation. This can usually be established from
reviewing relevant websites.
Most charitable organisations have their own preferred wording for use in gifts by will. Whether or not
they will suit every intending donor is another matter – particularly as many donors have their own
ideas as to how their gift should be spent.
Another aspect to be borne in mind in making a gift to a charity by will is the possibility of the charity
ceasing to exist by the time the donor dies. There are numerous examples of this occurring.
The most common way of addressing this issue is to provide specifically for such an occurrence,
although this may be easier said than done. For example, does it follow that an intending donor to,
say, a named hospital, who has been motivated by the exceptional treatment that he or she may have
received at that hospital, has another organisation in mind in the event that it ceases to exist?
If no substitute recipient is named and the organisation has ceased to exist at the time of the donor’s
death, then a cy-près application may be the appropriate path to choose in order to see the gift used for
the nearest approximating charitable organisation (see ¶7-120).
¶7-110
Another practical issue is that a gift to a charity should identify who at the relevant organisation
can provide a receipt for the purpose of the executors obtaining a discharge for the gift. This avoids
the necessity of the executors overseeing the use of the gift for the intended purpose – a potentially
time‑consuming and frustrating exercise which is often overlooked. To address this concern, it is
common for a will to include a clause stating that the receipt of certain office-holders of the charity –
such as the secretary or treasurer – is a sufficient discharge for the executor and trustee.
Gifts of specific property to charities by will can also have CGT consequences.
If a specific asset is given by will to a charity, then the CGT outcome will depend upon whether or not
that charity is simply income tax-exempt or has deductible gift recipient (DGR) status (s 30-15 ITAA97)
and is also income tax-exempt.
Table 1
Testamentary gift Disposal for CGT Disposal for Deduction Other

made … purposes? CGT purposes available?
ignored?
to an exempt Yes, CGT event K3 Yes (s 118-60(1)) No Commissioner
entity with DGR occurs (s 104-215) may require
status, or evidence of s 30-15
under the “deducibility”
Cultural Note that
Bequest testamentary gifts
Program no longer need to
(“exempt entity” be valued at greater
defined in s 995 than $5,000 in
– ie exempt from order to receive
income tax) CGT exemption
to an exempt entity Yes, CGT event K3 No No
without DGR status occurs (s 104-215)
As can be seen from Table 1, where the recipient is not a DGR, CGT event K3 occurs and is not ignored.
In such cases, it is important to consider who should meet any CGT liability.3
3 See ¶11-120 under “Gifts to certain tax-exempt entities”.
¶7-110
Trap
This issue is often overlooked, resulting in the unintended consequence that residuary beneficiaries effectively
meet the CGT liability – see Evonne’s example at ¶11-110.
Tip
In the case of gifts to income tax-exempt charities without DGR status, the best course therefore appears to
be to provide for a cash gift and allow the executor to fund that gift in the way which is most appropriate for
the circumstances and the assets available. An alternative would be to make the gift conditional on the charity
reimbursing the estate the amount of any tax liability.
The ATO’s practice of disregarding a capital gain or loss when an asset owned by the deceased passes
to the ultimate beneficiary of a testamentary trust is also subject to the operation of CGT event K3 –
see ID 2004/458.
¶7-115 Private ancillary funds (formerly prescribed private funds)

What are private ancillary funds?
Private ancillary funds (PAFs) are private charities in the form of trusts, donations to which are tax
deductible.
PAFs can be established during the donor’s lifetime or by the donor’s will. They must be established and
operated as a not-for-profit entity in Australia.
PAFs have DGR status. Their income is also normally income tax‑exempt and hence qualifies for
refunds of franking credits.
PAFs emerged as an initiative of the Howard Government over the years 1999–2001. This followed
significant lobbying regarding the apparent decline in private philanthropy in Australia and this
situation being perpetuated by the taxation system.
Note
Following changes in 2009, the primary governing document for PAFs (aside from the trust deed) is the
Private Ancillary Fund Guidelines 2009 (“guidelines”).
¶7-115
One issue that was specifically identified as deterring individual philanthropy was that if a donor
wished to establish a personal charity, it was not possible for them to obtain a tax deduction and have
any degree of control of the charity’s operations. Charitable trusts controlled by donors could be set up
with ITEC status with relative ease, but donations to the trust would not be tax deductible.
Charitable trusts with DGR and ITEC status could also be established, but not as private charities. They
could only be established as ancillary funds required to be public charitable trusts with majority control
by “responsible persons” (see below). Ancillary funds are public funds established by will or instrument
of trust for the sole purpose of providing money, property or benefits to organisations that are both
charities and DGRs. They must actively seek (and obtain) gifts from the public. See TR 95/27.
To address this issue, the government changed the income tax laws to enable PAFs to be established.4
PAFs have the same status as organisations nominated as DGRs in the ITAA97. This is achieved via a
system of approval by the assistant treasurer and gazettal in the Government Gazette. Consequently, it is
not necessary for PAFs to apply for DGR status.
Prior to reaching the assistant treasurer, the trust deed for a PAF undergoes double vetting by the
ATO. Once a PAF has been approved and gazetted, it is normal for it to apply for ITEC status so that
its income will be exempt. This is usually back-dated to the date of approval as a PAF.
However, a key factor to bear in mind is that donations to a PAF are only tax deductible from the date of
the government’s approval – so substantial initial endowments are not a good idea.
Making an application
The time taken for approval of a PAF application is usually around eight weeks. Generally speaking, the
ATO approval process is relatively quick, assuming that the trust deed is in a standard format and that
any accumulation proposal is non-controversial.
While that might be the case, in the past the ATO and the treasurer’s office have recognised that the
end of the financial year is a time when the establishment of PAFs could well become an active issue.
Therefore, they normally have a fast-tracking system in place, although there are no guarantees of
approval prior to 30 June.
Control
Unlike normal charitable trusts with DGR status, a donor establishing a PAF can retain control. The
trustee must be a private company, an unincorporated association, a statutory trustee company or a
combination of any of these (which would be rare).
The directors of a trustee company must include at least one person who has “a degree of responsibility
to the Australian community as a whole” (responsible person). According to the PAF guidelines,
4 Refer to s 30-15 ITAA97, item 2.
¶7-115
individuals with a degree of responsibility to the Australian community as a whole would generally
include: school principals, judges, religious practitioners, solicitors, doctors and other professional
persons, mayors, councillors, town clerks and members of parliament. Generally, individuals who are
accepted as having a degree of responsibility to the community as a whole are known to a broad section
of the community because they perform a public function or they belong to a professional body (such
as the Institute of Chartered Accountants, State Law Societies and Medical Registration Boards) which
has a professional code of ethics and rules of conduct. Individuals who have received formal recognition
from the government for their services to the community (for example, an Order of Australia award)
will also usually have the requisite degree of responsibility.
A responsible person cannot be a founder of the fund, a donor who has contributed more than $10,000
to the fund, or an associate of a founder or such a donor.
If a responsible person resigns, retires or is unable to continue an active involvement in the fund (eg due
to death or incapacity) then the trustee is effectively prohibited from carrying on its functions until a
new responsible person is appointed.
A person can neither be a trustee director nor a member of any other controlling body of the fund if
they have been convicted of a taxation offence that is an indictable offence.
Typically, the board of directors of a corporate trustee of a PAF would comprise the founder, his or her
spouse and a friend who is a responsible person. Increasingly, adult offspring are also being involved, so
that family philanthropic traditions can be established.
Form
While no particular form is required for a PAF, the ATO has what is effectively a model trust deed on
its website5 that can either be adopted as drawn or modified to meet individual requirements.
The advantage of using this standard format is that the ATO is familiar with it and the time taken for
approval is minimised.
Not surprisingly, the ATO is concerned about the inappropriate use of PAFs, enabling a donor not only
to get a tax deduction but also some other benefit. In consequence, the form of trust deed contains
special provisions relating to uncommercial transactions, which reflect the ATO’s requirements. PAFs
are also required to be audited.
Investment of funds
The guidelines require the trustee to prepare and maintain a written investment strategy for the fund
and ensure that all decisions are made in accordance with the strategy. Assets must be held separately
from other assets.
5 See the ATO website at www.ato.gov.au/nonprofit/content.asp?doc=/content/20926.htm.
¶7-115
The investment strategy must reflect the purpose and circumstances of the fund and have regard to:
risks in acquiring, holding and disposing of investments, having regard to the fund’s objects and
cash-flow requirements;
the composition of the fund’s investments as a whole and the diversity of investments;
liquidity;
the ability of the fund to discharge its liabilities; and
state and territory legislation (eg provisions relating to investments contained in the Trustee Act in
each jurisdiction).
The guidelines contain other provisions dealing with investments, including provisions that require the
trustee to:
not borrow or maintain an existing borrowing, except in limited situations;
make and maintain investments on an arm’s length basis;
not give security over any asset (although the Commissioner may prescribe exceptions for certain
financial instruments); and
not acquire assets from, or provide financial assistance to, the fund’s founder, any donor or other
persons associated with the fund.
A PAF must not carry on a business.
Accumulation of income
PAFs are required to distribute each financial year at least 5% of the net value of the fund at the
previous 30 June or $11,000, whichever is the greater. However, the $11,000 minimum does not apply if
the PAF’s expenses are met from outside of the PAF.
No distribution is required in the year in which the PAF is established.
Distributions do not include fund expenses but do include the provision of property and benefits. This
means that if the PAF provides, for example, office space free of charge then the value of that provision
can be included as a distribution.
Donations
PAFs must be private in nature, suggesting that there must be a close link between the founder(s) and
those who operate the PAF.
PAFs must not solicit donations from the public. In any financial year a PAF must not accept donations
that together total more than 20% of the PAF’s value at the end of the previous 30 June from persons
other than the founder, their associates or employees or the estate of any of them.
¶7-115
Grants
Grants from PAFs can only be made to organisations which are DGRs and are listed or named in any
of the tables in Subdiv 30-B ITAA97. This means that grants can be made to all endorsed and named
DGRs except those described in s 30-15 ITAA97 item 2, which refers to public funds and PAFs.
The rationale for this is that if a PAF makes a grant to a public fund, it is effectively taking on the role of
the public fund and acting as a type of “feeder fund”. It also prevents money from circulating from one
fund to another without being used for the end purpose.
In practice, this limitation on how PAF grants can be applied does not usually cause a problem due to
the number, breadth and scope of the organisations that have DGR status.
Accounts, financials and audit

A trustee must keep proper accounts for all transactions and retain these for at least five years. Financial
statements must be prepared in accordance with “accounting standards” (as defined in the ITAA97).
Copies of accounts and financial statements must be provided to the Commissioner upon request.
Each year, the fund’s financial statements and its compliance with the guidelines must be audited by an
auditor registered under Pt 9.2 of the Corporations Act 2001.
Winding up
In accordance with the limitations on the objects and purposes of PAFs, where a PAF winds up, its
assets must be distributed only in accordance with para (a) of item 2 in the table in s 30-15 ITAA97.
Transitional rules
A private ancillary fund that was a prescribed private fund as at 30 September 2009 (transitional fund)
may continue to operate in accordance with its existing accumulation plan until 30 June 2014 (or such
earlier time as it elects by notice to the Commissioner).
During the transitional period, a transitional fund must distribute at least 5% of each gift it received
during the previous financial year, and distribute its trust income in the year in which it is derived
unless otherwise allowed by the Commissioner.
¶7-118 Public ancillary funds

Public ancillary funds (PuAFs) are philanthropic in character, set up as a not-for-profit organisation.
They differ from PAFs in that they can and must allow the public to make donations. They are a
common structure for community and fundraising foundations and can take several forms,6 including:
6 D Ward, Public Ancillary Funds Trustee Handbook, Philanthropy Australia, 2012.
¶7-118
public foundations;
community foundations with “sub-funds” for individual donors;
charitable endowment funds with donor sub-funds, often operated by trustee companies and wealth
managers; and
foundations established by charities, public institutions, schools and religious groups as a funding
structure for their own charitable activities.
Like PAFs though, public funds are generally set up for DGR purposes and there are two types;
funds established and controlled by the government or government authorities; and
funds to which the public is encouraged, and in fact does, contribute to.
Similar to the rules that were introduced in 2009 for PAFs, in 2011, the federal government passed
legislation introducing guidelines to improve the integrity of PuAFs. These guidelines provide rules
which the funds and trustees of the funds must comply with in order to be, or to remain, endorsed as
having DGR status.
Establishment and maintenance

A PuAF can be set up as a separate entity, under an instrument of trust, or as part of a sponsoring
organisation. Where previously individuals or corporations were able to establish a PuAF, new
legislation states that all of the trustees of a PuAF must be corporate trustees, for constitutional reasons.
The Public Ancillary Fund Guidelines set out the principles that must be followed in order for a PuAF
to establish, maintain and wind up a PuAF. A will or an instrument of trust is used to establish a fund
and is done so in accordance with state law. The governing rules must set out a clear objective for the
purpose of the fund while being described solely as that of the description in the ITAA97.7 These rules
are usually contained within a separate founding document or incorporated in the fund’s constitution.
A model of a trust deed can be downloaded from the ATO website8 and can be used as a guide in order
to satisfy the necessary requirements to establish a PuAF.
In order to maintain DGR status, the money donated to the fund must be applied for the purpose by
which the fund was established. The guidelines also state that the trustee must exercise a degree of care,
diligence and skill at all times, and the majority of the individuals involved in the decision-making of
the fund must hold a degree of responsibility in the Australian community. This is seen as a stricter line
of control than that imposed on PAFs, where the requirement is to have one “responsible person”.
7 Paragraph (a) of item 2 of the table in s 30-15 ITAA97 provides that the sole purpose of an ancillary fund must be to provide money,
property or benefits: “to a fund, authority or institution gifts to which are deductible under item 1 of this table; and for any purposes set
out in the item of the table in Subdivision 30-B [ITAA97] that covers the fund, authority or institution.”
8 See the ATO website at www.ato.gov.au/Forms/Public-ancillary-fund-model-trust-deed/.
¶7-118
Accumulation of income
A PuAF is required to distribute each financial year at least 4% of the net value of the fund at the
previous 30 June or $8,800, whichever is the greater. No distribution is required in the first five financial
years in which the fund is established. However, the guidelines suggest that the trustees should consider
making appropriate distributions that reflect the purpose of the fund.
The Commissioner is able to request that the trustee rectify any shortfalls of the distributions identified
within 60 days of that request.
Accounts, financials and audits

A PuAF must retain proper account details for five years, which must be available to the Commissioner
on request. Each year, the fund is required to submit an income tax return. Each year, the fund’s
financial statements and its compliance with the guidelines must be audited by an auditor who is
registered under Pt 9.2 of the Corporations Act 2001 (Cth). However, for those funds that have a net
value of less than $1m, a request to have a review rather than an audit undertaken is possible.
Transitional rules
A PuAF established with governing rules before the implementation of the current guidelines will have
until 1 July 2015 to comply with Pt 2 of the guidelines. That being said, the fund must, to the extent
possible and without being in breach of its own governing rules, aim to comply with the rules set out
in Pt 2.
¶7-120 Cy-près applications

The application of the cy-près doctrine allows a gift for charitable purposes to be applied, for purposes
as nearly as possible to those intended by the original donor or settlor.9
One of the benign ways in which the law assists gifts for charitable purposes is in circumstances where
conventional gifts or trusts would fail for want of a beneficiary.
Take, for example, the case where a will contains a gift to a non-charitable organisation and, before the
death of the testator, that organisation ceases to exist. Here, assuming the absence of a substitutional gift,
the gift would fail and the property concerned would normally fall into residue.
Similarly, in a case where a trust has been established to benefit a non-charitable organisation that
ceased to exist before the assets of the trust had been fully dispersed, subject to the terms of the trust, the
trust would fail. The remaining assets might well revert to the settlor (by way of resulting trust) or even
become the property of the Crown (as bona vacantia – that is, property to which no one is entitled).
9 For a full definition of cy-près applications, see the Glossary.
¶7-120
The above scenarios do not apply in the case of gifts for charitable purposes due to the equitable
doctrine of cy-près, which is also reflected in the law of charities of all Australian jurisdictions, except
the Australian Capital Territory and the Northern Territory.
In order for the doctrine to apply, there must be a demonstrated intention that charitable work or
purposes are to be benefited by the gift. This does not mean that the gift or trust document must always
contain wording from which this conclusion can be drawn. The fact that a gift is made to benefit an
institution whose role is purely charitable would be regarded as demonstrating the relevant intention.
For example, in the unreported case of Morton v Attorney-General of Victoria, heard by the Supreme
Court of Victoria in 1995, Mrs Nita Morton died on 7 March 1994 leaving a will dated 1 March 1982
under the terms of which “St Andrews Hospital, Cathedral Place, East Melbourne” was named as one of
the residuary beneficiaries. St Andrews Hospital existed and was fully operational at the time that Mrs
Morton made her will, but at the time that she died it had ceased operation, although it existed in the
form of a body corporate with a board of management that held substantial assets. It did not, however,
operate as a hospital.
The executor applied to the Supreme Court to establish whether the gift to the hospital had lapsed or
not and how the estate should be administered (which would depend upon whether or not the gift
to St Andrews Hospital demonstrated a general charitable intention). The court held that the gift to
St Andrews Hospital did manifest a general charitable intention and, therefore, the cy-près doctrine had
an application. After careful consideration, it took the view that the gift should pass not to the existing
St Andrews entity comprising the board of management, but to the Epworth Hospital, on the basis that
that hospital carried on activities which were very close to those previously carried on by St Andrews
Hospital and which Mrs Morton had intended to benefit. The court took the view that she had intended
to benefit a functioning hospital and not an organisation that no longer operated as such.
Legislation in New South Wales, Victoria, Queensland, South Australia, Tasmania and Western
Australia10 modifies the way in which the general law would otherwise apply to cy-près variations of
gifts and trusts.
It goes without saying that there is no uniformity of legislation. For example, the New South Wales,
Queensland, South Australian and Tasmanian legislation relates to altering the original purposes of a
“charitable trust” while the Victorian legislation refers to altering the purposes of a “charitable gift”.
Nonetheless, there is a significant degree of commonality, underpinned by the general law relating to
cy-près variations.
Cy-près applications are potentially relevant where:

a charitable organisation no longer exists or has been incorrectly named;
the funds gifted exceed those required for the particular charitable purpose;
10 Charitable Trusts Act 1993 (NSW), Charities Act 1978 (Vic), Trusts Act 1973 (Qld), Trustee Act 1936 (SA), variation of Trusts Act 1994 (Tas)
and Charitable Trusts Act 1962 (WA).
¶7-120
the intended use is impossible or impracticable;

the intended beneficiary ceases to exist; or
the intended recipient ceases to be charitable.
Historically, cy-près applications have been made to relevant supreme courts. However, recognising
that such a process is expensive and that some applications are motivated by the fact that relevant funds
are inadequate, jurisdiction to sanction cy-près variations in limited circumstances has been given to
the attorneys-general of New South Wales, South Australia, Tasmania and Victoria. This jurisdiction
applies where the value of the assets of the particular charitable trust or gift does not exceed specified
amounts ($500,000 in New South Wales and Victoria, $250,000 in South Australia and $50,000 or
$100,000 in Tasmania depending on whether the property is or includes real property).
¶7-125 Discussing charitable giving

Individuals considering charitable giving should first obtain advice from their accountant and/or lawyer.
Depending on the individual’s circumstances, there may be a distinct preference between establishing
a charitable trust by a PAF or by a will. Any advice would usually take into account a range of personal
and financial factors, such as the desired personal involvement of the individual or their family in the
management of the trust, taxation issues and asset protection issues. For example, if it is considered
that family members might contest a will that leaves significant assets to a charitable trust, then it may
be worthwhile establishing a PAF during the individual’s lifetime, assuming circumstances permit this
(and subject to any notional estate claims – see ¶12-125).
As with the appointment of executors and trustees in a will, the appointment of trustees of a charitable
trust warrants careful consideration. When appointing trustees, it is important to note that the general
rule that trustees must act unanimously does not apply to charitable trusts.
The fact that charitable trusts can operate in perpetuity means that individual trustees might be
faced with the responsibility of appointing replacement trustees. It is common for statutory trustee
companies to be appointed as trustees of significant charitable trusts.
¶7-125
165
Chapter 8
Estate planning for blended families
Introduction........................................................................................................................¶8-100
Relevant legislation............................................................................................................¶8-105
Effect on wills where a person marries or registers a deed of relationship....................... ¶8-110
Effect on wills where a person divorces or revokes a deed of relationship...................... ¶8-115
Effect on powers of attorney where a person marries or registers a deed
of relationship.................................................................................................................. ¶8-120
Effect on powers of attorney where a person divorces or revokes a deed
of relationship.................................................................................................................. ¶8-125
Effect on distribution under intestacy where a person is party to a significant
or caring relationship.......................................................................................................¶8-130
Effect on class of claimants under testator’s family maintenance provisions
where a person is party to a significant or caring relationship.......................................¶8-135
Life interest trust strategy.................................................................................................. ¶8-140
Use and enjoyment trust strategy...................................................................................... ¶8-145
Superannuation funds strategy..........................................................................................¶8-150
Family trusts.......................................................................................................................¶8-155
Mutual wills.........................................................................................................................¶8-160
Appointing and directing trustees......................................................................................¶8-165
Estate and trust accounts.................................................................................................. ¶8-170
Cases involving blended families....................................................................................... ¶8-175
Planning for blended families.............................................................................................¶8-180

Estate planning for a “blended family” gives rise to some unique problems. As well as often needing
to provide benefits to different groups of beneficiaries at different times, there often exists a level of
animosity between beneficiaries that leads to strategies being adopted to avoid assets forming part of
an estate in the first place.
For the purposes of this chapter, I discuss a blended family in the context of an adult who has:
children from more than one relationship; and/or
had two or more spouses (including de facto, same sex and former spouses).
In this context, the willmaker will often wish to balance the interests of beneficiaries from different
relationships, some of whom may not be directly related to each other.
This chapter will demonstrate some of the strategies clients and their advisers can use to help ensure
that beneficiaries are provided for in a fair manner.
Binding financial agreements and family law issues might be more common in a blended family situation.
These are dealt with in chapter 21.
¶8-105 Relevant legislation

In each jurisdiction, various Acts and regulations provide for rights to arise or cease when relationships
come into existence or end.
I will use Tasmania as an example as it was one of the first Australian jurisdictions to enact
“relationship legislation”. The Relationships Act 2003 (Tas) provides that two adults in a significant or
caring relationship can apply for registration of a deed of relationship where they are:
domiciled or ordinarily resident in the state; and
not married or a party to a deed of relationship; and
in a “significant” or “caring” relationship.1
A significant relationship is a relationship between two adult persons who:

have a relationship as a couple; and
are not married to one another or related by family.2
A caring relationship is a relationship other than a marriage or significant relationship between two
adult persons, whether or not related by family, one or each of whom provides the other with domestic
1 S 11 of the Relationships Act 2003 (Tas).
2 S 4(1) of the Relationships Act 2003 (Tas).
¶8-100
Estate planning for blended families 167
support and personal care.3 However, where one person is simply providing the other with domestic
support and personal care for a fee or under an employment relationship, then their relationship will
not be a caring relationship for the purposes of the Relationships Act.4
Similar legislation now exists in most other Australian jurisdictions:

(1) Commonwealth
Acts Interpretation Act 1901 (Cth)
“Section 22B
... a person is in a registered relationship with another person if the relationship between
the persons is registered under a prescribed law of a state or territory as a prescribed kind
of relationship.”
Same-Sex Relationships (Equal Treatment in Commonwealth Laws – General Law Reform)
Act 2008 (Cth)
Same-Sex Relationships (Equal Treatment in Commonwealth Laws – Superannuation) Act
2008 (Cth)
(2) Australian Capital Territory
Domestic Relationships Act 1994 (ACT)
(3) New South Wales
Commonwealth Powers (De Facto Relationships) Act 2003 (NSW)
Referral of power to the Commonwealth
Property Relationships Act 1984 (NSW)
(4) Northern Territory
De Facto Relationships Act (NT)
De Facto Relationships (Northern Territory Request) Act 2003 (NT)
Law Reform (Gender, Sexuality and De Facto Relationships) Act 2003 (NT)
(5) Queensland
Commonwealth Powers (De Facto Relationships) Act 2003 (Qld)
(6) South Australia
Commonwealth Powers (De Facto Relationships) Act 2009 (SA)
Family Relationships Act 1975 (SA)
¶8-105
(7) Tasmania
Commonwealth Powers (De Facto Relationships) Act 2006 (Tas)
Relationships Act 2003 (Tas)
Relationships (Miscellaneous Amendments) Act 2009 (Tas)
(8) Victoria
Commonwealth Powers (De Facto Relationships) Act 2004 (Vic)
Relationships Act 2008 (Vic)
(9) Western Australia
Commonwealth Powers (De Facto Relationships) Act 2006 (WA)
¶8-110 Effect on wills where a person marries or registers a deed

of relationship
In most jurisdictions in Australia, legislation provides that where a person marries or registers a deed of
relationship their will is automatically impacted. The exception will be where the person made the will
in anticipation of marriage or, in some cases, registration of a deed of relationship.
In most jurisdictions, the effect of marriage or registration of a relationship is that the will is deemed to
be revoked apart from:
gifts made to the “partner”;
any appointment of the “partner” as executor, trustee, guardian etc; and
the exercise of a power of appointment, if the property so appointed would not pass to the executor
of the will or the administrator of the deceased person’s estate if the power of the appointment was
not exercised.
Note that the legislation in each jurisdiction differs.
¶8-115 Effect on wills where a person divorces or revokes a deed

of relationship
In most jurisdictions, where a willmaker divorces or revokes the deed of relationship to which they are
a party then (in the absence of a contrary intention) the following are revoked:
any disposition to the “partner”;
any appointment of the “partner” as executor, trustee, guardian or advisory trustee; and
¶8-110
any grant made by the will of a power of appointment exercisable by, or in favour of, the testator’s
“partner”.
However, the following are generally not revoked:

the appointment of the willmaker’s spouse as trustee of property left by the will on trust for
beneficiaries that include the spouse’s children; or
the grant of a power of appointment exercisable by the willmaker’s spouse exclusively in favour of
the children of whom both the testator and spouse are parents.
It can be seen from the above that the effect of marriage/registration of a deed of relationship does not
mirror the effect of divorce/revocation of a deed of relationship.
Warning
A disastrous result might arise where a person:

makes a will leaving the estate to a testamentary trust controlled by their partner, the beneficiaries of
which include the partner and children; and
subsequently divorces or the deed of relationship is revoked.
In most jurisdictions, the divorce will not revoke this gift. This may result in the former spouse having control
over a trust of which they themselves are a beneficiary!
Tip
Remember that separation is not the same as divorce. If a person has separated from their partner after
making a will their whole will remains valid (but their estate could, of course, be subject to a claim).
If you have a client that has separated or divorced they should be encouraged to review their succession
plan immediately.
¶8-120 Effect on powers of attorney where a person marries or

registers a deed of relationship
In contrast with legislation dealing with wills, legislation dealing with powers of attorney does not
provide for the power to be revoked upon marriage or registration of a deed of relationship. Where a
person make a power of attorney and then subsequently marries, or registers a deed of relationship, the
power of attorney will continue to be valid.
Self-evidently, where the person appointed as attorney is no longer appropriate, the person should
revoke the power of attorney and make a new one.
¶8-120
¶8-125 Effect on powers of attorney where a person divorces or

revokes a deed of relationship
Continuing the contrast with wills legislation, legislation dealing with powers of attorney does not
provide for the power to be revoked upon divorce or revocation of a deed of relationship. This means
that where a person makes a power of attorney and then subsequently divorces, or revokes a deed of
relationship, the power of attorney will continue to be valid.
Warning
The result may be disastrous where a person:

appoints their partner as attorney; and
subsequently separates, divorces or revokes the deed of relationship.
In that case, the former partner would still be entitled to act as attorney.
A person with the necessary standing may always apply to the relevant governing authority to have an
enduring power of attorney revoked or an attorney removed or replaced.
¶8-130 Effect on distribution under intestacy where a person is

party to a significant or caring relationship
Legislation in all jurisdictions give partners rights under intestacy laws. See ¶3-155 for more details.
¶8-135 Effect on class of claimants under testator’s family

maintenance provisions where a person is party to a
significant or caring relationship
Similarly, legislation gives partners the right to make a claim against their deceased partner’s estate –
see ¶12-110 for more details.
¶8-140 Life interest trust strategy

What is a life interest trust?
A life interest trust is the term commonly used to describe a trust established under a person’s will
under which a beneficiary has an entitlement to the income of the trust during their lifetime and then,
upon their death, the trust is wound up and the assets transferred to remainder beneficiaries.5
5 Note that it is not essential that a trust be wound up upon the death of a life tenant – instead, the trust may provide for successive life
interests or the assets may pass to another testamentary trust for the benefit of the remainder beneficiaries.
¶8-125
The typical life interest trust is created by a person who is in their second marriage and has children
by the first marriage. In these cases, the person may wish to establish a life interest trust naming the
second spouse as the life tenant and naming their children by the first marriage as the remainder
beneficiaries.
Example
Bob and Harriet divorce after a long marriage during which they had several children. Bob remarries Betty.
Bob wants his estate to provide for Betty and also his children from his marriage to Harriet.
Bob makes a will establishing a life interest trust. Under the terms of the trust, Betty will receive the income
during her lifetime and, upon her death, the trust is to be wound up and all of the assets transferred to Bob’s
children from his first marriage.
One of the factors of a life interest trust that appeals to many willmakers is the fact that all beneficiaries
are provided for (but, see below) and the trust assets are not held at the whim of either class of
beneficiaries. One disadvantage however is the potential for a life tenant to live for many years – itself
not a bad thing, but it may mean that the life tenant outlives the remainder beneficiaries (presumably
the deceased remainder beneficiary’s issue would then take) or lives for so long that the remainder
beneficiaries do not have the opportunity to “enjoy” their inheritance.
While life interest estates appear, on their face value, to be straightforward, a number of issues arise
from both a trust law and taxation law perspective. These issues have significant consequences not only
for the willmaker and the beneficiaries, but also for the trustee/s of the trust. Some of these issues include
the following:
Balancing competing interest of beneficiaries

As the life tenant is an “income beneficiary” and the remainder beneficiaries are “capital beneficiaries”,
they have different interests regarding the way in which the trust is administered.
The life tenant will usually prefer the assets to be invested in a way that maximises the income return to
the trust and therefore maximises the distributions to themselves. In contrast, the remainder beneficiaries
will usually prefer the assets to be invested in a manner that has a greater focus on capital growth.
Example
Continuing with Bob’s case above, assume that Bob has died and left $2m in a life interest trust.
Betty would probably prefer the $2m to be invested in a way that maximises income return and therefore
maximises distributions to her.
In contrast, Bob’s children might prefer the $2m to be invested in a way that maximises capital growth so
that, upon Betty’s death, the value of the assets will (hopefully) have benefited from positive capital growth.
¶8-140
This naturally gives rise to the potential for disputes between beneficiaries.
Litigation against trustees

In addition to the competing interest of beneficiaries, it is not uncommon for there to be a level of
animosity between a life tenant and the remainder beneficiaries.
This can make the job of trusteeship particularly onerous because of the need to deal with regular
requests from different classes of beneficiaries wishing to make sure that one class is not receiving an
advantage over the other class.
One class of beneficiaries might take action against the trustee if they feel that the trust has been
managed in a way that has provided an unfair benefit to the other class of beneficiaries.
Case law example
In Re Mulligan (dec’d),6 a farmer died leaving his widow a life interest in a farm and named his nieces and
nephews as the remainder beneficiaries. The original asset of the estate was a farming property. The trustees
were the widow and a trustee company.
The trustees decided to sell the farm and invest the proceeds in interest-bearing securities.
When the widow died some 25 years later, the remainder beneficiaries successfully sued the trustees for
breach of trust on the basis that they failed to take into account the effect of inflation when investing the
trust moneys.
6
Complex capital gains tax consequences

It is common for all of the beneficiaries during the operation of the life interest trust to agree to wind up
the trust and divide the assets between them all. In such a case it is possible that the winding up of the
trust will give rise to adverse CGT consequences.7
¶8-145 Use and enjoyment trust strategy

What is a use and enjoyment trust?
Use and enjoyment trust is the name commonly given to describe a trust, the only asset of which is
a residence.
The terms of the trust usually provide that the life tenant has a right to reside in the property during
their lifetime and then, upon their death, the property is to be held for the remainder beneficiaries.
6 [1998] 1 NZLR 481.
7 Refer to TR 2006/14 for an overview of relevant issues and examples.
¶8-145
Example
Bob’s will could have created a use and enjoyment trust for Betty, the sole asset of which was their house in
Potts Point.
The trust terms could provide that Betty is entitled to reside in the house during her lifetime and then, on her
death, that the house is to pass to Bob’s children.
Where the asset is a single property such as a main residence, it will be rare for disputes to arise in
regard to the investment strategy – clearly the will has permitted the trustee to continue to hold the
property as an investment of the trust without having to consider the usual range of factors that a
trustee is normally required to consider when investing trust funds,8 such as the need to diversify
the investments.
However, use and enjoyment trusts give rise to challenging planning aspects from a drafting
perspective including a number of things which are discussed below.
Who should be required to upkeep the property?

If it is the life tenant, what happens if the life tenant fails to do this? What action can the trustee take to
help protect the value of the property?
Who is responsible for paying insurance on the property?

Again, if it is the life tenant, what happens if the life tenant refuses to meet the insurance costs or
refuses to demonstrate to the trustee that they have taken out adequate insurance? If the remainder
beneficiaries are required to contribute, what will happen if the trustee cannot locate them or obtain
from them the necessary funds?
What happens if the beneficiary no longer wishes to reside in

the property?
Does the will give the trustee the right to sell the property and purchase a smaller property on behalf of
the life tenant? What happens if there are funds left over – should these form part of a life interest estate
or should they become payable directly to the remainder beneficiaries?
8 Refer to s 8 of the Trustee Act 1958 (Vic) for a list of factors.
¶8-145
Example
Bob’s will could provide that, in the event Betty advises the trustee that she no longer wishes to reside in the
house at Potts Point, the trustee has discretion to:
sell the house and purchase an alternative form of accommodation for Betty (eg a smaller apartment); and
invest the balance of the proceeds and pay income to Betty with the capital to go to the remainder
beneficiary upon her death.
Uncertain taxation consequences

As with surrendering of life interest estates, the surrender of a use and enjoyment right can give rise to
CGT consequences.
¶8-150 Superannuation funds strategy

Superannuation funds can be a valuable tool in ensuring that beneficiaries receive a benefit on the death
of a person.
Binding nominations
In particular, the rules relating to binding death benefit nominations can, in most jurisdictions,9 enable
people to move assets from the superannuation fund directly to one or more nominated beneficiaries
with minimal risk of a challenge being made via:
the Superannuation Complaints Tribunal (SCT), as the SCT does not generally have jurisdiction
to overturn binding death benefit nominations. Also, the SCT has no jurisdiction in the case of
self-managed superannuation funds; or
legislation permitting a person to make a claim against another person’s estate,10 as the
superannuation death benefit by-passes the estate and so is never an asset of the estate.
Example
Assume that Bob’s only asset was $5m invested in his self-managed superannuation fund.
He wants Betty to receive half of his superannuation and his four children to equally share in the other half. He
is concerned that if his superannuation was paid to his estate then:
Betty may make a claim against his estate, asking for more than half of the estate; or
9 The position in NSW is not entirely clear but it appears that the “notional estate” rules would operate to put at risk any binding death
benefit nomination.
10 Pt IV of the Administration and Probate Act 1958 (Vic).
¶8-150
Example (cont)
one or more of his children may make a claim against his estate, asking for more that 12.5% of his estate;
or
Harriet, his former wife, may make a claim against his estate.
By making a binding death benefit nomination from his superannuation fund, Bob could direct that his
superannuation is divided in accordance with his wishes. There would be no opportunity for a complaint to
be made to the SCT and, as the superannuation has not become an asset of the estate, no opportunity for a
claim against his estate (except in NSW where the notional estate provisions might apply).
Superannuation pensions
Depending on the financial needs of the relevant parties, an alternative for dealing with superannuation
might be to establish a pension benefit to a person. On the pensioner’s death, the balance of the pension
account could then pass to the remainder beneficiaries via the pensioner’s estate. The advantages of
doing this include keeping the moneys in a tax-free or concessionally taxed environment and providing
the pensioner with a regular income stream. Possible disadvantages include the possibility of the
pensioner not making provision for the remainder beneficiaries in his/her will.
Status of stepchildren
The position of stepchildren under superannuation law is sometimes misunderstood. The SISA defines
“child” as:11
“Child, in relation to a person, includes:
(a) an adopted child, a stepchild or an ex-nuptial child of the person; and
(b) a child of the person’s spouse; and
(c) someone who is a child of the person within the meaning of the Family Law Act 1975.”
On the basis of the above, a “stepchild” is clearly a “child”, and therefore eligible to be nominated as a
beneficiary under a binding nomination or, if none, eligible to be considered as a potential recipient of
part or all of the benefit by the trustee.
However, a stepchild/stepparent relationship will only exist if the stepparent remains married to the
natural parent.12 This means that if the natural parent has died, for example, then the (former) stepchild
will lose the right to be considered as a claimant to the (former) stepparent’s superannuation. It also
means that the (former) stepparent would not be able to validly direct the trustee of the superannuation
fund to pay their superannuation benefit to the (former) stepchild.
11 S 10(1) SISA.
12 Popple v Rowe [1998] 1 VR 65.
¶8-150
Example
Betty has $1m in superannuation. She is particularly close with her stepdaughter (Bob’s daughter) Susan.
Betty’s adviser told her that she could direct her superannuation to her estate, and then have her will direct
that it be paid to Susan. However, there would always be a chance that someone might contest the will
resulting in Susan not receiving all or any of the superannuation. To overcome this potential problem, Betty’s
adviser suggested that she make a binding death benefit nomination leaving her superannuation to Susan.
Unfortunately, when Betty died Bob had died three months earlier. This meant that upon Betty’s death
Susan was no longer her stepchild and not a “dependant” under superannuation law (assuming she was not
financially dependent). As a result, the binding nomination failed and the superannuation had to be paid to
Betty’s estate. Unfortunately, Betty’s will did not provide for this unexpected course of events.
Complaints before the SCT

It is important to note that when dealing with death benefit claims the SCT generally interprets
superannuation law to mean that certain financial dependants, such as a second spouse, have a better
standing than non-financial dependants, such as adult children. This means that where there are two
contests – one regarding the distribution of a superannuation death benefit and one regarding the
distribution of a deceased estate – the results can be quite different. Why that should be the case is not
clear, and in the author’s view it is time to align the two.
See chapter 16 for more details and examples regarding claims against superannuation.
¶8-155 Family trusts

A family trust can also be a valuable tool in ensuring that beneficiaries receive a benefit on the
death of a person. The asset of a family trust will not form part of an estate unless there has been a
determination made by the trust’s trustee that would give this result.
Assuming that the assets remain in the family trust they will, in most jurisdictions,13 be protected from
a claim against an estate by another person. As with superannuation, this opens an opportunity to
leave assets to family members with a degree of certainty. Of course, the benefit of doing this must be
considered having regard to all other relevant factors such as the cost of establishing and running one or
more family trust and the CGT and stamp duty consequences of transferring assets into family trusts.
13 Again, in NSW the notional estate provisions expose assets held in a family trust to a risk of a claim.
¶8-155
¶8-160 Mutual wills

It is open to a person to make a contract affecting the disposition of their assets. This can be in the form
of mutual wills or some other contractual arrangement.14
The High Court decision in Barns v Barns15 casts doubt over the effectiveness of a mutual will
arrangement where a claim has been made against the estate. The relevant jurisdiction was South
Australia which, at the time, had legislation16 in place that permitted a person not adequately provided
for to apply to the court for an:
“… order that such provision as the court thinks fit be made out of the estate of the deceased
person for the maintenance, education or advancement of the person so entitled.”
The court held that a contract to dispose of property by will was subject to family provision legislation.
Post-Barns v Barns there is doubt over the effectiveness of mutual will arrangements where they seek to
prevent a person making a successful claim against the estate.
In limited cases, however, mutual wills might provide an effective way to deal with property.
Example
Bob and Betty wish to purchase a holiday house. Bob will be contributing much of the purchase price, but
Betty will also be contributing. They want the house to eventually pass to Bob’s children. They wish the
property to be registered in their joint names but Bob is concerned that if he predeceases Betty then she may
not leave it to his children as they have agreed.
Bob and Betty could enter into a mutual wills arrangement which prevents Betty – in the event she survives
Bob – from disposing of the holiday house.
¶8-165 Appointing and directing trustees

Where the beneficiaries of a trust have competing interests – such as a life tenant and remainder
beneficiaries – it is wise to consider appointing at least one independent trustee. This can assist in
helping to ensure that neither class of beneficiaries is treated unfairly.
Having at least one independent trustee may assist in the speedy resolution of disputes, although such a
trustee may seek to be paid for their role.
14 Schaefer v Schuhmann [1972] AC 572.
15 [2003] HCA 9.
16 Inheritance (Family Provision) Act 1972 (SA).
¶8-165
¶8-170 Estate and trust accounts

It is well established that trustees have a duty to keep accounts17 and that this duty extends to all
beneficiaries, including discretionary beneficiaries.18 In addition, beneficiaries have a right to inspect
accounts and, in New South Wales, trustees can be required to lodge accounts with the court.19 The
intention of these statutory provisions is, clearly, to protect beneficiaries by requiring trustees to
provide evidence of the status of the trust assets. In practice, however, these provisions arguably do
not provide beneficiaries with a significant degree of protection. For example, how many beneficiaries
would actually know of their rights to obtain statements? And even if statements are provided, will they
be provided in a timely manner? Or be accurate? If there are beneficiaries with competing interests a
willmaker should be advised to consider including provisions in the will that:
impose or remove the rights of beneficiaries to receive statements;
impose consequences on a trustee who fails to meet any disclosure obligations.
The Corporations Act 2001 (Cth) now imposes special obligations on “licensed trustee companies” to
provide certain interested persons with accounts of any estate or trust. Generally, a trustee company,
such as Perpetual Trustees, would be required to comply with this new legislation, however the public
trustee office in each jurisdiction will be excluded.
¶8-175 Cases involving blended families

Stepchildren
Courts recognise that, where there is a surviving spouse, the children of an earlier relationship have
certain rights. As noted by Nettle J:20
“Other things being equal, right thinking members of society are likely to accept that the needs
of the widow of a second marriage should rank in priority ahead of the claims of the children of
a first marriage; although of course it is always a question of fact. But equally, upon the death of
the widow, and as it were in the event of a surplus, most would surely say that the children of the
first marriage should rank for their fair share.”
In James v Day,21 a father had died leaving his estate to his second wife who died some 13 years later
leaving the estate to her nephews and niece. The father’s two children by his first marriage successfully
claimed against the second wife’s estate on the basis that they would have made a claim against the
father’s estate had they not believed that the second wife would provide for them under her will.
17 Burrows v Walls (1885) 5 De GM & G 233.
18 Re Tillott [1882] 1 Ch 86.
19 S 102 of the Trustee Act 1925 (NSW).
20 McKenzie v Topp [2004] VSC 90 at [58].
21 [2004] VSC 290.
¶8-170
While each case will depend on its own facts, it is now generally accepted that where a child’s natural
parent has died and has left the entire estate to the stepparent, the child will have a right to be provided
for upon the stepparent’s subsequent death.22
An interesting twist on these “stepchildren cases” was considered in Petersen v Micevski.23 This case
draws on “stepchildren” cases such James v Day24 and concerned the estates of Amanda Peters and
her father Jack Peters. This case examined whether an inter vivos gift from A to B can impose on B an
obligation to make provision in B’s will in respect of persons for whom A would have had a duty to
make provision for in A’s will?
The background facts

Jack’s sole significant asset was a house at Gladstone Park.
He sold the Gladstone Park house in 2002 and part of the proceeds were used to purchase a block in
Broadford which was registered in Amanda’s name.
A house was built on the Broadford block, the cost of which was met mostly by Jack and partly
by Amanda.
Amanda and Jack lived together in the Broadford house until their respective deaths.
Amanda died in April 2005. Her estate comprised the Broadford house with a value of $200,000 and
a mortgage of $21,000. By her will she gave Jack the right to occupy the Broadford house and left the
remainder interest in the house, and the residue of her estate, to Jacqueline, who was one of the sisters
(all of whom were adopted by Jack and his deceased wife).
As stated, Jack died in July 2005. His estate had no assets. His will left everything to Amanda or, if she
predeceased him, to Jacqueline. His will was made in 2003.
The plaintiffs are Alison and Robyn, the other two adopted sisters of Amanda and Jacqueline. The
defendant is Jacqueline in her capacity as executor of Jack and Amanda’s estates.
The plaintiffs’ submission

Counsel for the plaintiffs submitted that Amanda had a responsibility to make provision for the proper
maintenance and support of the plaintiffs.
22 McKenzie v Topp [2004] VSC 90; Keets v Marks [2005] VSC 172.
23 [2007] VSC 280.
24 [2004] VSC 290.
¶8-175
The argument was summarised by Hansen J as follows:25

“If Jack had not given his money to Amanda but had died still owning the Gladstone Park
property or holding the funds representing it, he would have had responsibility to make
provision therefrom for his children. Thus, it was submitted, in the ordinary course of events
Jack’s children would have shared in his estate. In these circumstances, it was submitted,
Amanda, as the recipient of the funds representing Jack’s estate received those funds with a
moral obligation to provide for those whom Jack would have provided at his death pursuant to
a responsibility to do so.”
The defendant’s submission

Counsel for the defendant argued that the claim should fail because:
the stepchildren cases were not authority that supported the plaintiff’s claim;
the stepchildren cases could also be distinguished because, as mentioned above, there had not been
any “standing aside” in relation to making a claim on an estate, which was a feature of the stepchildren
cases (ie in relation to their natural parent’s estate);26
Amanda’s receipt of the gift did not impose on her a responsibility to provide for the plaintiffs; and
Jacqueline’s competing claim and financial need, the effect of an order and the plaintiffs’ own
circumstances made an award for the plaintiffs inappropriate.
The decision
Having considered these factors, his Honour concluded that Amanda’s freedom of testation was not
burdened as the plaintiffs contended and it was open to Amanda, having regard to all matters, to
dispose of her estate as she did. His Honour went on to say that even if Amanda did have responsibility
to make provision for the proper maintenance and support, no amount should be ordered for the
reasons discussed above.
De facto relationships
Also relevant in many blended family situations is the question as to whether a de facto relationship
actually existed. The judgment of Pagone J in the recent decision of Re Estate of Sigg, decd 27 made some
interesting observations on determining whether a domestic relationship existed between the deceased
and the claimant. The plaintiff was the only party to this action – it is not clear whether the estate would
have passed to the Crown bona vacantia if the application was unsuccessful. Key points to arise from
the case include:
25 Petersen v Micevski [2007] VSC 280 at [132].
26 Although counsel for the plaintiffs did suggest that Amanda had agreed not to be treated as the “absolute” owner of the property and this
was a form of concession similar to “standing aside”.
27 [2009] VSC 47. The summary of this case has been drafted by Paul Collins, Consultant, Maddocks.
¶8-175
it would be wrong to assume that the test of whether people are living in a genuine domestic
relationship is to be judged against an inflexible model of a couple living together full time, sharing
fully domestic, financial and other responsibilities;
people who are legally married live in married relationships in circumstances varying dramatically
from one couple to another. A couple should not be judged by reference to a static model which
does not reflect the reality of life and the diversity of arrangements existing between legally married
couples;
in this case the parties were not living with each other physically over the period, in the kind of
model one might have in an idealised form;
the court is assisted by affidavit evidence from third parties to the effect that:
the couple certainly appeared to third party X as a couple, as “domestic partners” and in a good
“domestic” relationship; and
third party Y, over the 20 years of her friendship with the two, always considered the two to be
in a relationship as if they were husband and wife and certainly related to Y and others present
on any other social occasions, as a couple and “domestic partners” and that that is how they
conducted themselves to Y and to others.
Applications such as these can be difficult because of the potential to affect third party rights
inadvertently and without a full and adequate testing of the evidence. Applications of this kind are
frequently made without contest, without a contradictor challenging the claims made by an applicant.
Hence, a court should be reluctant to make determinations too readily.
There were some aspects of the relationship that might put the claimant, at best, in the position of the
deceased’s closest friend at the time of his death with whom she enjoyed physical relations. However,
the court concluded that the independent third party evidence coupled with the claimant’s evidence
was sufficient to grant the application.
¶8-180 Planning for blended families

Blended families present a range of challenges to professionals advising on estate plans. In addition to
often complex relationships there are often emotional strains that make it difficult for clients to reach
and implement decisions in a timely and cost-effective manner.
A further complication is that sometimes the relationships are so complex that any estate plan falls out
of date quickly because of changes in circumstances.
The tried and true rules of estate planning are never more appropriate:
if addressing all of the issues is too big a task, at least get started by addressing the simple ones;
regularly review the estate plan and keep it up to date;
engage a professional who is experienced in these matters; and
adopt a plain English approach!
¶8-180
183
Chapter 9
Succession planning for primary producers
Introduction........................................................................................................................¶9-100
An important note..............................................................................................................¶9-105
The business structure....................................................................................................... ¶9-110
Asset rich, cash poor......................................................................................................... ¶9-115
Children and marriage breakdown.....................................................................................¶9-120
Recent developments: water shares, wind turbines and other developments.................. ¶9-125
Resulting trusts..................................................................................................................¶9-130
Constructive trusts.............................................................................................................¶9-135

Farmers have special challenges in estate and business succession planning.
Reference in this chapter to “farmers” should be interpreted broadly as covering all types of primary
producers, including those who run livestock or grow crops and also those who engage in the
manufacture of products using their rural property and produce (such as grape growers/winemakers,
dairy farmers). The terms “farms” and “farming business” should be similarly interpreted.
One of the most common examples of the special challenges facing farmers arises where parents intend
to leave their farming business and property to one or more children to the exclusion of the remaining
children. This is often complicated by past promises and/or arrangements where one or more children
have worked for years on the property for nominal wages.
That most farming businesses are asset rich but income poor also complicates planning. What if
the parents have little in the way of other assets to make distributions equal or fair? The volatility in
farming income exacerbates this problem.
Another real area of concern for farmers is asset protection for beneficiaries. What happens in the
event that their children become divorced? This concern is growing now that a number of Australian
jurisdictions give a party to a de facto relationship the right to make a property claim following a
breakdown of that relationship.
This chapter will identify some of the problems facing primary producers and suggest ways to
address these.
¶9-105 An important note

Farmers often work and live under considerable stress, especially in times of economic downturn as
a result of a purely financial crisis (such as adverse exchange rates or interest rates) or climate-related
catastrophes. The isolation of living in a remote community can exacerbate this stress. Studies regularly
show that the rate of suicide among farm workers is significantly higher than that of the rest of the
population.1 In dealing with clients who work in rural areas, it is important to recognise this fact and
be alert to indicators of stress and depression which may help identify clients in need of support or
consultation with a specialist.
Contacts
For emotional support 24 hours a day, contact Lifeline on 13 11 14 or visit www.lifeline.org.au.
1 Source: Farmers’ suicide rates double national average: study, ABC News (Australian Broadcasting Corporation), 19 August 2008.
¶9-100
Succession planning for primary producers 185
For general information, contact:

Beyond Blue: www.beyondblue.org.au.
Sane Australia: www.sane.org.
¶9-110 The business structure

As mentioned throughout this book, an integral part of a succession plan is the identification of all of
the structures forming part of the estate and business.
In the case of a farming business, this will require obtaining details of the following where relevant:
partnership structures, including details of all partners;
company structures, including shareholder and director details;
trust structures, including details of trustees, appointors and guardians;
agreements affecting the rights and obligations of the parties to the above entities, such as
shareholder agreements;
accounts, including details of loan accounts;
land title details, including land acquired by the parents but held in the name of one or more
children and the reasons for such arrangements;
lease details, including for properties, water rights etc; and
other contracts, such as wind turbine agreements.
Further, it is critical to obtain details of all promises that may have been made and to understand the
status of such promises.
Once the status of the business is understood, the wishes of the willmakers/proprietors can be obtained.
An experienced adviser will talk through these wishes and give advice and guidance to the extent
required. Usually, they will be asked to point out risks that may arise, such as the risks of someone
challenging a will (see chapter 3 – Wills and intestacy), and suggest ways to minimise or eliminate such
risks (see chapter 12 – Claims against estates).
Once the wishes have been finalised, the adviser can draw up a succession plan. The adviser (who does
not have to be a lawyer) can be expected to suggest options for the willmakers/proprietors to consider; for
example, suggestions to do things a certain way in order to minimise taxation, stamp duty and improve
asset protection. It will often be necessary for the adviser to work with other parties such as an accountant
when putting together a workable succession plan.
¶9-110
Tip
It is unlikely that you will produce the best succession plan if the client doesn’t know what all of the options
are. It is the role of the adviser to educate their client about these.
Some advisers simply ask questions of the client, without providing suggestions that could reduce taxation or
increase asset protection. Other advisers will be proactive in adding value to the process.
¶9-115 Asset rich, cash poor

One of the most common challenges that farmers face is how to dispose of an estate fairly when they
have valuable assets but little cash or cash-flow. This challenge is often complicated when one or more
children have worked in the business for less than market value reward.
Example
Janet has three children. One child, a son, lives at home and has helped work the farm for many years for
nominal wages. Two other children have moved away from home – one is married with children of her own
and the other lives interstate where she practises as a veterinarian.
Janet’s only asset of any real value is the farm which is valued at $2m.
She wants to leave the farm to her son but she also wants to provide for her two daughters.
The above scenario is not uncommon. Janet may have several options including:
Give an option to purchase the farm

Janet could give her son an option to purchase the farm for a discounted price with the proceeds going
to her two daughters.
For example, her son can acquire the whole farm for 40% of its value.
Different strategies will have different CGT consequences. In the above example the market value
substitution rules should give the son a cost base equivalent to the value of the farm. This may not suit
the estate.
Other options could be considered; for example, Janet could give her son a right to purchase the farm
over a number of years.
Give the farm to the children equally

Janet could leave the farm to all three children but:
¶9-115
make the farm subject to a long-term lease for her son, enabling him to operate the farm. This may
lead to problems should the farm income not be sufficient to meet the lease repayments; and
on the basis that income be divided a certain way, for example, equally, or 50% to her son and 25%
to each of her daughters. Invariably, a number of technical drafting issues need to be understood
and addressed – such as the meaning of “income” – does it mean net income? Should Janet’s son be
entitled to a wage and, if so, how would that be determined?
Equalise gifts through insurance

The use of insurance as a source of cash for her daughters’ inheritances may be an option if Janet is able
to access insurance cover for a reasonable cost.
A superannuation fund may be an option for low-cost cover.
The use of binding death benefit nominations could assist in this process (see ¶15-110).
¶9-120 Children and marriage breakdown

Increasingly, parents are becoming concerned that they might leave valuable assets to a child but for
that child to lose a significant part of the assets following a marriage breakdown. With the passage
of relationship legislation that captures breakdowns in de facto relationships, this risk is becoming a
big issue.
Example
Continuing Janet’s case above, let’s say that she left the whole of the farm to her son.
However, five years after Janet’s death the son divorced his spouse. The terms of the settlement were such
that the farm had to be sold and a large share of the proceeds went to the son’s spouse.
This is where careful planning is essential. Involvement of a specialist family lawyer may be required.
If the above risk was a concern for Janet at the succession planning stage, she may have been able to
address this by not leaving the farm directly to her son.
As discussed in chapter 5 (see ¶5-115), the broad powers of the Family Court and other legislative
provisions2 make it increasingly difficult to quarantine assets beyond the reach of partners – whether
married or de facto (at the same time, not forgetting that such powers and laws have a public purpose).
The issues are complex however and careful planning is required.
2 In particular, state- and territory-based relationship registers which give parties rights to property upon the breakdown of relationships.
¶9-120
Tip
It may be necessary to discuss binding financial agreements with your client – not for them but for their
children and their spouses! (See ¶5-115.)
¶9-125 Recent developments: water shares, wind turbines and

other developments
Water rights and water shares
Several jurisdictions have legislation that deals with ownership of entitlements to water. These rules can
have significant implications for estate and succession planning. These changes will generally impact
on whether the right to water is an asset that automatically attaches to, and passes with, the land, or
whether it is a distinct asset that can be dealt with separately.
For example, in southern Victoria water rights and diversion licences on regulated water systems were
unbundled – that is, divided into separate parts – on 1 July 2008. The effect was to change pre-1 July
2008 rights or licences to a water share, a delivery/extraction share and a water-use licence. The water
share is now an asset separate from land and will form part of the owner’s estate.3 This means that the
water share can be dealt with like any other asset that forms part of the estate and, most importantly, it
will not automatically follow a disposition of the land to which it relates.
Example
Continuing Janet’s case above, assume she had made a will devising the farm to her son and giving the
remainder of her estate to her two daughters.
Following the granting of a water share, Janet omitted to change her will. On Janet’s death, the farm passed
to her son but the water share that she owned passed to her two daughters. As owners of the water share,
the daughters have a valuable asset that gives them significant control over the farm.
As a water share is a separate asset, it can be mortgaged and so it is necessary to consider the
consequences of any mortgage when bequeathing a water share.
Wind turbines
Some farms have entered into contracts that provide a revenue stream, such as wind turbine contracts.
In some cases, contracts and the consequential improvements can have a positive impact on the value of
the land.
3 Where the owner was a sole owner – see, for example, s 33AV of the Water Act 1989 (Vic).
¶9-125
This can be a useful tool in equalising distributions and lessening the impact of asset rich, cash poor
businesses.
Example
Janet entered into a contract with XYZ Pty Ltd for the construction of wind turbines on Janet’s farm for an
annual licence fee of $150,000.
Janet left the benefit of this income stream to her daughters while leaving the farm in a testamentary trust for
the benefit of her son.
It is particularly crucial to keep wills up to date whenever complex estate planning structures are
put into place. In the above example, if the wind turbine contract ceased after a few years it would be
necessary for Janet to reconsider her will. If, however, Janet had no longer had capacity then making a
new will might not be possible (see ¶3-120).
Use of an SMSF to hold land or run businesses

It is not uncommon to find a self-managed superannuation fund (SMSF) holding farming land,
especially following the 1999 changes to superannuation legislation that recognises business real
property and generally permits an SMSF to acquire such property.4
The introduction in 2008 of legislation enabling SMSFs to borrow by way of a limited recourse
instalment arrangement5 may encourage people to use their SMSF to purchase farming property.
It will be critical for advisers to correctly identify the ownership structure of any farming business
and how this might impact on succession planning options. There will be significant potential for
complications and conflicts where the trustee of the deceased’s SMSF entered into a limited recourse
arrangement where the deceased was the lender. Issues that may arise include:
Is the SMSF able to make an in specie distribution of the deceased’s interest in the farm?
If there are other SMSF members, how will a transfer affect any loan arrangement?
Does control of the SMSF rest with the right persons after the deceased’s death?
Is it possible for the property in the SMSF to be purchased by a member, or re‑contributed back
to the SMSF?
4 S 66 SISA.
5 S 66(4A) SISA.
¶9-125
Tip
Passing control of the SMSF to the right persons will be important (see ¶15-120).
Selling the farm

The growth in urban corridors is an issue which should be raised when speaking to some farmers about
succession planning. Appreciation in the value of land that evolves from farming land to residential
land can lead to a significant windfall to the beneficiaries who inherit the land.
Example
Janet left the $2m farm to her son and left $1m in superannuation to her two daughters.
Five years after Janet’s death, her son was approached by property developers and was made an offer too
good to refuse. He sold the farm for $10m, making his inheritance far more valuable than his sisters’.
It may be difficult to cater for this type of scenario. Perhaps the land could be placed into a trust with the
condition that if it is sold within a certain period (for example, 10 years from the willmaker’s death) then
the proceeds are divided in a way that benefits all of the willmaker’s children.
¶9-130 Resulting trusts

A resulting trust can arise in many different circumstances, and some of these circumstances might be
similar to those that give rise to other remedies, such as constructive trusts (see ¶9-135). The aim of this
chapter is not to provide a full legal analysis of these concepts.6 Rather, the following demonstrates the
practical application of the law by looking at several common factual scenarios:
A resulting trust may arise where a person (A) causes property to be registered into another person’s (B)
name, where A did not intend for B to become the sole beneficial owner of the property. It is relevant to
primary producers because it is not uncommon for a person to register a parcel of land in the name of
one or more of their children.
Where A and B in the example above are strangers, a resulting trust is presumed. Where, however, A
and B have a close relationship – such as spouse-spouse or parent-child – there is a presumption that
A advanced the property to B – that is, a resulting trust relationship does not automatically arise. In
such cases, it is up to someone to prove on the balance of probabilities that A intended for B to hold the
property on trust for A. When determining intention, the relevant time is the time of purchase – that is,
in the example above, what was A’s intention at the time the property was registered in B’s name.
6 This can be found in texts such as Ford & Lee’s Principles of the Law of Trusts, 2nd ed, Law Book Company, 1990, chs 21 and 22.
¶9-130
The most common situation is perhaps where mum and dad purchase farming land and register it in
the name of child X to the exclusion of other children (Y and Z).
In such a case, it might be open to Y and Z to contest that the property was being held by X on trust
for mum and dad. If successful, the result may be that the property forms the estate of the last to die
of mum and dad.
A similar scenario to this was considered in Wilkins v Wilkins.7 The relevant facts can be broadly
summarised as follows:
Norma and her husband William had seven children;
in 1976 Norma and William purchased a property at Killingworth. They paid both the deposit and
the remainder of the settlement sum (which was paid in instalments over three years);
the property was registered in the names of two of their children – Gregory and Neil;
William died in 1985; Norma died in 2003;
all seven children equally were beneficiaries of Norma’s will; and
it was alleged by one of the children (the defendant) that Gregory and Neil held Killingworth on
trust on behalf of Norma and, therefore, that Killingworth should be added to her estate.
In this case, the presumption of advancement clearly applied. Accordingly, the burden fell on the
defendant to prove, on the balance of probabilities, that Norma and William intended, at the time of
registration, that Gregory and Neil hold Killingworth on trust for them. The court held in favour of the
defendant, and so Killingworth was brought into the estate.
Tip
If you are ever instructed to register assets other than in the name of the person who has paid the purchase
price, you should confirm the intention behind the instruction.
In addition, when taking will instructions, ask the willmaker:
has anyone made a financial or non-financial contribution towards the purchase of the willmaker’s assets
and, if so, on what basis was the contribution made?
has the willmaker made a financial or non-financial contribution towards the purchase of any asset
registered in someone else’s name and, if so, on what basis was the contribution made?
has the willmaker transferred property to another person without consideration (ie payment)? If so, was the
willmaker’s intention to make a gift or did they intend for the other person to hold the property on trust on
the willmaker’s behalf? If the latter, what is to happen to the property on the death of either or both parties?
has any person transferred property into the willmaker’s name without consideration (ie payment)? If so,
does the willmaker regard the transfer to be a gift or does the willmaker hold the property on behalf of the
other person? If the latter, what is to happen to the property on the death of either or both parties?
In all cases, ask whether the other party shares the same view as the willmaker.
7 [2007] VSC 100.
¶9-130
¶9-135 Constructive trusts

Constructive trusts are a remedy based on the application of legal or equitable principles aimed at
preventing unconscionable enjoyment of property.8
Constructive trusts are deemed by a court to arise in situations where it is fair to do so, and so unlike
with resulting trusts the intention of the owner is not necessarily a critical factor.
One relatively common scenario where a constructive trust arises is where property is registered in
the name of one party (A) and another party (B) makes a contribution towards that property. The
contribution could be by working on the property or contributing towards mortgage repayments.
Where A dies without leaving any benefit in the property to B, the court may declare that an
appropriate remedy is for B to have an interest in the property or receive some reward for the
contribution B has made.
Flinn v Flinn9 is notable not only as an example of the circumstances in which a constructive trust
can be imposed, but also of the broad range of options available to courts when imposing equitable
remedies. The facts of the case were somewhat complex, and the following is a simplified summary:
Bill and Mary were married and carried on farming on a farm they owned;
their son did not contribute significantly to the farming business;
their nephew, and his wife, made significant contributions over at least 10 years to the farming
business by working on the farm for nominal reward, sometimes living in harsh conditions;
Bill and Mary had made promises over a number of years to the nephew and his wife that the farm
would be theirs on the death of them both;
in 1993, Bill and Mary had made identical wills under which they left all assets to each other and,
should the other not survive, the farm was devised to the nephew and his wife subject to them
paying the son a legacy;
Bill died in early 1994 and so Mary became the sole registered owner of the farm;
in late 1994, the son offered to sell the farm to the nephew and his wife for $1m; and
in 1995, Mary – now in a nursing home – made a new will departing radically from her earlier will.
Under her new will, Mary effectively left her whole estate to her son.
Following receipt by the nephew and his wife of the letter from the son offering to sell them the farm,
they sought advice as to their rights. They commenced legal action and raised several pleadings. The
court, both at first instance and on appeal, found that the nephew and his wife had a constructive
trust entitlement. The creative element of the Court of Appeal’s decision is that it directed that the farm
freehold, livestock, plant and equipment be transferred to the nephew and his wife now, subject to them
8 For examples of leading cases that discuss constructive trusts, see Baumgartner v Baumgartner (1987) 164 CLR 137 and Muschinski v
Dodds (1985) 160 CLR 583.
9 [1999] VSCA 109.
¶9-135
maintaining and supporting Mary and paying the son the legacy referred to in Mary’s 1993 will. It was
unusual that the entitlement arose now before Mary’s death, but the logic is evident.
Rogers v Rogers10 is another case involving a nephew working on his uncle’s farm in reliance on being
left the farm or the sale proceeds of the farm. In this case, the uncle had not died but had allegedly
denied making any promise to the nephew and signalled his intention to sell the farm. As in Flinn v
Flinn, the court commented on the flexibility that it has in awarding a remedy in these types of cases.
The court decided that, while the nephew was entitled to relief, it would not be appropriate to impose
a constructive trust over the farm. It instead directed that the nephew be paid $250,000 plus interest,
secured by way of a charge over the property.
Constructive trust issues can arise in respect of non-estate assets, such as family trusts, as seen from
the case of Fifteenth Eestin Nominees Pty Ltd v Barry Rosenberg & Anor.11 In this case, the court was
asked to consider whether the controller of a family trust had made representations to his daughter
and her husband as to their future rights in respect of trust property, and whether the daughter and
her husband relied on those representations to their detriment. While the daughter and her husband
were unsuccessful in their claim, the case highlights the wide range of complex legal issues that can
arise where constructive trusts are alleged – in this case there were 76 grounds of appeal! The case also
demonstrates how costly and time-consuming any action can be – the judgment on appeal was reserved
for over a year.
Tip
When taking will instructions, ask the willmaker whether they have made promises to others about how they
will dispose of their property or whether any person has made a cash or other contribution – such as work for
less than market rates (including a domestic contribution) in support of the willmaker’s business.
In Simpson-Cook v Delaforce,12 a man and his wife who had separated negotiated their property
settlement. They agreed that he could retain a property during his lifetime if he left it to her in his
will and they further agreed that he would spend $50,000 on building a granny flat on the property.
Some five years later, he died and by that time he had made a new will leaving the residue of his estate
(including the property) to a cousin. The wife claimed that the deceased should be estopped from
gifting the property to his cousin because he had given her assurances that she had relied on, that
her reliance was reasonable, that she suffered detriment and that she was entitled to relief. The court
declared that the former wife had established a proprietary estoppel which entitled her to the property.13
10 [2001] VSC 141.
11 [2009] VSCA 112.
12 [2009] NSWSC 357.
13 This decision was appealed, and the appeal allowed in part, although the part of the decision regarding the house was upheld – [2010]
NSWCA 84.
¶9-135
Self-evidently, constructive trusts and other remedies will always be fertile ground for disputes – both
as a cause of action and also as a defence to a claim against an estate. While dispositions pre-death may
help overcome these disputes in some cases, such dispositions may still be attacked under resulting
trust pleadings and, in NSW, notional estate provisions.
¶9-135
195
Chapter 10
Insolvency and death
Introduction ..................................................................................................................... ¶10-100

Why use Pt XI of the Bankruptcy Act?............................................................................. ¶10-105
What can a creditor do?................................................................................................... ¶10-110
What can the LPR do?......................................................................................................¶10-115
What is the effect of Pt XI of the Bankruptcy Act on deceased estates?........................ ¶10-120
What property is not divisible? ....................................................................................... ¶10-125
When does the bankruptcy of a deceased estate end?.................................................. ¶10-130
Priority of debts................................................................................................................ ¶10-135

The Bankruptcy Act 1966 (Cth) (Bankruptcy Act) governs bankruptcy law in Australia and, among
other things, gives the court power to make sequestration orders against an insolvent individual. The
effect of a sequestration order is to remove a bankrupt’s property from their control. The Bankruptcy
Act also specifies the way in which bankrupt estates are to be administered.
But what happens when a deceased dies insolvent? Or when the deceased’s estate becomes insolvent?
Part XI of the Bankruptcy Act deals with the administration of deceased estates in circumstances
where:
the deceased was insolvent prior to the date of death; or
the deceased estate itself has subsequently become insolvent.
An important distinction between the administration of a deceased estate under Pt XI of the

Bankruptcy Act and the administration of a solvent estate is that an insolvent estate is administered for
the benefit of the creditors as there will invariably be insufficient assets to distribute to the beneficiaries.
In this chapter, we discuss the benefits of making an application to have a deceased estate administered
in accordance with Pt XI of the Bankruptcy Act, the requirements of such applications, and the
practical effects of administration of deceased estates pursuant to Pt XI of the Bankruptcy Act.
¶10-105 Why use Pt XI of the Bankruptcy Act?

The legal personal representative1 (LPR) of a deceased estate is required to administer the assets held by
the deceased at the date of death – see ¶3-160. However, the assets available to a trustee in bankruptcy
include additional claims available under the Bankruptcy Act.
For instance, a trustee in bankruptcy has the power to investigate and void transactions and unfair
preferences that may increase the assets available for division among creditors.2 This means that
property that may not have been available to creditors of a deceased estate prior to the bankruptcy of
the estate will be vested in the trustee in bankruptcy and will become available for division to creditors.
Trustees in bankruptcy also have power under s 81 of the Bankruptcy Act to make applications to the
court for the issue of summonses for examination. Such examinations can assist a trustee in bankruptcy
in uncovering transactions or preferences that may be void as against the trustee in bankruptcy.
1 That is, the executor of the will or the administrator of the deceased’s estate.
2 Ss 118 to 122 and 248 of the Bankruptcy Act 1966 (Cth).
¶10-100
Insolvency and death 197
Example
Six months prior to his death, John hires Ari, his accountant, to undertake a substantive audit of his personal
assets and to provide detailed succession planning advice. The fee for the audit and advice is fixed and
agreed by John and Ari to be $50,000.
Ari undertakes the audit and renders an invoice of $50,000 to John. The invoice is not paid by John prior to
his death.
Three months prior to his death, John transferred all of his assets to his wife, Betty, for no fee or consideration.
On his death, there are no assets in John’s estate, and it has creditors of over $250,000. John’s estate is
therefore insolvent.
In an ordinary administration of a deceased estate, Ari and John’s other creditors, would not recover any
amounts owing by John at the time of his death.
However, Ari can make an application under Pt XI of the Bankruptcy Act to have John’s estate administered
in accordance with Pt XI of the Bankruptcy Act. If the application is successful, John’s estate will be
administered by a trustee in bankruptcy. The trustee in bankruptcy will, in turn, have the power under the
Bankruptcy Act to review the transfers by John to Betty prior to his death.
In the event that those transfers are deemed void against the trustee in bankruptcy, those assets will return to
John’s estate. This means that Ari and John’s other creditors (depending on their ranking as creditors) may
receive some, if not all, of the moneys owing to them by John at the time of his death.
Administration of a deceased estate under Pt XI of the Bankruptcy Act may also be an attractive
option for beneficiaries in circumstances where a trustee in bankruptcy may claim further assets for
distribution to beneficiaries.
Example
In the example above, John’s son, Sam, is aware that John transferred all of his assets to his wife, Betty
(Sam’s stepmother), for no fee or consideration.
Sam is the primary beneficiary under John’s will. His sister, Sarah, is the executor of the will.
In an ordinary administration of John’s estate, Sam would receive no benefit under John’s will as it is worthless.
However, as the estate is insolvent, Sarah can make an application under Pt XI of the Bankruptcy Act to have
John’s estate administered in accordance with Pt XI of the Bankruptcy Act, giving the trustee in bankruptcy
power to review the transfers by John to Betty prior to his death.
The outcome of such reviews may be that further assets become part of John’s estate, creditors are paid in
full, and some assets may remain for the benefit of Sam.
¶10-110 What can a creditor do?

Sections 244 and 245 of the Bankruptcy Act allow a creditor to apply to the Federal Court of Australia
for an order that a deceased estate be administered in accordance with Pt XI of the Bankruptcy Act
(Administration Order). Such an application is called a petition.
¶10-110
When can a creditor present a petition under s 244?

A creditor can present a petition under s 2443 where:
“(a) a debt of not less that $5,000 was owing by a deceased person at the time of his or her
death to a creditor, or debts amounting in aggregate to not less than that amount were so
owing to any 2 or more creditors;
(b) a debt incurred by the legal personal representative of a deceased person of not less than
$5,000 is owing to a creditor, or debts so incurred amounting in the aggregate to not less
than that amount are owing to any 2 or more creditors; or
(c) a debt of not less than $5,000, or debts amounting in the aggregate to not less than that
amount, which a deceased person would have been liable to pay to a creditor, or any
2 or more creditors, if he or she had not died becomes or become owing after his or her
death.”
A secured creditor, however, will only be deemed to be a creditor to the extent that the amount of the
debt owing to him or her exceeds the value of his or her security.4 Further, any petition by a secured
creditor must contain a statement to the effect that he or she is willing to surrender his or her security
for the benefit of creditors generally in the event an Administration Order is made.5
A petition under s 2446 cannot be presented unless:

“(a) the debt, or each of the debts, in respect of which it is presented:
(i) is a liquidated sum due at law or in equity or partly at law and partly in equity;
and;
(ii) is payable immediately or at a certain future time; and
(b) at the time of his or her death, the deceased debtor:
(i) was personally present or ordinarily resident in Australia;
(ii) had a dwelling-house or place of business in Australia;
(iii) was carrying on business in Australia, either personally or by means of an agent or
manager; or
(iv) was a member of a firm or partnership carrying on business in Australia by means
of a partner or partners, or of an agent or manager.”
A sealed copy of a petition under s 244 must be served upon the LPR of the deceased debtor, or, if there
is no LPR, upon such person as the court directs.
3 S 244(1) of the Bankruptcy Act 1966 (Cth).
¶10-110
When can a creditor make an application under s 245?

If a creditor has presented a petition against a debtor under Pt IV of the Bankruptcy Act (Proceedings
in Connection with Bankruptcy, non-deceased estates), and the debtor dies after he or she has been
served with that petition, but before a sequestration order has been made, the creditor may apply to the
court for the deceased estate to be administered in accordance with Pt XI of the Bankruptcy Act.
Example
If, in the example above, before John died Ari had filed and served a petition against John under Pt IV of the
Bankruptcy Act, he would be able to apply to the court to have John’s estate administered in accordance with
Pt XI of the Bankruptcy Act.
However, if the petition had been filed but not served on John, that petition would need to be withdrawn, and
Ari would be required to file a petition under s 244 of the Bankruptcy Act.
Statement of affairs
When an Administration Order is made, the LPR of the estate must, within 28 days from the day on
which he or she is notified of the making of the order:
(1) make out a statement of the deceased person’s affairs and of his or her administration of the
deceased person’s estate; and
(2) give a copy to the Official Receiver in Bankruptcy.7
¶10-115 What can the LPR do?

Section 247 of the Bankruptcy Act provides that an LPR may present a petition for an Administration
Order.
When presenting a petition under s 247 of the Bankruptcy Act, the LPR must include statements of:
the deceased person’s affairs; and
his or her administration of the deceased person’s estate.8
As with a petition under s 244 of the Bankruptcy Act, a petition under s 2479 cannot be presented
unless:
“(2) … at the time of his or her death, the deceased person:
(a) was personally present or ordinarily resident in Australia;
¶10-115
(b) had a dwelling house or place of business in Australia;

(c) was carrying on business in Australia, either personally or by means of an agent or
manager; or
(d) was a member of a firm or partnership carrying on business in Australia by means
of a partner or partners, or of an agent or manager.”
¶10-120 What is the effect of Pt XI of the Bankruptcy Act on

deceased estates?
Commencement of bankruptcy
The date that bankruptcy commences is important in establishing the relation back period in which a
trustee in bankruptcy can investigate and possibly void transactions.
Section 247A of the Bankruptcy Act sets out when bankruptcy will be deemed to be commenced. Table 1
shows the different tests applied for commencing of administration under Pt XI of the Bankruptcy Act.
Table 1
Section Circumstances Commencement of bankruptcy

247A(1)(a) The deceased was on the day of his or her Day of bankruptcy, being the date on which
death unable to pay his or her debts as they the first act of bankruptcy was made
became due and had committed any act of
bankruptcy within the six months before the
date of death
247A(1)(b) The deceased person was on the day of At the time of death
death unable to pay his or her debts as
they became due, but had not committed
any act of bankruptcy within the six months
before the day on which he or she died
247A(1)(c) The deceased person was on the date of The time of the presentation of the petition
death able to pay his or her debts as they on which the order was made
become due
Effect on LPR
When an Administration Order is made, the LPR loses all of its powers, the administration of the estate
being handed over to the trustee in bankruptcy.
¶10-120
Divisible property
When an Administration Order is made, the divisible property of the estate vests with the trustee in
bankruptcy, as does after-acquired property of the estate. The divisible property and the after-acquired
property of the estate are divisible among the creditors of the deceased person and his or her estate in
accordance with the Bankruptcy Act.10
Section 249(6), (7) and (8) of the Bankruptcy Act set out what is and what is not divisible property
(see ¶10-125).
Liability of LPR
An LPR will be liable to the trustee for a payment or transfer of property made by the LPR:
(1) after service on him or her of a petition under Pt XI of the Bankruptcy Act;
(2) in the case of a petition under s 245 of the Bankruptcy Act, after he or she has knowledge of the
presentation against that person; or
(3) after a petition is presented under s 247.11
However, an LPR will not be liable to a trustee in bankruptcy for any payment or transfer of property
made, or any act or thing done, in good faith by the LPR before an Administration Order is made.
Creditor’s rights
Once an estate is being administered under Pt XI of the Bankruptcy Act, creditors cannot:
(1) enforce a remedy against the estate in respect of a debt provable in the administration; or
(2) commence any legal proceedings in respect of such a debt or take any fresh step in such a
proceeding without the leave of the court.12
¶10-125 What property is not divisible?

Under s 249(6), (7) and (8) of the Bankruptcy Act, the following property is not divisible among
creditors of a bankrupt deceased estate:
property that – if the deceased person had not died and a sequestration order had been made against
him or her immediately before his or her death – would not have been divisible among his or her
creditors;
life insurance;
¶10-125
superannuation; or
payments from retirement savings accounts.
Example
In the example above, if John had a valid life insurance policy that paid out $1.5m on his death, this sum
would not be divisible among creditors, and would form the residuary of his estate, payable to Sam, his son,
as primary beneficiary under John’s will.
¶10-130 When does the bankruptcy of a deceased estate end?

When a trustee in bankruptcy of a deceased estate is satisfied that all the debts of the estate have been
paid in full, the Administration Order is annulled on the date on which the last payment was made.13
The usual administration powers are then returned to the LPR of the deceased estate.
Beneficiaries of the deceased estate will only receive a distribution if all the debts of the estate have been
paid in full and there is a remaining surplus.
¶10-135 Priority of debts

In Victoria, changes coming into effect on 1 January 2015 altered the way that solvent and insolvent
estates were dealt with in relation to priority of debts.14 The changes to the legislation will affect any
application seeking a grant of representation for an estate, even where that application was made prior
to 1 January 2015, irrespective of the success of that application.
If the estate is solvent, the assets must be applied towards all debts and liabilities as follows:
(1) from property specifically appropriated, or subject to a charge, for the payment of a debt or liability
of the estate;
(2) from property comprising of the residuary of the estate in relation to which a disposition in the
deceased’s will operates as the exercise of a general power of appointment; and
(3) from property specifically devised or bequeathed, including property specifically appointed under
a general power of appointment and any legacy charged on the property devised, bequeathed or
appointed.
13 S 252A(1) of the Bankruptcy Act 1966 (Cth).
14 Ss 39, 39A and 39B of the Administration and Probate Act 1958 (Vic).
¶10-130
If there is a legacy charged on the property, the value of that legacy is deducted from the value of the
property.15 Priority previously given to funeral and testamentary expenses no longer applies. This allows
the bankruptcy provisions to have effect as they apply to:
the rights of creditors, both secured and unsecured;
all provable debts and liabilities;
the evaluation of annuities and future and contingent liabilities; and
the priority of debts and liabilities.
15 S 39(3)(b)(ii) of the Administration and Probate Act 1958 (Vic).
¶10-135
205
Chapter 11
Taxation of deceased estates
Introduction.......................................................................................................................¶11-100
Responsibility for tax returns............................................................................................¶11-105
Date of death tax return.................................................................................................... ¶11-110
Estate tax return................................................................................................................ ¶11-115
Capital gains tax...............................................................................................................¶11-120

The rules relating to deceased estates are complex and there are a number of planning opportunities
that can provide a natural lead-in for accountants to play an important role in the taxation affairs of the
estate. Good communication between the executor, the financial adviser – especially about cost-base
data – and the accountant can result in significant savings to the estate and underlying trusts.
This chapter discusses the responsibilities of the legal personal representative (LPR). The LPR is the
executor or administrator of the estate. An estate has an administrator if there was no will – or there
was a will but it did not successfully appoint an executor.
We will also discuss the peculiar taxation rules that apply to deceased estates – especially the CGT and
main residence rules – and the taxation of life interest estates.1
¶11-105 Responsibility for tax returns

Taxation legislation imposes a number of responsibilities on the LPR which, if not properly understood,
can result in the LPR incurring personal liabilities.
The LPR is responsible for finalising the taxation affairs of the deceased. This includes lodging taxation
returns on behalf of the deceased:
for each completed financial year in which the deceased was, at their date of death, required to lodge
a tax return but had not done so;
from the 1 July immediately preceding their death to the date of their death – this is known as the
“date of death tax return”.
The LPR must also lodge a taxation return for the estate for the period from the date of death up to the
date that administration of the estate was finalised.
If any trusts are created, the trustee of the trust is responsible for lodging taxation returns for the trust.
Liability of legal personal representative

Until the early 1990s, the ATO issued a taxation clearance notice which provided an LPR with comfort
that the ATO was satisfied that all returns had been properly completed and lodged. The ATO no
longer issues such notices – this arguably places greater onus on the LPR to satisfy themselves that the
deceased’s taxation affairs are in order. If assets have been distributed to beneficiaries and a shortfall
arises as a result of a taxation liability, the LPR may be liable for some or all of the shortfall – unless the
beneficiaries are willing to make the necessary payment.
1 For a comprehensive analysis see Marks’ Trusts & Estates: Taxation and Practice, edited by R Allerdice, 3rd ed, The Tax Institute, 2014,
ch 36. Available online and in print (see www.trustsandestates.com.au).
¶11-100
Taxation of deceased estates 207
Tip
If the LPR is distributing estate assets and there is any doubt, they may wish to obtain an indemnity from the
beneficiaries to protect themselves. Of course, an indemnity does not assure the LPR of protection. The LPR
should also keep evidence of the steps they took to enable them to reasonably conclude that the deceased’s
taxation affairs were in order.
¶11-110 Date of death tax return

Tax rates
The deceased receives the benefit of the normal taxation rates in the period from the 1 July immediately
preceding their death to the date of their death.
Business income
If the deceased operated a business on a cash or accruals basis, the same basis should be applied when
determining what income should be included in the date of death tax return.
Trading stock
If the deceased held trading stock, the market value of such stock must be included as assessable income
in the date of death tax return – unless the LPR makes an election. An election can only be made:
within the required timeframe – usually the date of lodgment of the date of death return. However,
the ATO may allow an election to be made later;2 and
if the LPR carries on a business using that trading stock.3
If an election is made, the market value of trading stock is ignored and the closing value4 of trading
stock as at the date of death is included instead.5 If the trading stock involves certain crops or trees,6 the
LPR may elect to include a nil amount for stock in the date of death tax return.
If an election is made, the person on whom the trading stock devolves is treated as having acquired
it for the amount included in the date of death tax return – that is, either the closing value or nil
as applicable.7
2 S 70-105(7) ITAA97.
3 S 70-105(5) ITAA97.
4 S 70-105(3) ITAA97.
5 S 70-105(3) ITAA97.
6 S 70-85 ITAA97.
7 S 70-105(6) ITAA97.
¶11-110
Special rules apply to partnership income that held trading stock.8
Gifts that trigger a disposal for CGT

If a post‑CGT asset passes under a will to a tax‑exempt entity, a complying superannuation entity or a
foreign resident, CGT event K3 will occur (subject to the exceptions discussed below) and any resulting
capital gain or loss should be included in the deceased’s date of death taxation return.9 However, any
capital gain or capital loss will be disregarded in certain circumstances, for example:
there is no disposal for gifts of taxable Australian property to a foreign resident. Taxable Australian
property includes direct or indirect interests in Australian real property (see ¶17-110 for more
details); and
a disposal to a tax-exempt entity will be ignored if the entity has DGR status or if the gift is made
under the Cultural Bequest Program (see below and ¶11-120).10
This results in:

a capital gain – if the market value of the asset on the day the person died is more than the cost base
of the asset; or
a capital loss – if the market value is less than the asset’s reduced cost base.
Any capital gains or losses must be included in the date of death return.
This brings us to an important issue that should be raised with the willmaker at the time their will is
drafted – who should pay any tax arising from the disposal?
Example
Hao dies leaving a will that bequeaths his share portfolio – valued at $500,000 – to his brother, Lei and the
residue of his estate to his sister, Yang. Yang is an Australian resident but Lei is not. Because of the cost base
of the shares, $75,000 in CGT is payable for the shares bequeathed to Lei.
In the absence of a provision in the will that directs otherwise, the tax is payable from the residue of the
estate. This means that Yang would effectively pay the tax arising from the disposal of shares to Lei.
Note that, for CGT events occurring after 8 May 2012, the availability of the 50% discount for
non-resident and temporary resident individuals is subject to certain eligibility concessions.
8 S 70-100 ITAA97.
9 S 104-215 ITAA97.
10 S 855-15 ITAA97.
¶11-110
Deductions for cultural gifts

If the deceased has made a testamentary gift – other than of land or buildings – under the Cultural
Bequests Program,11 a deduction may be claimed in the estate tax return.
For the value of the gift to be deductible:

the recipient must be an entity referred to in s 30-230(2) ITAA97. This section includes bodies such
as public art galleries, museums and libraries;
the recipient – or an operating entity of the recipient – must be endorsed as a deductible gift
recipient under Subdiv 30-BA ITAA97; and
at the time of death, there must be in force a certificate from the Minister of Communications and
the Arts, approving the gift and specifying its value.
Deductions for gifts to other charities

The unavailability of deductions for gifts to charities with DGR Status gives rise to tax planning
tensions.
Example
Frank wishes to make a legacy of $100,000 to the RSPCA. Because of his deteriorating health, he knows that
he only has a year or so left. His assets include a $3m share portfolio and his income exceeds $200,000 – so
he is taxed at the top rate.
His lawyer informs him that he will not get any deduction whatsoever if he makes the gift through his will. So
Frank decides to gift $50,000 in this financial year and the remaining $50,000 in the next financial year. By
doing this, the RSPCA gets its donation sooner and Frank receives deductions for the donations.
Example
Sheila has assets of $1m. She wishes to leave a 25% share of her estate to each of her three sons and to
Diabetes Australia.
Should Sheila instead leave one-third to each of her children and express a wish that they donate 25%
to Diabetes Australia – and claim a deduction for the donation? However, this gives rise to a Pt IVA
consideration. Also, Sheila’s children may not be as benevolent as she hoped.
Other deductions
In addition to the usual amounts that would have been claimable as deductions by the deceased, the
LPR is able to claim for the expense of preparing the date of death return – a concession given because
it is the last return for the deceased personally.
11 Refer to Subdiv 30-D ITAA97.
¶11-110
Unapplied capital losses

Any unapplied capital losses held by the deceased are lost as they cannot be utilised in the date of
death return.
Tip
If possible, consider crystallising capital gains before death to use up any unapplied capital losses. If acting as
a person’s attorney, always be mindful of their CGT position so that any tax‑effective opportunities are not lost.
¶11-115 Estate tax return

Income during estate administration
The first estate return covers the period from the deceased’s date of death to the end of the financial year.
The estate will only be taxed at normal individual rates under s 99 ITAA36 if the ATO considers that s
99A would be unreasonable.
The ATO will usually apply the s 99 rates if the end of the income year is less than three years from the
date of death, provided administration of the estate has not been completed.
An estate will generally be deemed to have been fully administered once all of the liabilities have been
ascertained. It therefore, follows that:
an estate can be fully administered, and the beneficiaries presently entitled to the income from it,
even if the LPR continues to hold the assets; and
it is possible for present entitlement to arise for part of the estate only.
Example
Olga dies leaving a $2m estate. During the administration process, her LPR was confident that most of the
liabilities had been identified, but was awaiting confirmation of some amounts that were likely to be about
$50,000 – but could be higher.
The LPR decided to distribute $1m to the sole beneficiary and retain the remaining funds until the exact
liabilities had been ascertained.
In these circumstances, the beneficiary is presently entitled to the $1m – and so is liable for tax on future
earnings on this sum – but is not presently entitled to the assets retained by the LPR.
¶11-115
In the year that an estate becomes fully administered, the beneficiaries would normally be assessed
on all of that year’s income. However, the ATO says, in IT 2622, that – provided there is evidence of
the income and apportionment process – they will accept a request by the LPR and beneficiaries to
apportion income between:
the LPR – for income to the date the estate was fully administered; and
the beneficiaries – for income from that date.
Apportionment on a time basis only is not acceptable.
The estate is not liable to pay the Medicare levy.
Deductions
If the whole deduction for a cultural bequest cannot be utilised in the date of death tax return, the
excess may be deducted in the first estate tax return.12
¶11-120 Capital gains tax

CGT and death
The general rule is that gifts under a will or laws of intestacy do not amount to a disposal for CGT
purposes. However, gifts made to an exempt entity, a complying superannuation entity or a foreign
resident (see ¶11-110) will be a disposal for CGT purposes.13
Trap
Where a gift is made to a tax-advantaged entity, any CGT will ordinarily be payable by the remainder
beneficiaries. Willmakers may wish to consider including a provision in the will, making the gift conditional on
the tax-advantaged beneficiary paying any CGT.
Under s 128-15(3) ITAA97, any capital gain that the LPR makes is disregarded if a CGT asset that the
deceased owned just before his death passes to a beneficiary in an estate.
Under s 128-20 ITAA97, a CGT asset “passes” to a beneficiary of an estate if the beneficiary becomes the
owner of the asset:
under a will;
by the laws of intestacy;
12 S 30-230(6) ITAA97.
13 S 128-10 ITAA97.
¶11-120
in satisfaction of an interest or shares in the estate; or

under a deed of arrangement,
unless the LPR transfers it to the beneficiary under a power of sale.
If the LPR sells a CGT asset of the estate to a third party causing CGT event A1 to happen, the estate
may have a capital gain if the capital proceeds from the sale exceed the asset’s cost base.14 However, any
capital gain is disregarded if the LPR is taken to have acquired the asset before 20 September 1985.15
The method statement in s 102-5(1) ITAA97 would determine whether the estate has to include a net
capital gain from the asset sale in its assessable income for the year.
If the CGT asset was held by the deceased immediately before his death, the first element of the cost
base of that asset (being the cost of acquisition that applies to the LPR or the beneficiary) is set out in
s 128-15(4) ITAA97. If the deceased died before 21 September 1999, an alternative indexation method
may be selected to calculate the capital gain. Section 128-15(4) is summarised in Table 1.
Table 1
Description of asset CGT treatment

Pre-CGT asset acquired by the deceased Acquired by the LPR or beneficiary on date of death for
market value as at date of death
Post-CGT asset acquired by the deceased Acquired by the LPR or beneficiary on date of death for cost
base or reduced cost base as at date of death
Trading stock See ¶11-110
Main residence See ¶11-110
The ATO will, subject to the operation of CGT event K3, disregard any capital gain or loss that arises when
an asset owned by a person passes to the ultimate beneficiary of a trust created under the deceased’s will –
see PS LA 2003/12.
Assessment of capital gain to the LPR

If an LPR makes a taxable capital gain, the estate is liable for tax on the gain unless there are
beneficiaries who are presently entitled to the income of the estate for the year of income when the sale
happens.
Under the Tax Laws Amendment (2011 Measures No. 5) Act 2011 (Cth), a new s 115-230 ITAAA97
allows an LPR to elect to pay the CGT. If the LPR makes an election under s 115-230 ITAA97, it is
14 S 104-10(4) ITAA97.
15 S 104-10 (5) ITAA97.
¶11-120
“specifically entitled” to all of the capital gain. It is necessary for the LPR to make the election in
writing and retain a copy.16
When determining whether the LPR has held an asset for more than 12 months and is entitled to
the general 50% discount, s 115-30(1) ITAA97 provides that the LPR is taken to have acquired a
pre-CGT asset of the deceased at the time the deceased died17 and the LPR is taken to have acquired
a post-CGT asset when the deceased acquired it.18
If the LPR disposes of a CGT asset to a third party, the estate may be entitled to claim the small
business 50% reduction under Subdiv 152-C ITAA97 if the estate satisfies the basic conditions in
s 152-10 ITAA97. These conditions include the maximum net asset value test and the LPR satisfying
the active asset test in its own right.
Assessment of capital gain to beneficiaries

If an LPR makes a taxable capital gain in the final year of administration but before they finalise the
administration of the estate, the LPR can either allocate specific capital gains to specific beneficiaries
or, under the new s 115-230 ITAA97, elect to pay tax on the estate’s capital gains in substitution for the
beneficiaries.
A capital gain to which a beneficiary is “specifically entitled” is assessed to the beneficiary under
Div 115 ITAA97 without passing through the net income in Div 6 ITAA36. If there are any capital
gains that an LPR has not specifically allocated to a beneficiary, the beneficiary is assessed directly
under Div 115 on a percentage of those taxable capital gains.
If capital gains are included in a beneficiary’s assessable income under Div 115, the new Div 6E ITAA36
excludes them from being assessed under ss 97 and 98 ITAA36.
A beneficiary of a deceased estate’s share of a capital gain is the amount of the capital gain to which
the beneficiary is “specifically entitled” plus a proportionate share of any capital gain to which no
beneficiary/LPR is specifically entitled, based on the beneficiary’s proportion of the “adjusted Division 6
percentage” of the income of the estate.19 Hence, any capital gain to which no beneficiary/LPR is
specifically entitled is taxable proportionately to the beneficiaries based on their share of the income of
the estate (excluding capital gains and franked distributions to which the beneficiaries are specifically
entitled).
16 Note to s 115-230(5) ITAA97.
17 Item 5 of the table in s 115-30(1) ITAA97.
18 Item 3 of the table in s 115-30(1) ITAA97.
19 S 115-227 ITAA97.
¶11-120
A beneficiary is specifically entitled to a capital gain made by the estate calculated by:
Calculation
Capital gain × (Share of net financial benefit/Net financial benefit)
“Share of net financial benefit” means the amount of “financial benefit” that the beneficiary has received
in accordance with the terms of the will, which is referable to the capital gain, and recorded in its
character as referable to the capital gain in the estate’s accounts no later than two months after the end
of the income year, that is, 31 August.
Hence, a beneficiary is only specifically entitled to a capital gain if the LPR has power under the terms
of the will to specifically allocate the gain to the beneficiary.
Adjustments to cost base

Two sections in the ITAA97 provide scope for adjustments to the CGT cost base of assets.
Under s 128-15, a beneficiary can include, in the cost base or reduced cost base of an asset that the
deceased owned just before his death, expenditure that the LPR would have been able to include at the
time the asset passed to the beneficiary.
Under s 110-25, adjustments may be available where expenses have been incurred by the LPR in
establishing, defending or preserving title to an asset. This appears to include legal costs incurred in
proving the will. The ATO has published several interpretative decisions on this topic, two of which are
summarised in Table 2:
Table 2
ATO Issue Details Decision

reference
ID 2001/729 Do legal costs incurred by the Costs related to proving will in solemn Yes
executor in confirming the validity of form following a challenge to the will’s
the will form part of the cost base validity
under s 110‑25(6)?
ID 2001/730 Do legal costs incurred by the Costs related to family provision claim Yes
executor to defend a claim for control for control of the estate
of the estate form part of the cost
base under s 110-25(6)?
¶11-120
Gifts to certain tax-exempt entities

A capital gain or loss is disregarded if it is from a testamentary gift made to a Cultural Bequests
Program – or it would have been deductible under s 30-15 ITAA97.
Gifts to tax‑exempt entities that are not deductible gift recipients will still trigger a disposal for CGT
purposes. The exact means of dealing with transfers to non-deductible gift recipients under a will,
therefore need to be considered.
Example
Evonne wishes to make a will bequeathing $10,000 worth of her ANZ shares to the ABC Tennis Club and
gifting a legacy of $10,000 cash to the National Heart Foundation.
As the ABC Tennis Club is not a deductible gift recipient, Evonne will be deemed to have disposed of her
ANZ shares immediately before her death. This will probably be a bad thing, although the consequences will
depend on factors such as the cost base of her shares and the extent to which Evonne had any accrued
capital losses.
Evonne would probably be better off if she bequeathed the cash to the ABC Tennis Club and the shares to
the National Heart Foundation. Under this scenario, any capital gain on the deemed disposal of the shares to
the National Heart Foundation would be disregarded.
Main residence rules

The rules that relate to the tax treatment of main residences and deceased estates are particularly
complex. Section 118-105 ITAA97 has a diagram showing how the main residence rules work and,
frankly, once tax legislation starts displaying diagrams you know you’re in trouble! The following
information provides a brief summary of these rules for deceased estates.
Full exemption
You may be entitled to either a full exemption under s 118-195 or a partial exemption under s 118-200.
For a pre-CGT dwelling, a gain or loss will be disregarded if you are a beneficiary – or the LPR – and
you dispose of the dwelling within two years of the deceased’s date of death.
The gain or loss will also be disregarded if – from the deceased’s death to the date the dwelling was
disposed of – it was the main residence of one or more of the following:
the deceased’s spouse – other than a spouse living permanently apart from the deceased;
a person who had the right to occupy the dwelling under the will;
the original beneficiary of the dwelling under the deceased’s will.
¶11-120
Tip
The requirements for the dwelling to be the residence of the relevant individual from date of death are
not to be strictly interpreted. The ATO will have regard to what is practical in the circumstances under
s 118-135 ITAA97. For example, if a beneficiary is not able to move into the dwelling until probate has been
granted then the dwelling may still be regarded as the main residence of the beneficiary from date of death –
see ID 2007/128.
The rules allow for more than one pre-CGT dwelling to attract the full exemption – regardless of whether
either is their main residence.
Example
Shelly owns two pre-CGT dwellings, one in Sydney and one in Melbourne. She lives in Noosa with her
husband Leo and they have a son, Max, who lives in Sydney. Shelly dies and in her will devises the Melbourne
dwelling to Leo and gives Max a right of occupancy to the Sydney dwelling. If, directly after Shelly’s death,
Leo returns to Melbourne and uses the Melbourne dwelling as his main residence and Max uses the Sydney
dwelling as his main residence, the exemption will be available for both dwellings.
For a post-CGT dwelling, a gain or loss will be disregarded if you are a beneficiary or the LPR and:
just before the deceased’s death, the dwelling was the deceased’s main residence and was not being
used for income-producing purposes;
you dispose of the dwelling within two years of the deceased’s date of death.
The gain or loss will also be disregarded if, just before the deceased’s death, the dwelling was the
deceased’s main residence and was not being used for income-producing purposes, and from
the deceased’s death to the date the dwelling was disposed of, it was the main residence of one or
more of the following:
a person who had the right to occupy the residence under the will;
Tip
The key phrase is “just before the deceased’s death”. It is possible for the exemption to be available for a post-
CGT property that the deceased rented out for a number of years, provided that just before the deceased’s
death the dwelling was the deceased’s main residence and was not being used for income‑producing purposes.
¶11-120
Partial exemption
Under s 118-200 ITAA97, a partial exemption is available if you are a beneficiary or the LPR and
s 118-195 does not apply. The capital gain or capital loss is calculated according to the following formula:
Calculation
Non-main residence days

Capital gain or loss =
Total days
For a pre-CGT dwelling, the non-main residence days are the number of days from the date of death to
the date when ownership ended and the dwelling was not the main residence of either:
a person who had the right to occupy the residence under the will; or
The total days are the number of days from the date of death until the disposal.
Example
Ron died on 1 January 2005. His will devised a pre-CGT dwelling to his son, Richard. Richard rented out the
dwelling for one year and then used it as his main residence from 1 January 2006 until he sold it on 1 January
2008 (730 days) for a gain of $200,000. Total days are 1,095.
Richard is entitled to a partial exemption. His capital gain would be calculated as follows:
365
$200,000 x = $66,666
1,095
For a post-CGT dwelling, the non-main residence days are the number of days during which the dwelling
was not the deceased’s main residence, and the number of days from the date of death to when ownership
ended in which the dwelling was not the main residence of either:
a person who had the right to occupy the residence under the will; or
However, if the dwelling was the deceased’s main residence just before death and not being used for
income-producing purposes, any non-main residence days before the deceased’s death are ignored.
Further, the dwelling could be treated as the deceased’s main residence just before death if a choice to
do so is made by the LPR under s 118-145 ITAA97. If such a choice is made, the use of the dwelling for
income-producing purposes just before death could be ignored.20
20 S 118-190(3) ITAA97.
¶11-120
The total days are the number of days from the deceased’s date of acquisition to disposal by the
beneficiary or the LPR.
Example
Ron died on 1 January 2005. His will devised a post-CGT dwelling to his son, Richard. Ron had purchased
the dwelling on 1 January 1998 for $300,000 and always rented it out. Richard rented out the dwelling for
one year and then lived in it from 1 January 2006 until he sold it on 1 January 2008 for a gain of $200,000.
Non‑main residence days are 2,920. Total days are 3,650.
Richard is entitled to a partial exemption. His capital gain would be calculated as follows:
2,920
$200,000 x = $160,000
3,650
Main residence and life interest estates

The main residence exemption in s 118-110 cannot disregard a capital gain or loss that a life interest
owner makes from the ending of their interest – even if that interest entitled them to occupy a property
– because CGT event E6 is not an event that attracts the main residence exemption.21
Joint tenancies
If an asset is held by two or more joint tenants – and one joint tenant dies – then their interest in the
asset passes to the surviving joint tenant or joint tenants.
For CGT purposes, under s 128-50 ITAA97, each surviving joint tenant is taken to have acquired their
share of the deceased’s joint tenant’s interest on the date of the death of the deceased joint tenant.
Subdivision 118-B – incorporating ss 118-195 and 118-200 among others – applies to a surviving joint
tenant as if the ownership interest of the deceased passed to the surviving joint tenant as a beneficiary in a
deceased estate. This means that a surviving joint tenant may be entitled to the main residence exemption.
If a pre-CGT asset is held by joint tenants and one joint tenant dies, their interest is valued at market
value on the date of death.22 Hence, if the asset is sold by the surviving joint tenant, he will be taxed on
any increase in the value of the asset from the date of death.
If a post-CGT asset is held by joint tenants and one joint tenant dies, their interest is valued at their cost
base as at the date of death23 and a roll-over applies. Hence, any increase in the value of the asset that was
deferred during the deceased’s lifetime will be taxable when the asset is sold by the surviving joint tenant.
21 See s 118-110(2)(a) ITAA97 and IT 2006/14.
22 S 128-50(4) ITAA97.
23 S 128-50(3) ITAA97.
¶11-120
Life interest estates

Since the introduction of the CGT rules in 1985, determining the taxation consequences of creating and
terminating – whether voluntarily or otherwise – a life interest has caused significant problems. Without
question, the legislation was drafted without regard to such interests. As a result, tax professionals, LPRs
and the ATO have been in the unsatisfactory position of having to interpret how the law will apply in
circumstances that it was not designed for.
The main problems are the uncertain treatment for CGT purposes of events such as:
the death of the life tenant;
the voluntary relinquishment of the life tenancy for no consideration;
the voluntary relinquishment of the life tenancy for consideration – such as taking some of the estate
assets outright while the remainder of the beneficiaries take the remaining assets; and
whether the outcomes would be different if the remainder beneficiaries were deductible gift recipients.
TR 2006/14 provides some guidance to these questions. The ruling distinguishes between life and
remainder interests in property held on trust (referred to as equitable interests) and life and remainder
interests in land that are not held on trust (referred to as legal interests).
In TR 2006/14, no CGT event is considered to happen where there is a transfer of legal life and
remainder interests by the LPR to the life interest and remainder beneficiaries, provided the transfer is
in accordance with the deceased’s will.24 Hence, while a deceased estate is still under administration, an
interest in the deceased estate is ignored for CGT.
On completion of administration of a deceased estate, a beneficiary’s interest in the deceased estate is

replaced by an equitable interest in the property of the estate.
According to TR 2006/14, under s 109-5(1) ITAA97, the life or remainder beneficiary acquires their
interest for CGT purposes when the beneficiary commences to own it.25 Hence, the beneficiary acquires
the life interest when the LPR finalises the administration of the estate.
Under s 112-20(1), the cost base of the life interest is the market value of the interest at the time the
beneficiary acquires it.26
TR 2006/14 does not deal specifically with the treatment of pre-CGT-acquired original assets or life and
remainder interests. However, the Commissioner confirms that any capital gain or loss arising from a
pre-CGT interest is usually disregarded.27
24 Paras 97 and 98 of TR 2006/14.
25 Para 24 of TR 2006/14.
26 Para 26 of TR 2006/14.
27 Para 7 of TR 2006/14.
¶11-120
Effect of death of life tenant

Upon the death of a life beneficiary, the life interest would end and CGT event C2 would happen.
However, under s 128-10 ITAA97, any capital gain that the life beneficiary would otherwise realise is
disregarded.28
Surrender of life interest or remainder interest

The Commissioner treats the surrender of a life interest or a remainder interest of a beneficiary as
giving rise to CGT event A1.29
The cost base of the interest is its market value at the date the LPR completed administration of
the deceased estate. The capital proceeds for the surrender is the consideration that the beneficiary
receives in exchange for the surrender. If the beneficiary does not receive anything in exchange for
the surrender, under s 116-30 ITAA97, the beneficiary is treated as receiving the market value of the
asset.30
The Commissioner treats the continuing beneficiary as owning both their original interest and the
interest that was surrendered. This is illustrated in example 7 of TR 2006/14: 162. Jack died on 1
January 2001. At the time of his death he owned a property which, under his will, he left on trust for his
daughter Georgia for life and his grandchildren Dylan and Thomas in remainder. The administration of
the estate was completed in 2002.
“Example 7: surrender of equitable life interest
163. The first element of the cost base of Georgia’s life interest (that is, its market value at the
time the administration of the trust was completed) was $90,000. The first element of the cost
base of each of Dylan and Thomas’ remainder interests is $200,000.
164. Georgia surrendered her life interest to Dylan and Thomas in 2003. Georgia incurred
$5,000 in legal expenses associated with the surrender. The market value of the life interest at
the time it was surrendered was $100,000.
165. CGT event A1 will happen when Georgia surrenders her life interest. The cost base/reduced
cost base of Georgia’s life interest will be $95,000 (that is, $90,000 + $5,000).
166. As Georgia did not receive any capital proceeds as a result of the surrender, she is taken to
have received the market value of the life interest. Therefore Georgia’s capital gain is $5,000 (that
is, $100,000 – $95,000).
167. Dylan and Thomas each acquire a life interest with an acquisition cost of $50,000.”
28 Para 44 of TR 2006/14.
29 Para 66 of TR 2006/14.
30 Para 68 of TR 2006/14.
¶11-120
Tip
To avoid the above tax consequences for a beneficiary to reside in a deceased’s main residence, the
residence could be gifted to the beneficiary or the beneficiary could be given a right to occupy under the will
so that the main residence exemption could be carried over to the beneficiary.
¶11-120

223
Chapter 12
Claims against estates
Introduction...................................................................................................................... ¶12-100
The law: the good and the bad........................................................................................ ¶12-105
Who can claim against an estate?....................................................................................¶12-110
How to claim against an estate.........................................................................................¶12-115
Strategies to protect an estate against a claim............................................................... ¶12-120
New South Wales notional estate provisions................................................................... ¶12-125

A will is not sacred. Each jurisdiction has legislation that enables certain people to claim against
an estate on the grounds that the will or the intestacy laws fail to make adequate provision for the
claimant. The claimant is said to be “making a claim against the estate”.
The right to make a claim against an estate on the ground of inadequate provision is a vital component
of succession planning. A willmaker should always be informed of the law so that they are not under
the false impression that their will cannot be challenged.
If a willmaker is concerned about the prospect of a challenge, they may wish to consider what strategies
could be implemented to address this risk.
¶12-105 The law: the good and the bad

The good
Legislation giving certain people the right to make a claim against an estate is based on public policy.
Governments have determined that we have a moral obligation to – where possible – provide for certain
persons. If we do not do this, such persons are given the opportunity to ask the court to make provision
for them.
Each jurisdiction has its own legislation – usually described as “family provision legislation” or “testator
family maintenance legislation”.
Example
A husband dies having made a will that left all of his estate to his girlfriend and nothing to his spouse and
infant children. In such a case, the spouse (and children) would be able to ask the court to amend the
husband’s will so that provision is made for them. In this simplistic case, their application would almost
certainly succeed.
The bad
The incidence of claims against estates is increasing. This is not a bad thing to the extent that people
with a moral claim are being protected.
However, there seems to be a growth in the number of frivolous claims being made against estates.
This can result in some estates incurring unnecessary legal costs and suffering extensive delays in
administration. Arguably, two factors have encouraged, or at least failed to constrain, the number of
such claims:
¶12-100
Claims against estates 225
claims are often settled at mediation on the basis that the estate meets the costs, which can be
significant. While claims that go before the Supreme Court will usually result in the successful
party being awarded their costs, the total costs can exceed $100,000. As a result, the beneficiaries
named in the will are often inclined to settle at mediation to avoid the risk of effectively incurring
significant costs. Arguably, there is a need for less expensive means of hearing claims against estates.
New South Wales is one jurisdiction that has recently acted to limit costs arising from family
provision claims;1
courts have traditionally been reluctant to award costs against claimants. This may encourage
frivolous claims as the claimant can expect to have some or all of their costs met by the estate – it
is a free shot at the estate. Fortunately, in recent years there seems to be an increased willingness to
award costs against an unsuccessful plaintiff; and
changes to Victorian legislation in 2015 mean that courts will be less likely to grant parties the
right to recover legal costs from the estate.2 Costs in Victorian estate claims now take on more of a
standard costs risk factor which the parties acknowledge by signing the relevant “proper basis” and
“overarching obligations” certificates under the Civil Procedure Act 2010 (Vic).3
There is another disturbing trend in claims against estates. Wills of people who leave a significant
amount of their estate to charities seem to be becoming an easy target for a claim. Sometimes the
claim is made by a distant relative, such as a niece or nephew, who did not have much contact with the
deceased. However, the charitable beneficiaries are, at times, reluctant to fight a claim and so the matter
is usually settled at mediation – with the claimant having some success.
Another area of concern relates to superannuation binding death benefit nominations. A valid binding
death benefit nomination provides an extraordinary avenue for people to pass their assets to certain
beneficiaries – to the exclusion to others – in circumstances where no one has a right to challenge the
disposition.4 This may become the focus of legislative reform in the future.
¶12-110 Who can claim against an estate?

The law in each Australian jurisdiction prescribes classes of people who may make a claim against an
estate. (Before 1 January 2015, Victorian legislation did not specifically prescribe classes of claimants;
instead, a claim could be made by “anyone for whom the deceased had responsibility to provide for”.
With effect from 1 January 2015, legislation in Victoria narrowed the definition of a claimant under the
heading of “Eligible Person”.)
1 S 99 of the Succession Act 2006 (NSW) (introduced in 2008).
2 S 97(6) and (7) of the Administration and Probate Act 1958 (Vic), repealed as of 1 January 2015.
3 Ss 41 and 42 of the Civil Procedure Act 2010 (Vic).
4 However, the position in NSW is not clear – see ¶12-125.
¶12-110
It is important also to note the broad reach of the NSW notional estate provisions (see ¶12-125). These
provisions apply to assets located in NSW of persons who had died domiciled elsewhere, and to assets
located outside NSW of persons who had died domiciled in NSW.
Note also that terms such as “child”, “de facto” etc are usually defined in the relevant Act (often cross-
referenced to a definition in some other Act) and so the definitions of these terms may vary between
jurisdictions.
For example, in NSW s 57(2) of the Succession Act 2006 provides:

“In this section, a reference to a child of a deceased person includes, if the deceased person
was in a de facto relationship, or a domestic relationship within the meaning of the Property
(Relationships) Act 1984, at the time of death, a reference to the following:
(a) a child born as a result of sexual relations between the parties to the relationship,
(b) a child adopted by both parties,
(c) in the case of a de facto relationship between a man and a woman, a child of the woman
of whom the man is the father or of whom the man is presumed, by virtue of the Status
of Children Act 1996, to be the father (except where the presumption is rebutted),
(d) in the case of a de facto relationship between 2 women, a child of whom both of those
women are presumed to be parents by virtue of the Status of Children Act 1996,
(e) a child for whose long-term welfare both parties have parental responsibility (within the
meaning of the Children and Young Persons (Care and Protection) Act 1998).”
Table 1 summarises the relevant provisions in each jurisdiction.
¶12-110
Table 1: Who can claim against your estate? 5

Act Family Succession Family Succession Inheritance Testator’s Administration Inheritance
Provision Act Act 20065 Provision Act Act 1981 (Family Family and Probate (Family and
1969 Provision) Act Maintenance Act 1958 Pt IV Dependants
1972 Act 1912 Provision) Act
1972
Spouse/ Yes (s 7(1)(a)) Yes (ss 57 Yes (s 7(1)(a) Yes (s 41) Yes (s 6(a)) Yes (s 3A(a) Yes (s 90(a)). Yes (s 7(1)(a))
child and 59) and (c)) and (b)) Children
subject to
specific criteria
(s 90(b),(c) and
(f))
De facto Yes (s 7(1)(a) Yes – if court Yes – but only Yes – Acts Yes (s 6(ba)) Yes – if in a Yes (s 90(a)) Yes (s 7(1)(a))
or (b)) is satisfied if couple lived Interpretation significant
application is together on Act 1954 relationship
warranted a genuine (s 32DA) with
(ss 57(1)(b) domestic (ss 41 and deceased
and 59) basis for 5AA) (ss 3A(a)
two years and 2(1))
continuously
up to the
death of
deceased or
had a child
together
(s 7(1)(a))
¶12-110
227
5 The Family Provision Act 1982 (NSW) was repealed in 2008 and effectively replaced by provisions inserted into s 3 of the Succession Act 2006 (NSW).
Table 1 (cont)
228
¶12-110
Same-sex Yes (s 7(1)(b)) Yes – via Yes – have Yes – have Yes – have Yes – if lived Yes (s 90(a)). Yes (s 7(1)(a))
partner provision regard to regard to Acts regard together Also, have
relating to De facto Interpretation to Family continuously regard to
“de facto Relationships Act 1954 Relationships for two or Relationships
relationships” Act (s 32DA) Act 1975 more years at Act 2008
or “close (s 3A) (s 5AA) (s 11A) any time
personal (s 6(ba))
relationships”
(see above
and below)
Other Civil partners Yes - if court Registered
“partners” (s 7(1)(a)) is satisfied caring partner
or person application is recognised
in “close warranted (as well as
personal (ss 3(3), 57(1)(f) registered
relation- and 59(1)(b)) domestic
ship” partner) in
Relationships
Act 2008
Former Yes – a Yes – if court Yes – former Yes – if Yes – if Yes – if Yes – if at time Yes – former
spouse person who is satisfied spouse or dependant divorced from receiving of deceased’s spouse or
was the application de facto of former deceased or entitled death was former de
deceased’s is warranted who was husband or (s 6(b)) to receive able to take facto receiving
spouse at any and provision maintained by wife or if, maintenance family law or entitled
time is appropriate deceased together with (s 6(d)) proceedings to receive
(s 7(1)(a)) (ss 57(1)(d) (s 7(1) and the deceased, but has not maintenance
and 59) (2)(a)) the parent of a done so or (s 7(1)(b))
child under 18 is prevented
(ss 41 from doing so
and 40) because of
deceased’s
death (s 90(e)
Table 1 (cont)

Stepchild Yes – if Yes – if (i) Yes – and Yes – if child Yes – if child Yes – if Yes (s 90(c) Yes – if
maintained by dependent stepchild if is child of of spouse stepchild’s and (f)) a person
the deceased and member maintained by deceased’s or domestic parent is the maintained
(s 7(1)(d) of household deceased spouse (or partner and deceased’s wholly or
and (2)) or (ii) close (ss 7(1)(d) and deceased maintained, or spouse at partially by the
personal (2)(b)) spouse). entitled to be time of death deceased or

relationship No claim if maintained, by (ss 6(b) and the deceased
and if court stepchild’s the deceased 2(1)) had received
is satisfied parent has (s 6(g)) property
application divorced from greater than
is warranted deceased the prescribed
and provision (ss 41, 40A and value from the
is appropriate 5AA) estate of the
(s 57(1)(e) stepchild’s
and (f)) parent (s 7)
Grandchild Yes – if Yes – if Yes – if Yes – if under Yes (s 6(h)) No Yes – if wholly Yes – if being
grandchild’s dependent grandchild’s 18 and wholly or partly wholly or partly
parent, who and is/was parent, who or substantially dependent maintained by
was the household was the maintained by on deceased deceased or
deceased’s member deceased’s deceased for proper if grandchild’s
child, has and if court child, has (ss 41 and maintenance parent, who
died, or is satisfied died, or 40(a)) and support was the
grandchild application grandchild (ss 90(i) and deceased’s
was not being is warranted was not being 91(2)(b)) child, has died
maintained and provision maintained (s 7(1)(d))
by parent or is appropriate by parent or
parents (ss 57(1)(e) parents
(s 7(1)(e) and 59) (s 7(1)(e)
and (3)) and (3))
¶12-110
229
Table 1 (cont)
230
¶12-110
Parent Yes – if being Yes – if court Yes – if being Yes – if wholly Yes – if parent Yes – if Yes – if parent Yes – if
maintained is satisfied maintained or substantially cared for or deceased not was a member acknowledged
by deceased, application by deceased, maintained by contributed to survived by of deceased’s as a parent by
or deceased is warranted or deceased deceased maintenance a spouse or household the deceased
had no and provision had no (ss 41 and of deceased children (and possibly (s 7(1)(e))
partner or is appropriate spouse or 40(a)) during lifetime (s 6(c)) otherwise) and
children and was in de facto or (s 6(i)) dependency
(s 7(1)(f) and a “domestic children requirement
(6)) relationship” (s 7(1)(f)) satisfied
or “close (s 90(k) and
personal s 91(2)(b))
relationship”
(ss 57(1)(f)
and 59)
¶12-115 How to claim against an estate

Strict rules apply to how and when a claim can be made. A claim that does not comply with these rules
will usually fail.
The rules are critical for everyone involved in the estate administration process, including:
the claimant – a claim made outside the relevant statutory timeframe may fail;
the executor – distributing before the expiry date of the statutory timeframe for making claims may
mean that the executor can be personally sued if a claim is subsequently made; and
the beneficiaries – they should not assume that they will get what the will says until the claim period
has expired. In other words, they shouldn’t go spending the inheritance prematurely.
Table 2 summarises the laws relating to the claims process.
¶12-115
Table 2: Procedure for making a claim against an estate6
232
¶12-115
Act Family Succession Family Succession Inheritance Testator’s Administration Inheritance
Provision Act Act 20065 Provision Act Act 1981 (Family Family and Probate (Family and
1969 Provision) Act Maintenance Act 1958 Dependants
1972 Act 1912 Provision) Act
1972
Period within 12 months 12 months 12 months Nine months Six months Three months Six months Six months
which claim from date from date of from date from date of from date from date from date from date
must be made administra- death (s 58(2)) administration death (s 41(8)) administration administration administration administration
tion granted granted granted (s 8(1)) granted granted (s 99) granted (s 7(2))
(s 9(1)) (ss 9(1) and (s 11(1))
4(2))
Date on which When notice When When applica- When When When When notice When
application of motion is application tion filed application summons application of application application
deemed made filed (s 9(5)) filed (s 58(3)) (s 9(5)) filed with court served on filed (s 4) is filed with the filed. Notice
(ss 41(6) and administrator court (reg 6.07) of application
44(4)) (s 8(6)) must be
served on
administrator
(s 12)
6 The Family Provision Act 2008 (NSW) was repealed in 2008 and effectively replaced by provisions inserted into s 3 of the Succession Act 2006 (NSW).
Table 2 (cont)

Circumstances As the If the court As the court Unless As the When the When court In the interests
under which court thinks orders on thinks neces- the court court thinks court thinks fit thinks of justice, court
period in which necessary sufficient sary except otherwise necessary to do so upon necessary grants leave to
claim must be except when cause being when lawfully directs except hearing from after hearing file out of time
made can be lawfully shown and fully dis- (ss 41(8) and when final aggrieved affected (s 7(3))
extended and fully (s 58(2)) tributed 44(4)) distribution person parties, except
distributed (s 9(2)-(4)) has occurred (s 11(2)) when final
(s 9(2)-(4)) (s 9(2)-(4)) distribution
of estate has
occurred
(s 99)
Can an Yes – where
applicant apply substantial
for additional detrimental
provision? change in
circumstances
and also in
other cases
(s 59(3))
¶12-115
233
Table 2 (cont)
234
¶12-115
When personal At any time (1) Distribution12 months (1) Any If lawfully After three (1) Any Immediately
representa- provided it for necessary from date of time when distributed months from time when – if necessary
tive may safely complies maintenance grant or reseal distribution without notice date of grant. distribution to provide for
distribute with (ss 20 or education and expiry was properly of a claim Flows from was properly maintenance
and 21) of eligible of notice of made to (s 14) (s 11(1)(4)) made to of any person
person at least intended dependent dependent dependent on
substantially distribution spouse or partner or the deceased
dependent on under s 96 of child for child for (s 11)
deceased Administration maintenance maintenance At any time if
(2) 12 months and Probate (2) Protected (s 99A (1)) distribution is
from date of Act (ss 20 and from individual (2) Protected properly made
grant or reseal 21) when from individual without notice
and expiry individual when of application
of notice of consents to individual Protected
intended distribution consents to against
distribution (3) After six distribution individuals who
(ss 93 and 94) months of (3) Six months consent to
date of death if from date of distributions
no application grant without 12 months
was made notice from obtaining
under (s 99A(3)) administration
s 41(1). If an and no notice of
application any application
was made
then may
distribute after
nine months
(s 44(4))
Note: The legislation regularly changes in regard to the above material, especially relating to de facto and same-sex relationships, pursuant to domestic relationship legislation.
Advising the parties

A person considering making a claim against an estate is advised to speak with a lawyer experienced in
estate matters.
A claim must usually be made within the prescribed period. Although the court may grant an extension
of time, that extension may be of little use if the estate has already been distributed.
If a claim is made, the beneficiaries should also seek advice from an experienced lawyer. The executor,
too, will be a party to the action and should have separate legal representation. This can be awkward,
but not impossible, if – as is often the case – the executor is one of the beneficiaries wishing to fight the
claim. In such cases, the executor needs to take care that they perform their executorial duties mindful
of the position of conflict that they hold.
In some cases the executor may not be overly involved in the arguments for and against a claim –
for example it might be the claimant and the beneficiaries named in the will who produce most of
the evidence.
It is important that all parties are aware that the cost of making and defending a claim can be
significant, especially if the matter proceeds to the Supreme Court.
It can be difficult to accurately predict the outcome of a claim. While the relevant principles are similar
across jurisdictions, the facts of each case will vary as will the weight given to these by the court.
As a starting point, it should always be remembered that a person has a right to enjoy freedom of
testamentary disposition – that is, to make a will distributing their estate to whoever they want. As seen
above, however, this right is impacted on by each jurisdiction giving certain people the right to make a
claim against an estate.
Ultimately, the success of a claim will usually be influenced by issues such as:
the relationship between the willmaker and the claimant;
the relationship between the willmaker and the beneficiaries under the will or intestacy;
the financial needs of the claimant – this usually involves consideration of a wide range of factors,
including the age and health (mental and physical) of the claimant;
the financial needs of the other beneficiaries and claimants;
the existence of any binding financial agreement;7 and
the value of the estate.
Assessing the prospects of success at trial is often a difficult task. It will invariably depend on how these
factors are presented before the court, and the approach of the judge. The will instruction file might
assist the court in making its assessment.
7 See, for example, Singer v Berghouse (1994) 181 CLR 201 and Hills v Chalk & Ors [2008] QCA 159.
¶12-115
The claim process

Once a claim has been formally lodged, the parties usually attend mediation and attempt to settle the
claim. Mediation is often a low-cost alternative compared to attending court. In some jurisdictions,
mediation is necessary before going to court, although this doesn’t prevent one party from terminating
the mediation after a short period. Having an experienced lawyer and barrister will be beneficial. Care
should be taken when entering into negotiations before mediation unless it is certain that the parties
are negotiating in good faith, as such negotiations may do no more than set a base amount which the
claimant will seek to increase at further negotiations or mediation.
It is important to recognise that the law relating to claims is relatively fluid. In 2015, Victoria moved
away from a general category of possible claimants (“persons in respect of whom the deceased had an
obligation to provide”) and introduced categories of “eligible persons” that are more in line with other
jurisdictions. However, the nuances of this new legislation are yet to be tested.
The size of the estate can affect the outcome of a claim, as can the nexus between the deceased and the
beneficiaries named in the will.
As a result, determining what would be a reasonable amount to settle for at mediation – or assessing
whether it is worthwhile to pursue or defend a claim in court – can be a difficult task and one where
there is no great certainty. A party can always gain some protection regarding costs by making a formal
appropriate offer of compromise before going to court.
A claim can take many months to settle – sometimes more than a year.
Understandably, the prospect of claims being made against a person’s estate and consuming the assets of
the estate leads some people to implement strategies to help avoid a claim being made.8
¶12-120 Strategies to protect an estate against a claim

There are several strategies that can be adopted – either individually or in combination – to reduce or
eliminate the risk of a claim being made against an estate.
These strategies need to be considered carefully, as they will invariably have other consequences and may
introduce other risks. In some cases it will be possible to address these risks, but not always. In particular,
see the commentary on resulting trusts at ¶9-130 and constructive trusts at ¶9-135.
8 For further details on negotiations, see the paper by Richard Boaden, “Death & taxes – claims against wills”, 11 May 2006, available at
taxinstitute.com.au.
¶12-120
Warning
The strategies in this section amount to general observations only. There are small legal distinctions that may
impact significantly on the viability of any strategy and possibly even give rise to other risks. Discussion of
these fall outside of the scope of this text.
In New South Wales, there are anti-avoidance provisions that limit the effectiveness of these strategies.
These provisions are discussed at ¶12-125.
Three strategies to reduce or eliminate the risk of a claim being made against an estate are:
gifting property before death;
transferring property into joint names; and
transferring property into a trust.
Superannuation funds may also be a valuable tool for directing assets outside of an estate and are
discussed separately below.
Example
This example shows how the three strategies could be applied to reduce the risk of claims against an estate.
Mario is a 70-year-old widower with three children – Tony, Lina and Angelo.
Mario was never very interested in superannuation and his wealth is tied up in his principal place of residence
and a rental property, both of which are post-CGT assets of equal value. (Note: We will ignore the difference
in post-CGT value for the purposes of this example.)
Mario doesn’t want Tony to receive anything from his estate because over the years he has given Tony plenty
of money – in fact more than 50% of Mario’s current net worth – and Tony has just wasted it on cars, women
and ill-advised business ventures.
Mario and Tony’s relationship has deteriorated to such an extent that Mario is certain that Tony would make
a claim against his estate unless he gives Tony a significant inheritance. While Mario understands that such
a claim might not be successful, he also understands that the cost of defending the claim would be likely to
amount to tens of thousands of dollars. Making matters even worse is the likelihood that Tony’s legal costs
would also have to be met from the estate.
To reduce the risk of a costly claim against his estate by Tony, Mario could consider the following three
strategies.
¶12-120
The gifting property now strategies
Strategy
1a Mario transfers one property to Lina and the other to Angelo. When Mario dies, neither property would
form part of his estate. As Mario has no other assets, his estate would have no assets for Tony to
make a claim against.
1b Mario transfers both properties to Lina and Angelo jointly – as joint tenants or tenants in common,
depending on cascading succession issues. When Mario dies, neither property would form part of
his estate as Lina and Angelo jointly would then be the only owners. As Mario has no other assets, his
estate would have no assets for Tony to make a claim against.
The joint name transfer strategies
Strategy
2a Mario transfers one property into joint names of himself and Lina and the other into joint names of
himself and Angelo. On Mario’s death, his interest in the properties ceases and the surviving joint
owner of each property – Lina and Angelo respectively – would become the sole owner. Again,
assuming that Mario has no other assets, his estate would have no assets for Tony to claim against.
2b Mario transfers both properties into the joint names of himself, Lina and Angelo. When Mario dies,
his interest in the properties ceases and Lina and Angelo would be the surviving joint owners of the
properties. Again, assuming that Mario has no other assets, his estate would have no assets for Tony
to claim against.
The trust transfer strategies
Strategy
3a Mario sets up a discretionary trust and transfers both properties into the trust. The terms of the trust’s
deed could provide that Lina and Angelo control the trust when Mario dies. On Mario’s death neither
of the properties would form part of his estate. Again, assuming that Mario has no other assets, his
estate would have no assets for Tony to claim against.
3b Mario sets up two discretionary trusts and transfers a property into each. The terms of one trust
provide that upon Mario’s death Lina takes control of that trust; the terms of the other trust provide
that upon Mario’s death Angelo takes control of that trust. On Mario’s death, neither of the properties
would form part of his estate and Lina and Angelo would have effective control over one property
each. Again, assuming that Mario has no other assets, his estate would have no assets for Tony to
claim against.
¶12-120
It is additionally noted that Mario could prepare a detailed statement as to why he has excluded Tony
from his will, including details of what financial assistance he has given Tony.
There are disadvantages and risks associated with each strategy. These may include:
triggering a disposal for CGT purposes on early transfer of property and giving rise to stamp duty;
loss of the benefit of the CGT carve-out for the future appreciation in the value of main residence;
loss of control over the use of the asset, especially if parties have a falling‑out or the original owner
wished to sell the asset because they needed the cash;
permanent loss of ownership, if the recipient beneficiary dies;
land tax depending on the relevant jurisdiction; and
use of Mario’s statement to demonstrate Tony’s inability to properly provide for himself, evidencing
a moral obligation on Mario to make proper and adequate provision to Tony.
All of these risks should be considered before deciding which strategy, if any, to adopt. This may involve
completing a risk matrix along the lines set out in Table 3.
¶12-120
Table 3: Mario’s case – risk analysis
240
Example
¶12-120
Disadvantages and risks for each strategy
Property transfer CGT triggered by initial Risk if Lina Risk if Mario has Risk if Mario Loss of
strategy transfer? or Angelo die a falling-out with needs property main
(property may Lina or Angelo – eg to sell and residence
not revert back to spend proceeds CGT
Mario) on medical exemption
expenses
1a Transfer one to Lina Main residence – no Yes, high Yes, high Yes, high Yes
and one to Angelo Investment property – yes
1b Transfer both to Lina/ Main residence – no Yes, high Yes, high Yes, high Yes
Angelo jointly Investment property – yes
2a Transfer one to Mario/ Main residence – no No Yes, medium Yes, medium Yes
Lina jointly and one to Investment property – yes
Mario/Angelo jointly (50%)
2b Transfer both to Mario/ Main residence – no No Yes, medium Yes, medium Yes
Lina/Angelo jointly Investment property – yes
(66%)
3a Transfer to one family Main residence – no Depends on terms Depends on terms Depends on terms Yes
trust Investment property – yes of trust – could be of trust – could be of trust – could be
managed* managed* managed*
3b Transfer to two Main residence – no Depends on terms Depends on terms Depends on terms Yes
separate family trusts Investment property – yes of trust – could be of trust – could be of trust – could be
managed* managed* managed*
* Managed by Mario being appointed as appointor and one of the trustees of the trust.
Any strategy needs to be carefully considered. There will also be other risks that may be relevant
depending on the individual circumstances of each case.
Ultimately, any strategy needs to be carefully planned and the risks understood.
Superannuation strategies
Superannuation funds provide a further option, along the lines described in strategy 3a. Note, however,
that a member of a superannuation fund cannot transfer certain assets – such as a main residence or
a rental property that is not business real property – to the fund. Any transfers must also meet the
contribution rules.
As mentioned in ¶12-105, a binding death benefit nomination can be an extraordinary means of

by‑passing an estate and moving superannuation beyond the reach of potential claimants (however, see
¶12-125 for New South Wales). This might be a positive outcome, where recalcitrant would-be claimants
are omitted and more-deserving persons benefit. The flip-side is that it is an avenue for bypassing the
moral obligations that legislation, such as family provisions laws, seek to impose on individuals.
Example
John has $1m in his superannuation fund. He has a wife and three young children. He also has a mistress
with whom he had a daughter, Sarah. John makes a binding death benefit nomination directing that the
whole of his superannuation death benefit passes to Sarah. As the superannuation does not form part
of John’s estate, his wife and three children cannot make a claim under family provision laws for any part
of the superannuation benefit. As the binding nomination was valid, they cannot make a claim via the
Superannuation Complaints Tribunal.
Tip
Although transferring assets into superannuation can generally give some advantages – such as binding
nominations and access to concessional rates of tax – it is important to note that there are limitations. For
example, superannuation benefits – even if there is a binding death benefit nomination – may be directed to
a spouse as part of a family law settlement. In contrast, assets of a family trust may have a greater – but not
complete – degree of protection from a divorcing spouse.
¶12-120
¶12-125 New South Wales notional estate provisions

In New South Wales, the Succession Act 20069 permits the court to make an order designating property
that the deceased disposed of before death as being property that forms part of the deceased’s notional
estate. The court may order that provision be made for a claimant out of this notional estate.
These notional estate provisions were introduced to deter people from avoiding their family provision
responsibilities.
Tip
Other jurisdictions may follow New South Wales’s lead and introduce similar provisions over the next few
years. It is essential to be aware that changes in legislation may reduce or eliminate the effectiveness of any
strategy and to alert clients accordingly.
The recent case of Hitchcock v Pratt10 has created some alarm in the estate planning sector by
confirming that the NSW legislation applies to assets located in NSW of persons who die domiciled
elsewhere.11 It is important to be aware of the location of your client’s assets, including the location of
the trustee of any trust in which your client has an interest and the governing law of that trust. This
extends to superannuation funds.
Who may make a claim?

Any “eligible person” – see Table 1 in ¶12-110.
What transactions are caught?

The notional estate rules apply to any relevant property transaction which is broadly defined to include
a transaction or circumstance affecting property and described in ss 75 and 76 of the Succession Act.
The legislation includes some transactions, and excludes others, from being prescribed transactions.
However, the general rule is that a person will enter into a prescribed transaction if:
the person does directly or indirectly, or does not do, an act which results in:
property held by another person (whether or not as trustee), or
property becoming subject to a trust, and
full valuable consideration is not given for doing or not doing the act.
9 For estates where the deceased died prior to 1 March 2009, the relevant legislation was the Family Provision Act 1982. The provisions were
transferred to the Succession Act 2006 by the Succession Amendment (Family Provision) Act 2008.
10 [2010] NSWSC 1508.
11 The notional estate provisions also apply to assets located outside NSW of persons who had died domiciled in NSW.
¶12-125
It is clear that the notional estate legislation would apply to many or all of the transactions envisaged by
Mario in ¶12-120. It is also clear that the legislation can impact on any mutual will arrangement.
While the full scope of the legislation is not totally clear, it could impact on matters such as the
omission to exercise a power of appointment under a discretionary trust.12
Some recent examples where the notional estate provisions were successfully invoked include:
a transfer of assets for nominal value during the willmaker’s lifetime, designed to avoid her son from
inheriting these assets; and
the conversion of a tenancy in common into a joint tenancy shortly before death, to avoid the
property forming part of the deceased’s estate.
Are superannuation binding death benefit nominations caught?

It is the author’s understanding that the practice in NSW to interpret the notional estate provisions
as being able to override a binding death benefit nomination (BDBN). This clearly has significant
consequences.
It is, however, noted that as the source of the power to a BDBN is Commonwealth law, it might be
argued that this should override New South Wales law to the extent that there is any inconsistency
between the two. It appears that this argument has been rejected.
There have been very few cases on notional estate orders and superannuation since BDBN provisions
were introduced in 1999. No doubt many claims are settled before going to court. However, one recent
case supports the view that the ability to make a BDBN is a matter that can be caught by the notional
estate provisions. In Kembrey v Cuskelly,13 the court held that omitting to make a BDBN was something
that was caught under the notional estate provisions. It should be noted, that the circumstances
surrounding the decision in this case were somewhat unusual – but equally that could be said of many
family provision cases!
It remains to be seen whether a person’s superannuation benefits might be better protected if their
superannuation was held in a fund, the rules of which automatically provided that the death benefit be
paid in a particular manner.
As in any situation where asset protection and structuring issues are being considered, it is imperative
to obtain professional advice.
12 Kavalee v Burbidge (1998) 43 NSWLR 422.
13 [2008] NSWSSC 262.
¶12-125
245
Chapter 13
Other estate planning trusts
Introduction...................................................................................................................... ¶13-100
Estate proceeds trusts..................................................................................................... ¶13-105
Superannuation proceeds trusts......................................................................................¶13-110
Insurance proceeds trusts................................................................................................¶13-115
Employment benefit trusts................................................................................................¶13-118
Special disability trusts.................................................................................................... ¶13-120

In addition to establishing trusts under a will, special types of trusts can be set up using the inheritance
received from a deceased estate or the proceeds of a superannuation death benefit. If properly
structured, these trusts can give rise to some of the benefits that apply to testamentary trusts that
we discussed in chapter 5 – in particular the ability for minor beneficiaries to receive excepted trust
income. This chapter examines these types of trusts and the key rules that govern them.
We also look at special disability trusts, a relatively new form of trust that can be created in accordance
with federal legislation enacted in 2006. Special disability trusts are an alternative to establishing a
protective trust under a will, which we discussed in chapter 4.
A form of charitable trust that can be created outside of a will – known as a prescribed private fund – is
dealt with in chapter 7.
¶13-105 Estate proceeds trusts

The term “estate proceeds trust” is not defined in legislation but the term is commonly used to describe
a trust that has the following features:
the trust is established by the beneficiary of an estate using part or all of an inheritance from the
deceased estate;
the beneficiary of the newly-created trust is a minor who would have been entitled to receive a
distribution from the deceased’s estate had the deceased died intestate; and
income from the trust distributed to the minor is taxed as excepted trust income1 (see ¶5-110 for an
example of how the excepted trust income rates operate).
While estate proceeds trusts can be an effective way to minimise the tax payable on income derived
from an inheritance, they are not as flexible as testamentary trusts as the following discussion shows.
Who can benefit from an estate proceeds trust?

An estate proceeds trust can be established by any beneficiary of an inheritance from a deceased estate.
The beneficiary can transfer part or all of the inheritance into a trust for the benefit of a minor who
would have had an entitlement to the estate under intestacy laws in the relevant jurisdiction.
1 S 102AG(2)(d)(ii) and (7) ITAA36.
¶13-100
Other estate planning trusts 247
Example
Tom dies having made a will leaving his estate to his sister, Alex. Alex is not able to create estate proceeds
trusts for her children because they would not have been entitled to a share of Tom’s estate if he had died
intestate.
If Tom had been married with young children and had made a will leaving his estate to his wife, then she
would have been able to establish an estate proceeds trust for one or more of their children to the extent that
they would have been entitled to a share of Tom’s estate under intestacy laws.
Tip
The changes to intestacy laws in NSW which were made in 2009 make it less likely that estate proceeds
trusts will be an option in regard to estates in that jurisdiction as children of both spouses no longer have an
entitlement under intestacy laws, on the death of the first spouse to die.
How much can be transferred?

The amount that can be transferred into the trust is limited to the amount that the child would have
received if the deceased had died intestate.
Example
Sue and her husband, Billy, lived in the Australian Capital Territory. Billy died a year ago and his will named
Sue as the sole beneficiary of his $800,000 estate.
Billy and Sue have two children – Zac, aged 12, and Zeb, aged 10. Sue is employed and finds that she is
paying a high rate of tax on her salary, plus the earnings from her inheritance.
Sue’s adviser tells her about estate proceeds trusts and, within a month, Sue has established a trust each for
Zac and Zeb.
Under intestacy laws in the Australian Capital Territory:
Sue would have been entitled to the first $200,000 of Billy’s estate and – as there are two or more children
– one-third of the remainder, which would amount to $200,000; and
Zac and Zeb would each be entitled to one-third of the remainder – that is, $200,000 each.
So, Sue is able to transfer $200,000 to each of Zac and Zeb’s trusts.
Sue is now able to distribute the income from Zac and Zeb’s trusts to them. Assume that in the first year the
income from each trust is $10,000. The tax payable on this amount would be negligible as both Zac and Zeb
are taxed as adults. Had Sue not established the estate proceeds trusts then the share of tax attributable to
the $20,000 income earned on the $400,000 would have been significantly greater.
¶13-105
The following diagram reflects the above example.
Because the intestacy laws vary between jurisdictions, differing results arise depending on the relevant
jurisdiction. An explanation of the intestacy laws is set out in ¶3-155.
Example
Sue’s sister, Sally, and her husband, Nick, live in Queensland. Nick dies leaving an estate valued at $800,000
and his will names Sally as his sole beneficiary. They have two children, Ed, aged 12, and
Red, aged 10.
Having been told by Sue about estate proceeds trusts, Sally wastes no time in establishing trusts for Ed and
Red. Under intestacy laws in Queensland, Sally, Ed and Red are each entitled to one‑third of Nick’s estate.
Sally can transfer $266,666 into both Ed’s and Red’s trusts.
¶13-105
Time limit for establishing an estate proceeds trust

To satisfy the taxation rules, the estate proceeds must be transferred into the trust within three years of
the deceased’s date of death.2
Other rules
The beneficiary of an estate proceeds trust must acquire the trust property when the trust ends.3 The
trust would normally come to an end when the child reaches the age of 18. So, in the examples above, it
would not be possible for Sue or Sally to take the trust property when the trusts come to an end.
It is also important to note that the income of an estate proceeds trust would not be treated as excepted
trust income if the terms of the trust provided that a child would only receive their share of the trust
property if they are living when the trust ended.4
Example
Following on from Sue’s example above, Sue’s lawyer drafted an estate proceeds trust deed which
provided that the trust property would be passed equally to Zeb and Zac when they turned 18 years of
age, and if either died before reaching 18 then the other would receive the whole of the trust property.
In this case, the trust terms would not satisfy the excepted trust income rules.
The requirement for the beneficiary to acquire the trust property when the trust ends can be
problematic where the child dies before the trust ends. In such a case, the capital of the trust would be
paid to the child’s estate.5 Assuming the child has not made a will, this would mean that the capital
would then be distributed under the laws of intestacy.
A further problem would arise if the intestacy laws nominate an inappropriate beneficiary: for example,
a parent who has not seen the child for many years. Of course, in such cases other beneficiaries – or
potential beneficiaries – would have the right to make a claim against the child’s estate. However, that
can be a costly exercise.
When establishing an estate proceeds trust, it might often seem desirable to provide that the trust
must not be wound up until the child reaches an age later than 18 years, to reduce the risk of the child
receiving assets at the age of 18 years and then wasting the assets. This might be particularly attractive
where the assets have a significant value. However, the requirement that the beneficiary be entitled to
the trust property when the trust ends would seem to enable a beneficiary to demand their share of the
2 S 102AG(2)(d)(ii) ITAA36.
3 S 102AG(2A) ITAA36.
4 See ID 2004/264.
5 See TR 98/4.
¶13-105
trust property, upon attaining 18 years of age, because of the rule6 that a beneficiary of a trust of adult
age and under no disability may require the trustee to transfer the legal estate to them and thereby
terminate the trust.
¶13-110 Superannuation proceeds trusts

The term “superannuation proceeds trust” is also not defined in the law. It is commonly used to
describe a trust that is created when a superannuation death benefit is payable to a minor. Because the
minor cannot give the trustee of the superannuation fund a valid receipt, the superannuation trustee
pays the benefit into a trust established for the benefit of the minor. The superannuation trustee is the
party that establishes the trust. It is in this context that we discuss superannuation proceeds trusts.
Sometimes a willmaker might seek to establish a separate trust by their will into which only
superannuation proceeds are paid – such a trust might be described as a “superannuation proceeds will
trust” but is quite different to the trust discussed in this chapter. Superannuation proceeds will trusts
are discussed at ¶4-140.
Income that flows from a superannuation proceeds trust to a minor is excepted trust income and so the
minor is taxed at adult tax rates.7
Establishing a superannuation proceeds trust

Superannuation proceeds trusts are established following the death of a member of a superannuation fund
where part or all of the member’s death benefit is payable to a minor.
Example
At the time of her death, Libby was a member of the AustralianSuper superannuation fund and had a balance
of $500,000 in her superannuation account.
Libby had made a binding death benefit nomination which directed the superannuation trustee to pay her
death benefit equally between her son, Will, and daughter, Sarah. Will is 19 years of age and Sarah is 14 years
of age.
The superannuation trustee pays Will his half share directly. The superannuation trustee can set up a
superannuation proceeds trust into which Sarah’s share of the death benefit is paid.
6 Saunders v Vautier (1841) 4 Beav 115.
7 S 102AG(2)(c)(v) ITAA36.
¶13-110
It is the role of the superannuation trustee to establish a trust and choose a trustee or trustees.
The superannuation trustee has an obligation to act in the best interests of the beneficiary of the
trust – that is, the minor. When transferring a death benefit to a superannuation proceeds trust,
this obligation includes a responsibility to make a decision about the appropriateness of the trustee.
Some commentators8 have expressed the view that in the absence of any evidence to the contrary a
superannuation trustee is entitled to assume that a parent or guardian will act responsibly in the role of
trustee. However, it is submitted that such an approach is fraught. The choice of trustee should only be
made once factors such as the following have been considered:
should there be two trustees for the sake of prudence?
if there is only one trustee, what would happen if they die or become incapacitated?
can the trustees be relied on to invest the assets properly?
is there a risk that the trustees may deal with the money fraudulently or negligently?
what checks should the superannuation trustee first make as to the honesty and reliability of
the trustees?
Rules for a superannuation proceeds trust

Income from the trust will only be treated as excepted trust income benefit if the terms of the trust
provide that the minor will acquire the trust property when the trust ends.9
The issues explained at ¶13-105 above, under “Other rules”, also apply in relation to superannuation
proceeds trusts.
Superannuation proceeds trusts as a strategic option

In the example above, the superannuation trustee was required to establish a superannuation proceeds
trust. In practice, however, it will often be the case that the superannuation trustee is not compelled
to pay a death benefit into a superannuation proceeds trust. Instead, it will often be the case that a
surviving spouse simply requests the superannuation trustee to exercise its discretion – for example,
where a binding death benefit nomination was not made – and pay some or all of the death benefit into
a superannuation proceeds trust. A spouse may make the request for a number of reasons, including the
taxation benefits that ordinarily arise as a result of a beneficiary of the superannuation proceeds trust
who is a minor being taxed at adult rates.
8 For example, the SCT expressed this view in its Bulletin No 43 issued 1 January 2006 – 31 March 2006.
9 S 102AG(2A) ITAA36.
¶13-110
Example
Libby dies and is survived by her husband John and their three children Will (12 years) Sarah (10 years) and
Nick (8 years). Libby has $400,000 in her superannuation fund and did not make a binding nomination.
John could request the superannuation trustee to pay the whole death benefit to him. If the superannuation
trustee agreed with that request and John invested the proceeds in his own name he would pay tax on
income and capital gains at his normal marginal tax rate. This rate may be quite high if John works or has
other income. He would then need to meet expenses, such as his children’s school fees, from his after-tax
income.
Alternatively, John could request the superannuation trustee to pay the whole (or part) of the death benefit
into a superannuation proceeds trust. The capital beneficiaries could be his three children. John could be the
trustee. In this way John could distribute income from the trust to his three children – eg to pay school fees –
with significant tax savings, as well as other benefits.
¶13-115 Insurance proceeds trusts

The term “insurance proceeds trust” is not defined in the law. It is commonly used to describe a trust
that is created to receive an insurance death benefit payable to a minor. The minor is named as the
beneficiary of the trust.
Income that flows from an insurance proceeds trust to a minor is excepted trust income and so the
minor will be taxed at adult tax rates.10
10 S 102AG(2)(c)(iv) ITAA36.
¶13-115
Establishing an insurance proceeds trust

Where an insured person dies, the proceeds of a policy of life insurance on the deceased’s life may, in
certain circumstances, be paid into a trust.
Example
At the time of her death, Amanda had a life insurance policy with AMP and nominated her daughter Dianne,
aged 9, as the sole beneficiary.
The proceeds of the life insurance policy are paid into a trust for the benefit of Dianne.
Rules for an insurance proceeds trust

Income from the trust will only be treated as excepted trust income if the terms of the trust provide
that the minor will acquire the trust property when the trust ends.11
The issues explained at ¶13-105 above, under “Other rules”, also apply in relation to insurance
proceeds trusts.
¶13-118 Employment benefit trusts

Income derived by a trustee from the investment of property transferred to the trustee by a person’s
employer, directly as a result of the death of the person, will be treated as excepted trust income.12
The issues explained at ¶13-105 above, under “Other rules”, also apply in relation to employment
benefit trusts.
¶13-120 Special disability trusts

The nature of special disability trusts
Special disability trusts are a federal government initiative which came into operation on 20 September
2006. The aim of the legislation is to encourage families to establish a trust to fund the provision of
long‑term financial care for a person with a severe disability. They can be established by deed during
a person’s lifetime or by will. The rules relating to special disability trusts are complex and have been
amended almost every year since 2006. At the date of publication of this edition (2015), the government
had announced yet another review of these rules. A useful source of up-to-date information about these
trusts can be found at www.fahcsia.gov.au.
11 S 102AG(2A) ITAA36.
12 S 102AG(2)(c)(vi) ITAA36.
¶13-120
In very general terms, a person will be regarded as having a severe disability where:
they are at least 16 years of age, have a level of impairment that would qualify them for disability
support pension and have no likelihood of working;13 or
they are under 16 and a “profoundly disabled child” as defined under the Social Security Act 1991.14
While the most obvious benefit of a special disability trust is the security provided to the principal
beneficiary, the trigger for establishing these trusts is usually the Centrelink gifting concessions that
flow to donors and the principal beneficiary.
In 2011, the rules governing special disability trusts were amended to enable a beneficiary to undertake
paid work of up to seven hours per week, at or above the relevant minimum wage.
Benefits to donors
An immediate family member who makes a gift to a special disability trust may be entitled to a
gifting concession. Immediate family member is defined to mean an individual who is the principal
beneficiary’s:
natural parent, adoptive parent or stepparent;
legal guardian – where the principal beneficiary is under 18 years of age;
grandparent; or
sibling – defined to include a half-brother, half-sister, adoptive brother, adoptive sister, stepbrother
or stepsister of the person, but does not include a foster-brother or foster-sister of the person.15
To be entitled to the gifting concession, the immediate family member must be receiving a social
security or veterans’ affairs pension and have reached pension age or be receiving a veterans’ income
support supplement having reached the qualifying age for the payment. However, an immediate family
member may also become eligible for the gifting concession if they make a gift within five years of first
becoming entitled to a pension or support supplement.
The concession is that the gift is not taken to be a disposal for the purposes of the deprivation rules
when determining the donor’s entitlement to a social security or service pension. The gift deprivation
rules currently capture gifts of $10,000 in any one year and up to $30,000 over a rolling five-year period.
The gifting concession applies to the first $500,000 contributed to the trust by family members.
Additional gifts can be made to the trust, but these would not receive advantageous Centrelink
treatment. The $500,000 is not indexed.
13 S 1209M(2) of the Social Security Act 1991.
15 S 23(1) of the Social Security Act 1991.
¶13-120
Example
Luke is the principal beneficiary of a special disability trust. His mother, who is in receipt of the age pension,
contributes $200,000, and then Luke’s grandfather, who is in receipt of a veterans’ affairs service pension,
contributes $300,000. Both can claim a gifting concession. This means the concession amount is fully used
and no other person can claim a gifting concession in respect of further gifts to Luke’s special disability trust.
In 2011, the federal government also passed legislation which gives donors a CGT exemption on assets
transferred into a special disability trust for no consideration. The exemption is backdated to 1 July 2006.
A special disability trust may provide asset protection and estate planning advantages. For example,
a parent concerned about the possibility of another child contesting their will may establish a special
disability trust during their lifetime. Any gift made by the parent to that trust would not form part of
the parent’s estate (but see commentary on New South Wales notional estate provisions in ¶12-125).
Benefits to principal beneficiaries

The assets of a special disability trust up to the value of $626,00016 (as at July 2014, indexed annually to
CPI), plus the value of any principal place of residence, plus income of the trust, are not counted for the
purposes of the Centrelink means test when applied to the principal beneficiary.
The 2011 changes referred to above also extended the CGT main residence exemption to properties held
in a special disability trust that are used by the beneficiary as their main residence and to permit the
trust to pay for the beneficiary’s medical expenses, including private health care costs.
Establishing special disability trusts

A special disability trust must comply with the model trust deed provisions as determined by the Social
Security Act 1991.17 The model provisions include both compulsory and non-compulsory clauses. In
general terms:
the trust must be established by a settlor who must be someone other than the donor;
there must be more than one trustee or an “arms length” professional trustee (a professional trustee
is defined as a trustee company, solicitor or accountant);
discretionary expenses up to $11,000 pa (for the 2014-15 year, indexed annually) can be spent on
discretionary items not related to the care and accommodation needs of the beneficiary of the trust
as long as the expense complies with legislative requirements. Otherwise, the trust funds can only
be used to pay for the accommodation and “permitted care needs” of the principal beneficiary
by people other than immediate relatives. Permitted care needs include treatment by a medical
16 Originally set at $500,000 in September 2006.
17 For a copy of the model deed, go to www.facsia.gov.au/internet/facsinternet.nsf/VIA/special_disablity_trusts/$File/SDT_Model_Trust_

Deed_july07.doc.
¶13-120
practitioner, modified vehicles and communication devices, and private health fund fees and
maintenance expenses for trust property, but do not extend to matters such as provision of food
(other than specialised food) or education;18
payments for care must not be made to a trustee or a partner, parent or immediate family member of
the principal beneficiary;
there must be only one principal beneficiary – that is, the person with the special disability;
on the death of the principal beneficiary, the trust must vest in residuary beneficiaries nominated by
the donor in the trust deed;
amendments to the trust deed are generally prohibited; and
the trust is subject to audit and reporting requirements.
The Social Security Act 1991 sets out requirements for a trustee of a special disability trust. The Act
states that a trustee who is an individual must:
be an Australian resident;
not have been convicted of an offence of dishonest conduct against or arising out of the Social
Security Act 1991 and similar legislation; and
not have been disqualified at any time from managing corporations under the Corporations Act 2001.
If the trustee is a corporation, the above provisions apply to each director.
Contributing to special disability trusts

All contributions to a special disability trust must be unconditional.
Any person or entity can contribute to a special disability trust apart from:
the settlor; and
the principal beneficiary and their partner (if any) unless the contributions by the principal
beneficiary (and their partner) are funded by a bequest or superannuation death benefit within three
years of receipt of the bequest or superannuation death benefit.
Establishing special disability trusts by will

A special disability trust may be established by will. There is no necessity for the terms of the trust deed
to be recited in the will itself. For a special disability trust to be established as part of an individual’s
will, two essential elements are required:
as a minimum, the will must provide the trustee with the power to create a special disability trust
that complies with current legislative requirements on behalf of a specified individual. It is possible
for the complete terms of the special disability trust to be either attached to, or included in, the will.
18 See Social Security (Special Disability Trust) (FaCSIA) Guidelines, available at www.facsia.gov.au.
¶13-120
However, this can be problematic if there are legislative changes to special disability trusts after the
will was made; and
the will should clearly outline what assets are to go into the special disability trust.
There is no need to include a settlor, or refer to a settled sum, in the terms of a special disability trust
created by will. There is no requirement that a beneficiary assessment needs to take place before or on
the creation of a testamentary (or other) trust for it to be a special disability trust.
Taxing of special disability trusts

The Tax Laws Amendment (2010 Measures No. 3) Act 2010, which received royal assent on 29 June 2010,
amended the ITAA36 in regard to special disability trusts to ensure that:
the unexpended income of a special disability trust (SDT) is taxed at the relevant principal
beneficiary’s personal income tax rate rather than automatically at the top personal tax rate plus the
Medicare levy;
the principal beneficiary of an SDT is treated as if they are presently entitled to all of the income of
the SDT. This ensures that there is no net income of an SDT that is assessed to the trustee under
s 99A, even where income is retained in the trust at the end of the income year;
principal beneficiaries of SDTs, who are residents at the end of the income year, are treated as if they
are under a legal disability for the purposes of Div 6;
all of the net income of an SDT is taxed at the marginal tax rate of the principal beneficiary by
allowing an appropriate portion of the offset available to the principal beneficiary to be refunded
where the tax assessed to the beneficiary is less than the amount of tax the trustee is liable to pay
under s 98(1); and
that all minors who are the principal beneficiaries of SDTs are excepted persons for the purposes
of s 102AC (which was always understood to be the position, but the amendment put the issue
beyond doubt).
Limitations of special disability trusts

Special disability trusts do have some limitations. For example:
if the circumstances of the donor alter, the donor cannot receive the gift back;
the costs of establishing and managing a special disability trust mean that it is usually not
worthwhile establishing one with a small sum of money; and
there can be only one special disability trust for a severely disabled beneficiary.19
¶13-120
Ending special disability trusts

A special disability trust will cease when the assets are reduced to nil.
Where the principal beneficiary dies, the trust must be wound up and the assets distributed to the
residuary beneficiaries. The residuary beneficiaries may be the donors and/or persons nominated by
them (in the trust deed) to benefit.
Example
Peter is the principal beneficiary of a special disability trust. His father, Tom, contributed $300,000 and the
trust deed was drafted to provide that, upon Peter’s death, the balance of the trust fund should pass to
Tom’s grandchildren.
If a donor contributes to the trust and they receive a social security benefit under the gifting concession,
there may be an impact on their income support payment if the gift is within five years of the
beneficiary’s death.
Deprivation will only apply where the contributor does not receive, on the termination of the trust,
a comparable percentage of the remaining funds which reflects their contribution to the trust.
Deprivation will apply from the date of the trust’s termination and will continue for five years from the
date of the gift to the trust.
¶13-120
259
Chapter 14
Dealing with family trusts
Introduction...................................................................................................................... ¶14-100
What do we mean by a family trust?................................................................................ ¶14-105
Why is it important that the right people control a family trust?......................................¶14-110
The trust deed...................................................................................................................¶14-115
Deciding what to do with a family trust............................................................................ ¶14-120
Changes to trustee and appointor................................................................................... ¶14-125
Revocable determinations............................................................................................... ¶14-130
Guardian provisions......................................................................................................... ¶14-132
Trust splitting and cloning................................................................................................ ¶14-135
Loan accounts, family trusts and private companies...................................................... ¶14-140

It has become common for clients to have a family trust, but few understand the complex issues that
can arise when transferring control of the trust following their death or incapacity.
Accountants, financial advisers and lawyers play an important role in guiding their clients through
these issues. It is usually necessary to consider a number of complex issues involving trust, taxation and
stamp duty laws.
Succession planning for family trusts typically involves helping the primary beneficiary who is a
trustee or appointor of the trust – or a shareholder in a company that acts as the trustee or appointor
– to choose how the trust should operate following the primary beneficiary’s death. This might mean
appointing certain beneficiaries as the successor trustee or appointor or making determinations now
that protect the interests of certain beneficiaries in the future, or it may involve splitting the trust now
or in the future.
The first step is to identify who – if anyone – can be said to control a family trust and what – if anything
– the trust deed says will happen when that person dies or becomes incapacitated.
There are many alternatives for transferring control, and decisions should only be made after
considering a range of personal and legal issues. This chapter examines these issues in more detail and
gives examples of factors that might influence decisions about transferring the control of a family trust.
¶14-105 What do we mean by a family trust?

The term “family trust” does not have a legal meaning. It is commonly used, however, to describe an
inter vivos trust – a trust created during a person’s lifetime – that has the following features:
the trust is established by deed by an independent person called the settlor. It is common for a
person’s friend, lawyer or accountant to be the settlor;
the trust is established for the principal benefit of an individual, or perhaps a husband and wife and
their children;
the individual – or both the husband and wife – is/are described as the primary beneficiary or
primary beneficiaries of the trust;
the primary beneficiary is also the trustee or a director of the company that acts as trustee. This
means that they usually have day-to-day control over the operation of the trust. If there are two
primary beneficiaries – for example, a husband and wife – then often they are the trustees (or
directors of the trustee company) and make decisions jointly;
the class of beneficiaries of the trust is widely defined to include people and entities connected with
the primary beneficiary – for example, the primary beneficiary’s spouse, children, grandchildren,
great‑grandchildren, parents, grandparents, siblings, nieces, nephews, cousins and all their spouses.
Also typically included are companies in which these people hold shares (or directorships) and
¶14-100
Dealing with family trusts 261
trusts of which they are beneficiaries. Charities and other tax‑exempt entities are also often included
as beneficiaries;
the trust is discretionary in nature – that is, the trustee has discretion about how to apply the
income and capital;
one or more default beneficiaries are nominated – usually the primary beneficiary – to avoid the
trustee holding undistributed income and being taxed at the top marginal tax rate; and
the primary beneficiary is also usually the appointor. The appointor has the power to remove the
trustee and appoint a replacement, so effectively controls the trust. Some trusts may not have an
appointor – in such cases, the power to appoint a replacement trustee often rests with the trustee.
The form of the trust deed governing the family trust can vary considerably. For example, in addition
to variations relating to appointors, some trust deeds refer to the appointment of a guardian. If there is
a guardian, their role is often to pre-approve certain trustee decisions such as material amendments to
the trust deed or distributions of capital.
So who owns the assets anyway?

The assets of a family trust should not be seen as belonging to any particular beneficiary, or to the
trustee or the appointor. Although the beneficiaries do not have a proprietary interest in the trust
assets, they do have a right to due administration of the trust and to call upon the trustee to deal
appropriately with the trust assets. It might be said, therefore, that the beneficiaries as a whole have the
strongest interest in the trust assets.
In practice, it is common for the primary beneficiary to wrongly regard the trust assets as their own
assets. This sometimes results in a will being made in the mistaken belief that the will can dispose of
the family trust assets to the beneficiaries named in the will. In fact, the will cannot do this – as the
assets are owned by the family trust’s trustee who holds them on behalf of the family trust.
Example
Jane runs a successful business through her family trust. She is the trustee of the trust. The trust deed states
that when she dies, Stuart – now her former husband – becomes the new appointor of the trust.
Jane sees a lawyer to make her will and tells the lawyer that she owns all of her assets in her sole name. Jane
makes a will which directs that “all of my assets are to pass to my three children equally”.
After Jane’s death, her children learn that virtually all of her assets are held in the family trust. This means that
their inheritance under their mother’s will is negligible. More concerning is the fact that Stuart, as the new
appointor, can appoint himself, or a company that he controls, as the new trustee. The children will be relying
on the new trustee exercising its discretion in their favour before they receive a distribution from the trust.
Two things are clear from this example. First, it is critical that beneficiaries of a family trust – even the
primary beneficiaries – do not mistakenly believe that the assets of the trust belong to them personally.
¶14-105
The second is that succession of family trusts is really concerned with transferring control of the family
trust to the people who it is intended will benefit from the trust.
¶14-110 Why is it important that the right people control a

family trust?
It is important to deal with control of the family trust because the people who control a trust can
effectively determine who will benefit from the trust. This becomes even more critical where, as is often
the case, the controllers are also beneficiaries of the trust. There are two main controlling roles – the
trustee and the appointor.
Why deal with the trustee?

The trustee’s broad discretionary powers enable them to distribute income and capital to one or more
beneficiaries (usually including the trustee) to the exclusion of others. This places the trustee in a
powerful position. The degree of power is arguably greater if – as is almost always the case – the trustee
is a beneficiary of the trust and does not have to give reasons for their decisions. It is crucial, therefore,
that the trustee of a family trust chooses their successor carefully.
If the trustee is an individual, that person will usually be able to appoint one or more successors. If two
or more people are trustees, the last of them to act as trustee will usually have the power to appoint one
or more successors. If the trustee is a company, the real power rests with its shareholders as they select
the directors who in turn are responsible for making the company’s decisions as trustee. A shareholder
of a company that acts as trustee should therefore give careful consideration as to who should receive
their shares in the company after they die.
In each case it will be necessary to consider the terms of the trust deed and, where the trustee is a
company, the company’s constitution as the terms of these documents will vary (see ¶14-115).
Why deal with the appointor?

The appointor is able to hire and fire the trustee, so their role is arguably more important than that
of the trustee. Again, an individual who is the appointor of a family trust would want to choose their
successor if possible.
Example
In the example at ¶14-105, Jane should have – when she separated from Stuart – arranged for the appointor
clause in her family trust deed to have been amended to name her three children as her successor appointors
(assuming that the trust deed gave Jane, as trustee, this power).
¶14-110
A company can be the appointor, but this is less commonly the case compared to the trustee role.
However, if the appointor is a company, similar factors apply to when a trustee is a company – that is,
the disposition of shares is important.
Tip
In the event that the desired appointors are under 18 years of age, consideration can be given to appointing
independent people as appointors until the desired appointors reach 18 (or a later age, if desired). In some
situations, it might be appropriate to appoint a trusted adviser and another person to this interim role.
Guardian and other roles

Similar considerations apply where the trust deed has nominated a person as a guardian. The role of
a guardian will depend on the particular trust deed, but usually the trustee will be unable to make
significant decisions – such as make capital distributions or amend the trust deed – without first
obtaining approval from the guardian.
It follows that the powers of any guardian will usually be important and so careful consideration must
be given to the nomination of a successor to that role.
¶14-115 The trust deed

When discussing the transfer of control of a family trust, the first step is to examine the trust deed and
identify matters such as the following:
if there are two trustees who are individuals, what happens when the first of them dies?
if an individual is the sole trustee, what happens when they die?
if there are two appointors who are individuals, what happens when the first of them dies?
if an individual is the sole appointor, what happens when they die?
when must the trust vest – that is, come to an end? This date is important as an imminent vesting
date might make it worthwhile to voluntarily end the trust. If the vesting date is within 80 years of
the date the trust was established, it is worth considering whether it is possible to extend it. It may be
possible to apply to the court for an extension of the vesting date as in Stein v Sybmore Holdings.1
1 [2006] NSWSC 1004, 27 September 2006.
¶14-115
Tip
If there are two trustees, it is common for the trust deed to provide that – on the death of either – the survivor
can continue as a sole trustee who is able to nominate a replacement by a will or a deed. Appointment
by a deed might have some advantages over appointment by a will. For example, it would – unless there
was a dispute – be a reasonably private document. This is in contrast to a will that might be seen by the
beneficiaries of the estate and becomes a public document once probate is granted. Also, the risk that the
will might be challenged may be greater than a challenge to a deed.
Tip
We have already mentioned the death of an individual trustee or appointor. An adviser should also check to
see what happens upon the incapacity or bankruptcy of a trustee or appointor – or any other event that may
prevent them from continuing in their role.
¶14-120 Deciding what to do with a family trust

Once the trust deed has been examined, a decision can be made as to whether there is a need to take
action to ensure, as far as is possible, that upon the death of the principal beneficiary certain other
persons will benefit from and/or control the trust. While a wide range of options may be available, one
or more of the following would typically be considered:
an automatic winding up of the family trust – rarely a preferred option because of the adverse CGT
and asset protection consequences;
ensuring that control of the trustee and appointor is transferred to certain people;
making revocable determinations to ensure that certain beneficiaries receive a portion of the trust
income and, perhaps, the trust capital;
inserting a guardian clause (or amending an existing clause) requiring pre-approval of the guardian
to certain distributions;
amending the terms of the trust by excluding and/or adding beneficiaries; and
splitting or cloning the trust.
It is essential that prior consideration be given to the CGT, stamp duty and resettlement ramifications
of any action, as well as ensuring that the proposed action is not prohibited by the trust deed. As an
example, see TD 2012/21, in particular at example 1 which discusses the addition of new entities to, and
the exclusion of existing entities from, class of objects.
¶14-120
¶14-125 Changes to trustee and appointor

We will now look at some case studies that show many of the strategies for effectively transferring
control of a family trust. To cater for different scenarios, the examples are based on three family
trust structures:
a trust that has the same individual as trustee and appointor – see example 1 below;
a trust that has a husband and wife as trustees and as appointors – see example 2 below; and
a trust that has a husband and wife who are appointors and who are equal shareholders of a
company that acts as trustee – see “Company as trustee” below.
The case studies disclose the terms of the relevant trust deed. If the deed does not provide for a
successor appointor, it may be possible to amend the deed if the amending power is broad enough. Such
an amendment should not amount to a resettlement of the trust for the purposes of CGT,2 but a private
ruling should be obtained if there is any doubt.
Individual trustee and appointor
Example 1
Tony, aged 58, is the sole trustee and appointor of Tony’s family trust through which he operates his
successful concreting business. He is married to Venus, who is 10 years younger than him. They have two
children, Alex (24) and Maria (21).
The trust deed states that Tony can, by a deed or his will, appoint a successor trustee and appointor.
If he doesn’t do this, the executor of his will becomes the trustee and appointor. Tony has not made an
appointment, but he and Venus recently made wills and appointed each other as executors.
Tony and his accountant ask a lawyer to review his succession planning arrangements.
Tony is told that, as things currently stand, Venus will take control of Tony’s family trust when he dies,
assuming that she survives him. Tony thinks that is reasonable.
Because Tony’s lawyer is prudent, he lists some of the things that could go wrong and suggests possible
solutions – so Tony can make an informed decision as to whether to address these risks.
Risk Possible solutions

After Tony’s death, Venus decides that she should Tony could amend his will to appoint Venus, Alex
receive all of the income from the trust and and Maria as executors.
effectively operates the trust for her own benefit –
Tony could make a deed amending the family trust
to the exclusion of Alex and Maria.
deed so that Venus, Alex and Maria will become
trustees and appointors when he dies.
Tony sees merit in these possible solutions, but says that he trusts Venus and knows that she will look after
their children and would never intentionally harm their financial wellbeing.
2 PBR 1011302167450.
¶14-125
Example 1 (cont)
Risk Possible solutions

After Tony’s death, Venus marries Tony’s business Tony could amend his will to appoint Venus, Alex
partner Petro and makes a will nominating Petro and Maria as executors.
as her executor. She omits to do anything about Tony could make a deed amending the family trust
nominating a successor to her role as trustee and deed so that Venus, Alex and Maria will become
appointor of Tony’s family trust. Venus then dies and trustees and appointors when he dies.
Petro becomes the trustee and appointor of Tony’s
family trust.
Now his lawyer really has Tony’s attention. He decides that, although he trusts Venus, he knows that things
can go wrong and instructs the lawyer to make a deed appointing Venus, Alex and Maria as trustees and
appointors upon his death.
Risk Possible solution

If Tony loses capacity, Venus might apply to become Tony could further amend the family trust deed so
the new trustee of Tony’s family trust. that Venus, Alex and Maria will become trustees and
appointors in the event of his incapacity as well as
death.
Tony takes his lawyer’s advice and amends the trust deed in this manner.
Husband and wife trustees and appointors

The first step is to read the trust deed to see what it says will happen upon the death of either party. It is
common for the surviving spouse to continue as the sole trustee and appointor.
A husband and wife may wish to consider amending the trust deed to protect any children if the
surviving spouse remarries – as per Tony’s case above.
They should also consider who the executors of their estate are. This is especially prudent if the trust
deed provides that – in the absence of a surviving appointor and trustee – the executor of the estate
of the last trustee becomes the new trustee, or has the power to appoint a new trustee. In most cases,
the executor will act in a proper manner – that is why they have been appointed as executor in the first
place – but things can go wrong.
¶14-125
Example 2
John and Lindy make wills appointing each other as executor and trustee and John’s sister Anne is named as
the alternative executor. Sadly, John and Lindy die soon after in a terrible car accident, survived by their two
teenage sons.
Anne learns that, as executor, she has the power under the John and Lindy family trust to appoint a
new trustee to the trust. She decides to appoint herself. She also finds out that she and her children are
beneficiaries of the trust owing to the broad definition of “beneficiaries” in the trust’s deed. Anne decides that
John and Lindy would want her to benefit from the trust – especially as she is guardian of their two sons until
they turn 18 – and makes significant distributions to herself and her children over the next 30 years.
Tip
The above is a perfect example where an independent person such as an accountant could be appointed as
a joint appointor to help administer the trust having regard to the deceased’s wishes.
Company as trustee
If a company acts as trustee, the shareholders will usually bequeath their shares to the people they want
to succeed them as controller. The new shareholder may then be able to become a director, depending
upon their voting power and the company’s constitution.
If there is still an appointor in the trust, however, the appointor would be able to remove the company
as trustee which would render it redundant. This is why it is said that the real power behind a family
trust rests with the appointor.
Should decisions be unanimous?

As seen in Tony’s case above, three or more people may end up acting as appointors. In such cases, there
will always be a risk that the majority will outvote the minority. In practice, it will often be a matter of
considering the likelihood of the risk, the consequences if things go wrong and the cost of addressing
the risk.
¶14-125
Troubleshooting strategies
In Tony’s case above, Tony decided his wife Venus and children, Alex and Maria, should all be appointors of
the trust.
There are, however, risks with the appointor provisions in the trust deed.
Risk How to address it

The trust deed does not state that decisions of Tony could amend the trust deed to require that any
appointors must be unanimous. It would be possible decision by the appointors must be unanimous.
for Alex and Maria to outvote Venus, remove the
trustee and appoint only themselves or a company
that they control in its place. The new trustee
could then resolve to distribute all of the assets to
themselves equally, to the exclusion of Venus.
If the trustee was a company – with Venus, Alex and Maria all directors and equal shareholders – risks arise
with the director voting provisions in the company constitution.

The company’s constitution says that decisions of Tony could amend the company’s constitution to
directors will be made on a majority basis. Alex and require that any decision by the directors must be
Maria outvote Venus in a resolution to wind up the unanimous.
trust and distribute the assets to themselves.
There are also risks with the shareholder voting provisions in the company’s constitution.

The company’s constitution says that decisions of Tony could amend the company’s constitution to
shareholders will be made on a majority vote. At a ensure that all three remain as directors for as long
directors’ meeting, Alex and Maria vote to remove as they wish.
Venus as a director and then – being the only
directors – they resolve to wind up the trust and
distribute the assets to themselves.
Some people will regard these risks as being so unlikely that they do not want to address them. Others
will regard them as very real risks and decide to amend the relevant documentation to eliminate or
reduce the risks.
As mentioned above, options for addressing these risks include appointing independent people – such
as an adviser – to the role of trustee or appointor. As always, it is a matter of understanding the risks
and then making an informed decision whether to address them.
¶14-125
Bankruptcy and divorce

Two questions that often arise when choosing trustees and appointors are: what happens if they become
bankrupt or if they divorce? The relevant issues are discussed at ¶5-115. In summary, bankruptcy is
unlikely to give a creditor access to the control or assets of a trust, however divorce is likely to be a
problem especially where one spouse effectively controls the trust or is, in the opinion of the court, on
the balance of probabilities, likely to receive distributions from the trust in the future.
¶14-130 Revocable determinations

Many trust deeds give the trustee the power to make a revocable or irrevocable determination to
distribute the income of the trust in a particular way. Usually a revocable determination is preferable to
an irrevocable determination as it allows the trustee to change its mind.
This usually enables the trustee to make a revocable determination to distribute income in fixed
percentages among certain beneficiaries of the trust from a future point in time – such as the death of
the principal beneficiary.
Example
Following on from Tony’s example at ¶14-125, assume that the trust deed permits Tony (as trustee) to make a
revocable determination as to the future distribution of trust income and capital.
Tony could resolve that from the date of his death the income of the trust is to be distributed between Venus
(50%), Alex (25%) and Maria (25%). The resolution could also direct that, following Venus’ death,
all income and capital distributions must be made equally to Alex and Maria.
In this way, revocable determinations can be used as a means to ensuring that certain persons – such as
the children of the primary beneficiary – share equally or otherwise in accordance with the wishes of
the trustee.
It may be possible to extend the revocable determination so that distribution can be made to other
persons or entities – such as a spouse or trust – associated with the relevant beneficiary. Consideration
should be given to the possibility of a beneficiary dying survived by children.
It is vital that any determination is carefully drafted having regard to the trust deed and any issues such
as CGT, and then reviewed on a regular basis.
¶14-132 Guardian provisions

Another option is to amend the trust deed to prevent certain decisions from being made unless the
prior approval of the guardian has been obtained. For example, any capital distribution from the trust
might require the prior approval of the guardian. The appointment of a guardian with special powers
¶14-132
is often used as a means to force capital distributions to be made equally along family lines. If the
trust deed did not originally appoint a guardian, it may be possible to amend the deed and appoint a
guardian with relevant powers. As with any deed amendment, care should be taken not to inadvertently
trigger a resettlement.
It should also be noted that a trustee with broad powers – such as a power to lend moneys to himself or
herself on generous terms, or to reside in trust property free of rent – might be able to operate the trust
in a manner that results in the trustee deriving a benefit disproportionate to the benefit received by
other beneficiaries. The guardian’s powers could extend to such transactions.
Any solution involving guardians and special powers will usually be complex and care needs to be
taken to ensure that the desired outcome is achieved.
¶14-135 Trust splitting and cloning

If it is not appropriate to have multiple decision-makers in the family trust, splitting or cloning the trust
are possible options. Each new controller can then carry on operating the portion of the trust fund (or
the new trust) that they control, to the exclusion of the others. For example, a trustee may want to split
or clone a trust so that each of the primary beneficiary’s children has separate control over a group of
trust assets.
The terms “splitting” and “cloning” are not defined in tax law. They are sometimes used
interchangeably, but they mean quite different things as is detailed below.
Splitting and cloning can give rise to complex trust and tax law issues. There are a number of uncertainties
that could be fertile ground for legal challenges from a disgruntled beneficiary – even a discretionary
beneficiary.
The following text has benefited from several excellent articles on this topic which are recommended
reading for those wishing to understand the issues in greater detail.3, 4
Benefits of splitting
The decision to split a trust is usually made by the existing trustee with the aim of passing control
of certain assets to particular beneficiaries. In this way, splitting is a mechanism to deal with the
succession of control of a family trust.
A primary beneficiary may wish to transfer control for various reasons, including the following:
each new trustee can manage a portion of assets according to their own and their family’s needs and
circumstances;
3 Refer to The Tax Institute publications (available at taxinstitute.com.au): Splitting trusts by Grahame Young, October 2002; Splitting trusts
– three years on by Grahame Young, October 2005; Cloning or splitting discretionary trusts by Ken Schurgott, March 2008.
4 See announcement by Chris Bowen dated 31 October 2008 (No. 092) at www.treasurer.gov.au.
¶14-135
each new trustee can make decisions privately;

new trustees can be a mix of people, such as each of the primary beneficiary’s children and also the
primary beneficiary’s second spouse;
different assets can be allocated to each new trustee – for example, a business operated by the trust
might pass to the control of one trustee while cash and other investments might pass to the control of
another trustee; and
assets with different values can pass to each new trustee.
Trust splitting
Trust splitting involves the appointment of separate trustees over different assets within a single trust.
No new trust is created. Figure 1 shows a before and after example of this, using the example of Tony
that we looked at earlier in this chapter and assuming that the trust owns two assets – shares in a
private company and a holiday house.
Figure 1
There is no CGT event because there is no disposal of an asset. Section 104-10(2)(b) ITAA97 states that
a change of ownership does not occur just because there is a change of trustee.
If a trust deed is being amended to facilitate trust splitting, the following issues need to be considered:
(1) whether any amendment is required to the trust deed to make it clear that the trustee can make the
split;
(2) whether there is the possibility of a resettlement for income tax and CGT purposes. Although not
beyond doubt, the better view is that there would be no resettlement. This view would be even
stronger if the trust terms included a specific power to hold assets on separate trusts with separate
trustees;
(3) the stamp duty resettlement rules in the relevant state or territory;
(4) any family trust election made before the split should continue to apply to each new trustee and the
assets they hold;
(5) how any beneficiary loan accounts will be treated post‑split;
¶14-135
(6) how any other loans will be treated post‑split – in particular, the rights of creditors and how they
might be affected; and
(7) whether the general anti-avoidance rules in Pt IVA ITAA36 will apply. This might be argued on the
basis of likely tax‑saving benefits of restructuring.
As noted above, splitting involves some complex issues which have not been fully settled. One practical
consequence of this is that persons wishing to dispute the way in which a trust has been managed may
be able to take advantage of these complexities by making challenges that are time-consuming and
costly to resolve.
Trust cloning
Following the passage of the Tax Laws Amendment (2009 Measures No. 6) Act 2010 (which received
royal assent on 24 March 2010), trust cloning will, in most cases, no longer be an attractive option.
Trust cloning involved the transfer of assets from one trust into two or more other trusts. Trust cloning
generally would amount to a disposal for CGT purposes but for an exemption that existed in ITAA97
which said that there would not be a disposal where the assets of a trust are transferred to another
trust and the “beneficiaries and the terms of both trusts are the same”.5 Exactly how similar all of
the beneficiaries and terms of the trust must be in order to be deemed “the same” was the subject of
considerable debate in recent years. The ATO set out its view in some detail in two recent rulings,6
however, there was always some uncertainty as to the correctness of certain parts of its interpretation.7
The amendment removed the exemption from applying to discretionary trusts (such as the typical
family trust) which would dramatically restrict the application of the exemption.
It is, however, still open to taxpayers to “clone” a trust and this may be viable in some cases even though
a disposal is triggered for CGT purposes.
¶14-140 Loan accounts, family trusts and private companies

It is common for family trusts and private companies to have loans to and from beneficiaries and
shareholders. Many clients make wills when they are oblivious to the fact that these loans exist. This
can give rise to significant problems for the estate. Attempts to forgive loans may trigger the application
of Div 7A ITAA36 and/or the commercial debt forgiveness provisions as set out in Div 245 Sch 2C
ITAA36.
5 That is, the exemption as it read in the former s 104-60(5)(b).
6 TD 2004/14 and TR 2006/4. Refer also to the minutes of the meeting of the National Taxation Liaison Group held on 7 September 2005.
7 Such as the requirement that the appointor(s) of the new trusts be the same as the appointor(s) of the original trust.
¶14-140
By way of summary, Div 7A applies where a private company has profits and:
makes a loan to a shareholder or an associate of a shareholder;
makes a payment to a shareholder or an associate of a shareholder;
forgives a loan to a shareholder or an associate of a shareholder;
allows a shareholder or an associate of a shareholder to use an asset for below commercial rates.
Division 7A also applies where a family discretionary trust has an unpaid present entitlement (via one
or more family trusts) to a corporate beneficiary and:
makes a loan to a shareholder or an associate of a shareholder;
makes a payment to a shareholder or an associate of a shareholder;
forgives a loan to a shareholder or an associate of a shareholder.
When Div 7A applies, the amount of any dividend, payment, forgiveness or benefit that is given to the
shareholder or associate can constitute an unfranked dividend paid by the relevant company to the
shareholder or associate (as the case may be).
If a commercial debt is forgiven,8 then the beneficiary of the forgiven debt may be required to reduce
(in order):
its existing revenue losses;
its existing capital losses;
its future deductible expenditure; and
the cost base of its CGT assets.
However, importantly, if a debt is forgiven pursuant to a will then the commercial debt forgiveness
provisions do not apply.
If, as a consequence of the administration of an estate, Div 7A or the commercial debt forgiveness
provisions apply, then significant tax imposts could arise. It is important that the executors of an estate
appreciate these tax imposts and do not inadvertently create a tax liability. A good way to illustrate
these imposts is by way of examples. We set out a number of these examples below.
8 A commercial debt is essentially a debt that you claim or could claim interest on.
¶14-140
Example
Deceased estate owes money to private company that has retained profits
Balance Sheet
DR CR
Share Capital: $2
Loan: $1,000,000
Retained Profits $999,998
Bad outcome:
If, for the sake of administrative ease, the company, together with the executors, arranges for the loan to be
forgiven, the estate will be deemed to have received an unfranked dividend of $999,998.
Better outcome:
loan is repaid out of the assets of the estate; or
the shares in the family company could be transferred to the beneficiaries and a dividend declared to be
credited against the loan account.
Tip
The payment of a dividend could be a good option if there are child beneficiaries in a testamentary trust.
¶14-140
Example
Deceased estate owes money to family trust that has an unpaid present entitlement to a
family company
Bad outcome:
If, for the sake of administrative ease, the family trust and the executors of the estate resolve to forgive the
loan, then the estate would be deemed to have received an unfranked dividend in an amount up to the
amount of the old loan.
Better outcome:
the deceased estate should repay the loan; or
the assets of the family trust be realised and used to repay the unpaid entitlement to the family company;
or
the private company could pay a dividend to the deceased estate (assuming the deceased was a
shareholder) and then credit the loan account.
¶14-140
Example
Debt forgiveness
If the executors forgive a debt then the debt forgiveness rules can operate to reduce the borrower’s revenue
losses, capital losses etc in the same order as set out above.
However, where the debt is forgiven in a deceased’s will these rules do not apply.
Tip
Do not draft a will whereby the deceased agrees to forgive loans owed to him or her by a family company.
This will only increase the retained profits of the company and therefore add to the tax liability long term.
¶14-140
277
Chapter 15
Dealing with superannuation
Introduction...................................................................................................................... ¶15-100
Superannuation and incapacity....................................................................................... ¶15-101
What is a superannuation death benefit?........................................................................ ¶15-105
Who can receive a superannuation death benefit?..........................................................¶15-110
Superannuation Complaints Tribunal................................................................................¶15-115
Issues for self-managed superannuation funds.............................................................. ¶15-120
How can a superannuation death benefit be paid?......................................................... ¶15-125
Commutation of death benefit pensions......................................................................... ¶15-130
Preservation status of death benefits.............................................................................. ¶15-135
How is a superannuation death benefit funded?............................................................. ¶15-140
Tax treatment of death benefits....................................................................................... ¶15-145
Contribution quarantining................................................................................................ ¶15-150
Employer payments made after the death of an employee............................................. ¶15-155

Since the introduction of the SISA, superannuation has become one of the most important wealth
generation vehicles for most Australians. It will continue to hold an important place in the future as a
result of the additional tax incentives offered from 1 July 2007.
In particular, the abolition of the compulsory cashing rules and the abolition of tax on benefits paid
after the superannuation fund member’s 60th birthday means that the treatment of superannuation
upon death is a major issue for clients of financial planners, accountants and lawyers.
The ability to provide comprehensive strategic advice on superannuation will help advisers strengthen
their relationships with clients and limit the likelihood of disgruntled clients seeking advice elsewhere.
The financial consequences of not receiving the correct advice can be significant to the client.
This chapter provides a thorough analysis of the superannuation planning opportunities in the event of
death and incapacity. We look at the relevant legislation and demonstrate solutions through the use of
detailed examples and troubleshooting strategies.
¶15-101 Superannuation and incapacity

A person’s incapacity will give rise to important succession and estate planning opportunities
and strategies.
Incapacity and taxation

In chapter 2, we discussed the important role that an attorney or guardian can play in making financial
decisions on behalf of an incapacitated person. The following example demonstrates how significant
taxation savings can result from an attorney cashing a superannuation benefit immediately prior to a
member’s death. This strategy arises because tax will be payable on death benefits paid to persons who
are not dependants for tax purposes (see ¶15-145 and the Appendix to this chapter).
Example
Helen is a widow aged 65 years and no longer has capacity. She has three daughters, the eldest of whom
is her attorney under an enduring power of attorney. One of Helen’s assets is an interest in a superannuation
fund, consisting entirely of a taxed component, valued at $750,000.
Helen’s only beneficiaries are her three children, none of whom are tax dependants.
If Helen died with the money still in the superannuation fund and the death benefit is paid to her children from
her superannuation fund, it would be taxed at 17% (includes Medicare levy).
Helen is close to death. Her attorney decides to withdraw her benefit which is done tax-free. Helen dies one
week later. The $750,000 forms part of her estate and is then distributed to the beneficiaries named in her will,
being her three daughters.
¶15-100
Dealing with superannuation 279
Example (cont)
If at the time of Helen’s death the $750,000 was still held in her superannuation fund then, upon withdrawal
tax of $127,500 would have been paid as the benefit was not paid to a tax dependant. By withdrawing the
whole benefit shortly before Helen’s death, the attorney has saved this amount.
Note, for a further discussion of this strategy – including risks – and a description of terms such as “taxed
component”, see ¶15-145.
In 2008, the SISA was amended to permit a member’s benefit to be withdrawn where the member is
suffering a “terminal medical condition” which is defined in the SISA to exist where:
two registered medical practitioners certify that the member suffers from an illness, or has incurred
an injury, that is likely to result in the death of the person within a period (the certification period)
that ends not more than 12 months after the date of the certification;
at least one of the registered medical practitioners is a specialist practising in an area related to the
illness or injury suffered by the person; and
for each of the certificates, the certification period has not ended.
Benefits withdrawn because of a terminal medical condition are received tax-free.1 The terminal
medical condition provision therefore expands the opportunity for benefits to be withdrawn in a tax-
effective manner.
Example
Tyler is 35 years old and, following a terrible accident, is in a coma and is not expected to live more than a
month. He has no tax dependants.
It may be possible for his attorney or guardian to request the trustee of his superannuation fund to cash his
benefit on the basis that Tyler suffers from a terminal medical condition, in which case the benefit will be
received tax-free.
In contrast, if Tyler’s benefit had not been withdrawn prior to his death and a death benefit had been paid to a
non-dependant for tax purposes – for example, his parents – then tax would have been payable in respect of
the death benefit.
Incapacity and binding death benefit nominations

Where a person has lost capacity, their attorney (or, in some cases, a guardian) will usually have full
control over the person’s financial affairs including their superannuation. This gives rise to several
important questions including:
1 S 303-10 ITAA97.
¶15-101
if the member has satisfied a condition of release (eg is aged over 60), does the attorney have the
necessary knowledge to make important decisions such as whether to cash part or all of the benefit?
does the attorney have the integrity and skill to take responsibility for the investment of what might
be a significant sum of money?
can the attorney confirm a binding death benefit nomination (BDBN) or revoke or make a new BDBN?
can the attorney take some other action that enables them to effectively revoke a BDBN or make a
new BDBN?
We will discuss these in turn.
As seen at ¶2-110, an attorney will have significant powers including, depending on the age and health
of the incapacitated person, the power to cash all of their superannuation benefits. Once benefits are
cashed, the attorney would receive the proceeds and in most cases there would be little day-to-day
supervision over how the attorney applies these proceeds. The following example serves as a reminder
that it is essential to choose attorneys wisely, to consider appointing two people to act jointly and, in
some cases, to consider appointing an independent party such as an accountant, financial adviser,
lawyer or trustee company.
Example
Doris, aged 65, lives in Hobart. She has four children but only one, Sue, lives in Hobart and so Doris appoints
Sue as her attorney under an enduring financial power of attorney.
Doris loses capacity and Sue takes over the management of her financial affairs which includes Doris’s
superannuation interests, valued at $1m.
Sue discovers that she is able to cash all or part of her mother’s superannuation. Reasoning that she is really
doing quite a lot of unpaid work for her mother, and believing also that her mother really did like her much
more than her siblings, Sue starts cashing her mother’s superannuation benefit and spending more and more
time down at the local pokies tavern.
When Doris dies two years later, Sue has spent all of the superannuation, her siblings were left with little
financial recourse, and the pokies tavern now has a rooftop garden.
It is unclear whether an attorney or guardian is able to make a new BDBN or revoke a BDBN – the
favoured view is that this is not possible.
It is also unclear whether an attorney is able to keep alive a BDBN by exercising the member’s right to
confirm the nomination and therefore refresh its operation for a further three years, as members are
permitted to do under the Superannuation Industry (Supervision) Regulations 1994 (SISR).2 It appears
that some superannuation funds permit an attorney to refresh a BDBN in this way. It will usually
depend on the fund’s trust deed and the attitude of the trustee. The inclusion of a clause in a power
2 Reg 6.17A(5) SISR.
¶15-101
of attorney stating that the attorney can confirm a BDBN may be helpful, although not necessarily
determinative.
It may be possible for an attorney to take other action that has the effect of revoking a BDBN or making
a new BDBN, such as moving the member’s benefit from one superannuation fund to another. Whether
such action is possible or appropriate will depend on the circumstances.
Example
Bruno, who has $200,000 in his SMSF, has lost capacity and his son, Ant, is his sole attorney.
Ant discovers that Bruno has made a non-lapsing BDBN that directs his superannuation to Ant’s two sisters
(40% each) and to Ant (20%).
Ant knows that Bruno’s will leaves his estate to the two sisters (25% each) and to Ant (50%).
Ant uses his power as attorney to close Bruno’s SMSF and roll over his benefits to a public offer superannuation
fund, the rules of which provide that any death benefit be paid to the member’s (Bruno’s) estate.
While transactions entered into by an attorney for their own benefit will usually be able to be unwound,
or challenged to remove the benefit from the attorney, this assumes that the disadvantaged parties are
aware of the offending transactions.
Incapacity and SMSFs

It is a requirement of self-managed superannuation funds (SMSFs) that each member of the SMSF be a
trustee, or a director of the corporate trustee, of the SMSF. Section 17A of the SISA sets out an exception
to this requirement. Under s 17A(3)(b)(ii), a person who holds an enduring power of attorney granted
by a member may be a trustee, or a director of the corporate trustee, in place of that member without
causing the SMSF to breach the legislation. See ¶2-110 for more details.
¶15-105 What is a superannuation death benefit?

A superannuation death benefit is a benefit received by an individual due to the death of another
person. The benefit may come from:
a superannuation fund;
a retirement savings account;
an approved deposit fund; or
an annuity purchased with superannuation moneys.
A superannuation death benefit does not include a payment by an employer following the death of an
employee. This type of payment, known as a death benefit termination payment, is treated differently to
a superannuation death benefit for taxation purposes.
¶15-105
For details on the treatment of employer death benefits, refer to ¶15-155.
Likewise, the proceeds of a life insurance policy paid to a beneficiary are not treated as a superannuation
death benefit, unless the owner of the policy was the trustee of a superannuation fund and the proceeds
were paid to a beneficiary by the trustee as a result of the death of a member of the superannuation fund.
For details on the treatment of proceeds of a life insurance policy owned by an individual, refer to
¶19-115.
¶15-110 Who can receive a superannuation death benefit?

The range of people eligible to receive a superannuation death benefit is limited. Restrictions are
imposed upon the superannuation fund by legislation and the trust deed. To be eligible to receive a
death benefit, a person must fall within the legislative confines. In addition, it is necessary to ensure
that the trust deed does not exclude the person from being a beneficiary. It is important to note that if
a person is eligible to be a beneficiary under legislation but not under the fund’s trust deed they are not
eligible to be a beneficiary.
Once the class of potential recipients has been identified, the actual recipients may be determined as
a result of a binding death benefit nomination or, where a binding death benefit nomination does not
exist, following the exercise of trustee discretion.
Restrictions imposed by legislation

The SISA generally limits beneficiaries to one or more of the following:
a dependant of the member, as defined in the SISA;
the member’s legal personal representative (LPR) – that is, the executor or administrator of the
member’s estate.
If there is no-one who falls into these two categories, the beneficiary may be any individual or
individuals nominated by the trustee.
The SISA defines a dependant as including:

the spouse of the member;
any child of the member; or
any person with whom the member has an interdependency relationship.3
Because the definition is inclusive, persons other than a spouse, child or interdependent can be
regarded as a dependant. For example, a person may be regarded as a dependant if they were financially
dependent on the deceased (see below).
3 S 10 SISA.
¶15-110
Who is a spouse?
A spouse includes an individual who, whether or not legally married to the member, lives with the
member on a genuine domestic basis as the member’s husband or wife.4 The definition of “spouse” in
the SISA was amended with effect from 1 July 2008 and now includes:
a de facto partner of the member (whether same-sex or a different sex), and
a person (whether same-sex or a different sex) with whom the member is in a relationship that is
registered under the law of a state or territory; for example, Victoria, Tasmania and the ACT have
prescribed legislation for registering relationships.
A de facto partner is generally regarded to be a person who, although not legally married to the
member, lives with the member on a genuine domestic basis in a relationship as a couple.
Who is a child?
A child is defined to include an adopted child, a stepchild or an ex-nuptial child of the member. It
does not include a grandchild of the member unless that grandchild had been adopted by the member
although the grandchild may be a financial dependant (see below).
It is important to note that if a stepchild has not been formally adopted by the deceased member,
they will only be treated as a stepchild while the child’s natural parent is still alive. From 1 July 2008
the definition of child in the SISA was broadened so that it now includes all children of a spouse and
anyone who is a child as defined in family law legislation. The effect of the amendment is that the
definition of child now includes a child of a couple even though only one parent is a biological parent,
capturing children born from surrogacy procedures and a child of an opposite sex or same-sex de facto
by a former relationship. The definition of “child” includes:
an adopted child, a stepchild or an ex-nuptial child of the deceased;
a child of the person’s spouse (regardless of whether that spouse is married to, or a de facto of, the
member; and
someone who is a child of the person within the meaning of the Family Law Act 1975.
Under the Family Law Act 1975, a child includes situations where:
a child is born through artificial conception;
a child born through a surrogacy arrangement; and
a child is a child of a de facto partner through artificial conception, surrogacy or adoption.
Where a donor has provided genetic material for a birth by artificial conception, the child produced is
not a child of the donor.
4 S 995-1(1)I ITAA97.
¶15-110
Who is an interdependent?
Two people, whether or not related by family, are considered to have an interdependency relationship if
they satisfy all of the following:
they have a close personal relationship;
they live together (unless unable to because of a disability);
one or each of them provides the other with financial support; and
one or each of them provides the other with domestic support and personal care.5
The SISR state that the following circumstances of the relationship between the deceased and the person
in question (to the extent relevant) should be considered when determining whether a close personal
relationship exists:6
the duration of the relationship;
whether or not a sexual relationship exists;
the ownership, use and acquisition of property;
the degree of mutual commitment to a shared life;
the care and support of children;
the reputation and public aspects of the relationship (such as whether the relationship is publicly
acknowledged);
the degree of emotional support;
the extent to which the relationship is one of mere convenience; and
any evidence suggesting that the parties intended the relationship to be permanent.
If two people, whether or not related by family, have a close personal relationship but do not satisfy
some or all of the other requirements of interdependency – because one or both suffer from a physical,
intellectual or psychiatric disability or because they are temporarily living apart – then they will still be
deemed to have an interdependency relationship.7
Examples of interdependency relationships may include two siblings living together or an adult child who
lives with and cares for an ageing parent on a long‑term basis. A student who is living with parents while
finishing their studies would not generally be considered to be in an interdependency relationship with
those parents, however, that student may still meet the definition of a financial dependant – see below.
5 S 10A SISA.
6 Reg 1.04AAAA(2) SISR.
7 Reg 1.04AAAA(3) and (4) SISR.
¶15-110
The terms “domestic support” and “personal care” are not expressly defined in the SISA. However, the
SISR list the following as examples of “care”:8
significant care provided for the other person when he or she is unwell; and
significant care provided for the other person when he or she is suffering emotionally.
Importantly, in listing those examples, the regulations refer to those examples as being “care normally
provided in a close personal relationship rather than by a friend or flatmate”.
Who is a financial dependant?

A person is also regarded as a dependant if they were financially dependent on the deceased member.
This means that they must generally have relied upon the financial support of the member to maintain
their usual standard of living just before the member’s death. However, circumstances prior to the
member’s date of death may also be relevant when determining financial dependency.9 It is possible for
“financial dependency” to arise from many different types of relationships. For example, a mother has
been deemed to be financially dependent on her deceased son10 (they lived together and the son made
financial contributions as well as undertook responsibility for repairs and gave other support), as have
friends.11
Determining who is a dependant will not always be straightforward and is impacted by regular changes
to SIS and interpretations by the courts. Care must be taken when advising clients, remembering that
the broadening of the definition of dependant may suit some clients but may be a concern to others.
Further, the ability of a financial dependant (or any other category of dependant) to receive and retain
a death benefits payment may be impacted by any fiduciary duties imposed to the dependant in another
capacity (eg as the administrator of the deceased member’s estate).12 See the table in the Appendix to
this chapter for a summary of who is a dependant for the SISA purposes.
Restrictions imposed by the trust deed

A superannuation fund is a trust that is governed not only by the relevant legislation, but also by rules
in the fund’s trust deed.
The trust deed can restrict who the superannuation death benefit is paid to – for example, it may state
that a death benefit must go to a spouse where the spouse survived the deceased. Trust deeds for older
funds should be studied carefully as some of the death benefit provisions are usually narrower than in
8 Reg 1.04AAAA(2) SISR.
9 Noel v Cook [2004] FCA 479.
10 Malek v FCT (1999) 99 ATC 2294.
11 Noel v Cook [2004] FCA 479.
12 McIntosh v McIntosh [2014] QSC 99.
¶15-110
most modern deeds – for example, the definition of dependant may be restricted to a married spouse
and children of the marriage.
A strategy that is gaining in popularity is the use of a self-managed superannuation fund (SMSF) trust
deed to make sure that a superannuation death benefit is paid to certain people.
Example
Martin held $500,000 in his self-managed superannuation fund.

He knew that on his death there was likely to be a dispute between his two children over the benefit. He
wanted his daughter, Alice, to receive the whole benefit because she had looked after him for many years.
Martin could – subject to the amending power in the trust deed allowing him – amend the trust deed so that
on his death the trustee was compelled to pay his death benefit to Alice.
Binding death benefit nominations

A BDBN can be used to direct the trustee to pay a member’s superannuation death benefit to the person
or persons nominated.13 The fund’s governing rules must allow the trustee to accept a BDBN. Special
rules apply for SMSFs – see ¶15-120.
The main advantage of a BDBN is that it gives a degree of certainty to the member and the intended
beneficiaries. For example, the nomination is not subject to a challenge to the Superannuation
Complaints Tribunal. In addition, if dependants are nominated (as distinct from the member’s legal
personal representative) the benefit won’t be paid to the deceased member’s estate and so would not be
at risk of a claim against the estate.
For a nomination to be binding it must satisfy all of the following conditions:

it must be in writing;
all the beneficiaries nominated must have been dependants of the member just before the member’s
death or the LPR of the member;
the nomination must clearly state the proportion payable to each beneficiary and the total of all
proportions must equal 100% of the death benefit;
it must be signed and dated by the member in the presence of two witnesses. These witnesses must
be over 18 years of age and must not be nominated beneficiaries;
the nomination must contain a declaration signed and dated by the witnesses stating that the
nomination was signed by the member in their presence;
13 S 59 SISA.
¶15-110
the nomination must have been signed, confirmed or updated within the previous three years –
or a shorter period if specified in the trust deed. This three-year period starts at the time that the
nomination was last signed, confirmed or updated.14
If all of these conditions are met, the trustee is required to act in accordance with the BDBN for any
death benefits that may be available when a member dies.
Where an item of information given by a member in a notice is not sufficiently clear to allow the trustee
to pay the benefit, the trustee is obliged to seek clarification on the item from the member as soon as
practicable from the trustee’s receipt of the notice.15
If, at the date of the member’s death, any of these conditions are not met, the nomination will be invalid
and the trustee will act as if the nomination did not exist.
There are a number of reasons why a nomination may be invalid at the date of the member’s death. The
most likely reasons are that:
the nomination had not been signed, confirmed or updated in the three years before the member’s
death. It is vital to remember that BDBNs must be reviewed by the member at least every three years;
not all of the people named as a beneficiary on the nomination were the member’s dependants and/or
LPR just before the member’s death – for example, one of the beneficiaries dies before the member.
Trap
The rules governing the execution of BDBNs in reg 6.17A SISR appear to be onerous in that they do not
include a “saving” provision, ie they do not include a separate rule that allows a document to be recognised
as a BDBN even though the rules were not strictly adhered to. (Note that not all BDBNs must comply with
reg 6.17A.) For example, they require the BDBN to be dated not only by the member, but also by each of the
two independent witnesses. It would therefore seem that a BDBN will be invalid where it was signed by the
member and witnesses in each other’s presence and dated by the member only.
This can be contrasted with legislation dealing with wills which includes a “saving” provision enabling a will
to be recognised as valid even if the formal execution requirements are not met. For example, a will may, in
some circumstances, be valid even though it was not witnessed or dated.
Even if great care has been taken in drafting and reviewing the BDBN, circumstances surrounding the
death of the member may cause the nomination to become invalid.
14 Reg 6.17A SISR.
15 Reg 6.17B SISR.
¶15-110
Example
A husband and wife each provide their trustee with a BDBN.

Each has nominated that their death benefit is to be paid to each other.
A few years later, the couple are in a car accident in which the husband dies and then the wife dies a few
days later from her injuries.
What is the effect on each BDBN?
As the wife was still alive at the time of her husband’s death, it may be that the husband’s BDBN will be valid
and must be paid to the wife’s estate.
Contrast this to a situation where the fund was a public offer fund and there was no BDBN. The fund trustee
made a preliminary decision to distribute the death benefit to the wife who then died before the death benefit
was paid. In that case, the wife would have ceased to be a dependant as defined under superannuation law and
it may not be possible for the death benefit to be paid to her estate (see, for example, the discussion in Webb v
Teeling16). Remember, it is always necessary to consider any relevant clauses within her fund’s trust deed.
The rules relating to BDBNs can be complex where a member takes a pension and has nominated a
reversionary pensioner. For example, in the case of market linked and allocated pensions, where the
reversionary pension beneficiary dies having survived the primary pensioner the superannuation
death benefit would usually be paid to a death benefit dependant, or the legal personal representative,
of the reversionary pension beneficiary. Depending on all of the circumstances, this may mean that a
person who was a death benefit dependant of the primary pensioner only — that is, not a death benefit
dependant of the reversionary pension beneficiary — is unable to receive a death benefit following the
death of the reversionary pensioner.
It is important to note that BDBNs have some limitations. For example:
for asset protection reasons, a nominated beneficiary may not want to receive a death benefit
directly;
there is always the risk that the nomination will cease to be appropriate because of a change in
circumstances, although the three-year lapsing rule reduces the likelihood of this being the case;
the BDBN may be overridden in the following circumstances:
where a family law payment flag has been made in regard to the member’s benefit;16
where a family law splitting order has been made in regard to the member’s benefit;17
where the trustee is subject to a court order, or aware that the member is subject to a court order,
restraining or prohibiting payment in accordance with the notice;18
in New South Wales, if the BDBN can be overridden by a notional estate order (see ¶12-125).
16 Under s 90ML(4) of the Family Law Act 1975 – see reg 6.17AA SISR.
17 Under s 90MU(1) of the Family Law Act 1975 – see reg 6.17AA SISR.
18 Reg 6.17A SISR. Note that for the purpose of this regulation, “court” means a court exercising its jurisdiction under the SISA.
¶15-110
Trap
Be aware that, just as a will can be challenged – for example, on the grounds that there was undue influence
or the willmaker lacked capacity – so too might a BDBN be challenged.
If there is a real risk of a BDBN being challenged, you should consult a lawyer with appropriate experience to
discuss how the risks can be reduced or eliminated.
Non-lapsing nominations
It has recently become common for superannuation funds to permit members to make “non-lapsing
nominations”. The concept involves the trustee permitting the member to make a binding direction
as to whom death benefits are to be paid. As the trustee no longer has discretion in regard to the
payment of death benefits, the usual death benefit nominations rules – including the three-year lapsing
rule – do not apply.
Typically, a non-lapsing nomination would need to:

be in writing;
be signed by the member in the presence of two competent witnesses;
be dated; and
nominate only beneficiaries who are “dependants” as defined in the SISA and the relevant trust deed.
Trustee discretion
If there is no BDBN and no direction in the trust deed, the trustee may use its discretion to determine
who will be the beneficiary of a superannuation death benefit. However, this discretion must be properly
exercised. (See chapter 16 for a more detailed discussion on death benefit payments and disputes.)
The trustee must first identify the potential beneficiaries. This requires the trustee to consider any
restrictions in the trust deed – for example, the trust deed may contain a definition of dependant which
is narrower than that in the SISA.
The trustee must then take into account reasonable matters which include, but are not limited to:
information regarding the circumstances of the eligible dependants;
the merits of paying all or part of the benefit to the deceased’s estate – assuming that it is an eligible
beneficiary;
any indication of intent provided by the member, including a non-binding death benefit nomination
or directions in the will;
the extent to which a potential beneficiary may receive proceeds from the deceased member’s estate.
¶15-110
Often the decision facing the trustee is a difficult one. This is particularly the case where there are both
minors and adults who are eligible beneficiaries, or a second spouse and children from the first marriage.
¶15-115 Superannuation Complaints Tribunal

The Superannuation Complaints Tribunal (SCT) is an independent tribunal established by the federal
government to deal with certain complaints regarding superannuation funds, annuities and retirement
savings accounts. However, its jurisdiction does not extend to SMSFs (see below). A comprehensive
description of the SCT’s role is set out in chapter 16.
A beneficiary or potential beneficiary may apply to the SCT for a review of the trustee’s decision if
they feel that they have unfairly missed out on receiving a superannuation death benefit or that the
proportion of the death benefit they are to receive should be greater.
A complaint generally cannot be made where the proposed decision was made pursuant to a direction
in the fund’s trust deed, or as the result of a BDBN.
The SCT has the power to:

order the trustees to review its proposed decision; and
confirm the decision of the trustees.
An application to the SCT for the review of a trustee decision must be lodged within 28 days of the
trustee’s decision.
The SCT’s jurisdiction does not extend to decisions made by trustees of SMSFs or certain exempt public
sector superannuation schemes.
¶15-120 Issues for self-managed superannuation funds

The SCT’s inability to act in SMSF cases can make SMSFs a valuable tool in ensuring that a person’s
death benefits are paid in the manner desired by that person.
Control of SMSF following incapacity

The rules governing SMSFs require each member to be a trustee or director of the company acting as
trustee. Where a member becomes incapacitated, it may be possible for the member’s attorney to act in
the member’s place – see ¶2-110.
Control of SMSF following death

If the decision as to who receives death benefits is to be made by the remaining trustee/s of the SMSF,
then the danger is that the trustee/s might decide to pay benefits in a manner that does not accord with
the deceased member’s wishes.
¶15-115
Example
The case of Katz v Grossman19 is a good example. In that case, the fund member was the father and he and
his daughter were the trustees. The father had made a non‑binding nomination expressing the wish that his
death benefit be divided equally between his daughter and son. Following the father’s death his daughter
appointed her husband as a co-trustee and they then together resolved to pay the whole of the father’s death
benefit to the daughter. It was necessary for the son to bring action in the New South Wales Supreme Court
in an attempt to protect his position.
19
It is vital, therefore, that clients understand the problems that can arise in regard to distribution of
superannuation death benefits and the strategies they can implement to prevent these problems from
occurring. The two most common strategies that give certainty are BDBNs which are properly made
(see below) and trust deed direction.
Members intending for their executor (legal personal representative) to represent them after death
should ensure that this is not prohibited by the trust deed. Further, the trust deed should be checked
to determine whether appointment of the member’s legal personal representative is automatic and,
if not, that the procedure of appointment to the role of trustee cannot be hindered by any remaining
interested members of the fund.20
Death benefit nominations

Until recently, some doubt existed in the superannuation industry as to whether an SMSF member
could make a BDBN without the need to update or refresh the nomination every three years as required
by s 59(1A) SISA and reg 6.17A SISR (see ¶15-110). While the ATO in SMSFD 2008/3 gave guidance to
say that s 59(1A) SISA and reg 6.17A SISR do not apply to SMSFs and so an SMSF member’s BDBN did
not need to be refreshed every three years, the ATO’s view does not have the effect of legislation nor is it
binding on a court.
The case of Munro v Munro21 provides the industry with authority (in the Supreme Court of
Queensland at least, although it is likely to be followed in other Supreme Court jurisdictions) that a
non-lapsing BDBN which is properly executed in accordance with the SMSF’s trust deed will be valid.
In this case, Mullins J approved and adopted the ATO’s approach in SMSFD 2008/3 on the construction
of s 59(1A), that is, that it and consequently reg 6.17A SISR do not apply to SMSFs. His Honour
distinguished this case from Donovan v Donovan22 (discussed below), stating that the SMSF trust deed
in Donovan required the BDBN to be in the form required to satisfy the “statutory requirements” as
19 [2005] NSWSC 934.
20 Ioppolo v Conti [2013] WASC 389, as confirmed on appeal in Ioppolo v Conti [2015] WASCA 45.
21 [2015] QSC 61.
22 [2009] QSC 26.
¶15-120
defined in the deed – that is, the deed required compliance with reg 6.17A SISR. In Munro, the BDBN
did not need to satisfy the “relevant requirements” (which were defined in a way so as to only require
satisfaction to avoid a contravention of the requirements or to qualify for concessional tax treatment)
and so reg 6.17A SISR did not apply.
Further, the court in Munro considered whether a BDBN directing payment to the “trustee of deceased
estate” was valid given that the SMSF deed (and legislation) only allows payments of a benefit to one or
more nominated dependants or the legal personal representative of the member. While it was argued
that the terms of the BDBN should be construed in accordance with the terms of the member’s will,
his Honour said that to do so would not be appropriate when the nomination is for the purpose of
payment of the death benefit from the fund. His Honour therefore found that the nomination “trustee
of deceased estate” did not comply with the trust deed and was therefore not a binding nomination.
This case therefore highlights the need for a BDBN to follow the strict requirements of the relevant
SMSF trust deed.
In Donovan, the court considered whether a letter from a fund member expressing a “wish” that his
death benefit be paid to his LPR was binding on the trustee. The court held that it was not binding as
the letter referred only to a “wish”. However, the judge (Fryberg J) went on to consider whether the
trust deed for this fund required a binding death benefit nomination be made in accordance with the
requirements of reg 6.17A SISR. The following consideration given by Fryberg J was distinguished in
Munro (discussed above).
Clause 11.4(b) of the deed said:

“A member may make a binding death benefit nomination in the form required to satisfy the
Statutory Requirements.”
It was argued that the definition of “statutory requirements” did not capture the requirements of
reg 6.17A. The judge disagreed saying that the words in the definition were of general import only and
that it is quite plain that the words in cl 11.4(b) signify that a nomination be in the form prescribed by
reg 6.17A. The judge then said:
“The legislation governing superannuation in Australia is notoriously convoluted … It is very easy
for trustees and members to make a mistake about the requirements applicable in their particular
case. It is very understandable that a deed should specify a requirement in effect to comply with
the form described in regulation 16.7A(6) out of an abundance of caution. The alternative would
be to require the trustees or the member to take legal advice about whether or not the binding
death benefit provisions in SIS apply to SMSFs and to run the risk that their advice might turn
out to be incorrect. Such an approach is uncommercial and unlikely. Interestingly, requiring
conformity with that regulation also eliminates any argument about whether the disposition is a
testamentary disposition which fails to meet the requirements of a Will.”
It would also be wise to remember that any dispute that arises with an SMSF death benefit will most
likely be bitter, personal and fought out in the courts where the opinions of the superannuation
industry and the ATO might be relevant but will not be determinative.
¶15-120
A BDBN would not be binding if it nominates a person who is not eligible to be a beneficiary under the
SISA. A document drafted as a BDBN will also not be binding if the SMSF’s deed does not contain a
clause permitting the trustees to accept an instruction under a valid BDBN.
Liquidity of assets
It is not uncommon for a member to die leaving the trustee of the SMSF having to grapple with how to
pay out the deceased member’s benefit when the asset(s) of the fund are mostly or wholly illiquid.
While it is a requirement under the SISA that a trustee have regard to liquidity when making and
reviewing investments,23 the fact is that liquidity in the event of death of a member is not at the front
of mind of the trustee when they are setting the investment strategy or making individual investment
decisions. Examples of types of investments that may cause liquidity problems are business real
property and geared “instalment warrant” investments.
The result can be that the SMSF is reliant on new members entering the fund or existing members
making significant contributions (which may be difficult under the new contribution rules) in order to
finance a death benefit payment, or the trustee having to make an in specie distribution.
¶15-125 How can a superannuation death benefit be paid?

A death benefit from a superannuation fund can, subject to the trust deed of the fund, be paid as a
single lump sum (or an interim and a final lump sum), one or more income streams (also known as
pensions), or a combination of lump sum(s) and pension(s).
However, if the death benefit is paid on or after 1 July 2007 to a person who is not a dependant for tax
purposes – including an LPR – the death benefit must be paid as a lump sum.
A dependant for tax purposes, generally known as a “tax dependant”, is limited to:
the spouse of the deceased;
a child of the deceased who was under 18 years of age at the date of the deceased’s death; and
any person who was either financially dependent on the member or was in an interdependency
relationship with the member just before the member’s death.24
If a death benefit income stream is paid to a child of the deceased under 18, the income stream must be
commuted – that is, the assets supporting the pension must be converted into a lump sum – before the
child reaches 25 years of age, unless the child is deemed to be permanently disabled.
23 S 52(6)(a)(iii) SISA (for registrable superannuation entity trustees) and s 52B(2)(f)(iii) SISA (for SMSF trustees).
24 S 310-195 ITAA97.
¶15-125
Trap
The form in which a death benefit can be paid may be further restricted by the superannuation fund’s
trust deed.
It is important that you understand any restrictions before advising a client on estate planning strategies for
their superannuation benefits.
Child death benefits

The restrictions on the form in which death benefits can be paid to certain classes of beneficiaries can
cause some interesting situations to arise, particularly in relation to children.
Example
After Tom’s death, the trustee noted that he had provided them with a BDBN leaving his superannuation
death benefit to his three children in equal shares.
The youngest child was 17 years of age at the time of payment and, under law, can receive the death benefit
as either one or more pensions or a single lump sum (or an interim and a final lump sum). However, if the
death benefit is paid as one or more pension(s), it/they must be commuted before the child’s 25th birthday –
unless he or she is deemed to be permanently disabled at that time.
Tom’s second child was 18 years of age. He was living away from home, employed and not considered to be
financially dependent upon his father. He could not receive a death benefit pension, but instead must receive
his death benefit in the form of a lump sum sum (or an interim and a final lump sum).
Tom’s eldest child was 25 years of age and a full‑time student who was financially dependent upon Tom. As
a result, the death benefit can only be paid as a lump sum (or an interim and a final lump sum). However, if the
beneficiary was not Tom’s child, for example, if it was a financially dependent nephew, then the death benefit
could be paid as one or more pensions regardless of the beneficiary’s age.
Another issue that can confront parents is whether a child who receives a death benefit will have the
maturity to properly manage a potentially large amount of money. As a death benefit is unrestricted
and non-preserved, there is nothing to stop a child from commuting a pension death benefit as a cash
lump sum. Some safety net may be available until the child attains legal capacity at 18 years of age, as
before this time it is generally required that a guardian requests the withdrawal be made on the child’s
behalf. However, once the child reaches 18, they will have the ability to commute a pension unless such
a commutation is restricted by the trust deed.
¶15-125
Troubleshooting strategy
If a parent is concerned that a child may not be sufficiently mature to manage a superannuation death benefit
at age 18, it may be appropriate to draft a clause within the superannuation fund’s trust deed that will restrict
the ability for a death benefit pension to be commuted until a later date – for example, until the child is 25
years of age.
When inserting such a clause, remember that if the pension was paid before the child’s 25th birthday,
the commutation must occur before the child reaches 25 years of age – unless they are deemed to be
permanently disabled under the Disability Services Act 1986.
This strategy is often known in the industry as the “sex, drugs and rock and roll” strategy – referring to the
possibility that large funds received by a child may be used for less than desirable purposes!
This type of strategy may also be appropriate if an adult beneficiary is not financially competent, or may be
subject to a divorce, negligence or bankruptcy claim at some time in the future.
In these circumstances, a suitable lawyer should be consulted to determine how and to what extent
protection can be built into the trust deed.
Grandchild death benefits

It should also be noted that where a child beneficiary is not a child of the deceased – for example a
grandchild receiving a benefit as a financial dependant of their deceased grandparent – then subject to
the trust deed and other matters the pension may be able to continue past the child’s 25th birthday, ie
the requirement to commute may not apply.
¶15-130 Commutation of death benefit pensions

There are times when the beneficiary of a death benefit pension may wish to commute that pension to a
lump sum benefit – by converting the assets supporting the pension to a lump sum.
For that commutation to be treated as a superannuation death benefit, the payment must be made
before the later of:
six months from the date of the deceased’s death; or
three months from the date that probate has been granted on the deceased’s estate, or letters of
administration have been issued.25
This period is generally known as the “six month/three month” period. It can be extended if the
payment of the benefit is delayed because of legal action over entitlement to the benefit, or because of
reasonable delays in the process of identifying and making initial contact with the potential recipients
of the benefit.
25 S 307-5 ITAA97.
¶15-130
In such instances, the period can be extended by six months from the date that legal action ceases, or
from the date that the initial contact with the potential recipients occurs.
If a benefit is paid to a beneficiary of the deceased member outside this period, the benefit will not be
taxed as a death benefit. It will be taxed as if the beneficiary had received the benefit as a result of being
a member of the fund.
It is important to note that a death benefit cannot be rolled over, nor generally paid by mere journal
entries.26
There will often be cases where the beneficiary of a death benefit wants to keep the benefit in an
accumulation account – either in the fund from which the death benefit was paid or in another superannuation
or rollover fund.
There are two possible ways that this outcome can be achieved:
(1) The benefit could be received as a lump sum death benefit and re-contributed by the beneficiary back
into their superannuation accumulation account.
However, this may mean that the benefit becomes subject to taxation if it is paid to a beneficiary who is
not a tax dependant and is under 60 years of age. In addition, the contribution:
will count towards the beneficiary’s contribution cap;
will be preserved;
can only occur if the beneficiary is eligible to contribute to a superannuation fund – that is, they are
under 65 years of age, or under 75 years of age (plus an additional 28 days after the end of the month
in which the beneficiary turned age 75) and have been gainfully employed for at least 40 hours in a
consecutive 30-day period since the previous 1 July (inclusive).
(2) If the death benefit has been paid as an income stream, the beneficiary may choose to commute and roll
over the benefit into an accumulation account or another pension after the end of the six month/three
month period – subject to any restrictions imposed by the superannuation fund’s
trust deed.
As the commutation has occurred outside of the six month/three month period, the commutation will not be
treated as a death benefit, so no restriction on rolling over the benefit will apply.
This second strategy eliminates any issues in relation to lump sum tax, contribution eligibility, contribution
caps and preservation – but is only available if a death benefit pension has been paid. This means it will
not be available, for example, if the beneficiary is an adult child of the deceased and was not financially
dependent or in an interdependency relationship with the deceased immediately before their death.
The commutation of a death benefit pension that was paid to a child, who at the date the benefit was
paid was under 18 years of age, will not be treated as a lump sum death benefit provided:
they are under 25 when they receive the commutation;
the commutation takes place because they turned 25 years of age; or
26 ID 2015/2 and ID 2015/3.
¶15-130
they are considered to be permanently disabled under the Disability Services Act 1986 when they
receive the benefit.
Instead, the commutation will be received tax‑free as non-assessable, non-exempt income.
¶15-135 Preservation status of death benefits

The death of a member of a superannuation fund is a condition of release for superannuation purposes.27
As a result, the death benefit will become unrestricted non-preserved and will remain so in the hands of
a beneficiary of a pension death benefit – a reversionary beneficiary – regardless of the beneficiary’s age
or employment status.
¶15-140 How is a superannuation death benefit funded?

A death benefit is generally funded from one or more of the following sources:
the deceased’s accumulated superannuation benefits;
insurance proceeds received by the trustee as a result of the death of the member;
a deduction available to the trustee under the “anti-detriment provisions”; or
consolidated revenue, in the case of an unfunded government fund or scheme.
A superannuation trustee can also use a temporary borrowing to fund the payment of a death benefit.
However, such borrowings can only occur if the period of borrowing does not exceed 90 days and the
amount borrowed does not exceed 10% of the value of assets of the fund.
Anti-detriment provisions
Before 1 July 1988, deductible contributions were not included in the assessable income of a
superannuation fund – that is, they were not subject to contributions tax. In addition, no tax was
payable on lump sum death benefits paid to a dependant as the result of a member’s death.
To offset the contributions tax that now applies to a deductible contribution, the fund trustee may be
able to claim – as a deduction – an amount representing the amount of taxable contributions made to
the deceased member’s account that were subject to contributions tax.
However, this deduction can only be claimed by the trustee if:

the trustee pays the death benefit as a lump sum to a person who was the spouse, former spouse or
child28 of the deceased at the time of the payment; or
27 Reg 6.21 SISR.
28 “Child” includes an adult child of the deceased member – see ID 2010/1.
¶15-140
the trustee has increased the lump sum paid to one or more of these beneficiaries so that the amount
of the lump sum is the amount that the fund would have paid, had not contributions tax been
charged to the deceased member’s account.29
Trap
The use of anti-detriment provisions can cause problems for some small superannuation funds such as
SMSFs.
Because the trustee must pay the lump sum benefit – including the increase representing the tax benefit –
before the tax benefit is received, a small superannuation fund may experience cash‑flow difficulties if the
anti-detriment provisions are used.
Future service deductions

A superannuation fund is also able to claim a deduction if it makes a payment to a member whose
employment has terminated due to death or disability.30 The deduction which the fund receives is
based on the future service of the member up to their retirement date. However, the deduction is only
available if the fund elects not to claim a deduction in the payment year for insurance premiums under
s 295-465(4). The election applies to future years, “unless the Commissioner decides that it should not”.
Therefore, this deduction is more attractive to SMSFs than to other funds.
¶15-145 Tax treatment of death benefits

The discussion in this chapter is generally confined to taxed superannuation funds. If the death benefit
is being paid from an untaxed superannuation fund, specialist advice should be sought.
The tax treatment of a death benefit will generally depend on three things:
whether the recipient is a dependant for tax purposes – note that this is different to being a
dependant for the SISA purposes as discussed at ¶15-105;
the components of the death benefit; and
whether the death benefit is paid as a lump sum or a pension.
A person will be a dependant for tax purposes (referred to as a “death benefits dependant”) if they are:31
the member’s spouse;
the member’s child aged less than 18;
29 S 295-485 ITAA97.
30 S 295-470 ITAA97.
31 S 302-195 ITAA97.
¶15-145
a person with whom the member had an interdependency relationship;32

any other person who was a dependant (and so may include financial dependants).
See the table in the Appendix to this chapter for a summary of who is a dependant for tax purposes.
A superannuation death benefit can consist of two components – a tax-free component and a taxable
component. This is the case regardless of the funding sources or whether the benefit is paid as a lump
sum or pension.
The taxable component is split into two elements – a taxed element and an untaxed element.33
The death benefit will contain an untaxed element if:

the benefit is paid as a lump sum;
the trustee has claimed a deduction for death insurance for the deceased member; and
the member is aged less than their normal retirement age, for example, age 65.
It will also contain an untaxed element if the lump sum or pension is paid from an untaxed fund such
as the Commonwealth Superannuation Scheme.
Lump sum death benefits

If a lump sum death benefit is paid, the rate of tax which will apply to the taxed component will depend
on whether the beneficiary is tax-dependant, and the amount of each element that forms part of the
taxed component:
Taxable component*
Beneficiary Tax-free component
Element taxed Element untaxed
Dependant34 Tax‑free Tax‑free Tax‑free
35 Tax-free 17% 32%
Non-dependant
* Includes Medicare levy.
* Note that when a superannuation fund has claimed (or intends to claim) a deduction for insurance premiums, an element untaxed will be
included in the fund of the taxable component of the lump sum benefit. See as support ID 2010/76.
If the death benefit is paid to the deceased’s LPR, the taxation treatment will depend on what the LPR
does with it.
32 The ITAA97 contains its own definition of “interdependency relationship”. It is very similar, but not identical, to the definition of that
term in s 10A SISA.
33 S 307-290 ITAA97.
34 S 302-60 ITAA97.
35 Ss 302-140 to 302-145 ITAA97.
¶15-145
To the extent that the death benefit is paid to a death benefits dependant of the deceased, it will be taxed
as if it were paid to a dependant.36 This gives rise to a significant planning opportunity (refer to ¶4-140)
and so a person may wish to make a will:
that directs superannuation to be paid to beneficiaries who are death benefits dependants of
the deceased;
that creates a trust, the beneficiaries of which are limited to death benefits dependants.
However, to the extent that a benefit is paid to a non-death benefits dependant it will be taxed as if
it were paid to a non-dependant. This might be the result where the benefit is paid to a discretionary
testamentary trust which has a number of beneficiaries, only some of which would qualify as a death
benefits dependant.
Defence Force and police personnel

If a lump sum death benefit is payable to a beneficiary who is a non-dependant for tax purposes – as the
result of the death of a member of the Australian Defence Force, Australian Federal Police or a state or
territory police force killed in the line of duty – the benefit will not be subject to tax.37
Terminal medical condition benefits

If a member of a superannuation fund receives a lump sum benefit prior to their death as the result of a
diagnosis of a terminal medical condition, they will not be subject to tax on any part of that benefit.38
Calculating the untaxed element of a death benefit

The amount of taxable component – untaxed element of a lump sum death benefit paid from a taxed
source is calculated as follows:39
Step 1: Work out the tax-free component

The tax-free component of the death benefit paid from the accumulation phase
will equal the amount of the death benefit payment, multiplied by the tax-free
proportion of the deceased member’s benefits immediately before the benefit
is paid.
Step 2: Taxable component – taxed element
Calculate the amount of the total death benefit that proportionally relates to the
period from the start of the member’s service period to the date of their death,
using the formula:
36 S 302-60 ITAA97.
37 S 302-195(2) ITAA97.
38 S 303-10 SISA.
39 S 307-290 ITAA97.
¶15-145
Calculation
(Lump sum death benefit x Service days) – Tax-free component

Total days
Service days equals the total days from the start of the member’s service period to the date of their
death (inclusive).
Total days equals the total number of days from the start of the member’s eligible service period to the
date of the member’s normal retirement date, usually their 65th birthday (inclusive).
The result will equal the taxable component – taxed element of the lump sum benefit, unless the result
of the formula is less than zero. If the result is less than zero, the amount of the taxable component –
taxed element will be nil.
Step 3: Taxable component – untaxed element

The taxable component – untaxed element equals the taxable component less
the amount worked out in step 2.
Example
Peter, who was born on 12 February 1955, had an eligible service period start date of 1 July 1980. He died on
25 September 2007 while still a member of his superannuation fund.
After his death, the trustees of his fund decide to pay a lump sum death benefit of $800,000 to his son. This
is funded from Peter’s accumulated account balance and the insurance proceeds from a life policy that the
trustees had taken out on Peter’s life.
As Peter had accumulated $350,000 of tax-free component in his account before his death, the taxable
components of the death benefit paid to his son would be calculated as follows.
Step 1
Tax-free component is $350,000. Therefore, the total taxable components, both taxed element and untaxed
element, will be $450,000.
Step 2
The number of days that Peter had accrued in his eligible service period before his death was 10,130, and
the number of days between the date of his death and the date at which he would have reached his normal
retirement age (ie age 65) was 4,523.
¶15-145
Example (cont)
Therefore, his taxable component – taxed element would be:
10,130
$800,000 x – $350,000 = $203,061
(10,130 + 4,523)
Step 3
The remaining amount of the taxable component will be the taxable component – untaxed element:
$450,000 – $203,061 = $246,939.
Reducing tax payable by non-dependent beneficiaries

Choosing where to place insurance
It is interesting to note that the smaller the proportion of the service period until normal retirement
date that occurred before the member’s death, the less of the taxable component that will be taxed as an
untaxed element at the higher rate of 32%, including Medicare levy.
If a client is considering applying for insurance within a superannuation fund and has more than one fund with
different eligible service period start dates, it can be beneficial to place the insurance within the fund with the
earliest start date.
This will ensure that a larger proportion of the taxable component of any death benefit will be treated as
a taxed element, rather than an untaxed element. This will reduce the tax payable by any non-dependent
beneficiary of a lump sum death benefit.
Remember that if you are considering replacing a client’s insurance policy in order to take advantage of this
strategy, it is important to ensure that the new policy is in place before cancelling the old to ensure your client
does not end up uninsured!
Re-contribution strategy
As a tax-free component will not be taxable when paid to a non-dependent beneficiary, increasing the
proportion of tax-free component in a member’s account before their death will reduce the taxable
component and, therefore, the tax payable by a non-dependent beneficiary.
¶15-145
Strategy
Provided the member of a superannuation fund is still eligible to contribute to a superannuation fund and is over
the age of 60, the taxable component with the appropriate portion of tax-free component can be withdrawn by
the member and re-contributed back into a superannuation fund as a non-concessional contribution without
incurring any lump sum or contributions tax.
As non-concessional contributions form part of the tax-free component, this strategy reduces the amount of
taxable component that is taxable in the hands of a non-dependent beneficiary.
However, before undertaking this strategy, it is important to ensure that any non-concessional contribution
made will not be in excess of the member’s non-concessional contributions cap. Excess non-concessional
contributions may be taxed at 49%. With effect from 1 July 2013 (following the enactment of the Tax and
Superannuation Laws Amendment (2014 Measures No. 5) Act 2015 on 19 March 2015), individuals have the
option to withdraw their excess contributions (and 85% of the associated earnings) without paying excess
contributions tax – although 100% of the associated earnings will be included in the individual’s assessable
income and be subject to a 15% tax offset.
The member may also incur expenses in relation to the sale or transfer of assets required to fund the withdrawal.
This can include a CGT liability – unless the sale or transfer is made using only assets that are supporting a
pension.
Pre-death withdrawals
The payment of a lump sum death benefit to a non-dependent beneficiary can often lead to the
generation of a tax liability.
In contrast, if a member withdraws a lump sum from their superannuation fund after they reach
60 years of age, the whole amount of the lump sum benefit is not subject to tax – provided the benefit
is not paid from an untaxed superannuation fund and the member has satisfied a condition of release
(eg retirement).
Strategy
Pre-death withdrawals can result in significant tax savings. Assuming that this strategy would only be used
where death was imminent, it reinforces the importance of having a valid enduring financial power of attorney
in place.
Example:
Jenny is over 60 years of age and has a superannuation benefit of $500,000, consisting entirely of a taxed
component.
Her only beneficiary is her son Bill, aged 40, who is not a tax dependant.
If the death benefit is paid to Bill, it would be taxed at 17% (includes Medicare levy).
If instead Jenny was to withdraw the amount as a lump sum shortly before her death, the amount could pass
to Bill under Jenny’s will tax‑free. This would result in a tax saving of $85,000.
If Jenny was unable to effect the withdrawal because she did not have legal capacity, Bill could, provided he
held an enduring power of attorney.
¶15-145
This strategy does, however, have some potential disadvantages, including:

(1) benefits are withdrawn prematurely from the concessionally taxed superannuation environment –
what if Jenny has a miraculous recovery and lives for 20 more years?
(2) the strategy must be implemented before the member’s death and it is not always possible to know
when a member is approaching death;
(3) if the withdrawn benefit is not gifted to the beneficiary before the death of the member, it will form
part of the deceased’s estate – so it may be at risk of a claim made against the estate; and
(4) it assumes that the member’s estate will not be pursued by creditors after the withdrawal.
Differential allocation to beneficiaries

Another option may be available where the member has both tax dependent and non-tax dependent
beneficiaries. In such cases it might be possible to direct the superannuation death benefit to tax
dependants and gift other property to non-tax dependants.
Strategy
Streaming superannuation benefits to tax dependants can result in significant tax savings.
Example
Gregor is 52 years of age. His superannuation benefit is valued at $400,000, consisting entirely of a taxed
component.
His two children are a son Jhari, aged 25, who is not a tax dependant, and a daughter Anna, aged 16.
If the death benefit is paid equally to Jhari and Anna then tax at 17% would be payable in respect of Jhari’s
share and Anna’s share would be tax-free.
If Gregor had sufficient wealth, he could leave the whole of his superannuation to Anna and via his will leave
an equivalent gift to Jhari. Anna would take the superannuation tax-free.
This strategy does, however, have some potential disadvantages, including:

(1) it assumes that the member’s estate will have enough funds to equalise the distribution; and
(2) it generally means that the tax dependent child will be able to demand the benefit at the age of 18.
In contrast, a testamentary trust with vesting at a later age might offer protection that outweighs
the tax savings.
Death benefit pensions

The tax treatment of a death benefit pension will depend on the age of the deceased at the date of their
death and – if the deceased was under 60 years of age – the age of the beneficiary.40
40 Ss 302-65 to 302-90 ITAA97.
¶15-145
Age of deceased Age of recipient Tax-free Taxable component

at date of death at date of component
pension payment Applies if the beneficiary is a
dependant or the reversionary
pension commenced to be paid
before 1 July 2007
Taxed element Untaxed element

Under age 60 Under age 60 Tax‑free MTR less 15% MTR*
tax offset
60 and above Tax‑free Tax‑free MTR less 10%
tax offset*
60 and above Any age Tax‑free Tax‑free MTR less 10%
tax offset*
* Including Medicare levy.
If the marginal tax rate (MTR) of the beneficiary is less than the rates shown, the tax on the taxable
component will reduce to the MTR of the beneficiary.
If the taxable component – taxed element of the income received by the beneficiary is initially subject
to tax because both the deceased and the beneficiary are under 60 years of age, any amount of this
component will be tax‑free once the beneficiary reaches 60 years of age.
However, if the income stream containing this taxed element is rolled over and used to purchase
another income stream, the beneficiary will lose the ability to claim the 15% tax offset until they have
reached their preservation age. This is because the new income stream did not commence as the result
of the death of another person – the nexus to death has been broken.
Non-dependent beneficiaries
A death benefit pension cannot commence to be paid on or after 1 July 2007 to a beneficiary who was
not dependent on the deceased member for tax purposes.41
If the death benefit pension paid to a tax non-dependant commenced before this date, the pension will
be taxed as if it is being paid to a dependent beneficiary.
¶15-150 Contribution quarantining

Before 1 July 2007, it was often possible to reduce the tax payable on death benefits paid to multiple
beneficiaries by directing different components to different death benefits.
41 Reg 6.21(2A) SISR in conjunction with reg 6.21(2) SISR.
¶15-150
For example, benefits paid as a lump sum to a beneficiary who was not a dependant for tax purposes –
and who would therefore, be taxed on certain components – could include a greater share of the tax-free
components.
Components that were subject to tax in the hands of a non-dependant would be directed to beneficiaries
who were dependants for tax purposes – as they would not be subject to tax on any death benefit paid.
Since 1 July 2007, it is no longer possible to segregate components in this way if all of the components
form one superannuation interest for example, belonging to the one superannuation product or SMSF.
The proportion of tax-free and taxable component of any benefit payable from a superannuation fund
must be in proportion to:
the proportion of tax-free and taxable component that existed in the fund immediately before the
payment of the benefit – if the benefit was paid from an accumulation account;
the proportion of tax-free and taxable component that existed in the fund at the commencement of
the pension – if the death benefit is paid from the deceased member’s pension.
To some extent this proportioning rule may be overcome in respect to future contributions by
contributing, that is, “quarantining”, future non-concessional contributions in a separate superannuation
fund to those containing taxable components, or to which concessional contributions will be made.
Elizabeth, aged 63, has a company superannuation fund in which she has accumulated $600,000 of
taxable component.
In the lead‑up to her retirement at age 65, she would like to make a total of $500,000 of non‑concessional
contributions to superannuation.
Elizabeth has nominated her husband and her son as beneficiaries of any superannuation benefit following
her death. Her son is unlikely to be considered a dependent beneficiary at that time.
If she was to make the non-concessional contributions to her existing superannuation fund, any death benefit
paid must consist of both tax-free and taxable components. Although tax‑free to her husband, the taxable
component of a death benefit paid to her son would be taxable.
If instead she was to contribute the non-concessional contributions to a separate fund to which her son
was a beneficiary, the son may be able to receive a death benefit that includes a large amount of tax‑free
component.
This quarantining strategy may not, however, be perfect, as any investment earnings generated from
the non-concessional contributions which are not supporting a pension will be treated as a taxable
component.
¶15-150
Capital gains tax on the disposal of pension assets

The disposal of assets such as shares and property that are being used to support a pension will not
currently generate a tax liability.42
If the pension reverts upon the death of a primary pensioner, the assets supporting the pension remain
in “pension phase”.
Further, with the introduction of the Income Tax Assessment Amendment (Superannuation Measures
No. 1) Regulation 2013, if a pensioner dies and no reversionary pensioner exists, the tax exemption for
earnings on assets supporting pensions will continue following the death of the pensioner until the
deceased pensioner’s benefits have been paid out of the fund (subject to the benefits being cashed as
soon as practicable). This supersedes both the Commissioner’s preliminary view expressed in a draft
ruling (TR 2011/D3) and his view in an interpretative decision (ID 2004/688) that, if a pensioner dies
and no reversionary pensioner exists, there is no pension so that when assets are sold or transferred in
specie to support a death benefit payment, any assessable capital gains on the sale of assets to fund lump
sum death benefits will be taxed at the rate of 15% in the accumulation phase.
The recently clarified tax exemption excludes payments received from life insurance proceeds and
anti-detriment payments.
The operation of the proportioning rule also applies to such death benefits so that the tax-free
proportion of that pension can be used when calculating the tax components of those benefits.
Strategy
If death benefits payable on the death of a member consist of both lump sum and pension death benefits,
a trustee may be able to reduce the impact of CGT by segregating assets that have higher unrealised
assessable capital gains.
Ideally, assets that have less accumulated unrealised capital gains may then be those sold or transferred to
fund the lump sum death benefits, minimising the amount of realised capital gains subject to tax.
However, tax should not be the only consideration when selecting assets to be sold to fund a lump sum
death benefit. The long‑term performance of available assets should also be considered when selecting
assets to remain in the fund.
42 See Subdiv 295-F ITAA97.
¶15-150
Example (taken from the explanatory statement to the Income Tax Assessment
Amendment (Superannuation Measures No. 1) Regulation 2013)
Harold was a member of a complying superannuation fund who was receiving a superannuation income
stream immediately before his death on 1 February 2013. When the income stream commenced, the value of
the superannuation interest from which it was paid (the relevant interest) was $100,000, of which the tax-free
component was $20,000 (20% of the value) and the taxable component was $80,000 (80% of the value).
The income stream did not automatically revert to another person on Harold’s death and no amounts were
added to the relevant interest on or after his death.
The trustee of the fund determined that the entire value of the deceased member’s benefits in the fund (being
the value of the relevant interest) would be paid as a single lump sum to the deceased’s adult child, Emma.
The lump sum death benefit, in the amount of $75,000, was paid on 20 July 2013 using only an amount from
the relevant interest. The fund did not increase the lump sum death benefit by an anti-detriment increase
amount and the benefit was not to any extent attributable to an insurance-related amount paid or arising on
or after the deceased’s death.
The lump sum death benefit of $75,000 consists of a tax-free component of $15,000 (20% of the amount of
the benefit) and a taxable component of $60,000 (the remainder of the benefit).
If the trustee of the fund had added $10,000 to the relevant interest to fund an anti-detriment increase of
that amount in the payment to Emma, the lump sum death benefit of $85,000 would consist of a tax-free
component of $15,000 (20% of the amount of the benefit as reduced by the $10,000 anti-detriment increase)
and a taxable component of $70,000 (the remainder of the benefit).
Refreshing the cost base

There will be instances when all expected beneficiaries will be non-dependants for tax purposes and
will have to receive a death benefit in the form of a lump sum.
In these circumstances consideration should be given to whether the impact of CGT can be reduced.
The following strategy appears to have been quite popular. However, as noted below, the ATO’s views
on “wash sale” arrangements at the relevant time must be considered.
Strategy
If a member of a superannuation fund has commenced a pension, consider whether assets being used to
support the pension should be sold and used to purchase the same or another asset from time to time. This
strategy is known as “refreshing”.
Capital gains generated by pension assets are not taxable in the hands of the trustee. When the new asset
is purchased with the proceeds of the sale, the cost base of the new asset will equal the purchase price plus
any other capital expenses associated with the purchase of the new asset.
By selling assets that are supporting a pension and have increased in value – and then using the proceeds to
purchase new assets – the cost base of the pension assets will generally increase if the asset was sold at a
profit. This will in turn reduce any capital gains that may be assessable when those assets revert back to the
accumulation phase before the payment of a lump sum death benefit.
¶15-150
Before implementing a refreshing strategy, several important points should be considered:

the tax treatment of an asset in the future should not be the only consideration when determining
whether an asset is sold;
the sale and repurchase of an asset will not be recognised if the transaction is merely a paper
transaction. There must be a genuine change in beneficial ownership and both the sale and
repurchase of the asset must always be made on an arm’s length basis. This may expose the asset to
the risk of changes in market value between the time of sale and repurchase; and
to increase the likelihood that the transaction will not be subject to the anti‑detriment provisions of
Pt IVA, a potential beneficiary should not play any part in these transactions.43
Commuting a death benefit pension

As discussed at ¶15-130, if a beneficiary who is a dependant for tax purposes would like to receive a
death benefit as a lump sum, the impact of CGT can sometimes be removed by using the six month/
three month rule.44
Strategy
Income and realised capital gains produced by the assets supporting the pension are treated as
non‑assessable, non-exempt income. As a result, no CGT will be paid by the trustee upon the sale of assets
used to support the death benefit pension.
In addition, the pension will be treated as a death benefit, and not subject to any lump sum tax, as long as it
is commuted by the beneficiary – who is a dependant for tax purposes – within:
six months from the death of the superannuation member; or
three months from the date that probate has been granted on the deceased’s estate, or letters of
administration have been issued.
¶15-155 Employer payments made after the death of an employee

A payment made by an employer after an employee’s death forms part of the employee’s estate. The
beneficiaries of this benefit will generally be determined in accordance with the deceased employee’s will.
Accrued annual and long service leave

Employer payments for unused annual leave, leave loading and unused long service leave made after the
death of an employee are not subject to tax.
43 Refer to TR 2008/1 and TA 2008/7.
44 S 307-5 ITAA97.
¶15-155
Death benefit termination payments

A benefit paid by an employer for an employee who has died will be treated as a death benefit termination
payment – as long as it does not represent either unused annual or unused long service leave.
A death benefit termination payment can consist of one or two components – the tax-free component
and the taxable component. The tax-free component comprises the pre-July 1983 segment of the
payment and the invalid segment of the payment.45 The taxable component comprises the balance.46
Each component will be taxed depending upon whether the beneficiary is considered to be a dependent
or non-dependent beneficiary for tax purposes.47
Beneficiary Tax-free component Taxable component*
Dependant Tax‑free First $195,000: tax-free

Excess: 49%
Non-dependant Tax-free First $195,000: 32%
Excess: 49%
* Includes Medicare levy. The amount is increased in line with indexation, in $5,000 lots.
If the marginal tax rate of the beneficiary is less than the rates shown, the tax on the taxable component
will reduce to the marginal tax rate of the beneficiary.
45 S 82-140 ITAA97.
46 S 82-145 ITAA97.
47 Ss 82-65 to 82-70 ITAA97.
¶15-155
Appendix – SISA and ITAA97 dependency

Relationship with member Dependent for SISA purposes? Dependent for tax purposes?
Married to member Yes Yes
Lived with member as a de facto Yes (even if same sex) Yes (even if same sex)
In a relationship with member that Yes (even if same sex) Yes (even if same sex)
is registered under a state/territory
law that was prescribed for s 22B
Acts Interpretation Act 1901
Child under 18 Yes Yes
Child over 18 who is financially Yes Yes

dependent
Child over 18 who is financially Yes No (unless interdependent)

independent
Parent No (unless financially dependent or No (unless financially dependent or

interdependent) interdependent)
Grandchild No (unless financially dependent or No (unless financially dependent or

Friend No (unless financially dependent or No (unless financially dependent or

Charity No n/a
Note
(1) Beneficiaries of any anti-detriment benefit are further restricted to a spouse, former spouse or child of
the member – see ¶15-140.
(2) Non-SISA dependants can receive a benefit in very limited circumstances – see ¶15-110.
¶15-155
313
Chapter 16
Claims against superannuation
Introduction...................................................................................................................... ¶16-100
Challenging superannuation insurance claims................................................................ ¶16-105
Challenging death benefit decisions ................................................................................¶16-110
Lodging complaints with the SCT ....................................................................................¶16-115
Federal Court appeals..................................................................................................... ¶16-120
Case studies: insurance-related disputes....................................................................... ¶16-125
Case studies: death benefit claims ................................................................................. ¶16-130

There has been dramatic recent growth in the number of superannuation-based insurance claims
following the incapacity or death of a member.
The compulsory nature of superannuation and the requirement that employer “default” funds offer
a minimum level of insurance cover to most new members means that, upon a person becoming
incapacitated, whether permanently or otherwise, a claim frequently arises under an insurance policy
held by the trustee of that person’s superannuation fund(s). Note that, in this context, “incapacity” can
mean physical incapacity as well as mental incapacity.
Insurance claims based on incapacity are often problematic. The definitions contained within an
insurance policy can be complex and are further complicated by rules which dictate when a person
ceases to be insured. Additional challenges arise where, as is often the case, a long period of time has
elapsed before a member finally forms the view that their incapacity occurred several years beforehand.
As a result, it is not uncommon for persons whose claim for insurance via their superannuation fund
has been rejected to then complain to the Superannuation Complaints Tribunal (SCT) or appeal the
SCT’s decision via the Federal Court. Alternatively, a member might bypass the SCT and commence
action in the Supreme Court in the relevant jurisdiction.
Where a member has died without leaving a valid binding death benefit nomination, it is not
uncommon for the member’s dependants to argue over the trustee’s decision to distribute the death
benefit. Again, this leads to complaints being made to the SCT and appeals to the Federal Court.
This chapter will explain how complaints against trustees of superannuation funds (other than SMSFs)
involving insurance claims and death benefits are dealt with by the trustees, the SCT and courts. It
will also identify some of the critical issues that advisers need to be aware of when advising clients of
their rights.
¶16-105 Challenging superannuation insurance claims

How insurance and super combine
When clients hold insurance via their superannuation fund, they sometimes mistakenly think of it as
their own asset. In fact, the insurance policy is simply an asset of the fund and in that regard should be
treated like any other asset such as shares.
A claim on the policy is not made directly by the member. Instead, the trustee of the superannuation
fund, as the policy owner, is responsible for pursuing the claim against the insurer. If the insurer pays
out on the policy, the proceeds are paid to the trustee who credits them to the member’s account in the
superannuation fund.
¶16-100
Claims against superannuation 315
If the member is alive, the member can decide whether they wish to access all or any part of their
superannuation account, provided of course they have satisfied a “condition of release”.
Tip
While a person suffering incapacity will usually satisfy a condition of release, this will not always be
the case.
If the member has died, their account – including any insurance death benefit – must of course be paid
out to one or more of the member’s dependants and/or LPR.
Establishing a claim
The onus is on the member to establish a claim. Generally speaking, the trustee of a superannuation
trust is not required to proactively gather information to support a member’s claim.
The trustee is usually obliged to make its own determination of a member’s claim, which means that it
should not rely solely on the insurer’s decision. It is also common, however, for a trust deed to limit the
trustee’s liability in the event of a member’s claim to the amount it actually receives from the insurer.
It is important to understand that terms such as “incapacity”, “total and permanent disability” and the
like are not abstract terms. They must be considered in light of the circumstances of each case. This
means that regard must be paid to how these terms are defined in the trust deed and in the insurance
policy. Usually, but not always, a trust deed will simply cross-refer to the definition used in the
insurance policy. Some superannuation funds might “self-insure” in which case the definition in the
trust deed will be the sole relevant definition.
A trustee will usually explain to members via its website how to make a claim and what information is
required to be submitted. The type of information typically required includes a claim form completed
in the form requested by the insurer and copies of relevant medical reports and statutory declarations.
Members should always review the fund’s product disclosure statements and other documentation
to see if consistent statements, and adequate disclosure, have been made by the trustee in regard to
the insurance.
Assessing the claim

In practice, the insurer will usually assess the claim and respond directly to the trustee. It is common for
the insurer to require the member to undertake an assessment by a specialist nominated by the insurer.
The most common disputes arise where the insurer’s specialists form the view that the member does not
suffer from a total and permanent disability (TPD). They will often lead to more tests and assessments
being carried out and it is not uncommon for a TPD claim to take a year or more to resolve.
¶16-105
One of the more difficult types of claims that arises in practice is where several years have elapsed since
the member’s employment ceased and/or the member first experienced symptoms of an illness. In such
cases, determining the date that the member became TPD can be particularly problematic. The date of
TPD is often important as, in many cases, cover for TPD ceases upon certain events, such as when the
member ceased employment.
The more contentious elements of TPD claims involve matters such as:
whether the member suffered TPD before or after insurance cover ceased;
the meaning of “unlikely ever to work again”;
whether it is necessary for a person to be unable to return to full-time or part-time work, or only
full-time work; and
whether return to work can be in any occupation or the occupation that the member is skilled in.
These matters are usually resolved having regard to the insurance policy and trust deed, however
many cases are complex and there is often some uncertainty as to how certain claims should be
assessed. Claims based on mental health can also be particularly difficult to substantiate and measure,
and time-consuming to assess.
The obligation on trustees has been described as follows:1

“The duty of the trustee is, plainly, to make a decision on the correct question or questions and
to do so in good faith and upon a real and genuine consideration of the material.”
The trustee’s decision

Once the trustee makes its decision it will notify the member and inform the member that they have 28
days in which to complain against the decision. The complaint can then lead to a challenge in the SCT
(see ¶16-110 “Assessing the claim” onwards).
¶16-110 Challenging death benefit decisions

Does the trustee have a discretion?
A superannuation fund’s trust deed invariably contains provisions dealing with the determination of
recipients of a death benefit. Such provisions must adhere to the requirements in the SISA as to who can
receive death benefits.
Superannuation fund trust deeds usually fall within one or more of the following categories:
those that give the trustee discretion to pay benefits;
those that additionally permit a member to make a non-binding death benefit nomination;
1 Byrne J in Flegeltaub v Telstra Super Pty Ltd [2000] VSC 107 at [55].
¶16-110
those that additionally permit a member to make a binding death benefit nomination; and
those that direct where the death benefit should be paid, for example, directly to a deceased’s LPR.
The nature of the trustee’s discretion and the SISA requirements

The SISR state that a death benefit must be cashed in favour of either or both of the member’s LPR or
one or more of the member’s dependants.2 However, the regulations only allow a member’s benefits to
be paid to another person (other than a dependant or LPR) if:
the trustee has not, after making reasonable enquiries, found either an LPR, or a dependant, of the
member; and
the person in whose favour benefits are cashed is an individual.
According to the SCT, the trustee should consider the purpose of superannuation when deciding how
to distribute a death benefit. As stated in the SCT publication Key considerations that apply to death
benefit claim:3
“The role of superannuation is to provide for the retirement of the member and spouse and, in
the event of the member’s death before retirement, provide for those dependants of the member
who have a legitimate expectation to be provided for by the member (such as the member’s legal
or de facto spouse, any minor children, persons with interdependency relationships with the
deceased or persons with a financial dependency on the deceased).”
Most – but certainly by no means all – superannuation fund trust deeds define “dependant” according
to the definition in the SISA. Importantly, while a trust deed definition of “dependant” may be defined
more narrowly than in the SISA (for example, certain defined benefit funds may not have expanded the
definition of “spouse” to allow for same-sex couples, as now allowed under the SISA, due to funding
reasons), a trust deed definition must not be wider than the SISA definition (see ¶15-110 for more details).
Pursuant to the provisions of a superannuation fund’s trust deed, a trustee will usually have the power
to distribute a death benefit in quantities it determines alone (subject to a valid binding death benefit
nomination being in place), based on information provided regarding the deceased’s “dependants” and
the nature of the deceased’s relationships at the date of death.
The process used by public offer, industry and corporate (employer-

sponsor) funds
It is common for trustees to follow the “claims staking” procedure set out in the Superannuation
(Resolution of Complaints) Act 1993 (Complaints Act) when deciding how to deal with death benefits.
The advantage of following this procedure is that it gives trustees protection in the event that a person
complains against the trustee’s decision. Complaints within the timelines set out in the Complaints Act
2 Reg 6.22 SISR.
3 Key considerations that apply to death benefit claim, SCT, 2006, para 122.
¶16-110
can then be dealt with by the trustee and, if applicable, the SCT. Persons who complain outside of the
prescribed period are deemed not to have an interest in the death benefit.4
The typical procedure is:

the trustee identifies all possible “dependants”;
the trustee conducts an information-gathering exercise, collecting evidence as to the nature of the
relationships the member had with their “dependants” and the needs of those dependants, at the
time of death;
the trustee makes a preliminary decision as to how it proposes to distribute the death benefit and
to notify all interested parties of that decision, giving them 28 days to object to the decision;
if no objections are received, the trustee finalises its preliminary decision and distributes the
death benefit;
if objections are received, the trustee allows new information to be provided by the objecting parties.
Depending on the nature of the new information, the trustee may give all parties the opportunity to
make further submissions. The trustee then either affirms or changes its preliminary decision based
on the new information;
if the trustee affirms its preliminary decision, it notifies all parties and informs the parties that if
they wish to appeal the decision then they should make a complaint to the SCT within 28 days; and
if the trustee changes its preliminary decision, it notifies the parties of its new decision and gives
them a further 28 days to object.
According to the SCT:5

“… trustees should be careful not to specify a precise date by which the 28-day prescribed period
ceases. For example, a trustee notice dated 2 November 2004 states that an objection must be
lodged by 2 December 2004. If the complainant could establish by probative evidence that,
for some reason, he/she did not receive the notice until, say, 14 November 2004, the 28-day
prescribed period would run from the date of his/her receipt of the notice and he/she would have
until 13 December 2004 to lodge the complaint. Thus the notice advising that the objection must
be lodged by 2 December 2004 would, in the above circumstances, be notice of a lesser period
(sub-sections 14(3)(b) and 15(2)(d) of the Complaints Act) and the time limits would not apply.”
4 S 15(2) of the Superannuation (Resolution of Complaints) Act 1993.
5 SCT Quarterly Bulletin Issue No. 38, 1 October 2004.
¶16-110
Warning to advisers
When an applicant is represented by an adviser, the receipt of a notice by the adviser will usually start the
clock for the determining of time periods, such as the 28-day period. This can be confusing for both the
adviser and the applicant and care must be taken or else a claim might fall outside the prescribed period
leaving the SCT with no jurisdiction to deal with the complaint. See Kestel v Superannuation Complaints
Tribunal6 as an example.
Trustees will not usually agree to extend the 28-day period as doing so may mean that the trustee loses
the protection of the claims staking procedure. According to the SCT:7
“As the 28 days is set down in legislation, if a trustee consents to receive an objection after the
28 days from a potential beneficiary, the SCT can later accept a complaint from that person.”
The considerations that guide decision making

The first consideration a trustee must take into account is who could potentially be a dependant
of the member for the purposes of the fund’s governing rules. This will usually involve the trustee
determining who falls into the following categories:
current spouses;
minor and adult children;
anyone who was in an interdependency relationship with the deceased; and
anyone who was financially dependent on the deceased at the time of death.
How to put your client’s case effectively

It is important to note that a person with standing to make a complaint is not able to be represented
(eg by a lawyer) unless the SCT “considers it necessary in all the circumstances”.8 A person may also be
represented if they have a disability (as that term is defined in the Disability Discrimination Act 1992).9
Similarly, trustees must be represented by responsible officers and the SCT expects such officers to
participate directly in the complaint-resolving process.
6 [2010] FCA 1300.
7 SCT Quarterly Bulletin Issue No 38, 1 October 2004.
¶16-110
The way in which you put your client’s case will differ depending on whether your client is:
the person claiming to be a dependant to the trustee;
the person making a complaint to the SCT about the trustee’s decision; or
the trustee of a superannuation fund defending its decision in the SCT.
If your client is the person claiming to be a dependant it will be your responsibility to provide the trustee
or the SCT with documentation that not only satisfies the trustee that your client is a “dependant” but,
if relevant, also shows a level of financial dependency. The latter will be an influencing factor as to the
portion of the distribution your client may receive.
Examples of documentation include statutory declarations (from both your client and other, relevant
third parties), birth certificates, marriage certificates, bank statements, mortgage statements, bills,
documents showing financial commitment etc.
If your client is the trustee and the matter is being heard in the SCT, the SCT should be provided with a
copy of the relevant trust deed, documentation which the trustee relied on when making its decision and,
if possible, examples of past SCT determinations or Federal Court cases that support the trustee’s decision.
¶16-115 Lodging complaints with the SCT

What is the SCT?
The Superannuation (Resolution of Complaints) Act 1993 (Complaints Act) was created to deal with the
resolution of complaints about decisions and conduct of trustees of superannuation funds, approved
deposit funds and of retirement savings account (RSA) providers and insurers, and to establish the SCT.
The SCT was established as an alternative to the Supreme Court for dispute resolution. The role of the
SCT is to provide a fair, economical, informal and quick 10 option for challenging a decision by a trustee
of a regulated superannuation fund.
Note that the SCT deals with complaints “on the papers” – that is, it is not necessary for parties to
appear before the SCT as one would when taking a matter to the courts or some other tribunals. The
parties make written submissions and the SCT considers these and communicates back to the parties
in writing.
The SCT only has jurisdiction in relation to regulated superannuation funds (this does not include
self-managed superannuation funds), approved deposit funds11 and certain exempt public sector
superannuation schemes.12
10 S 11 of the Superannuation (Resolution of Complaints) Act 1993.
12 S 4A of the Superannuation (Resolution of Complaints) Act 1993.
¶16-115
Functions of the SCT

Section 12 of the Complaints Act states that the SCT has the following functions:
to inquire into a complaint and to try to resolve it by conciliation;
if the complaint cannot be resolved by conciliation – to review the decision or conduct to which the
complaint relates; and
any functions conferred on the SCT by or under any other Act.
What complaints can be lodged with the SCT

Section 14 of the Complaints Act allows a person to make a complaint to the SCT, that the decision is or
was unfair or unreasonable,13 as long as the following conditions are satisfied:
subject to the third dot point below, the decision is made by a trustee of a fund and it is in relation
to a particular member or former member of a regulated superannuation fund or a particular
beneficiary or former beneficiary of an approved deposit fund;14
the complaint is not in relation to a trustee’s decision to admit persons to life policy funds;15
where the person making the complaint has been given written notice by the trustee setting out its
decision in relation to the person’s objection to the payment of a death benefit and the prescribed
period within which the person must complain to the SCT about its decision,16 the person must
complain within that period (prescribed period is 28 days17);
the person complains to the SCT within the 28-day period;18 and
the complaint cannot relate to an excluded subject matter,19 or relate to the management of a fund as
a whole.20 Note that a complaint in relation to a trustee’s decision as to payment of a death benefit is
not an excluded subject matter.
Who can make a complaint

Section 15(1) of the Complaints Act allows a person to make a complaint under s 14 in relation to a
death benefit if:
15 S 14(1A) of the Superannuation (Resolution of Complaints) Act 1993.
17 Reg 5 of the Superannuation (Resolution of Complaints) Regulations 1994.
¶16-115
the person has an interest in the benefit;

the person claims to be, or to be entitled to benefits through, a person referred to in para (a); or
the person is acting for a person referred to in para (a) and (b).
Section 15(2) states that for a person to have an interest in a death benefit the following conditions need
to be satisfied:
the person has:
been given written notice by the trustee of the proposed payment of the benefit;
the person has been given written notice by the trustee of the prescribed period within which the
person may object; and
the person has objected to the trustee within the 28-day prescribed period; or
the person has not been notified by the trustee of the proposed payment of the benefit and the
failure to notify was unreasonable; or
the person has been notified by the trustee of the proposed payment of the benefit but was not
notified of the prescribed period to object to the payment; or
the person has been notified by the trustee of the proposed payment of the benefit but was notified
of a period less than the prescribed period for the purposes of subpara (a)(ii).
Complaints the SCT cannot deal with

We have already noted above that complaints about SMSFs fall outside of the SCT’s jurisdiction:
s 19 of the Complaints Act restricts the SCT from dealing with complaints under s 14 unless the
person complaining satisfies the SCT that:
a complaint about the same subject matter was previously made to the trustee under s 101 SISA;21
and
the complaint to the trustee was not resolved within 90 days of making the complaint.22
Section 101 SISA states that a trustee of a regulated superannuation fund or an approved deposit fund,
must ensure that there are internal arrangements in force that deal with inquiries or complaints made.
SCT’s powers
Section 37 of the Complaints Act gives the SCT the following powers for reviewing a decision of a
trustee that is subject to s 14:
the SCT has all the powers, obligations and discretions that are conferred on the trustee;23 and
21 S 19(1)(a) of the Superannuation (Resolution of Complaints) Act 1993.
22 S 19(1)(b) of the Superannuation (Resolution of Complaints) Act 1993.
¶16-115
the SCT must make a determination that either affirms the decision, remits the matter back to
the trustee for reconsideration, varies the decision or sets aside the decision and substitutes a new
decision.24
The SCT must affirm a decision of a trustee if the decision was fair and reasonable.25 If the SCT
concludes that a decision of a trustee was not fair and reasonable, the SCT may only exercise its powers
for placing the person complaining in as practicable a position as possible that is no longer unfair
or unreasonable.26
The Complaints Act does not give the SCT direct enforcement powers, however, reg 13.17B SISR states
that the trustee of a fund must not fail, without lawful excuse, to comply with an order, direction or
determination of the SCT.
Conciliation
The SCT has the power to request the parties to first attempt to resolve a complaint through
conciliation.27 Penalties may apply if a trustee fails to attend a conciliation conference. If a complainant
fails to attend a conciliation conference, the SCT may treat the complaint as having been withdrawn.
Conciliation conferences are usually conducted by telephone. As noted at ¶16-110, a person with
standing to make a complaint is not able to be represented unless the SCT “considers it necessary in all
the circumstances”.28
APRA’s powers
Section 263(1)(c) SISA gives the Australian Prudential Regulation Authority the power to conduct
an investigation of a fund if it appears that the trustee has failed to give effect to a determination of
the SCT.
Section 315 SISA permits an injunction to be granted by a court where a trustee has not complied with
a determination of the SCT.
Summary
The SCT has all powers, obligations and discretions that are conferred on a trustee or other decision
maker.
¶16-115
The SCT may only change a decision made by a trustee if it is concluded that the decision was not fair
and reasonable. If the decision was not fair and reasonable then the SCT stands in the shoes of the
trustee and has the ability to make a different decision.
The tribunal does not have jurisdiction to review decisions of a trustee in the following circumstances:
complaints relating to the management of a superannuation fund as a whole;
where a person has not first complained to the decision maker and the complaint was not resolved
by the complainant within 90 days of them making the complaint; and
where a complaint was not made to the trustee or the SCT within the prescribed
28-day period.
A person is able to challenge a trustee’s decision where:

the complaint relates to a death benefit decision;
the person making the complaint has a direct or indirect interest in the death benefit; and
certain other requirements of the complaint are met, for example, the complainant first objected to
the trustee within the claims staking period of 28 days.
For a person to have an “interest” in a death benefit, they will generally need to be a dependant of the
deceased or a deceased’s LPR. There is no requirement that a person needs to have a proprietary interest
or entitlement to a superannuation death benefit.
The SCT can also hear complaints where a person is claiming to have an interest in a superannuation
death benefit, therefore the person is claiming to be a dependant. For example, a trustee has decided
that the brother of the deceased is not a dependant or an LPR of the deceased and therefore does
not receive the deceased’s superannuation death benefit. The deceased’s brother may have a right to
challenge this decision with the SCT on the basis that he “claims” to be a dependant and therefore has
an interest in the death benefit. As long as all other requirements are satisfied, the brother has a right to
make this type of complaint to the SCT.
¶16-120 Federal Court appeals

Part 7 of the Complaints Act deals with appeals made to the Federal Court regarding determinations
made by the SCT. An application to the Federal Court can only be made if:
the appeal concerns a question of law;29 and
the person making the appeal, appeals to the Federal Court within 28 days of receiving a copy of the
determination of the SCT, or such further period as the Federal Court allows.30
¶16-120
The Federal Court is able to affirm a decision, set aside a decision, or remit a matter back to the SCT
for a further determination.31 The Federal Court is not able to make an order awarding costs against
a complainant who does not defend the appeal which has been instituted by another party to the
complaint.32
The commencement of an appeal does not affect the operation of the SCT’s determination or prevent
the implementation of the determination.33 However, the Federal Court is able to make orders staying
or affecting a determination of the SCT, in relation to a s 14 complaint, if the Federal Court thinks this
type of action is appropriate to secure the effectiveness of the appeal.34
The following case studies demonstrate some of the issues that have been the subject of complaints. As
they are summaries they may not contain all of the relevant facts.
¶16-125 Case studies: insurance-related disputes

Which version of the trust deed applies?
In Australian Super v Woodward,35 the issue was whether the trustee should use the version of the trust
deed that was in effect at the time its decision was made to reject the claim, or the version that was in
place when the member ceased employment.
The trustee considered the appropriate deed was that in place when the member ceased employment.
The member complained to the SCT which agreed with the trustee.
The member appealed to the Federal Court and Lander J agreed with the member.
The trustee appealed to the Full Federal Court which decided in favour of the trustee.
This is a good example of an issue which, on its face, appeared elementary but clearly was not simple to
resolve due to the drafting of the trust deed.
Is interest payable when insurance payout is delayed?

Where there is a delay between the date a claim was first made and the date the payout is made by the
insurer, it is not uncommon for the member to claim that an interest component should be added.
The answer as to whether interest should be added usually depends on the reasons for the delay in the
35 Australian Super Pty Ltd v Woodward [2009] FCAFC 168.
¶16-125
payout and requires consideration of provisions of the Insurance Contracts Act 1984 (notably, s 57). Two
recent SCT decisions deal with this issue.
In D09-10\028, the insurer admitted the claim some years after the claim was first made. However, the
SCT regarded that the delay in admitting the claim was not unreasonable given that the persuasive
evidence was not lodged with the insurer until late in the process. In this case, the SCT held that the
decisions of both the trustee and the insurer to reject a request that interest be paid were fair and
reasonable in the circumstances.
In contrast, the SCT in D09-10\016 determined that interest should be paid by the insurer. In this case
the claim was made in 2003 and additional evidence was supplied at various times up until 2007 when
the claim was finally admitted. The SCT held that the insurer should pay interest from February 2005 to
the date the payment was actually made, on the basis that it was not fair and reasonable for the insurer
to continue to reject the complainant’s claim for TPD after February 2005 because at that time the
insurer’s own medical reports substantiated that the complainant was TPD.
¶16-130 Case studies: death benefit claims

Webb v Teeling36 (wife, de facto, daughter and deceased interdependent
mother)
This Federal Court case was an appeal against a decision by the SCT to set aside the trustee’s decision
and replace it with its own decision. The parties to the appeal were the potential beneficiaries of a death
benefit amount of approximately $2.2m.
The parties were:

the deceased’s daughter, Rebecca (aged 22);
the deceased’s estranged wife and Rebecca’s mother, Kim;
the executors of the estate of the late Olive Webb, the deceased’s mother; and
Jill Teeling, who claimed to be the deceased’s de facto wife and financial dependant.
In 2000, the deceased completed a non-binding nomination nominating:

50% to his daughter, Rebecca;
25% of the death benefit amount to his wife, Kim (although they split in the 1990s, they never
divorced); and
25% to his mother, Olive.
The deceased died in 2006. The deceased’s mother (Olive) died in 2007 but before the trustee made its
final decision on the distribution.
36 [2009] FCA 1094.
¶16-130
The trustee’s decision

The trustee determined to distribute the death benefit as follows:
59% to the daughter, Rebecca;
25% of the death benefit amount to the wife, Kim;
11% to the mother’s (Olive’s) estate; and
5% to the de facto, Jill.
Jill Teeling made a complaint to the SCT about the trustee’s decision.
The SCT’s decision

The SCT set aside the trustee’s decision and substituted its own decision distributing the fund as
follows:
52% to the wife, Kim;
26% to the daughter, Rebecca; and
22% to the de facto, Jill.
The SCT allocated no amount to the mother’s estate as it felt that a payment to the estate, the beneficiaries
of which were not dependants of the deceased as defined in the trust deed, would not be a payment “to
or for the benefit of the dependants” as the deed required. The SCT also regarded that a payment to the
estate of a deceased person (other than the member) would not satisfy the requirements of the SISA that
fund benefits be cashed in favour of either the member’s LPR or the member’s dependants.
Rebecca Webb appealed the tribunal’s decision to the Federal Court.
The Federal Court’s decision

The Federal Court agreed with the SCT that a payment to the estate of a deceased person (other than
the member) would not satisfy the requirements of the SISA that fund benefits be cashed in favour of
either the member’s LPR or the member’s dependants.
The Federal Court also held that although Jill Teeling had not specifically complained about the
allocation to Rebecca or to Olive’s estate, it was open to the SCT to adjust the interests of all the
beneficiaries in order to increase the share given to one beneficiary.
The Federal Court dismissed the appeal and upheld the tribunal’s decision.
SCT determination D03-04\135 – adult children

In this case, the deceased’s widow objected to the deceased’s adult children (aged 18 and 21 years)
getting a portion of the death benefit. The deceased had nominated his widow to receive 90% of his
death benefit and the remaining 10% being split between his children.
¶16-130
Based on the evidence provided, neither of the deceased’s children was financially dependent on the
deceased at the time of his death.
The SCT set aside the trustee’s decision and determined that the entire superannuation death benefit
should be paid to the deceased’s widow and neither adult child was financially dependent on the deceased.
The SCT emphasised that the purpose of superannuation was to provide for the member or the member
and his or her partner in retirement. Payment of a death benefit to a deceased’s adult child should only
be appropriate where the child was relying on support from the deceased at the time of his/her death.
SCT determination D04-05\094 – minor children

A trustee decided to pay a death benefit equally between the deceased’s two infant children and her
de facto spouse. A complaint was made by the deceased’s former husband who claimed that he should
receive the full amount in trust for his children and he disputed whether the de facto spouse was truly a
de facto spouse.
The de facto relationship was only for 20 months. The deceased was living with her de facto spouse,
however, she was often unable to work, therefore the de facto spouse provided financially for her.
According to the evidence, the de facto’s dependency was familial but not directly financial.
As the deceased’s children were both young, they have a legal and moral right to look to their parents
for their maintenance, education and advancement. The SCT found that it was unfair and unreasonable
for the death benefit to be paid to anyone other than the deceased’s former husband, for and on behalf
of the deceased’s infant children. It was determined that the two infant children and the de facto spouse
were all dependants, however, due to each person’s position being so different, it was unfair to make an
equal distribution between all three persons.
The SCT set aside the trustee’s decision and determined that the death benefit be paid to the deceased’s
former husband, for and on behalf of the deceased’s infant children.
SCT determination D03-04\143 – de facto spouse v estranged spouse

A complaint was brought by the deceased’s de facto spouse. She objected to the decision that the
deceased’s estranged spouse and step-daughter receive part of the death benefit. The deceased had
nominated his estranged spouse to receive his entire death benefit.
The deceased was still married to his estranged spouse at the date of his death. They had been married
for eight years and had separated two years before his death. The deceased has been in a de facto
relationship for two years. Both the spouse and the de facto have two minor children from previous
relationships.
The SCT determined that only the de facto spouse and her children were financially dependent on the
deceased. The deceased’s nomination pre-dated his separation and the estranged spouse had received
¶16-130
most assets following the separation. The deceased made no financial contribution to the estranged
spouse’s household.
Based on the de facto spouse’s financial dependency, the SCT set aside the trustee’s decision and
determined that the de facto spouse receive the entire death benefit.
SCT determination D06-07\084 – financial dependency

The trustee decided to pay a death benefit to the deceased’s de facto spouse. A complaint was made by
the deceased’s brother who was claiming financial dependency.
The deceased did not make a nomination, however, in his will he left his whole estate to his brother. The
estate consisted of financial assets and liabilities relating to a share in the family farm, which was owned
and operated by the brother and the deceased. The deceased also owed his parents $100,000.
The deceased’s brother claimed he was financially dependent on the deceased because of the deceased’s
share of the work on the farm and that he now was financially disadvantaged by having to employ
labour on the farm to complete his work.
The SCT affirmed the trustee’s decision. The SCT considered that the financial relationship between the
deceased and his parents was a commercial arrangement which involved a loan contract and payment
of interest, therefore the SCT found that the deceased’s parents were not financially dependent. The SCT
made these comments even though the deceased’s parents were not a party to the hearing.
The SCT also considered that the financial relationship between the deceased and his brother was also
commercial in nature. Furthermore, as a spouse, the deceased’s de facto did not have to prove financial
dependency and, consistent with the purpose of superannuation, it was fair and reasonable in the SCT’s
opinion to pay all of the death benefit to the de facto spouse.
SCT determination D05-06\110 – interdependency – mother

A complaint was brought by the deceased’s mother who objected to the death benefit being paid to
the deceased’s legal personal representative (LPR). The deceased passed away without a will and his
father was named as administrator of his estate and therefore LPR. The evidence showed that the
deceased’s mother provided the deceased with both financial and emotional support for most of his
life. The deceased also provided his mother with financial support. The deceased’s LPR claimed that the
deceased died with no dependants therefore the death benefit should be paid to the LPR.
The SCT accepted that the deceased and his mother had a complex interdependency where they
exchanged financial and emotional support. The SCT set aside the trustee’s decision and determined
that the deceased’s mother receive 80% of the death benefit, due to the existence of an interdependency
relationship and the fact that she was partially financially dependent on her son, and the LPR received
the remaining 20%.
¶16-130
SCT determination D08-09\084 – legal personal representative

v de facto
A deceased passed away with no children and left behind his de facto spouse of 13 years. His only
remaining relatives were his parents and two sisters. In the deceased’s will he left his estate to his
two sisters.
The deceased had nominated his de facto spouse to receive his entire death benefit.
The deceased’s sisters claimed that the deceased’s relationship with his de facto spouse had broken
down and that she was not financially dependent on the deceased.
The de facto spouse provided evidence that she had a 13-year relationship with the deceased and this
continued up until his death. They shared all expenses and provided each other with support.
The trustee decided to distribute 50% of the benefit to the de facto spouse and 50% of the benefit to the
deceased’s sisters, as his LPRs.
When the trustee’s decision was challenged in the SCT, new evidence was produced which stated that
the deceased’s parents were financially dependent on the deceased at the time of his death.
The deceased’s mother claimed financial dependency because the deceased maintained her car and
renovated the family home and she was also physically reliant on him for household chores.
The deceased’s father claimed financial dependency because the deceased helped him out with money
and labour over the past 20 years which included building and renovating the family home.
The SCT determined to distribute the death benefit as follows:

70% to the de facto spouse;
20% to the deceased’s mother; and
10% to the deceased’s father.
Neither of the deceased’s sisters was financially dependent on the deceased. Therefore, it was not fair
and reasonable that they should receive a portion of the death benefit, via the deceased’s estate.
Furthermore, based on the evidence provided, the de facto spouse had the greatest dependency on
the deceased and she would have had an expectation that she would have been supported by his
superannuation benefit in their retirement.
The deceased’s mother and father received a small portion of the death benefit because of their partial
financial dependency.
¶16-130
331
Chapter 17
Taxation of non-resident estates
Introduction.......................................................................................................................¶17-100
When will an estate trust be non-resident?......................................................................¶17-105
Who is taxed?................................................................................................................... ¶17-110
Other non-resident issues................................................................................................ ¶17-115

This chapter considers the Australian taxation issues for Australian resident beneficiaries of a
non‑resident deceased estate or testamentary trust. Some of these issues are different to those that
would arise if the deceased estate or testamentary trust were an Australian resident. Deceased estates
and testamentary trusts are both types of trusts. In this chapter they will be referred to collectively as
“estate trusts”.
¶17-105 When will an estate trust be non-resident?

The residency of an estate trust is determined separately for each income year. An estate trust will be
non-resident for a particular income year if:
none of its trustees are Australian tax residents at any time during the income year; and
it is not centrally managed and controlled in Australia at any time during the income year.
Australian tax residency

Individual trustees
The trustee of an estate trust who is an individual will be an Australian tax resident for an income year if:
they reside in Australia according to the ordinary meaning of “reside”;
their domicile is in Australia, unless the ATO is satisfied that their permanent place of abode is
outside Australia;
they have been in Australia, continuously or intermittently, during more than 183 days in any
income year – unless the Commissioner of Taxation is satisfied that their permanent place of abode
is outside Australia and they do not intend to take up residence in Australia;
they are deemed to be a resident in connection with various Commonwealth superannuation schemes.
Company trustees
The trustee of an estate trust that is a company will be an Australian tax resident for an income year if:
the company is incorporated in Australia; or
the company carries on business in Australia – and either its central management and control is in
Australia or its voting power is controlled by shareholders who are residents of Australia.
Place of central management and control

An estate trust will be centrally managed and controlled in Australia if decisions about the
management of its affairs are made in Australia. It is possible for an estate trust to be centrally managed
and controlled in Australia, even if the trustee is not an Australian resident.
¶17-100
Taxation of non-resident estates 333
For example, a non-resident trustee of an estate trust may manage the affairs of the estate trust in
accordance with directions provided by the beneficiaries who are Australian residents. In this case,
the estate trust would be centrally managed and controlled in Australia – even though its trustee is a
non-resident.
Example
Harry has lived in New Zealand all his life and dies leaving two adult children, Sally and Ken. Ken lives in New
Zealand and Sally lives in Australia.
Harry appoints Sally and Ken as joint executors of his estate.
Harry’s estate will be an Australian resident trust because one of the executors (ie trustees) is Sally who is an
Australian tax resident.
Example
Molly has lived in Australia all her life and dies leaving one adult child, Jane, who is not an Australian tax
resident. Jane is the sole executor of Molly’s estate and exercises all of her duties in New Zealand.
Molly’s estate will therefore be a non-resident estate.
Deceased’s residency and asset location not relevant

The residency status of the deceased before death – and the location of assets of the estate trust – are
not relevant to the residency of the estate trust. It is, therefore, theoretically possible for an estate trust
established by an Australian tax resident for assets wholly located in Australia to be a non-resident
estate trust. This could be the case where a non-resident executor is appointed and the estate is wholly
managed and controlled outside of Australia throughout the administration of the estate.
¶17-110 Who is taxed?

It will generally be the trustee or a beneficiary of a non-resident estate trust who will be taxed. Deciding
who will be taxed depends on a number of factors including:
the source of the amount;
whether the amount is income or a capital gain;
whether the amount has been distributed to a beneficiary; and
the rights of beneficiaries under the will or testamentary trust.
At times, the analysis of who gets taxed on what can be very complex. We have divided the analysis into
two timeframes:
¶17-110
the accumulation phase – where the trustee does not distribute or provide benefits to any beneficiaries;
and
the distribution phase – when the trustee provides benefits or makes distributions to beneficiaries.
Accumulation phase – taxation of the trustee

In the accumulation phase, it is useful to consider the taxation of the trustee first and then the taxation
of any beneficiaries.
What is taxed to the trustee?

During the accumulation phase, the trustee will be required to include the types of income that any
non-resident would be required to include in their assessable income. These amounts would be:
Australia-sourced income; and
capital gains from taxable Australian property.
Source of income
The taxation of income of a non-resident estate trust will be affected by whether the income is sourced
in Australia. Rules about source are found both in statutory provisions and common law.
A number of provisions in Australia’s taxation legislation deem certain amounts of income to be

sourced in Australia. Examples include certain interest, dividends and royalties under the withholding
tax provisions. If an amount is not specifically designated in Australia’s taxation legislation as being
Australia-sourced, common law source rules must be taken into account.
At common law, the overarching principle is whether as a hard practical matter of fact an amount of
income is Australia-sourced. The starting point is to consider what links the income may have with
Australia, such as:
whether the asset generating the income is located in Australia;
whether services generating the income were performed in Australia;
whether documents for the relevant amount were negotiated and/or executed in Australia; and
whether the funds were paid from an Australian bank account.
Taxable Australian property

The taxation of a capital gain of a non-resident estate trust will be affected by whether the gain is from
taxable Australian property (TAP). In broad terms, TAP is defined as:
direct and indirect interests in Australian real property;
direct and indirect interests in Australian mining, quarrying or prospecting rights;
an asset that has been used at any time in carrying on a business via a permanent establishment
in Australia;
¶17-110
an option over one of the above; or

an asset subject to an election by an individual taxpayer to disregard a capital gain upon ceasing
Australian taxation residency.
What rate of tax applies?

Any Australia-sourced income or capital gains from TAP would be included in the non-resident
trustee’s Australian assessable income under either s 99 or 99A ITAA36. The default position is that
such amounts would be taxed under s 99A. Under s 99A, all of the assessable income of the non-resident
trust would be subject to tax at the top marginal tax rate, without the Medicare levy.
However, if the trust is established under a will, the Commissioner has a discretion to apply s 99
instead. If s 99 applies, the ordinary non-resident individual marginal tax rates would apply – because
the trustee of the estate trust is a non-resident. Both deceased estates and testamentary trusts should
come within the ambit of this discretion. The circumstances in which the Commissioner usually applies
s 99 to a deceased estate are discussed below.
Double taxation agreements

The application of Australian taxation to the trustee is subject to the operation of any relevant double
taxation agreements.
For example, if the trustee of a non-resident estate trust is a resident of a jurisdiction with which
Australia has a double taxation agreement, the terms of that agreement may allocate taxing rights
over certain amounts (such as trading profits) to the country of residency only – this would preclude
Australia from being able to tax such amounts.
If other countries are involved with an estate trust – that is, because of the residency of the trustee
or the source of a particular amount of income – you need to find out if Australia has a double
taxation agreement with that country. If so, that agreement should be reviewed to see whether it limits
Australia’s ability to subject certain amounts to taxation.
Accumulation phase – taxation of beneficiaries

Although no distributions or benefits may be provided from the non-resident trust to Australian
resident beneficiaries, it is possible that certain income and gains could be attributed back to Australian
resident beneficiaries.
From the 2010-11 income year, this attribution occurs via the operation of three possible taxing
regimes. These are:
the transferor trust rules; and
the controlled foreign company (CFC) rules.
¶17-110
For the 2009-10 and earlier income years, the foreign investment fund (FIF) and deemed present
entitlement rules could also have application.
The transferor trust, FAF and CFC regimes are aimed at countering tax avoidance, so their application
to estate trusts is quite limited. In particular, the transferor trust and CFC rules will not apply in
situations where:
the deceased estate/testamentary trust has been established by the operation of a will; and
no Australian resident has, or is deemed to have, transferred property or services to the trust.
A detailed analysis of the operation of these regimes is beyond the scope of this guide. However, if there
have been direct or indirect transfers of property or services to the estate trust, or beneficiaries have an
interest in the estate trust, these three regimes should all be carefully considered.1
Example
Jack and Jill are Australian resident beneficiaries of their father’s non-resident estate. Jill is a lawyer and,
although she is not administering the estate, she has provided legal services to the estate free of charge. This
is likely be considered as a transfer under the transferor trust rules, so Jill will need to consider the application
of the transferor trust and CFC regimes to her particular circumstances.
Example
Louise is an Australian resident beneficiary of her mother’s non-resident testamentary trust. The trust has
some liquidity problems so Louise organises for a friend overseas to provide funds to the estate – to ensure
that none of the capital assets are sold. Louise reimburses her friend for the expenditure.
Although Louise has not made a direct transfer of funds to the estate, she will be deemed to have made a
transfer via her arrangement with her offshore friend. Louise will therefore need to consider the application of
the transferor trust and CFC regimes to her particular circumstances.
Distribution phase
During the distribution phase, it is generally the beneficiaries of a non-resident estate trust who will
be taxed on distributions. Exceptions to this would include distributions made to beneficiaries under a
legal disability. These are the same type of exceptions that would apply to situations where a trustee is
taxed instead of a trust beneficiary on normal trust distributions.
1 The government has announced a rewrite of the CFC rules and proposed certain amendments to the transferor trust rules. However, at
the time of writing, none of these changes had been legislated and no firm start date for the amendments had been announced.
¶17-110
Assuming that the relevant beneficiaries are adults with full legal capacity, the taxation burden will lie on
the beneficiaries to whom distributions are made. However, in certain circumstances, it is possible that
the accruals rules could still apply so that beneficiaries are taxed disproportionately to their distributions.
The accruals rules are essentially anti-avoidance provisions intended to tax amounts that might not
otherwise be taxed, so it is appropriate to look at these rules last.
When determining the taxation liabilities of beneficiaries it is best to analyse them in the following order:
taxation of current year income to which beneficiaries are presently entitled – this will include
present entitlement during the income year and within two months of the end of the income year;
taxation of other distributions or deemed distributions – this will include primary taxation and
certain penalty taxation; and
accruals rules.
Taxation of current year income to which beneficiaries are presently entitled

Under s 97 ITAA36, the assessable income of an Australian resident beneficiary will include that share
of the income of a trust estate to which they are presently entitled. Section 98 will assess the trustee if a
resident beneficiary has a vested and indefeasible interest – see s 95A(2). You need to consider whether
any beneficiary is presently entitled to a share of the income of the deceased estate.2 This depends on the
stage of administration of the estate.
Under IT 2622, a present entitlement will not generally arise until the estate has been fully administered.
This is when all debts are paid or provisioned and the amount of the residue is ascertained. However, a
present entitlement may also arise if some income is actually paid to a beneficiary before administration
is completed. Where administration is completed during a year, the beneficiaries are deemed presently
entitled for the whole income unless the Commissioner has agreed to a request for apportionment, in
which case part will be assessed to the LPR – see ¶11-105.
Example
Amy and Jonathan are Australian resident beneficiaries of their mother’s non-resident estate. Amy is to receive
a house and Jonathan is to receive a share portfolio, with the residue to be divided equally. As at the end of the
relevant income year, the residue has not been determined and no distributions have been made. Therefore,
neither Amy nor Jonathan will be presently entitled to the income of their mother’s estate and s 97 will not apply.
In the following tax year the residue is determined and all the assets of the estate are distributed to Amy and
Jonathan. Amy and Jonathan will both be presently entitled to a share of the income of the estate in that tax
year. Part of the income may be assessed to the LPR if a request to apportion is successful.
2 The application of the proposed streaming rules should also be considered.
¶17-110
Taxation of other distributions

In addition to taxing the current year income of the estate, the ATO will also seek to tax any income or
gains that have been derived in previous income years.
Under s 99B, when a beneficiary receives a distribution or an amount is applied for their benefit from an
estate trust, the beneficiary will be required to include the relevant amount – less specific exclusions –
as assessable income.
An amount will be deemed to have been applied for the benefit of a beneficiary if:
the amount has been directly or indirectly re-invested, accumulated or capitalised or otherwise dealt
with such that it will, at a future time, benefit the beneficiary;
the derivation of the amount has operated to increase the value to the beneficiary of any property or
rights of any kind held by or for the benefit of the beneficiary;
the beneficiary has received or become entitled to receive any benefit – including a loan or a
repayment, in whole or in part, of a loan or any other payment of any kind – provided directly or
indirectly out of that amount or out of property or money that was available due to the derivation of
the amount;
the beneficiary has power, by means of the exercise of any power of appointment or revocation
or otherwise, to obtain, whether with or without the consent of any other person, the beneficial
enjoyment of the amount; and
the beneficiary has directly or indirectly assigned their interest in the amount to another person or
is able, in any manner whatsoever, whether directly or indirectly, to control the application of that
interest.
The scope of what might be considered to be a distribution under s 99B is extremely broad. Common
instances where amounts could unwittingly be caught are if:
a loan is provided from the estate trust to an Australian resident beneficiary;
a guarantee is provided from the estate trust for the benefit of an Australian resident beneficiary; or
the terms of the estate trust mean that an Australian resident beneficiary has the ability to obtain
the benefit of an amount held by the estate trust.
Once the inclusionary amounts have been determined, you then need to see whether certain portions of
this can be carved out. The amounts that can be carved out include:
the corpus of the estate trust – not including amounts that would have been taxed if derived by an
Australian tax resident;
amounts assessed to an Australian tax resident beneficiary under s 97;
amounts assessed to a trustee under s 99 or 99A;
amounts not taxable if derived by a resident; and
amounts assessed under transferor trust rules.
¶17-110
Example
James is an Australian resident beneficiary of his uncle’s non-resident estate. James has never received a
distribution from the estate; however, he did borrow money from the estate at an arm’s length rate of interest.
The full amount of the loan will be assessable to James under s 99B ITAA36 unless he can demonstrate that
one of the exclusions mentioned above applies.
Example
Amanda is an Australian resident beneficiary of her mother’s non-resident estate. The only asset of the
estate is a New Zealand bank account. The balance of this bank account when Amanda’s mother died was
A$900,000 and during the administration of the estate it derived income of A$100,000.
Amanda was considered to be presently entitled to income of A$70,000 and included this income in her
assessable income under s 97 in the tax year prior to any distributions.
In the following tax year the estate is finalised and Amanda receives a distribution of A$1m.
The full amount of this distribution will be included in Amanda’s assessable income less specific exclusions.
In these circumstances the exclusions would include:
A$900,000 – being the corpus of the estate; and
A$70,000 – being the amount assessed to an Australian resident beneficiary under s 97 ITAA36.
Therefore, Amanda will only be required to include A$30,000 in her assessable income under s 99B as a
result of the distribution.
Penalty taxation
Australian resident beneficiaries can sometimes defer Australian taxation by deferring distributions
from a non-resident estate trust, so there is a provision that applies penalties to distributions that are
unduly delayed.
Section 102AAM ITAA36 assesses an Australian resident beneficiary with additional tax. This is like
an interest charge for assessable distributions received by a beneficiary from a non‑resident trust estate
that is:
included in the assessable income of a resident taxpayer under s 99B; and
not considered to have been comparably taxed by a listed country – that is, the United Kingdom,
the United States, New Zealand, France, Germany, Japan or Canada.
Beneficiaries of an “estate of a deceased person” – who may otherwise have been assessable under
s 99B – are exempt from the interest charge if the amounts in question are paid to or applied for the
beneficiary within three years of the death of the deceased. However, since the wording of the exception
only covers the estate of a deceased person, testamentary trusts will not qualify for this concession.
¶17-110
The calculation of the interest charged under s 102AAM is a complex calculation performed on an
annual basis to correctly mirror an interest charge.
Accruals taxation
The transferor trust and CFC regimes – if applicable – can apply even if 100% of the income has been
distributed. This might occur, for example, where an Australian tax resident is to be attributed under
the transferor trust rules and trust distributions are made to non-resident individuals who are not
resident in any “listed” jurisdiction.3
Checklist for applying rules

When explaining how non-resident deceased estates and testamentary trusts and their beneficiaries
may be taxed, we split the taxation analysis into two phases – the accumulation phase and the
distributions phase.
However, there will obviously be situations that do not fit this precise model. The following list outlines
the most appropriate order to apply the various rules to the taxation of trustees and beneficiaries of
non-resident estate trusts:
beneficiaries under s 97 – looks at current year income;
trustees under s 98 – essentially the same issue as s 97 for beneficiaries under legal disability;
trustees under s 99 or 99A – looks at current year income and has carve-outs for s 97;
accruals rules – looks at current year income and has carve-outs for other taxation under ss 97 and
99 or 99A;
s 99B – distributions of previous year income with carve-outs for previous year Australian taxation
and some other offshore taxation; and
s 102AAM – only looks at applying additional tax to certain amounts taxed under s 99B.
Cost base on assets distributed in specie

When an Australian resident beneficiary acquires an asset from the estate of a deceased person who is
a non-resident, the cost base rules are largely the same as if they had received the distribution from a
deceased Australian resident.
However, there will be a difference if there is a distribution of an asset which is not taxable Australian
property and is not trading stock. If this type of asset was distributed from the estate of an Australian
resident, the first element of the beneficiary’s cost base would be the deceased’s cost base in the asset.
However, if the distribution was from a non-resident the first element of the beneficiary’s cost base
would be the market value of the asset at the deceased’s death.
3 Canada, the United Kingdom, the United States, Japan, France, New Zealand and Germany.
¶17-110
¶17-115 Other non-resident issues

Legislation to remove the availability of the 50% CGT discount for non-resident and temporary resident
individuals received royal assent in 2013. The 50% CGT discount was previously available to any
individual deriving a taxable capital gain on the disposal of an asset held for more than 12 months,
regardless of residency.
The amendments apply to discount capital gains included in the assessable income of an individual,
irrespective of whether the CGT asset producing the gain was owned directly by the individual or held
indirectly by a trust.
The amendments also reduce the discount percentage applicable to a discount capital gain made after
8 May 2012 by a trustee that is taxed under s 98 ITAA36 in respect of an individual beneficiary who
was a foreign resident or temporary resident for some or all of the period that the CGT asset was held.
In circumstances where a trustee is taxed under s 98, the discount percentage will be worked out on the
basis that the individual beneficiary made the gain.
Temporary residents and non-residents will still be entitled to a discount on capital gains accrued
prior to 8 May 2012, provided they choose to obtain a market valuation for their assets as at that date.
However, individuals who do not have a market valuation will be ineligible for the CGT discount on
pre-announcement gains. This is regardless of whether the individual made the discount capital gain
directly or as a result of being a beneficiary of a trust.
It should be noted that, while foreign residents and temporary residents are only subject to CGT in
relation to taxable Australian property (TAP), the definition of TAP not only includes land in Australia
(whether held directly or indirectly), but also any other asset that an individual who was an Australian
resident has elected to defer the taxing point on when ceasing to be an Australian resident.
What does this mean for the beneficiaries of deceased estates?

Based on the explanatory memorandum to the legislation, it would seem that a beneficiary who
becomes entitled to a capital gain after 8 May 2012 (for example, on 30 June 2012) will be caught by
these changes if they were a foreign or temporary resident on or after that date – even if the capital gain
was from an asset that was sold by the trust before that date.
The changes will also apply to any resident taxpayer who inherits TAP on or after 8 May 2012 from
someone who was a foreign or temporary resident during the period that they held the asset.
Where all, or a significant portion, of the capital gain accrued prior to 8 May 2012, it is likely to be
beneficial to obtain an independent market valuation of the asset at that date to maximise access to
the 50% CGT discount. However, this may become more difficult (and costly) as time passes. As such,
it may be prudent to consider obtaining valuations of assets held now in anticipation of a capital gain
being derived in the future.
¶17-115
Further complications will arise where the capital gain has originated in a deceased estate in which the
individual is one of a number of beneficiaries. In these cases, it may be difficult, if not impossible, to
obtain this information from the trustee.
These changes may also affect those individuals who depart Australia, cease residency for a number of
years and then return to Australia shortly before they die. If the individual holds real estate which is
subject to CGT (for example, an investment property or family home which only qualifies for a partial
main residence exemption), the 50% CGT discount will be reduced on the ultimate sale of the property
by either the estate or a beneficiary who inherits the property.
Trustees, especially trustees who are assessed under ss 98 and 99 ITAA36 , will need to give
consideration to:
the discount percentage of any beneficiaries to ensure that the trustee withholds sufficient amounts
in relation to any distributions;
obtaining market valuations as at 8 May 2012 of all of the CGT assets (in the case of non-fixed
trusts) or all assets that constitute TAP (in the case of a fixed trust); and
the provision of detailed distribution statements to beneficiaries setting out:
the acquisition date of all CGT assets disposed of and their date of disposal in order to determine
the discount testing period; and
the market valuation of all of the relevant CGT assets as at 8 May 2012.
¶17-115
343
Chapter 18
Overview of business succession planning
Introduction...................................................................................................................... ¶18-100
What is business succession planning?.......................................................................... ¶18-105
A multidisciplinary approach – the facilitator....................................................................¶18-110
A dynamic process...........................................................................................................¶18-115
What can be realistically achieved?................................................................................. ¶18-120
Why plan?......................................................................................................................... ¶18-125
How and where do I start?............................................................................................... ¶18-130
Documenting a business succession plan...................................................................... ¶18-135
When do I finish?.............................................................................................................. ¶18-136
Tax issues......................................................................................................................... ¶18-140

This chapter introduces the topic of business succession planning. It will concentrate on the role of
the adviser and the issues that the adviser and their clients should consider when addressing business
succession planning.
References to “patriarch” are intended to be references to the mother, father or other family member
who has primary control over a particular business that has become the subject of a succession plan.
As with all information in this guide, it is important to remember that these chapters set out the law in
general terms that cannot take into account everyone’s circumstances. It is difficult to imagine anyone
entering into a business succession without obtaining advice from one or more advisers.
The role of advisers is particularly important with business succession and invariably more than one
adviser will need to be consulted. It will often be necessary for the advisers to share information in
order to help their mutual client implement a successful business succession plan.
¶18-105 What is business succession planning?

Although there is no universally accepted definition of “business succession planning”, it can perhaps
be described as planning for the transition in the management and/or ownership of a business.
Particularly in the small to medium enterprise and closely held business market space, business
succession planning is likely to have implications for estate planning – who gets what and when – if
the owner or controller of certain assets dies. However, business succession issues can be quite separate
from estate planning issues. For example, there might be a plan for passing control of the running of
a business – or its ownership – during the lifetime of the creator of a business, but he or she might not
have settled the terms of his or her will.
There is sometimes a tendency to focus on planning for what might happen if, for example, the owner of
a business dies or retires. However, it is far more likely that owners or managers will become disabled or
suffer severe illness during their working lives than die – that’s why total or permanent disablement and
trauma cover is so much more expensive than death cover. We should, therefore, remember to consider
the impact of disability and illness when preparing succession plans.
Tip
Remember to plan for disability (eg stroke, heart attack etc) as this is often more likely to occur than death,
during our working lives.
Chapter 19 deals with buy-sell agreements – that is, agreements between the proprietors of closely held
businesses for the transfer of equity in the event of, for example, death, trauma or total or permanent
¶18-100
Overview of business succession planning 345
disablement (TPD). The transfer of equity due to such an unplanned event is typically financed by
insurance.
In this chapter, we will consider some issues that might be more relevant to a smaller family business.
In other instances, we might refer to a professional services firm or – in the case of a large family group
– a family office. What is perhaps most interesting is the frequency with which many of the issues cross
the boundaries between such organisations.
Finally, before we consider the many technical and human issues, a word of caution. Be very careful
to establish at the start exactly who your client is. It can be the patriarch, the trustee of a trust or the
managing partner of a firm – but it should not be, say, “a family”. There will almost inevitably be some
conflicts of interest, regardless of comments like “I want everyone to be treated fairly or equally” or “I
want to be very open” or “I want the family to agree”.
Trap
Remember to identify who your client is. It should be an individual, not a whole family, if a conflict of interest is
to be avoided.
¶18-110 A multidisciplinary approach – the facilitator

Effective and efficient business succession planning generally requires a multidisciplinary approach. It
is likely to involve accountants and lawyers and – when insurance and wealth creation or management
are involved – financial advisers. If the plan includes a business sale or initial public offering (IPO)
there might be further specialists involved such as valuers, corporate financial advisers, underwriters,
remuneration specialists and bankers. Others might be involved if the proposed successors in the
operation of the business need coaching or mentoring.
Whenever a number of advisers come together to work on a particular project, it is important that
one person is appointed to manage the project. This person need not be the source of all knowledge.
However, they should act as a facilitator and bring the necessary resources to bear on a timely basis,
keep the project moving along according to an agreed timetable, and assist with decision-making –
particularly if difficult legal, commercial or personal issues arise.
¶18-115 A dynamic process

One of the responsibilities of the facilitator is to ensure that each of the specialists is fully briefed at the
start of the project and they continue to have all the information they need as issues develop.
¶18-115
Further important information will often surface as the project unfolds. This may happen because
facts become clearer, misunderstandings are clarified, the law and circumstances change, or one of the
advisers recommends a new route to avoid a problem or achieve a better outcome.
You might change the original broad plan a number of times in response to issues identified by the
various advisers.
Then, when the plan is settled and any documents are finally signed, it is important to be able to
continue to identify issues that might impact the plan, either positively or negatively. Just as it is
important that businesses are able to change their operating and other plans and respond quickly to
changing circumstances, it is important that business succession plans can change on a timely basis.
As a result, preparing business succession plans should be seen as a dynamic process. We agree to a
plan – but also recognise the need to keep coming back and reviewing and perhaps modifying the plan.
Tip
There should be one person responsible for bringing all of the parties together (see ¶18-110) and they should
also be responsible for reviewing the plan as the law or circumstances change.
¶18-120 What can be realistically achieved?

It can help to start the process with a particular objective very clearly in everyone’s mind. For example,
the older daughter will take over the running of the business in five years and when her mother dies the
ownership will be split equally between the children. Unfortunately, circumstances sometimes change.
For example, one of the children could become bankrupt, they may be considering divorce, or the older
daughter may become disinterested or incapable of running the business. This is a reminder of the
dynamic nature of the process.
It is sometimes helpful to test our business succession plans against three criteria – certainty, simplicity
and flexibility. We may often be able to achieve a high degree of any two of these characteristics, but
realistically we may face considerable difficulty achieving a high degree of all three.
¶18-120
For instance, in the previous example, appointing the older daughter to run the business in five years
and dividing the assets equally between the children on the mother’s death is simple and has a degree of
certainty. However, it isn’t flexible. It doesn’t deal with the possible divorce, bankruptcy, disinterest or
competency issues raised.
Although we should always strive for excellence, there are practical limits on our ability to foresee what
the future might hold and how any contingencies might be dealt with. It is often important to temper
expectations with a touch of realism about what can be achieved.
¶18-125 Why plan?

The benefits of business succession planning will depend on the precise circumstances in each case, but
they could include:
preserving and generating family wealth – including protection from creditors, spendthrift family
members and estranged or divorced spouses;
minimising disharmony between family members – particularly if they have different views about
what should become of the family’s assets;
minimising the impact of tax;
encouraging the personal growth of family members – particularly those charged with management
roles; and
funding retirement.
¶18-130 How and where do I start?

There is no single place to start – but you need to get a clear statement from the owner or controller of the
assets about what they would like to achieve.
¶18-130
This might be as simple as “I would like my eldest son to take over as CEO by a particular date and
the business to be sold or floated within three years. Out of the proceeds, I would like the family’s
mortgages paid off and the trusts that hold most of the wealth managed for the benefit of my wife and
myself during our lifetime and then for our children equally.”
Tip
Get a simple and accurate statement from your client as to what is to be achieved. Then, test each
proposition against that objective.
A number of the following issues may need to be addressed by various specialists concurrently rather
than sequentially; otherwise the planning might take an inordinate amount of time. This is one of the
reasons the role of the facilitator is so important.
It may also be efficient to get all of the advisers and at least the owners of the business together, both at
the start of the project and then periodically. This can help clarify facts, work out what is realistically
achievable and by when, and avoid specialists considering issues unnecessarily.
Some of the factual information to be gathered and issues to be considered by the family members and
the relevant specialists are set out in Table 1.
Table 1: Non-exhaustive checklist – documents and information to gather

Asset Who owns what assets? What is the market value as well as the carrying value of the
ownership assets? What is their CGT cost base and are they pre- or post‑CGT assets? Get a copy of
the accounts and tax returns. What loans and capital advances have been made to related
parties? These might be taken into account when considering who gets what assets. Who
has the right to use assets and on what basis – for example, non‑arm’s length rentals, asset
sales or management assistance? What does the future hold for the business? Get a copy of
any business plans
Structure Get copies of trust deeds, company constitutions, shareholder agreements, up‑to‑date
company searches etc
People Who works in the business and what are their roles? Perform a realistic skills assessment.
What are the plans for the executives and family members and what are their financial, marital
and health positions? Performing a realistic skills assessment of the adult children, let alone
the parents, can be problematic. Also, what are people’s expectations and what promises
have been made? It is sometimes useful to get a feel for where the key relationships are or are
not – for example, with key staff or suppliers or customers. A sense of the lifestyles and work
ethics of the key players can also be important
Goals What is to be achieved, by whom and by when?
Financing How is the plan to be funded, for example by insurance, savings, trade sale, vendor finance,
asset transfer on death or debt forgiveness?
¶18-130
Due This analysis is not unlike doing a due diligence as part of a sales transaction. The same sorts
diligence of issues that help establish the value of the entity and the basis of that value – for example,
market position, asset ownership and availability, technology, individual skills and barriers to
entry – may be very important
Estate How does this fit in with the estate planning?
planning
Family If there is a family constitution, how do these plans fit with the constitution?
constitution
Pre- and Are there such agreements in existence and what is their impact?
post-nuptial
agreements
Once this information is provided to the various specialists, a broad outline of one or more ways
forward is likely to emerge quite quickly. There will, however, be a considerable amount of more
detailed work.
¶18-135 Documenting a business succession plan

The existing documents that may need to be reviewed and amended – and how the business succession
plan is documented – will depend on the precise details of the plan.
Buy-sell agreements – that is, agreements for the transfer of equity in the event of death, trauma or
TPD – and how they might be documented are dealt with in chapter 19. These agreements are typically
entered into between unrelated parties and in closely held businesses.
A non-exhaustive checklist of other documents that might be reviewed, amended or prepared is set out
in Table 2.
Table 2: Non-exhaustive checklist – documents to review, amend or prepare

Company These might need to be amended to deal with the rights of the shareholders to buy or sell
constitutions shares, the company’s ability to issue, redeem or cancel shares and on what basis, the
need for shareholder approval, voting rights in relation to the appointment and termination of
directors or other decisions
Trust deeds If the trust is a discretionary trust (that is, the trustee has a discretion to distribute income or
capital) consideration should be given to who the trustee will be and who the shareholders
and directors of a corporate trustee might be. It is also important to determine who the
appointor, guardian or protector of the trust is now and who it might be in the future,
particularly in the event of either death or disability
The appointor typically has the power to remove the trustee and appoint a new trustee. They
may also have certain reserved powers – for example, their consent might be required before
capital is distributed or loans are made to beneficiaries
¶18-135
Trust deeds The role of any guardian or protector will also be set out in the trust deed
(cont) Consideration should also be given to who any default beneficiaries are. These are the
beneficiaries who become entitled to any income or capital that the trustee fails to effectively
appoint (distribute) to a beneficiary by the relevant date – such as by year end or the vesting
date of the trust
When reviewing discretionary trust deeds, pay particular attention to limitations on who the
income and capital beneficiaries are – especially any excluded classes of people and limits
on the number of generations who might be eligible. For example, grandchildren may be the
last generation of eligible or notional settlors and the trustee may be excluded. Also check the
rules for adding and deleting beneficiaries
Shareholder/ Each of these agreements is likely to deal with the transfer of equity or the issue or
unitholder/ redemption of interests. They must be reviewed to check their fit with the business
partnership succession plan
agreements
Deeds This type of document might be prepared to reflect the parties’ wishes about how the family’s
of family affairs will be managed in the future. Specialist advice is needed about whether such a deed
arrangement/ would be enforceable in a particular situation. A key question is whether it would be found
family to be contrary to public policy – see, for example, Lieberman v Morris (1944) 69 CLR 69 and
constitution Barns v Barns (2003) 214 CLR 169
Letters of This is an estate planning tool that may affect business succession planning. There might
wishes be issues associated with enforceability at law – it might represent little more than a wish.
On the other hand, it might reflect the wishes of the donor (of a parcel of wealth) that can
appropriately be taken into account in, for example, guiding a trustee when exercising a
discretion
Options Put and call options might be granted to protect the ability of parties to buy or sell assets at
certain prices at certain times
Resolutions Trustees might resolve to distribute income or capital, or directors might resolve to declare
dividends or issue, redeem or cancel shares
Financing Transfers of equity and lifestyle might need to be funded. This should often be documented as if
the parties were at arm’s length. Financing is considered further in chapter 20
Insurance This can be an important method of financing the transfer of equity and the settling of debts,
particularly in the buy-sell context (see chapter 19)
CGT rollovers It is common to find that CGT rollover relief is sought on the transfer of assets, and this can
require various notices
It is very common in discretionary trusts to want to divide assets among family members. To
avoid CGT on a transfer of assets out of a trust to a beneficiary, you might split the trust or
clone the trust and transfer assets to the cloned trust, CGT-free. This issue is dealt with in
more detail at ¶18-140
Duty Check whether the instruments to be prepared are dutiable in each jurisdiction and whether
you are required to bring a document into existence
Tax returns Consider how these will be affected
¶18-135
People‑ These might include documenting employee share schemes or other performance plans, or
related issues preparing goals, personal development plans and performance evaluation guidelines
While all of the documents should be reviewed from a tax, regulatory and legal perspective,
the relationship aspects cannot be overlooked
Related party It is important to find out what related party or non-arm’s length transactions exist. Even in
transactions larger groups it is unusual to find formal documentation for things like rent, intra-group sales,
management fees etc. However, as assets are divided or decisions are made about who
keeps what, this can be essential
Pre- and How might such agreements impact your plans?
post-nuptial
agreements
Documentation and family dynamics

Relationship issues can profoundly affect the documentation of the plan. Some practitioners suggest
we should assume that dysfunctional relationships are the norm, rather than the exception. Although
this may overstate the position, it is a useful reminder that business succession planning can be a very
different process to:
a conventional sale of business, performance evaluation or planning with arm’s length employees; or
preparing a will or estate plan that people, other than the willmaker, might not see until after the
willmaker’s death.
An example of how family issues may affect business succession planning and its documentation arose
when a father did not want his adult sons to see or sign the proposed family constitution or consolidated
balance sheet – because he felt that one son would pressure the family to access assets earlier than the
father intended. In another case, a father prepared a plan that meant very little of the family wealth
would be available to his adult children, even after his death, until they were close to middle age. The
father was concerned about his children living off the wealth that he had created, rather than working
and generating wealth themselves. He was also concerned about in‑laws accessing this wealth.
Similarly, it is common to find that some family members will be more talented than others and that
some are more materialistic, domineering or have a greater expectation of entitlement.
These examples illustrate that it will not always be the case that the family – however broadly that
description might apply – will openly discuss and be content with the value of the relevant assets, who
should access them and when, who should control the assets, who should work in the business and in
what roles, and what their remuneration should be.
Some practitioners suggest that those who work hard and add value should be rewarded. Perhaps this
proposition goes to the heart of an issue to be resolved. There might be some, like the son who works
the farm, who feel entitled to a greater share of the family wealth because they work in the business
¶18-135
and there might be others who feel entitled to an equal share of the family wealth by virtue of their
birthright.
It is important to recognise that these issues will arise with many families. Although it is not
guaranteed, the risks and tensions may be reduced if the principles agreed upon are well documented
and related party remuneration is benchmarked against external organisations.
At ¶18-105 we looked at the importance of clearly establishing who your client is – that is, the patriarch
or the business entity, but not the whole family. Then, at ¶18-125, we considered why we should plan. In
particular, there is the possible preservation of family wealth, the minimisation of disharmony and the
encouragement of personal growth.
Perhaps the next question is, who should buy into the business succession plan? On one hand there
is sometimes a desire for a degree of confidentiality. On the other hand, without buy‑in by the key
stakeholders the plan might not work. The information that is passed across, and when and how the
plan is sold to the key stakeholders, is critical – but it must be determined on a case‑by‑case basis.
It is only once these human relationship issues are understood that the business succession plan can be
settled. These issues will affect the type of documentation to be prepared as well as what information is
to be made available to which parties and when.
¶18-136 When do I finish?

It is common to find that new information comes to light and that circumstances change, or they are
about to change. We therefore have to ask whether we should keep amending draft plans and defer
signing the required documents.
Perhaps a useful rule of thumb is that once you have a practical, workmanlike plan, execute it. This
should be on the basis that this is a dynamic process and as circumstances change, as they invariably
do, the plan will be revisited. In the meantime, there is a documented way forward at the earliest
feasible time.
It follows that a timetable and/or triggers for a review should be agreed upfront. Triggers might include
issues such as a death, divorce, ill health, insolvency, significant economic developments etc.
Tip
Consider implementing the plan once it is practical and workmanlike. Agree a timetable and the triggers for
review, such as divorce, ill health, or significant economic changes.
¶18-136
What has changed and what have we learned?

It is prudent to schedule regular reviews of our plans. How frequently and how detailed is likely to
depend on the client’s circumstances.
Two useful questions might include:
(1) What has changed in the family, the business and the economy?
(2) What have each of the advisers learned since the plan was last revisited?
Tip
When regularly revisiting the plan, ask the family and other stakeholders: “What has changed since the last
review?” Then ask: “What has everyone learned since the last review?”
¶18-140 Tax issues

The tax issues that could arise out of a plan will only be limited by the precise details of the plan.
In chapter 19 – which deals with buy-sell agreements – a myriad of income tax, CGT, FBT, GST and
duty issues are considered.
Given the almost unlimited ways that a business succession plan can be constructed, the following is
only a very general outline of some of the tax issues that could arise.
It is sometimes useful to think of business succession tax issues in terms of disposal of assets issues and
remuneration of people issues.
CGT on disposal of assets

Pre- versus post‑CGT assets
If there is a disposal of assets there may be a CGT or income tax liability. For example, if real estate,
plant, shares or units are transferred to successors, there will be a CGT event and a gain or loss may arise.
If shares or other assets that were acquired pre‑CGT – that is, before 20 September 1985 – are disposed
of, CGT can still arise due to CGT event K6 happening under s 104-230 ITAA97 or there could be
implications under Div 149 ITAA97.
If you dispose of shares or units that you acquired pre‑CGT, you may – under CGT event K6 – be subject
to tax on some of the sale proceeds. This provision is triggered if the market value of post‑CGT assets of
the company or trust is at least 75% of the net value of the company or trust. If so, very broadly, a capital
¶18-140
gain will arise equal to the amount of the sale proceeds (of the shares or units) that represents the increase
in value in the post‑CGT assets of the company or trust.
It is very easy to breach the 75% test because we compare 100% of the market value of post-CGT assets
with 75% of the net value of the company or trust.
Trap
If you are disposing of pre-CGT shares or units, CGT could still apply due to CGT event K6.
Then there is Div 149 ITAA97. Ignoring the many amendments and the public entity rules, the pre-
CGT assets of the company or unit trust will be treated as post‑CGT assets when there is no longer
continuity in majority underlying ownership. For example, if Kevin and Julie have each owned 50% of
the shares in Aust Pty Ltd since 1979, but Kevin sells his shares in February 2008, there would be no
continuity of majority underlying interest in the company’s pre‑CGT assets. They would, therefore, be
taken to have been acquired at their market value in February 2008.
If there has been a change in shareholding or unitholding, or there are post-CGT assets in the company
or trust, CGT event K6 and Div 149 ITAA97 may apply.
Trap
Pre-CGT assets could become post-CGT assets, unless there has been a continuity of majority underlying
ownership (see Div 149 ITAA97).
50% CGT discount

Another trap is found in s 115-45 ITAA97. This provision can deny the vendor of shares or trust
interests the 50% general CGT discount, where the company or trust owns recently acquired CGT
assets.
Broadly, if:
(1) the vendors and associates owned at least 10% by value of the shares (which do not have limited
rights) in the company or at least 10% of the trust voting interests, issued units or fixed interests; and
(2) the cost base of the CGT assets acquired by the company or trust less than 12 months before the
CGT event is more than 50% of the total of the cost bases of all of the CGT assets at the time of
the CGT event,
the 50% CGT discount might be denied.
¶18-140
Trap
The 50% CGT discount might be denied if the cost base of a company or trust’s CGT assets acquired less
than 12 months before the CGT event is more than 50% of the cost base of all of the company or trusts’ CGT
assets.
Timing
If we contract now to dispose of assets in the future, say on the happening of a given event, a CGT event
may happen now – at the time of signing the contract – not later when the transfer occurs. This is so
even though there is no transfer until the trigger event occurs – see CGT event A1 and s 104-10(3)(a)
ITAA97. For example, if Kevin agrees to sell assets to his son on his retirement, the disposal would
generally be taken to occur at the time of contracting – that is, now, not in five years when he retires.
This is usually a highly undesirable outcome.
Trap
CGT events often happen as of the date that you enter into a contract, not later when the transfer occurs (see
s 104-10(3)(a) ITAA97).
Some possible ways to avoid this problem are discussed in chapter 19. One alternative is for the parties
to agree to have a trigger event, such as Kevin’s retirement, as a condition precedent to the formation
of the contract – rather than entering into a simple mandatory contract now for the transfer of
assets/equity later. There will then be no disposal for CGT purposes until the trigger event, such as
retirement, occurs. Another alternative is to use put and call options. Here, the parties can compel
each other to buy and sell the assets in the future if either of them exercises their option.
Tip
Consider transferring assets pursuant to put and call options, for example, so as to defer the date that a
disposal occurs for CGT purposes.
Avoiding the disposal of assets

If there is no CGT event then there will be no CGT liability. However, there may be income tax on,
for example, the transfer of trading stock or depreciable assets. This is considered in more detail below.
Valuable assets are often held in trusts. If the trust is a fixed or unit trust, there may be a disposal for
CGT purposes regardless of whether you transfer the units or the trust assets. If so, you might try to
defer the disposal of either the units or the assets for as long as possible, subject of course to the possible
impact of asset value movements.
¶18-140
If the relevant assets are held in a discretionary trust, there are at least three alternatives to a straight
transfer of assets by the trustee. These alternatives are splitting or cloning the discretionary trust or
transferring control of the trust to one or more members of the next generation. They are important
because even if the trustee distributed these assets in specie to a beneficiary under a corpus distribution
power in the trust deed, there would still be a CGT event unless there is a specific exclusion. It is also
likely that the market value substitution rules in ss 112-20 and 116-30 ITAA97 would apply. If so, the
trustee would be taken to have disposed of the assets at their market value and the beneficiary would be
taken to have acquired them at that value. Be aware, these provisions can be quite complex.
The market value substitution rules often come as a surprise to some families. They see them as
imposing a type of gift tax when they have given away their assets to the next generation.
Should beneficiaries inherit or buy assets from the executor?

A further issue to consider is whether a beneficiary should inherit (business) assets and therefore
acquire a CGT cost base equal to their market value at the date of death if they were pre-CGT assets of
the deceased, or the cost base of the assets to the deceased if they were post-CGT assets of the deceased.
An alternative is to provide in the business succession plan, and in the will of each relevant party, the
flexibility for the potential beneficiary to buy some or all of the assets from the executor and to inherit
(a share of) the resulting remaining cash. Where there is an as yet unrealised taxable capital gain to be
made on the business assets, a sale to a beneficiary might result in another party sharing some of the
CGT burden or even offsetting some or all of the capital gain against capital losses in the estate.
Trust splitting and cloning

The terms “splitting” and “cloning” are sometimes used interchangeably, but they mean quite different
things. These terms are not defined in the tax law.
Trust splitting involves the appointment of separate trustees over different assets within (supposedly)
a single trust. It is argued that no new trust is created. Instead, it is argued that a single trust can have
different trustees over different assets.
Whether it is possible to have only one trust in such a situation is a matter on which opinions appear to
be divided. It follows that if you wish to go down this path, specific specialist advice should be sought.
Trap
If it is possible to split a trust (and for there still to be only one trust), consider:
(1) how income might be taxed to each beneficiary under Div 6 ITAA36; and
(2) whether assets “controlled” by one trustee might be available to creditors of another trustee.
¶18-140
Trust cloning involves the creation of a nearly identical trust – hence the word clone. Assets such as
some of the shares in a family company might be transferred out of the original trust into the new trust.
The trust cloning opportunity had been considered by, for example, many families wanting to divide
assets held in family discretionary trusts between members of the next generation. This was especially
the case where assets were to be transferred before the death of the father or mother.
Following the passage of the Tax Laws Amendment (2009 Measures No. 6) Act, the door has effectively
been closed on trust cloning for discretionary trusts (see ¶14-135).
Transferring control of discretionary trusts

If control of a discretionary trust is passed to, for example, members of the next generation of a family
– rather than cloning the trust or transferring assets out of the trust to members of that next generation
– there should be no CGT event.
An obvious question then is – how can that be done? Unfortunately, the answer can be very complex.
This issue is dealt with in more detail in ¶20-105.
CGT small business relief

It might be that the timing of the transfer of interests in a business is influenced by the CGT small
business relief rules in Div 152 ITAA97. For example, a family might decide to transfer equity, or assets,
while values are depressed during a time of economic difficulty, so as to satisfy the $6,000,000 net asset
value (NAV) ceiling.
The NAV ceiling might also impact in another way. For instance, parents might make gifts to their adult
children earlier than they otherwise might, so that they no longer own such assets and they therefore
come within the $6,000,000 NAV ceiling. They might also consider superannuation contributions and
upgrading their home.
Other tax issues on the transfer of assets

A non-exhaustive checklist of some of the other tax issues that could arise on the transfer of assets to
the next generation is set out in Table 3.
¶18-140
Table 3: Non-exhaustive checklist – other tax issues to consider

Dividends The definition of a dividend in s 6(1) ITAA36 includes the distribution of money or property
Div 7A The transfer of property to a shareholder or associate of a shareholder, or sometimes
deemed an ex‑shareholder, can be a payment under the deemed dividend rules in s 109C(3)(c)
dividends in Div 7A ITAA36
Trading A transfer of trading stock, other than in the ordinary course of business, might be taken to
stock occur at market value under s 70-90 ITAA97
Depreciable An assessable amount may be taken to arise under the various capital allowance rules
assets
Stamp duty Could arise on the transfer of property, not just real property. Also, if you are transferring
shares or units, you need to consider the land rich rules
FBT Could arise when assets are transferred to employees or associates and the transfer is in any
way related to their employment. If the transfer is a family‑related matter – even if the party is
an employee or associate – FBT may not apply (see Slade Bloodstock v C of T [2007] FCA FC
173)
Bad debts If trade debts are transferred, the acquirer would not be entitled to a deduction for any bad
debts as they would not have returned the amount as income (see s 25-35(1)(a) ITAA97)
Bad debts If shares are transferred and the company wishes to deduct losses or bad debts, it may not be
and tax able to satisfy the complex recoupment/deduction tests – see, particularly, Div 165 ITAA97
losses
GST If a business that is registered, or is required to be registered, for GST transfers assets that
are not financial supplies and the going concern exemption does not apply, there may be a
taxable supply that is subject to GST
Interest If there are borrowings in the old entity, will interest costs continue to be deductible? If the
deductions old entity borrows to make income or capital payments, will the interest be deductible? If the
new entity borrows to buy the assets, will any interest cost be deductible? These issues are
covered in more detail in ¶20-125
Family trust Has the distributing trust made a family trust election or interposed entity election? If so, is the
distribution transferee within the family group and will they need to make a family trust and/or interposed
tax entity election?
International If assets are being brought into or taken out of the Australian tax net, there may be deemed
issues acquisitions or disposals for CGT purposes. There could also be income tax issues if, say,
an Australian resident or beneficiary of a trust becomes entitled to capital from a trust that
has been previously untaxed in Australia – see, for example, s 99B ITAA36. Specialist advice
should be sought on international issues
Work in If the business/practice brings WIP to account, remember that there are now statutory rules
progress in ss 15-50 and 25-95 ITAA97 that bring to account income receipts by exiting partners and
(WIP) allow deductions for payments made by the old partnership
There may also be issues that could arise in relation to superannuation or non-resident entities, assets or
individuals. Specialist advice should be sought on the specific aspects of each case.
¶18-140
Redemption, cancellation or buyback of shares or units

A business succession plan might include the redemption, cancellation or buyback of shares or units to
effectively pass ownership and control to the next generation of owners. If so, the specific rules dealing
with these transactions and ATO pronouncements – such as PS LA 2007/9 on share buybacks – need to
be considered.
Demergers
If a private company owns a variety of assets that the family would like to split between more than one
company, demerger relief might be considered.
Figure 1 shows a before and after example.
Figure 1
If demerger relief applies, Div 125 ITAA97 might avoid CGT on the CGT event and s 44(4) ITAA36
might avoid income tax on any distribution to the shareholders.
However, according to the ATO, demerger relief will not often be available due to the application of
s 45B ITAA36. The ATO’s views may be found in PS LA 2005/21. In the example in Figure 1, if the
demerger occurred to facilitate the more efficient running of the businesses, demerger relief may be
available. On the other hand, if the demerger occurred to facilitate a sale by one of the shareholders, the
anti-avoidance rule in s 45B would apply. Demergers to facilitate the more efficient running of businesses
in the mid-market are relatively rare. They are more likely to be considered as part of an exit strategy.
Demerger relief is, therefore, rare in business succession planning scenarios – at least when it is
designed as part of an exit strategy for one or more of the shareholders.
Exotic and other equity interests

A patriarch may want to issue shares or units to family members, perhaps at a nominal value, to give
them a share of the business.
If the family member is an employee, the employee share scheme (ESS) rules in Div 13A ITAA36 might
apply if shares or options are issued at a discount to market value. These rules do not require particular
documentation or even offers to a number of employees – they can apply to the issue of shares to a
single employee.
¶18-140
If there are units rather than shares issued, the FBT rules may apply rather than the ESS rules.
If equity is issued at other than market value, the CGT value shifting rules also need to be considered.
Alternatively, the directors might decide to issue bonus shares or shares of a particular class to family
members. For example, they might not have voting rights or they might have preferential (or reduced)
rights to income or capital.
The tax implications of these arrangements will depend on the precise facts, but the following rules
may apply:
dividend streaming – s 45 ITAA36;
dividend and capital benefit streaming – s 45A ITAA36;
the benchmark franking rule – Div 203, especially s 203-25 ITAA97;
the linked distribution rules – Divs 170 and 204 ITAA97;
franking credit streaming – s 204-30 ITAA97 and s 177EA ITAA36;
value shifting – Divs 723, 725, 727 and 140 (that can have a residual effect) ITAA97;
debt/equity rules – Div 974 ITAA97; and
the general anti-avoidance rules – Pt IVA ITAA36.
In other words, if you currently have or are considering issuing other than ordinary shares, take
particular care and consider seeking specific specialist advice on issues such as the above.
Stamp duty
The stamp duty implications will depend on the details of the arrangement and the law in the relevant
state or territory. You should seek specialist advice but, as a general guide, remember that:
there can be duty on security or lending documents;
duty can arise on the transfer of property, not just real property;
property can include goodwill, even when it is not disclosed in the accounts;
goodwill might exist in a jurisdiction in which you trade, even if, for example, your factory is
elsewhere;
duty could arise on the transfer of shares or units under the land rich rules, if the company or trust
owns substantial real estate;
if you are amending a trust deed, there may be a resettlement that might result in a duty liability;
and
there are exemptions from duty in the relevant jurisdictions.
¶18-140
GST
The GST implications of a business succession plan will, of course, depend on the precise details of
the plan.
However, as a general guide, you should consider whether there is a supply by an enterprise that is
registered or required to be registered and whether any exemptions might apply – for example, for
certain financial supplies.
Remember that the term supply is defined very broadly. It includes not only the supply of goods and
services but also advice, the grant and surrender of rights, the entry into or release from obligations to
do anything, to refrain or to tolerate an act or situation.
Also, keep in mind that the going concern exemption which some people might feel inclined to rely
upon without delving into the intricacies, can be very complex and difficult to satisfy.
It follows that specialist GST advice can be very important.
¶18-140
363
Chapter 19
Buy-sell agreements
What is a buy-sell agreement?........................................................................................ ¶19-100

What do the various buy-sell models look like?.............................................................. ¶19-105
Contractual and drafting considerations..........................................................................¶19-110
CGT on life insurance proceeds.......................................................................................¶19-115
CGT on trauma cover....................................................................................................... ¶19-120
Paying for the equity under the self-insurance model..................................................... ¶19-125
Where do insurance proceeds go?.................................................................................. ¶19-130
Issues with fixed/bare trusts............................................................................................ ¶19-135
Discretionary insurance trusts......................................................................................... ¶19-140
Paying the premiums on the policies............................................................................... ¶19-145
Using superannuation funds to finance buy-sell agreements.............................................¶19-150
Is there a breach of trust?................................................................................................ ¶19-155
GST and stamp duty........................................................................................................ ¶19-160
CGT concessions and buy-sell agreements.................................................................... ¶19-165
How much should I insure for?........................................................................................ ¶19-170
Guarantees and forgiving loans....................................................................................... ¶19-175
Share buybacks and capital reductions.......................................................................... ¶19-180
Fringe benefits tax........................................................................................................... ¶19-185
Key person insurance...................................................................................................... ¶19-190
Timing of payments for equity......................................................................................... ¶19-195
The way forward...............................................................................................................¶19-200

¶19-100 What is a buy-sell agreement?

A buy-sell agreement is an agreement under which the proprietors of a business contract to buy the
interest or equity of another proprietor if a trigger event occurs. The trigger might be the death, trauma
or total or permanent disablement (TPD) of a principal in the business. The vendor or purchaser could
be one or more individuals, trusts or other entities. We are not focusing on the transfer of equity when a
person reaches normal retirement age or there is a planned trade sale, listing or management buy‑out.
To finance the transfer of the equity, the parties will typically have to take out some type of insurance.
This is important if the value of the equity is considerable, because otherwise the remaining owners
may not have access to sufficient funds to buy out the existing proprietor or their estate.
Although these arrangements are commercially rather than tax driven, the way they are structured is
likely to be influenced significantly by the need to avoid unnecessary tax – particularly CGT. CGT can
arise on the disposal of equity in the business and/or on the receipt of insurance proceeds.
There is rarely only one way of structuring such arrangements. In this chapter we explore a number of
the key issues so that you are in the best position to make the appropriate choices.
Although some advisers may have strongly-held views about how to structure buy-sell agreements,
the differences between advisers seem to diminish considerably once a good understanding of the
reasoning behind their views is explored. Indeed, there is typically a lot of common ground on the
tax front.
Including other triggers

A buy-sell agreement might include other triggers for the transfer of equity, such as unacceptable
performance by a principal. For example, proprietors of a child care business may regard it as highly
desirable to include certain behavioural standards as trigger events. However, if these triggers are not
clearly settled in the minds of the proprietors, there is considerable merit in dealing with them in the
second version of the buy-sell agreement.
“Pure” buy-sell agreements raise a number of complex issues, and including other matters is likely to
complicate things further and deflect focus from the main issue – the transfer of equity in the event of
death, trauma or TPD. Including other triggers can sometimes make the process so hard that nothing
will be settled. Our suggested approach is to simplify the process by attending to the critical issues up-
front and then agreeing to a timetable to consider any other important issues, perhaps including the
results in the second version of the buy-sell agreement.
This approach raises an important matter of principle. Buy-sell agreements can be thought of as similar
to a shareholder’s agreement that is entered into when the business starts and then largely forgotten.
Alternatively, they can and should – along with business plans and strategy documents – be regularly
revisited and improved as changes occur and opportunities arise.
¶19-100
Buy-sell agreements 365
Why do we need buy-sell agreements?

We need buy-sell agreements for two main reasons. First, we usually don’t know when a death
or traumatic event will occur and there is often not sufficient capital available for the remaining
proprietors to buy out the exiting proprietor without a degree of financial pain.
Second, in a simple unit trust arrangement – where the units in the unit trust that operates the business
are owned by two family discretionary trusts – complications can arise if one of the principals in the
business dies. For example, the business might continue to be run for the benefit of both families with
only one family doing all the work, or you might find that the deceased principal’s spouse – who is not
at all suited to running a business – wishes to become involved in a significant way.
These potential outcomes are clearly undesirable, which is why buy-sell agreements are important.
Buy-sell agreements can also provide additional benefits. For example, by dealing with the value or
valuation of the equity, they can avoid the awkwardness and unpleasantness that could otherwise
accompany buying out the exiting proprietor or their estate.
¶19-105 What do the various buy-sell models look like?

The financing of buy-sell agreements through insurance is typically done under one of five models –
cross-insurance, share/unit buybacks or redemptions, special purpose trusts, self‑insurance, or through
the use of superannuation.
Cross-insurance
The days of cross-insurance are almost gone, but these agreements still arise. Cross-insurance is an
arrangement where each proprietor has a fractional interest in the policies on the lives of the other
proprietors.
Example
If Kevin, Julia and Wayne are unitholders, Kevin would own a 50% interest in the policies on Julie and Wayne
– and they in turn would do the same in relation to Kevin and each other.
As explained at ¶19-120, TPD and trauma proceeds on policies on Julia and Wayne would not be exempt
from CGT when received by Kevin.
As proprietors come and go from the business, there can be acquisitions and disposals of fractional interests
in each policy and this can result in adverse CGT outcomes. For example, let us assume that Simon joins the
above business. He will acquire a fractional interest in the existing policies on Kevin, Julia and Wayne if it is
not possible to take out new policies due – for example – to age, changing health conditions etc.
¶19-105
Example (cont)
If there is an assignment of interests in life policies, Simon would not be the original owner of the interests that
he now holds and would face CGT on any life proceeds.1
Also if Wayne resigns or dies, he or his estate would still have an interest in the policies on Julia, Kevin and
Simon and vice versa. This is another complication, best avoided if possible.
1
Diagrammatically, this might appear as follows:
All in all, cross-insurance often has little to commend it.
Trap
Avoid cross-insurance because trauma and TPD proceeds will be taxable and so will life proceeds to the
extent that an interest in the policy has been assigned to, say, a new proprietor.
Share/unit buybacks
There is also the possibility that the business entity may take out the insurance and then use the
insurance proceeds to fund a reduction – a buyback or redemption – in shares or units. This can be very
tax inefficient because it results in the remaining proprietor or proprietors owning (more or all) of the
equity in the enterprise, but not getting any increase in cost base for CGT purposes.
If the equity of the exiting proprietor was acquired by the remaining proprietors, rather than there
being a reduction in equity, the remaining proprietors would have a cost base equal to the market value
of the equity that they acquire from the exiting proprietor. This is clearly preferable if the equity of a
remaining proprietor is subsequently disposed of at a profit.
1 See item 3 of the table in s 118-300(1) ITAA97. The amendments introduced by the Tax and Superannuation Laws Amendment (2014
Measures No. 7) Bill 2014 removed the word “beneficial” from the term “original beneficial owner” in item 3 of the table in s 118-300(1).
Nothing would seem to turn on this change, where the owner is not holding the interest in the policy as trustee.
¶19-105
The following example shows the potential adverse CGT consequences of buybacks.
Example
Kevin and Julia each own 50% of the units in a trust with a total cost base of $100 and a market value of
$1m and then Kevin dies. The trustee might receive life proceeds tax‑free of $0.5m which might be used to
redeem Kevin’s units.
Julia’s cost base (in her units) would remain at $50, although she now owns 100% of the units in the trust.
However, if she acquired Kevin’s units, her cost base could have been $50 plus $0.5m.
Pre-unit redemption
Post-unit redemption
It is sometimes said that the value of a business diminishes on the death or disability of the exiting
proprietor, so the CGT problem in the above example does not arise. The determination of the value of
equity is a question of fact and judgment. We should not assume that the value of equity will decrease, or
¶19-105
that it will do so on a proportionate basis, on the exit of a proprietor. Indeed, with appropriate succession
planning, there may be little or no decrease in the value of equity over the medium to longer term.
The share buyback or unit redemption model can, therefore, be very tax inefficient and should only be
used with caution.
Trap
Avoid share/unit buybacks as the surviving proprietors get no uplift in cost base for what is, effectively, an
increase in their equity.
Trust model
The trust model usually involves the creation of a special purpose trust, with the trustee holding the
insurance policies. If an insurance payout is received, the trustee will receive the proceeds and apply the
funds according to the terms of the trust deed.
Example
Kevin, Julie, Wayne and Simon are the proprietors of a business and establish a fixed trust. The trustee of this
trust is a company of which they are directors and shareholders. The trustee takes out death and disability
insurance cover over the four proprietors, and then receives any insurance proceeds and pays the funds
in accordance with the trust deed. If Kevin died, the trustee might pay some of the insurance proceeds to
Kevin’s estate or to Julie, Wayne or Simon to enable them to buy Kevin’s interest. Some of the proceeds
might also go to the business to settle loan accounts or for other purposes.
The ATO has expressed reservations about such arrangements, particularly in its 19 May 2000
discussion paper on buy-sell agreements (which can no longer be relied on).
¶19-105
In the example above, we said that the insurance proceeds might be paid to multiple beneficiaries. This
has been considered by some to present a tax problem because it is not clear that the Commissioner will
accept that the arrangement will receive “look-through” treatment under s 106-50 ITAA97.
An approach by some, indeed this was adopted in PR 2010/18, is to have only one beneficiary and to
have them execute an irreversible direction as to where the payment should go. A problem common
to many private rulings is that, because they are so “sanitised”, it is difficult or impossible to fully
understand the details or intricacies of the arrangement. However, the amendments introduced by
the Tax and Superannuation Laws Amendment (2014 Measures No. 7) Bill 2014 seem to now allow
“flow-through treatment” where trustees receive certain insurance proceeds, in particular where the
beneficiary is the injured party or his or her relative, or simply a beneficiary where there is a payout
under a life policy.
Self‑insurance
With self‑insurance, each proprietor takes out policies on their own life. If there is a claim under the
policy, the insurance proceeds go to the individual proprietor or their estate.
There are no fees and charges paid to an external administrator, such as a trustee of a special purpose
insurance trust, and the cash goes directly to either the injured party or their estate. There is no need to
rely on another person to pass on the insurance proceeds to the injured party or their estate or to other
principals on a timely basis.
Under such arrangements, the exiting proprietor is taken to have disposed of their equity to the
remaining proprietors at its market value and the remaining proprietors are taken to have acquired the
equity of the exiting proprietor at its market value – see ¶19-125.
Example
In the example at “Trust model” above, let us assume that – instead of establishing a special purpose
insurance trust – Kevin takes out policies on his life. Julia does the same on hers, as do Wayne and Simon. If
Kevin dies, his estate would receive the insurance proceeds tax‑free. The buy-sell agreement would provide
that the amount Julia, Wayne or Simon have to pay to acquire Kevin’s units is reduced by the amount of the
insurance proceeds that Kevin receives.
Kevin would be taken to have disposed of his units at market value and Julia, Wayne and Simon would be
taken to have acquired those units at market value.
¶19-105
The same principles apply to trauma or TPD proceeds.
This may seem a preferred and delightfully simple alternative. However, there may be many twists and
turns – and some of these are outlined in the following sections.
What if insurance is not available?

Sometimes we are unable to obtain, or cannot afford, all the insurance we want – either for all the
parties or a particular type of insurance for one of the parties. For example, TPD cover for an older
person with a poor health record might be impossible to obtain, might be capped well below the value
of the equity it is intended to cover, or it might be prohibitively expensive.
If this happens, it may still be wise to proceed with a buy-sell agreement supported by whatever
affordable insurance you can obtain. The reason is simple – solving three quarters of a problem is
typically better than not solving any of a problem.
¶19-110 Contractual and drafting considerations

Problems with mandatory buy-sell agreements
If we have what is commonly referred to as a mandatory buy-sell agreement – for example, a simple
contract whereby Kevin sells to Julia, Wayne and Simon in the event of death or trauma – for CGT
purposes we would have a disposal of equity as of the date of the contract, rather than at the perhaps
¶19-110
much later date that the trigger event occurs – s 104-10(3)(a) ITAA97. This is clearly undesirable because
we don’t want a disposal to occur for CGT purposes until or unless a trigger event occurs.
It is also important to note that s 170(10AA) ITAA36 gives the Commissioner the power to amend
assessments in such circumstances – regardless of the usual time limits on amendments. As a result, we
could well face an amended assessment for the year of entering into the buy-sell agreement, without the
opportunity to do any tax planning.
As if this wasn’t bad enough, we often find that any equity being transferred is or was owned by a
discretionary family trust. It might well be that the capital gain made on disposal of the equity, which
would be taken to be made this year for CGT purposes, was not dealt with by the trustee when the
trustee resolved to distribute the trust’s income or gains. This is because no trigger event had occurred
so the trustee didn’t turn their mind to the fact that there might be a disposal of equity for CGT
purposes at the time of contracting.
These clearly inappropriate outcomes require a different approach. Two ways to avoid these problems
are using conditions precedent to the formation of the contract and using options – or possibly both.
Using conditions precedent

The first possible solution is to have the contract – that is, the buy-sell agreement – made subject to
conditions precedent to the formation of the contract such as the death of a party or an insurance
company paying out the proceeds of the insurance policy.
Using options
Another solution is to use put and call options. These options ensure that the parties to the agreement,
or their estates, have the ability to enforce a transfer of equity.
If you enter into a contract to transfer equity after exercising such an option, the ATO will treat the
acquisition date of any equity acquired by the remaining proprietors as being the date of contracting –
see ID 2003/128.
Trauma condition
It might also be appropriate to add a further condition before a buy-sell is triggered in the event of a
trauma payout – that is, the inability of the party to return to work after a given period. The reason for
this is that a business partner could recover from, say, heart bypass surgery and be ready for work again
in six months – but under an inappropriately prepared buy-sell agreement they could find themselves
no longer an owner of the business (if trauma alone constituted a trigger for the buy-sell agreement).
¶19-110
¶19-115 CGT on life insurance proceeds

Although such arrangements are not tax driven, the structuring is typically influenced significantly by
the need to avoid unnecessary tax imposts, particularly CGT.
The consideration for the transfer of equity is typically secured by life insurance, so it is important to
consider the scope of s 118-300 ITAA97. The CGT provisions do not apply to the proceeds on disposal
of a policy of life insurance, unless the recipient is not the original beneficial owner of the policy and –
if they are not – they acquired the rights for money or other consideration.
The Bill referred to in ¶19-105 included an amendment to the CGT exemption in s 118-300 on life
insurance proceeds to remove the requirement that the trustee of a complying superannuation fund (or
any other trustee) be the original beneficial owner of the life policy. Now they need only be the owner
and, if they are a complying superannuation entity trustee, not have acquired the interest in the policy
for consideration. This raises questions as to what is meant by a policy of life insurance and who the
original owner of the policy is, as well as what is meant by consideration.
What is a policy of life insurance?

The ATO takes a very broad view about what is meant by the term “a policy of life insurance”. In
particular, it does not take into account the type of policy – that is, whether it is called a life insurance
policy or a TPD policy. It looks at why the insurer paid out the insurance proceeds. If the payout under
a TPD policy is because the person died, the ATO will treat the payment as a payment under a policy
of life insurance.
Given that the ATO approach typically favours taxpayers – because parties other than the injured
party or a relative can receive life proceeds CGT‑free under s 118-300 – it seems unlikely that it would
be fruitful to dispute this interpretation. The minutes of the meeting of the CGT subcommittee of the
National Tax Liaison Group of 10 June 1998 and TD 2007/4 arguably support this view.
Who is an original owner?

The original owner of the policy isn’t a defined term, but TD 1994/31 (which dealt with a similar
provision in the ITAA36) provides useful guidance about the ATO’s view.
Essentially, the ATO considers that the original (beneficial) owner is the party with the power to
transfer, surrender or dispose of the policy. Importantly, the original (beneficial) owner is not,
according to the ATO, the (original) beneficiary under the policy.
As noted at ¶19-105, an amendment introduced by the Tax and Superannuation Amendment (2014
Measures No. 7) Bill 2014 removed the requirement in item 3 of the table in s 118-300(1) that the
original owner of the policy be the original “beneficial” owner.
¶19-115
What is the meaning of consideration?

What is meant by acquiring the rights under the policy for money or other consideration? We will
typically know if the rights under the policy are acquired for money because there will be a written
contract saying so and/or there will be evidence of money passing.
The implication, therefore, is that if a party to a buy-sell agreement acquires an interest in an existing
policy (rather than a new policy being taken out), the exemption from CGT in s 118‑300 will not be
available to them in the event of a payout.
In TD 1994/34, which dealt with a similar provision in the ITAA36, the ATO said that the payment of
premiums did not constitute consideration for the acquisition of an interest in a policy.
What is particularly interesting is that the ATO takes the view that consideration, not being a defined
term, has a very broad meaning. Its view is that the giving of a promise – such as the exchange of
mutual promises under a buy-sell agreement – is consideration for these purposes. The value of such
promises is not a relevant consideration according to the ATO; the mere fact that they have been given
is sufficient.
The implication, therefore, is that if a party to a buy-sell agreement acquires an interest in an existing
policy (rather than a new policy being taken out), the exemption from CGT in s 118‑300 will not be
available to them in the event of a payout.
¶19-120 CGT on trauma cover

Section 118-37 ITAA97 exempts the proceeds of a trauma policy from CGT provided it is received, for
instance, by the injured party or their relative. This can make cross-insurance, where proceeds on TPD
or trauma policies go to unrelated co-owners of the business, very tax inefficient.
However, TD 14 says that this treatment will also apply to a payment made to a trustee for a taxpayer
who has been injured. This apparent concession was outside the terms of both the ITAA36 and the
ITAA97 and resulted in considerable confusion and uncertainty.
The amendments introduced by the Tax and Superannuation Laws Amendment (2014 Measures No. 7)
Bill 2014 appear to extend s 118-37 to provide an exemption where the injured party or a relative
receives an amount attributable to a compensation payment, as a beneficiary of a trust. The trustee is
also exempt. This amendment applies for the 2005-06 and later income years.
We say “appear” to provide an exemption because the explanatory memorandum says that the
amendments apply to money, property or other CGT assets distributed to a beneficiary, whereas the Bill
refers (only) to “a CGT asset you receive”.
It is noted that the new exemption for trustees of complying superannuation funds on payouts on
illness or injury policies is not found in s 118-37. Rather, it is found in s 118-300(1), item 7.
¶19-120
¶19-125 Paying for the equity under the self-insurance model

Under the self‑insurance model, the buy-sell agreement commonly provides that the remaining
proprietors are obliged to pay market value for the equity of the exiting proprietor. The value is typically
determined according to guidelines in the agreement and reviewed at a time, and on a basis, agreed in
the buy-sell agreement.
The amount the remaining proprietors are required to pay for the equity is typically reduced by $1 for
every $1 of insurance proceeds received by the exiting proprietor.
So, wherever possible, the principals should consider insuring for enough so that the remaining
proprietors don’t have to pay anything for the equity to be transferred.
CGT rules on non-arm’s length transfers

This is one of the times when what are sometimes called anti-avoidance provisions in the CGT
legislation work in favour of the purchaser.
Sections 116-30 and 112-20 ITAA97 treat the parties as having paid and received market value
consideration if they have not contracted with each other at arm’s length for the transfer of equity. It is
not a question as to whether the parties are at arm’s length – the question is whether they transacted at
arm’s length for the transfer of equity.
This view is supported by case law, the ATO’s approach in their discussion paper on buy‑sell agreements
(issued in May 2000, but not on the ATO website and not able to be relied upon) and a variety of other
pronouncements.
A simple description of a complex technical argument is that the ATO view seems to be that if an asset
is transferred at a value that is different to its apparent face value, this is evidence that the parties did
not transact at arm’s length in connection with the transfer. If so, market value will be substituted for
the consideration chosen by the parties, if any.
There is judicial support for the ATO’s approach and, in these situations, it tends to work in the favour
of the purchaser.
So, why would someone take a contrary view? Although the remaining proprietors may want a deemed
market value cost base for the equity that they receive, after all, they typically pay nothing for the
equity that they acquire, the departing proprietor or their estate might prefer to be treated as having
received consideration that is less than market value. There may, therefore, be a marked difference in
the interests of the exiting and remaining proprietors.
¶19-125
The case law that provides some support for the ATO position is found in Granby Pty Ltd v FCT,2
Elmslie and Ors v FCT,3 Barnsdall v FCT,4 The Trustee of the Estate of the Late AW Furse No. 5 Will Trust
v FCT 5 and Collis v FCT.6
¶19-130 Where do insurance proceeds go?

Under the self‑insurance model, some people are comforted knowing that the cash from the insurance
proceeds will go directly to the injured party or their estate. There is no intermediary such as the
remaining proprietors (under the cross-insurance model), the business (under the share/unit buyback/
redemption model) or a trustee (of a special purpose insurance trust under the trust model) who might
impose certain charges or not pass on the funds to the injured party or their estate – either at all (eg due
to the insolvency of the business or the beneficiary of the policy) or on a timely basis.
On the other hand, there may be advantages in, say, a trustee of a special purpose trust receiving such
funds and making sure that the right amount of money goes to the right people at the right time.
¶19-135 Issues with fixed/bare trusts

The use of fixed or bare (special purpose insurance) trusts has been both common and contentious for
several years.
One of the important commercial considerations when using the fixed or bare trust model is that one
large policy might be bought by the trustee, rather than a number of small policies being owned by
various parties. This can result in a considerable cost reduction – and the importance of such savings
should not be underestimated. It is not unusual for the trustee to take out one large policy and for
some of the proceeds to be directed to the company to cover its needs. For example, some of the funds
might be used to cover debts of the business or loss of profits and the balance might go to the remaining
proprietors to buy out the exiting proprietor, or to the estate of the departing proprietor. Being able
to bundle insurance and buy more cheaply what would otherwise be separate policies is clearly a
commercial advantage.
The ATO’s buy-sell discussion paper said that it would not accept that the trusts it had reviewed at that
time were bare trusts for CGT purposes. For a while after that the profile of such trusts died down.
Years later, purported bare trusts made a resurgence.
2 95 ATC 4240.
3 93 ATC 4964.
4 98 ATC 4565.
5 (1990) 21 ATR 1123.
6 96 ATC 4831.
¶19-135
Given the amendments introduced by the Tax and Superannuation Laws Amendment (2014 Measures
No. 7) Bill 2014, insurance proceeds on TPD, trauma and life policies ought to be tax-free to both
the trustee and the beneficiary, assuming that the requirements of s 118-37 or s 118-300 are satisfied.
Furthermore, CGT event E4 should not arise on such payments, in light of the amendment to s 104-71.
This amendment could remove the cloud that has hung over some of these types of trust.
¶19-140 Discretionary insurance trusts

Discretionary insurance trusts have not been popular for some time so they will only be discussed briefly.
Life insurance proceeds under s 118-300 should be able to be received by a trustee and flow tax-free to
the beneficiaries.
Similarly, as mentioned above, trauma and TPD payments to a beneficiary ought now to be exempt
under s 118-37.
You should, however, consider the possible application of a number of other provisions, including:
ss 97 and 99B ITAA36;
ss 36-6 and 6-10, 15-15 and Div 104 ITAA97, particularly ss 104-90, 104-75 and 105-70 ITAA97.
¶19-145 Paying the premiums on the policies

There does not seem to be any universally accepted solution to the problem of who should pay how
much of the insurance premiums. The premiums are usually going to be non-deductible under s 8-1
ITAA97 because they are on capital account.
This is one of the reasons why some people have sought to put insurance policies in superannuation
funds where a deduction may be available for the premiums – see ¶19-150.
There are often considerable differences in the level of premiums for policies on different proprietors
because of differences in their age, health, lifestyle etc. Often, the total cost of the premiums is spread
equally over the parties regardless of the differences in cost. Naturally, this is the subject of debate.
Premiums and private companies

Payment of premiums by a private company can cause problems. Under the self‑insurance model, the
individual is personally liable for the premiums. If the company pays the premiums, even if it is treated
as a non-deductible expense, a deemed dividend may arise under Div 7A ITAA36 – see, in particular,
s 109C(3)(a) ITAA36.
As a result, rather than being treated as a non-deductible expense of the company, there might be a
below‑the‑line adjustment to the shareholder’s loan accounts for each proprietor’s agreed share of
the premium.
¶19-140
Trap
If a private company pays premiums on policies owned by shareholders or associates of shareholders, there
may be a deemed dividend due to s 109C(3)(a) ITAA36.
Tip
Rather than being treated as non-deductible expenses of a private company, the payment of premiums under
a self-insurance model might be treated as adjustments to the shareholders’ loan accounts.
¶19-150 Using superannuation funds to finance buy-sell agreements

Buy-sell insurance can be expensive, particularly because it is non-deductible. Holding the insurance
in a superannuation fund may be a way to access tax deductibility. The value of the deduction should
be assessed based on the fact that a superannuation fund pays tax at concessional rates. The abolition
of reasonable benefit limits (RBLs) makes, at first blush, a superannuation fund an attractive vehicle to
hold insurance, in certain circumstances.
Care needs to be taken before using an SMSF to fund any buy-sell insurance. In ID 2015/10, the ATO
determines in that case that a trustee would contravene s 62 SISA (the sole purpose test) and s 65(1)(b)
SISA (giving financial assistance to a member or relative) where the trustee purchases life insurance
as a condition and consequence of a buy-sell agreement entered into by the member. It may be more
acceptable to hold buy-sell insurance in a public offer superannuation fund.
Deductibility of premiums
It is to be expected that taxpayers will consider taking out insurance in a personally managed
superannuation fund because s 295-465 ITAA97 provides a tax deduction to the trustee of the fund
for premiums on death or disability policies.
Death benefits are what they sound like (see s 307-5 ITAA97).
Disability benefits are more complex. If you are interested in this area, you should consider TR 2012/6
and reg 295-465.01 of the Income Tax Assessment Regulations 1997.
In ID 2002/146, the ATO said that the trustee of a superannuation fund cannot claim a deduction
under the former s 279 ITAA36 (now s 295-465 ITAA97) for premiums on a trauma policy because it
does not satisfy the definition of either life policy or endowment policy.
Death or disability benefits are, at first blush, subject to the two-year rule (see s 295-460 ITAA97) but
the Commissioner, by TD 2007/3, has made a determination to extend this period. The reason why
¶19-150
TD 2007/3, which is based on the old provision, also applies to the new provision, s 295-460, is found in
the footnote to the determination.
Remember the limitations imposed by s 295-460, particularly the two-year rule and the fact that not all
insurable events may be covered by s 295-460.
There is, however, some good news. To the extent that the individual’s annual concessional contribution
cap is breached, further tax (to bring the total payable to equal the top personal income tax rate) will
be payable on top of the basic 15% tax (in the fund). However, if the funds are used to pay deductible
insurance premiums, this brings the effective tax cost down to 15%, which might be attractive to
individuals with a higher personal tax rate.
Tip
TD 2007/3 is a reminder that benefits can be provided for more than two years, if the policy satisfies
the SISA.
Breaching the individual’s concessional contribution cap can be tax-efficient if the contribution is used to
pay a deductible insurance premium. Be careful to ensure that the non-concessional contribution cap is
not breached. Excess concessional contributions are treated as non-concessional contributions.
Trap
ID 2002/146 says that the trustee of a superannuation fund cannot claim a deduction under former s 279
ITAA36 (now 295-465 ITAA97) for premiums on a trauma policy. This is on the basis that the policy does not
contain elements that satisfy the definition of whole of life policy or endowment policy in s 295-480 ITAA97.
Conditions of release
If there was a payout under, say, a trauma policy to the trustee of a superannuation fund, but there was
no condition of release satisfied, the injured member would not be able to access the funds.
Contributions needed to fund retirement

If the parties are already making superannuation contributions up to the contribution limit – and they
need that amount to fund their retirement – they might not want those contributions/savings eroded by
the buy-sell insurance premiums.
¶19-150
Trap
As the effective cap on concessional contributions is reduced to $130,000 per annum, funding buy-sell
insurance through a superannuation fund might seriously erode an employee’s ability to save for retirement.
Tax and proceeds in the fund

There is then the matter of how the insurance proceeds will be taxed in the fund. Section 118‑300
should not present a problem – the proceeds ought typically to be CGT‑free in the hands of the trustee
of the fund.
Furthermore, the Tax and Superannuation Laws Amendment (2014 Measures No. 7) Bill 2014
introduced a specific exemption (in item 7 of the table in s 118-300(1)) for trustees of complying
superannuation entities who receive illness or insurance payments.
Sole purpose test

However, the ATO went on to say that any concerns about an SMSF satisfying the sole purpose test and
the complying status of the fund should be referred to the Superannuation Business Line.
In SMSFD 2010/1, the ATO states that a trustee of an SMSF can purchase a trauma insurance policy in
respect of a member and still satisfy the sole purpose test provided any proceeds under the policy:
are required to be paid to the trustee;
are assets of the SMSF until the relevant member satisfies a condition of release; and
the policy has not been acquired to secure some other benefit for another person.
This final requirement might be cause for concern. Reference is made to SMSFR 2008/2 and s 62 SISA.
Query whether the fact that the surviving proprietor(s) might receive the existing proprietor’s equity for
no monetary consideration following the receipt by the trustee of the SMSF of the insurance proceeds,
amounts to securing a benefit for another person. It would seem prudent to either seek a private ruling
on this point or to ensure that the legislative drafting officer has a comprehensive ruling on point.
A broader problem may arise if the insurance is not linked to a core or ancillary purpose. The trustee
of an SMSF needs to carefully consider all the terms of a buy-sell agreement, and its obligations under
superannuation law generally, before signing the agreement. The penalty for a fund that is deemed to be
non-complying can be significant.
TPD and trauma cover – own versus any occupation

Another trap to avoid, subject to the transitional rules, is that reg 4.07D SISR, in conjunction with
Sch 1 and reg 1.03C, now mean that, broadly, TPD and trauma cover taken out by superannuation fund
trustees must be on an “any occupation” rather than an “own occupation” basis.
¶19-150
We said “broadly” above because it seems conceivable that, for instance, own occupation cover could be
taken out to cover borrowing arrangements rather than to “provide an insured benefit in relation to a
member” (reg 4.07D(2) SISR). However, query how common this might be.
Trap
Avoid trauma/TPD cover in superannuation funds on an “own occupation” basis unless the grandfathering
rules apply.
Deduction for death and disability benefits

If the superannuation fund receives insurance proceeds, s 295-470 ITAA97 provides a deduction in the
fund for certain death or disability benefits.
Given the potential tax‑free receipt in the superannuation fund for the insurance proceeds, the
deductibility of the contributions to the fund that are used to fund otherwise non-deductible premium
payments and the tax‑free payouts at age 60, the potential application of the general anti-avoidance rules
in Pt IVA ITAA36 need to be considered when implementing buy-sell insurance via a superannuation
fund.
Based on all of these factors, a superannuation fund should be used with caution in a buy‑sell context.
Tax on withdrawals
Tax may be payable on withdrawals from superannuation funds, including the insurance component.
This should be considered before deciding to fund insurance via a superannuation fund.
The rules are complex and need to be carefully considered. Refer to ¶15-145 for a discussion on the tax
treatment of death benefits.
In very general terms, a TPD payout to a member aged 60 or over, where the trustee is not assessable
on the proceeds, may be subject to concessional treatment. Higher rates apply for those under 60 and
different rules apply for income streams.
So, consider whether payouts might go to a member, a dependent or a non-dependent (and whether it
will be a lump sum or an income stream), as the tax implications can vary considerably
¶19-155 Is there a breach of trust?

The equity being transferred is sometimes owned by the trustee of a discretionary trust.
In the self‑insurance model, the insurance proceeds might go to either the injured party or their estate.
If the trustee of the trust that owns equity in the business transfers its equity for no consideration, a
¶19-155
question arises as to whether the trustee has acted in breach of trust – given the apparent absence of
consideration for the transfer of a valuable asset of the trust.
It might, however, be argued that there is no breach of trust because the trustee has acted in the
best interests of the beneficiaries. More particularly, perhaps the trustee has provided and received
consideration, being the exchange of promises when the buy-sell agreement was entered into. That is,
each contracting party signed up to the agreement knowing that they might either receive valuable
equity that they will not have to pay for, or that they might have to transfer their equity. Perhaps in this
light it is not appropriate to say that the transfer is not for valuable consideration or that it is in breach
of trust.
Perhaps part of a practical answer to this legal issue is – for new trusts at least – to include a specific
power in the trust deed that permits the trustee to enter into such arrangements.
¶19-160 GST and stamp duty

GST is unlikely to apply to the transfer of equity – that is, shares or units – as they are likely to be
financial supplies. If, however, there is a transfer of assets (or some other type of supply), GST could
apply unless the going concern exemption applies.
Specialist advice should be sought on the GST aspects of the transfer of equity or interests in assets
under buy-sell agreements – and the GST treatment of insurance premiums and proceeds.
You should check, in the relevant jurisdiction, whether stamp duty is payable on insurance policies or
the transfer of equity or other assets – such as an interest in a partnership, property, shares or units.
¶19-165 CGT concessions and buy-sell agreements

12-month holding rule – the meaning of agreement
The 12-month holding 50% CGT exemption in Div 115 ITAA97 is subject to an important restriction in
s 115-40. The concession is not available if the CGT event or disposal occurs under an agreement made
within 12 months of acquiring the asset.
The ATO interprets the term agreement very widely to include option arrangements – much more
widely than having a contract.
Fortunately, in the buy-sell context, the ATO has told us that this type of agreement is not the sort of
agreement contemplated by s 115-40.
Also, ID 2003/1190 reminds us that a buy-sell agreement can provide for the grant of options on the
occurrence of the trigger event, rather than when the buy-sell agreement is executed.
¶19-165
12-month holding rule – the asset

If you are liable for CGT on life insurance proceeds – for example, because you were not the original
beneficial owner of the policy and you gave consideration to acquire your interest in the policy, or
because you received trauma or TPD proceeds and you were not the injured party or relative – you
might wish to claim the 50% CGT discount.
However, in the minutes7 of a meeting of the CGT subcommittee of the National Tax Liaison Group,
the ATO confirmed the view that it expressed in paras 183-187 of TR 95/35. This means that, according
to the ATO, the relevant asset is the right to collect from the insurer and that right is only acquired
when the trigger event occurs – not when you enter into the insurance contract. Therefore, in most
situations, the 12-month holding rule will not be satisfied.
CGT small business concessions

The ATO view seems to be that if the CGT event occurred before 1 July 2006 and a legal personal
representative (LPR) disposed of equity, none of the CGT small business concessions are available.
The reason is that, before then, former s 152-10(2)(a) required that – if shares or units were sold –
the company or trust had to satisfy the controlling individual test and there had to be a controlling
individual. Former s 152-55(1) required that an individual must own legal and equitable interests in
shares, and former s 152-55(2) required that an individual must be beneficially entitled to income and
capital – in both cases of at least 50%. According to the ATO, the LPR has a legal interest in the shares
or the units during the administration of the estate – but not the required equitable interest as well.
Fortunately, under the current legislation, if the CGT event occurs on or after 1 July 2006, the LPR or
beneficiaries can access these concessions to the extent that the deceased could just before their death –
as long as the assets are disposed of within two years of the date of death.
¶19-170 How much should I insure for?

The buy-sell agreement is likely to provide an initial value for the equity and a review mechanism.
You might consider inserting a figure or formula to determine the value of the equity and agree on a
timetable for it to be reviewed. Failing review by the agreed date, the agreement might include valuation/
arbitration procedures. Take care when drafting review clauses. Once signed, agreements – like wills
– are often put to one side and forgotten about. Ongoing review is an integral part of all succession
planning. A diligent accountant/adviser can help their clients stay on top of the review process.
It would be usual to seek to insure for at least the value of the equity – and perhaps for any CGT on the
transfer of the equity.
7 Minutes of meeting held on 7 June 2005.
¶19-170
There may also be further insurance to cover related party loans or other liabilities. It would be cold
comfort to insure for the value of equity (and the tax on transfer) and then find that the departing
proprietor or their estate still owed, say, $1m to the old business or the remaining proprietors as a result
of drawings or guarantees.
¶19-175 Guarantees and forgiving loans

Exiting proprietors have often provided guarantees and indemnities or have loan accounts going either
way – from them to the business or vice versa.
If a clean exit for the exiting proprietor is intended, the debtor might insure for the amount of any debts
– so there is no need for debt forgiveness and we don’t get into the commercial debt forgiveness rules.
If the commercial debt forgiveness rules in Sch 2C ITAA36 apply, there can be an erosion of income
tax losses, capital losses, the written down value of depreciable assets and the cost base of assets for
CGT purposes.
The buy-sell agreement will usually provide that the remaining proprietors will seek to get the exiting
proprietor or their estate released from any guarantees, but this is not something the surviving
proprietors can be certain will eventuate.
It is important to bear in mind that if a payment is made under a guarantee, the guarantor is not likely
to get a deduction under s 8-1 ITAA97 because such payments are usually on capital account.
It is also likely that there will be no capital loss at the time that the guarantor makes the payment –
because they have discharged a liability to a creditor, rather than disposed of an asset. As a result, an asset
has probably been created – the guarantor’s right of recovery against the primary debtor. This asset might
not be disposed of for many years as the guarantor might hope to recover from the primary debtor.
In an ideal world, the primary debtor would have sufficient insurance or other assets to cover the
liabilities, so a payment by the guarantor would not be required. Alternatively, the guarantor might
have special purpose insurance for this risk.
¶19-180 Share buybacks and capital reductions

Business entities still sometimes take out insurance and use the proceeds to buy back shares or
redeem units (see ¶19-105).
Unless there is a very good reason for doing so, this alternative should typically be avoided. The reason
is that the remaining proprietors will end up owning an increased amount of the business, but they will
get no CGT cost base for their increased interest. This can be disastrous from a CGT point of view when
the remaining proprietors sell their equity.
¶19-180
PS LA 2007/9 may have an impact on a share buyback when it comes to taxing the consideration for
the buyback.
Trap
As a rule – try to avoid companies and fixed trusts owning buy-sell policies which are to finance the buyback
of shares or trust interests, as the remaining proprietors will not have the uplift in CGT cost base that they
would receive under the self-insurance, cross-insurance or trust models.
¶19-185 Fringe benefits tax

There should be no FBT payable if an employer pays premiums that are the responsibility of the owners
of the business, even if the owners are also employees. This is because the payments have nothing to do
with employment – they are for the ownership of the business.
This broad proposition had a slight cloud over it as a result of the decision in FCT v Slade Bloodstock;8
fortunately, the appeal decision9 removed that cloud.
¶19-190 Key person insurance

Key person insurance is what it sounds like – insurance taken out by a business to cover itself in the
event of the death or disability of a key person.
The premiums will be on revenue or capital account and, therefore, be deductible under s 8-1 ITAA97
or not, depending on the purpose for which the policies are taken out.
A revenue purpose for taking out such a policy might include replacing the revenue that would have
been produced by the key person, or covering costs that will be incurred on revenue account as a result
of a death, disability or critical illness. These costs might include recruitment and training costs –
perhaps the cost of temporary staff or a gratuity to the estate of the key person.
On the other hand, if the loss of the key person affects the balance sheet rather than the profit and
loss account, the purpose of the insurance is likely to be on capital account. Some examples of capital
transactions include the cost of covering personal guarantees and repaying money borrowed from the
key person.
If the key person insurance proceeds are on capital account, the CGT exemptions referred to earlier –
ss 118-300 and 118-37 ITAA97 – might apply. Section 118-300 might exempt any life insurance
8 2007 ATC 4261.
9 See Slade Blooodstock v FCT [2007] FCAFC 173.
¶19-185
proceeds, but s 118-37 is unlikely to exempt any trauma or TPD proceeds because the proceeds are
not going to the injured party or a relative.
If the insurance proceeds are subject to tax in the business, the tax outcome might still be manageable –
provided the business gets a deduction for the outgoings that it incurs out of the insurance proceeds. A
potential difficulty is if the insurance proceeds, which are taxable, are received on, say, 30 June but the
expenses are not incurred until the next financial year.
¶19-195 Timing of payments for equity

In a simple world, the insurance proceeds will be sufficient to cover 100% of the value of the equity – so
the purchasers will not have to find other funds to pay out the exiting proprietor or their estates. This is
the case regardless of which model you use.
However, all of the insurance that we might like may not be available or affordable. There is also a
possibility that someone might fail to pay a premium and the insurance might lapse.
If so, there will potentially be an unfunded liability – or it might be that no liability to pay for the equity
will arise. For instance, a decision needs to be made as to who will be responsible if, say, a deceased
proprietor neglects or intentionally fails to pay the premiums on the policies over their life. Why should
the remaining proprietors have to find the funds to pay the exiting proprietor or their estate?
On the other hand, if there is a shortfall that the parties are aware will arise because of the inability to
buy adequate insurance at an affordable price, the remaining proprietors will have to find the balance.
In this case, it is important to agree when the equity will pass, who will share in the profits and who
will run the business during the period until the final payment is made.
There does not appear to be a universally correct solution to the dilemma about how to protect the
vendor and the purchasers in such situations.
It is likely that the answer will be influenced significantly by the amount of any insurance shortfall. For
example, if the shortfall is modest, the parties might agree that the title in the equity should pass to the
remaining proprietors immediately, it is their problem how and when to find the funds to pay out the
exiting proprietor or their estate within, say, 30, 60, or 90 days, and the exiting proprietor or their estate
should not participate in profits or management during that time. On the other hand, if the shortfall is
considerable, the proprietors might consider it fair that the exiting proprietor or their family retain title
in their equity and have profit and management rights until settlement. This, after all, is their security.
There is no one answer that will always be the most appropriate. The answer may emerge from
balancing the desire for a clean exit, immediate transfer of equity and fast payout with the need to
provide the exiting proprietor or their family with security if payment is delayed.
¶19-195
¶19-200 The way forward

Bearing all of these issues in mind, where do we start?
There is no single way forward that is always correct, but you might consider:
self‑insuring for the value of the equity and any CGT on disposal;
transferring the equity between the exiting and remaining proprietors for no consideration and
relying on the deemed market value substitution rules in the CGT legislation;
avoiding cross-insurance;
perhaps, particularly given the recent amendments, using an insurance trust;
avoiding share buybacks and unit redemptions;
avoiding the use of superannuation funds to hold buy-sell insurance, unless careful consideration
has been given to all of the numerous complex issues;
having the primary debtor insure to cover the debts or payments required under guarantees that
might otherwise need to be forgiven;
periodically revisiting the value of the equity and the amounts insured for;
considering how your plans fit in with the overall estate and succession plans of the business and its
proprietors; and
scheduling an annual review and being alert to the inevitable changes in the tax law, the law
generally, ATO practice and the changes that will occur in the business over time.
¶19-200
387
Chapter 20
Other issues for business succession planning
Introduction......................................................................................................................¶20-100
Transferring control of family trusts.................................................................................¶20-105
Remuneration strategies.................................................................................................. ¶20-110
Recruitment, skill development and retention................................................................. ¶20-115
Creating a family office.................................................................................................... ¶20-120
Financing.......................................................................................................................... ¶20-125
Business planning versus business succession planning...............................................¶20-130

In the previous chapters, we have discussed business succession planning mostly from a taxation
and legal perspective. In reality, there will be other, more personal, factors that influence decisions of
principals when determining how to pass on the control of their family business.
This chapter looks at issues such as remuneration, equity and development and retention of skilled
employees and it identifies various considerations that should be taken into account when transferring
and operating businesses.
¶20-105 Transferring control of family trusts

We may often want to transfer control of a family (discretionary) trust to, say, a spouse, other members
of the family or some combination of people – either before or on the death or disability of one of the
key family members. The reason for transferring control could be that there are valuable assets – such
as shares in the family business or other investments – in that trust. If shares or other investments are
transferred out of the trust to each of the beneficiaries, we may crystallise a sizeable CGT liability.
The estate plan might deal with passing the control of either the assets or the trust in the event of death.
It, or the business succession plan, should also deal with passing control in the event of disability – as
disability, either physical or mental, is common before death. These issues are discussed in chapter 18
but the following matters should also be noted:
Changing trustees
In the context of a family business, confidentiality might be an issue if the original family does not want
outsiders knowing all the family’s financial secrets or being put in a position of influence. After all, it is
conceivable that control could pass to outsiders such as in‑laws.
Independent third parties

It has been suggested that sometimes a long-standing professional adviser (such as the family’s
accountant or lawyer) could become a shareholder or director of the corporate trustee.
The title “independent” is often used to describe parties who are not independent. Rather, they might
simply be people who are not members of the family. In fact, in practice, such people are often tied to
particular family members. There is a risk that the use of such loose language could mislead the parties
about what might be achieved.
Further potential problems with such an approach include resolving what will happen if the
professional adviser becomes disabled, dies, leaves their existing firm, changes career path, rotates
off that client or retires. How much should they charge for these services? What happens if the client
leaves the adviser’s firm? Some firms will not allow their partners to take on such roles. Also, the chosen
adviser might have a close relationship with the patriarch but less so with the next generation who will
¶20-100
Other issues for business succession planning 389
be responsible for the day-to-day running of the business or the management of the investments. How
might the patriarch’s adviser be replaced? What experience does the adviser have in this role specifically
and what experience do they have in resolving disputes in such situations? So, certainly consider this
option but perhaps proceed with great caution.
Trap
If contemplating using a professional adviser as a trustee (or director or shareholder of a corporate trustee),
consider issues such as their specific experience in that role, their relationship with the next generation, their
charges, and what might happen if they resign, change firms, retire, become unwell etc.
Tip
Check whether any professional services firm has, say, a special purpose company with specialist expertise
to handle such roles. They might have existing systems, procedures etc to deal with such needs.
Changing appointors
The appointor is the party that typically has the power to remove the trustee and appoint a replacement.
Arguably then, this role is more important than that of the trustee itself.
The same sorts of issues that arise in relation to the timing and choice of trustee, also arise with the
choice of appointor – see ¶14-125.
You might also consider the possibility of having a corporate appointor, just as you might use a
corporate trustee. In this way, the voting rules can be set out in a shareholders agreement or company
constitution and there could be continuity if one party dies, becomes disabled or resigns.
Tip
When considering having a corporate appointor, ask whether you are providing certainty through, say, a
shareholder’s agreement and constitution or simply adding another layer of complexity.
Guardians
The guardian, if any, may have certain reserved powers such as approving loans or capital advances.
The same sort of issues apply to the timing of any change in the guardian and appointing a successor
or successors, as applied to choosing a shareholder and director in a corporate trustee and appointing a
replacement appointor.
¶20-105
Trap
If contemplating changing trustees, the composition of a board or shareholders, appointors or guardians,

how will you protect against “elder abuse” and protect family members generally?
Changing company constitutions

Where there are numerous companies (either acting as trustees or in their own right) created over
substantial periods, it is likely that there will be significant differences in their constitutions.
To simplify decision-making and administration, you might consider either amending the constitutions
or substituting a single new one.
Changing shareholders
At this time, you might also check who the shareholders and directors of corporate trustees are.
Differences are common, especially where family members have become adults, while new companies
and trusts have been created. Also consider what the shareholder’s wills say, or should say, about what
happens to these shares on their passing.
Tip
Check who the shareholders and directors of corporate trustees are, particularly when there are numerous
companies of various ages.
Tip
Check what the shareholder’s wills say about the transfer of shares in family companies and trustee
companies on the passing of the shareholder.
Bankruptcy and divorce

Two questions often arise when deciding who to use as a trustee, an appointor or a guardian. What
if they become bankrupt and what if they divorce? It seems clear enough that an appointor’s power
of appointment does not pass to a trustee in bankruptcy. In Re Burton; Ex parte Wily v Burton,1 the
court held that in an appointor’s power of appointment was a trust or fiduciary power which must
be exercised in the interests of beneficiaries, rather than being property or a power which might be
exercised by a bankrupt for his own benefit. See discussion at ¶14-125.
1 (1994) 126 ALR 557.
¶20-105
In particular, just as the Family Court has wide powers to, in effect, often look through family
discretionary trusts, one is left to wonder whether decisions in cases such as Richstar Enterprises Pty
Ltd v Carey,2 Gregory v Hudson3 and Kennon v Spry4 might, at some time, be taken to the next level,
whereby courts will start to look through trusts – see ¶5-115.
It is common to discuss the use of binding financial agreements (BFAs) between the parties as a means
to restrict access to family wealth. However, it seems that, as a practical matter, relatively few such
agreements are actually prepared and even fewer are executed.
Apart from the obvious awkwardness of such discussions between the parties, there is the requirement
that each party make full disclosure and receive separate legal advice before signing BFAs. In addition,
there is a general concern in the industry that BFAs might be ruled invalid if they fail to comply with
strict technical rules.
Perhaps protection from creditors and aggrieved spouses will be greater where the decision‑maker is one
of a number of decision‑makers and they do not have control. It might be that evidence of the absence
of control would include voting power and evidence of decisions contrary to the wishes of the relevant
party, loans and the use of assets occurring on an arm’s length or market value basis, for example, security
is provided and principal and interest is paid or market value rental is paid. Such considerations might
Influence the decision as to whether to create one or more testamentary or discretionary trust (see ¶5-125).
This can be of importance in a business succession planning context because failure to adequately
address such issues could result in the break-up of the group assets, potentially to the detriment
of all. A further issue to consider is the inclusion of a provision in the trust deed (and perhaps in
the constitution of any corporate trustee) for the exclusion of a person as a beneficiary (or as
director/appointor/etc) on the happening of a disqualifying event, such as an act of bankruptcy
or a relationship breakdown within the meaning of the Family Law Act 1975.
Perhaps one of the greatest challenges for advisers is the need to not only understand the law and the
personal and commercial issues but to anticipate how each might develop.
Agreements for the management of certain assets

Given that trust splitting or trust cloning is unlikely (see ¶18-140 and ¶14-135), other options have
to be considered.
One option is for the parties to agree that some of the trust assets are to be managed by some of the parties
for their benefit. The issues that this raises include whether there is a breach of trust, whether sub-trusts
are created, how we offset profits and losses, who is taxed under the proportionate approach in the tax
legislation, the effect of security over trust assets etc. This would not seem to be a simple option.
2 [2006] FCA 814.
3 [1997] NSWSC 140.
4 (2008] HCA 56.
¶20-105
How and when to appoint new office holders

Lamentably, if they are not adequately protected, it might be the case that the child or children put in
charge of the family’s assets will not act in the best interests of the parents or the surviving spouse.
Terms such as “elder abuse” come into our lexicon because the event or behaviour that they describe is
not simply isolated.
As a safeguard, it has been suggested that the parents (or the surviving parent) might retain a controlling
interest during their lifetime and then relinquish their power on their passing. This might be acceptable.
On the other hand, potential problems with this approach include:

it might not pass control of the family business or assets at a time that the next generation feels ready
(entitled) to take control;
as the parents advance in years they may not have the skills or interest in this role; and
the parents may be subject to bullying by the children.
There will often not be a clear, perfect answer. Nevertheless, these are important issues to consider.
Family trust elections

Family trust elections are made so that franking credits on dividend income will flow through trusts to
their beneficiaries and to simplify the rules for the recoupment of income tax losses.
Unfortunately, the definition of family group is quite narrow (and the Commissioner has been
reluctant to exercise his discretion to provide relief under the franking rules). As a result, an important
consideration when transferring assets from one trust to another might be the impact of the family
trust election rules.
Disputes and rights to information

That disputes within families (and with creditors) happen is a simple, albeit unfortunate, fact of life.
When and what access aggrieved beneficiaries, or mere objects, might have to trust records is a separate
and complex topic. However, if limiting access to information about wealth and decisions that have
been or which might be made is an important consideration, it is a factor weighing in favour of having
separate or multiple trusts so as to limit access.
¶20-110 Remuneration strategies

Remunerating key employees in a business succession context introduces some rather different
dynamics that can be quite challenging. This is partly because remuneration strategies in mid-market
and closely held businesses can be very different from those at the top end of town. Also, some of the
executives may be related and they – and/or arm’s length executives – may want equity.
¶20-110
First, how and why are remuneration strategies different in the mid market? Large firms will often
outsource the administration of salary packaging to an external agency. Many smaller enterprises cannot
afford specialist advice. Even if advice is sought, it tends to focus on what the tax law permits – not on
how to simplify the offering and administer the process in the most simple and cost‑efficient manner.
As a result, the tax benefits of salary packaging are not often well understood and employees and their
advisers think that the administration is too hard and costly. So, often little is done.
Remuneration strategies should be designed to ensure that the business is – or will become – an
employer of choice and not be disadvantaged compared to more progressive employers. These strategies
should not just focus on tax savings – they should help the business recruit, motivate and retain staff.
When preparing a business succession plan, advice should be sought from specialist practitioners
about what can be offered (especially to key executives), what should be offered (which may be quite
different) and how it should be administered.
Attending to the salary sacrifice arrangements in the business raises cost/benefit issues. Providing
certain benefits may be very important, but it might be possible to “park” consideration of complex
benefits while other issues are resolved. Having said that, the business might not be able to park the issue
if, for example, providing employees with equity is an important factor in the business succession plan.
Providing equity
The employee share scheme (ESS) rules in Div 83A ITAA97 (which replaced those in Div 13A ITAA36
from 1 July 2009) are very complex, poorly understood (particularly in the small and medium
enterprise market) and difficult to explain. Sometimes, they will not provide any tax concessions. Also,
they can apply if shares are issued to a single person. The scheme does not require great formality, or
even to be called an ESS, for the rules to apply.
If, instead, the business provides an employee with units in a unit trust, the ESS rules will not apply –
but there may be FBT on the value of the benefit. This will be the value of the unit less any amount paid
or payable by the employee.
So, why provide equity? Executives, whether they are relatives or arm’s length employees, may want to
share in the increase in wealth as the business grows in value. There is also the emotive issue of wanting
to be an owner.
Some employees will be keen to acquire equity, hoping to make a gain on disposal which will be subject
to CGT rather than income tax.
However, there are some potential downsides to consider when providing equity in a private company
or trust. It is not unusual to find a marked change in attitude or relationship when an employee goes
from being just that to being an owner – albeit a very small owner. They may be less comfortable with
the master/servant relationship, they may want more – sometimes confidential – information on the
¶20-110
performance of the business, and they may want to participate in policy-making and strategy. This
might not be a bad thing, but there are risks. The employee/owner should be made aware that if other
owners are required to provide guarantees for borrowings and liabilities, such as rental guarantees on
premises and borrowings, they could be required to as well.
The business may also have to deal with these equity holders’ views on the need for quantum and
timing of dividends as opposed to the reinvestment of profits.
Merger or acquisition activity may also be made more difficult by minority equity holders.
There is then the question of what happens when they leave. How is the value of equity to be determined
when there is not an active secondary market for these securities? Where will the cash come from to
buy them out and when? Which remaining equity holders will be entitled to buy their equity and on
what basis?
The employee might leave at a very inopportune time from a valuation or cash-flow perspective. If they
are sacked, the business should have the right to acquire their shares – which reinforces the importance
of the valuation and timing of payment rules.
On the departure generally, if there is to be a forced disposal of shares, which is usually the case,
consideration should be given to the value, timing and source of the funds for the payment, whether it
is a buy-back or redemption, and who is to get an option (or who will be forced) to acquire the shares, at
what value, in what proportions etc.
A useful rule of thumb is that if the business issues equity to employees in unlisted entities, it might be
preferable to issue quite a large parcel of shares at market value (payable up front), to issue options with
significant performance hurdles to be achieved, or to use another alternative.
Tip
If you have a private company, consider an ESS only after you have considered the other alternatives. If you
proceed with an ESS, consider, as a default position, only issuing significant parcels of shares, doing so for
cash and doing so at market value.
These issues, especially the determination of performance hurdles, will require specialist advice. This is
a niche area of expertise, even among tax and commercial practitioners.
Other issues to consider when deciding whether employees should be given equity are whether the
relevant entity has made a family trust election or interposed entity election, and whether the employee
is outside the family group.
¶20-110
Alternatives to equity
If the business decides that “real” equity is inappropriate, or even when deciding whether it may be
appropriate, other alternatives should be considered. These alternatives include shadow share schemes
and performance plans.
Essentially, these are methods of calculating a bonus that could be paid in cash, superannuation, FBT
or even equity. The bonus may be based on short-, medium- or long‑term performance of the individual,
group or whole firm. It could be subject to a vesting scale that preserves cash in the business and
provides a “golden handcuff”. For example, the employer might agree to pay 2% of the net profit after
tax before bonuses, with 50% payable now and 25% in years two and three – and any unpaid balance
potentially forfeited if the employee resigns.
These arrangements can easily be used to reward employees for contributing to the capital growth of
the business, as well as for profit/income performance. For example, if the business is worth say $3m in
the minds of the owners, the plan might provide that an employee, Kevin, will be entitled to 2% of any
increase in value above CPI. This will be paid when Kevin retires at ordinary retirement age or if there
is a trade sale, IPO or issue of equity of, say, 25% or more.
The employee would typically be taxable on the cash when they receive it, less PAYG. The employer
would usually not be subject to FBT, unless of course they provided benefits rather than cash.
Such an arrangement might incorporate flexibility so that the employer can satisfy its obligations by
paying out cash (less PAYG), making a superannuation contribution or providing fringe benefits
(less FBT).
It might also be that the after-tax amount of such an entitlement will provide a substantial pool of
(after-tax) funds to enable the employee to acquire (real) equity. It follows that such arrangements can
operate in conjunction with, rather than as alternatives to, ESSs.
The unpaid obligations of the employer – once the liability to pay has arisen but the employee’s
entitlement has not vested – would appear on the employer’s balance sheet.
Such arrangements are typically a very simple and relatively inexpensive alternative to employee share
schemes. However, there are numerous issues to address, so specialist advice should be sought.
Tip
Consider the use of a shadow share scheme or performance plan both as an alternative to an ESS (in the
private company space) and as an adjunct. They need not be mutually exclusive.
Also, there is an argument that such arrangements can result in derivatives, in which case, it might be
prudent to get sign off from ASIC, especially where an entitlement is linked to movement in the value of
the business.
¶20-110
Benchmarking remuneration
Another difference in the mid-market is that the remuneration of family members is often not
benchmarked against arm’s length competitors. This is common in, but not limited to, farming families.
For example, one son may work on the farm for very modest wages and – as a result – there may be
tension between the siblings in relation to who should get what assets or percentage of the farm when
the parents who own the farm die.
Ideally, the remuneration of key employees – whether they are family members or not – should be at
market rates. This problem should then not arise. However, cash flow will sometimes impose limits on
this happening in practice.
There is also the problem of determining the market rate for a particular job. There are numerous
databases available and there are specialists who can help with this process, either to provide precise
advice or to give a general indication.
If the business cannot provide the cash to pay market rates, an alternative is to top up the salary and
fringe benefits portion of an executive’s remuneration with equity. If this is unpalatable, particularly
given the sort of issues raised in ¶20-110, consideration should be given to agreements to pay a bonus
equal to the shortfall on, say, retirement or a trade sale, or even to pass some of the property (for example,
shares/units or real estate) on the death of one or more parent. This is the same sort of concept outlined
in ¶20-110 in relation to phantom shares schemes, shadow share schemes and performance plans.
¶20-115 Recruitment, skill development and retention

In smaller organisations it is always going to be difficult to have the resources in-house to develop key
staff. Fortunately, there are a growing number of organisations providing professional development
opportunities. Universities and colleges offer a wide range of subjects and vocational training. There
are short courses, single subjects and not‑for‑credit subjects – plus the internet gives greater access to a
wider body of information than ever before.
Identifying skill gaps

Perhaps the biggest hurdle is to identify the skills the organisation needs, perform a realistic evaluation
of the existing employees and then fill the gaps. It would be naïve to think that this will be a completely
objective process, or that the views of the parents in a family business might not hold sway. There could
also be some more vocal or influential partners in, say, a professional services firm who might hold
more sway.
There may also be an implementation gap – particularly in closely held businesses – between identified
weaknesses or shortcomings and the preparedness of influential employees to act to remedy the
situation. This might especially be the case if the shortcomings are those of the father or mother – or
¶20-115
one of their children who has been anointed as the next CEO. This may also be an issue in professional
services firms.
Is the skill gap a problem?

Most of us are happy to do a reasonable job and be paid reasonably well for it. In doing so, we will tend
to spend much of our time in our comfort zone. There will be times of stress and personal growth and
considerable personal effort, but how many people will ever achieve the most that they are capable of?
Indeed, how is that measured?
In the case of a successful family business, does it really matter if the business grows at 15% per annum
when another CEO might be able to achieve 30%? Perhaps the person who started the business is content
with the way things are running – the jobs of the employees are secure, and the children will have a
nice inheritance. To what extent does it matter if the children inherit $1m each or $10m each, bearing in
mind that their parents might have to fundamentally change their lives to increase this inheritance?
This takes us to an essential element of the business succession planning process. You need to start with a
thorough analysis of the business and, if it is a family business, the family’s interests and values. Quality
of life might be very important. It would be foolish to suggest that a son be passed over as CEO – because
his abilities will never result in growth of over 15% and there are better arm’s length candidates – if the
family is happy with the outcome and see themselves as a happier unit under that scenario.
As an alternative, the development plan could include mentoring or short courses for certain executives.
The business succession plan could include a safety net whereby family members can be replaced or the
business sold if. in the future, the rest of the family and external advisers become sufficiently unhappy
with performance. This might help promote a greater degree of family harmony.
Shadow board versus kitchen cabinet

Just as there are shadow boards – for instance, where there are partnerships there is no board of
directors – there might still be a meeting of nominated people who act as if they are board members
(with due regard to independence, governance etc), consideration might be given to inviting one or
more members of the next generation to attend actual or shadow board meetings.
This might allow them to learn from the experience of older and more learned individuals and better
equip them to become actual board members in the future.
A risk, particularly in family businesses and where there is more than one family member on the board,
is the power of the kitchen cabinet; that is, decisions might effectively get made around the kitchen table
rather than in the boardroom.
Nonetheless, perhaps this is an important issue to address, rather than the reason not to blood younger
family members in this way.
¶20-115
Motivating and rewarding staff

When considering recruiting and retaining the best possible executives as part of a business succession
plan, developing or reviewing remuneration policies can be very important.
Successful businesses typically like to be an employer of choice. Sometimes this will be the case because
of the industry or the product or service. If so, there might be little that advisers need to do to assist.
However, specialist advisers can have an important role if remuneration policies are a factor. More
money is not necessarily a motivating factor. Some remuneration policies can have a very real negative
effect on the ability of a business to recruit, motivate and retain the best staff.
A company’s policy on salary sacrificed cars is a good example. A salary sacrificed car is one where an
employee gives up salary and receives the use of a car in return. The value of the car should be built into
the package, otherwise the employer is underselling the package they are providing. Getting car plans
wrong can be a major irritant. The question should not be what the employer thinks about cars – it
should be how do existing or potential employees feel about cars?
If the employee is paying for the car, why should they be limited to particular types of car according to
their seniority in the firm? Why shouldn’t an employee be able to package two and three cars when other
employers allow it? Employers continuing to impose outdated Dickensian policies will find it increasingly
difficult in the job market. For more progressive employers, there are great opportunities.
Medium‑sized businesses provide particular human resource challenges. As recruiting and retaining
staff becomes, for many, the single biggest challenge after finding clients, there is increasing pressure
to move to a modern, tolerant, diverse and vibrant work culture – where staff are challenged and
appreciated and feel themselves growing. Creating this environment requires a particular type of
executive. In a family business, there is less room for tolerance of skill deficiencies in executives, unless
of course the deficiencies can be covered by the skills of others.
This introduces the concept of a high‑performance work environment where maximising potential –
or at least having executives face a considerable stretch – is a key cultural requirement. Unlike smaller
businesses – where the performance of key executives is, to a large extent, in the owner’s own hands –
the key executives in a larger business might see themselves more as custodians of the business for the
future, rather than as owners who have a lot of latitude in the sort of performance that is acceptable.
This acceptance of a custodian responsibility and a high‑performance culture is more likely to be

found in larger family business groups. There, the responsibility for asset preservation and growth and
significant income generation – both for the existing executives and future generations – might be more
clearly defined and accepted. This clarity and responsibility may be particularly evident in groups that
establish a family office.
¶20-115
¶20-120 Creating a family office

The term “family office” describes a professionally-managed organisation responsible for managing a
family’s financial resources – in contrast to a simple company structure where the shareholders choose
the directors.
A family office might have a board made up of family members as well as external parties who have
complementary skills and expertise.
The reason for a family board is that, as the family grows through the generations, it is simply not
practical for everyone to sit around the table and jointly agree every significant decision. Indeed, some
family members might be quite unsuited to such a role. Anyone who has worked in a business that
has grown to a substantial size will recognise that there comes a time when decision-making has to be
passed to a smaller number of people with the requisite skills.
The family office might employ skilled professionals – with skills in accounting, law, IT, investments
and strategy – to manage a variety of both passive and active investments. These professionals may be
employed full‑time to manage the family’s wealth, rather than this being done at night or on weekends
by family members with other vocational responsibilities.
One of the roles of the professionals in a family office is to report to the family board about the
performance of the various investments. In this way, the family’s wealth can be managed professionally
– for the benefit of both current and future generations – while family members can, to a significant
extent, go about their own vocations or philanthropic activities.
The family office can relieve family members of the feeling that they have to be skilled in a number
of disciplines. It frees them up from having to prepare accounts, reports and income tax returns and
provides a degree of consistency in dealing with family members. This can be important if there are
complex or contentious matters.
A family office is more likely to arise if there is considerable wealth spread over a number of
investments. It is potentially most useful when the current generation would like to see wealth or
particular investments maintained for future generations, rather than it being split up between family
members and perhaps dissipated.
As each new generation evolves, interests may diverge, new personalities, spouses and in-laws will emerge
and the likelihood of some family members wanting to invest differently or “take their money and run”
increases considerably. A professionally-run family office can reduce these risks, including the risk of the
more forceful family members unreasonably influencing others. If some family members want to go their
own way, a well‑run family office may be better placed to establish a value for their equity and to arrange
funding to pay them out – but still keep the core assets intact for the others and for future generations.
A well‑run family office can assist in wealth protection and wealth generation and, if it cannot assist
in creating family harmony, it may at least minimise the disharmony that might be associated with
different views.
¶20-120
¶20-125 Financing
Sometimes, financing business succession plans is not a problem. For example, we might focus on
transferring the control and management of the business but the ownership of the assets such as shares
will pass under a will. Alternatively, if the assets are held in a discretionary trust, we might transfer
control of the trust rather than transferring the assets – and this will not need financing.
Related party debt

It is an unusual family group which does not have related party debt, as a result of one party financing
the other’s activities, because funds have been drawn down for private purposes or because the unpaid
entitlements of beneficiaries have accumulated. Just as there are many reasons why such debts arise, the
methods of settling them and the tax implications of doing so vary enormously.
For buy-sell agreements, the transfer of equity might be financed by insurance (see chapter 19).
Interest deductibility
Sometimes, some owners or family members will need to buy out others or companies or trusts will
need to fund distributions. If this is the case, there are two fundamental issues – what is the value of the
equity and, if you borrow the money, will you get a tax deduction?
Let us assume that the bank will provide the money, rather than the parties relying on a terms sale or
vendor finance.
If you are buying shares, units or an interest in income-producing assets from a partner, shareholder,
unitholder or family member, the deductibility under s 8-1 ITAA97 of any interest on funds to acquire
an income-producing asset is probably quite clear. The interest cost should be deductible, as long as you
are able to establish that the consideration paid represented market value.
The tax deductibility issue is likely to be more complex if a company, trust or partnership borrows to
make distributions or finance reductions in equity. If this is the case, TR 95/25 and TR 2005/12 that
consider cases such as FCT v JD Roberts and FCT v Smith5 are instructive.
TR 95/25 tells us that the ATO is happy enough with interest deductions for partnerships or companies
when the funds are borrowed to repay capital – that is, funds used as capital or working capital in the
business to produce assessable income. However, deductions are not acceptable if the share capital being
reduced represents an unrealised asset revaluation reserve or an unrealised profits reserve – such as
recognising internally generated goodwill.
TR 2005/12 goes further and introduces the returnable amount concept. Under this ruling, interest will
be deductible if the borrowings are used to repay share/unit capital or repay loans that have been used
for income-producing purposes.
5 92 ATC 4380.
¶20-125
The ATO takes a narrow view of the question of deductibility if funds are borrowed to pay out current
year profits. It seems that it wants to see the profits reinvested as working capital before interest on
borrowings to pay them out will be deductible.
The returnable amount concept also makes it very hard – according to the ATO – for discretionary
trusts to qualify for interest deductions on borrowings to finance capital distributions to beneficiaries
who have not contributed such amounts to the trust in the first place.
The correctness of TR 2005/12 has been subject to debate, but at least it sets out the ATO’s views in a
variety of examples. There is, therefore, a degree of certainty about the ATO’s position.
Perhaps an overarching rule of thumb is that, according to the ATO at least, interest on funds borrowed
to buy shares or units at market value to produce assessable income is likely to be deductible under s 8-1
ITAA97. Similarly, interest on funds borrowed to repay loans used for income-producing purposes –
and capital contributed by shareholders or unitholders for such purposes – is also likely to be deductible
under s 8-1. The doubts about deductibility are likely to be much greater for borrowings to pay out
reserves, unrealised profits and current year profits.
Other financing
There might, however, be no need for borrowing. In buy-sell agreements, transfers of equity are often
funded through insurance, or a sale might be financed on terms or by vendor finance.
Some other alternatives include the possibility that the cash might come from an initial public offering
or float, or it might be a matter of transferring control of the trust rather than selling anything.
If, for example, a parent needs funds for their retirement, some of the options include:
the retiree selling assets, eg shares in the business;
borrowing in the businesses to fund loan repayments to the retiree, making a loan to the retiree or
repaying capital contributed by the retiree;
capital distributions to the retiree, eg out of a discretionary trust;
continuing income distributions or dividends post‑retirement;
paying a salary, directors or consultants fees or fringe benefits;
eligible termination payments (less tax-efficient now);
superannuation contributions (less tax-efficient now);
debt forgiveness;
share buyback or unit redemption; and
liquidation.
If the retiree is dependent on an income stream in the future, care should be taken to ensure that he or
she has a controlling interest in the payer – to ensure that this occurs.
¶20-125
Inadequate “other assets” for some family members

In the event that there are inadequate assets to enable, say, one family member to take over 100% of a
business and still ensure that other family members get their share of the family’s wealth, consideration
might be given to passing title in the family business to all of the relevant family members but giving
the particular member an option to buy equity from the other members.
The argument that is likely to be raised by the potential purchaser is that the harder they work the more
they will have to pay for the rest of the equity. Perhaps this is answered, in part, by the adequacy of the
remuneration they receive for the services that they render.
¶20-130 Business planning versus business succession planning

Some might see business succession planning as a daunting task that they have to do, one day. Another
view is that it is an element of robust business planning. After all, how can you successfully run a
business without addressing who the key stakeholders will be, whether they are owners or operators?
Clearly, this includes who, when and on what basis.
This slight difference in paradigm might help shift the process from a daunting task that we don’t
really want to confront to a genuine opportunity for growth and improvement and a somewhat more
positive process.
Revisit the structure

Just as businesses develop and evolve over time, so the appropriateness or otherwise of the legal
structure changes.
An essential element of the business succession planning process is to review the structure in light
of current and anticipated circumstances and to determine both the most appropriate way forward
and the timing. That is, don’t just look at passing interests in existing entities if the current structure
is suboptimal.
It seems to be relatively rare to find a structure which has existed for several years that cannot now be
improved on.
Governance – the cause of much angst

Many business owners are used, to a very large extent, to doing what they want, when they want to do
it. After a sale of some or all of their equity to a private equity firm, employees, other externals or even
to other family members, this freedom can be severely curtailed.
That a robust system of governance is essential in a public company seems quite uncontroversial. Yet, in
a family business, such controls and protection can be seen as an impediment. In fact, after the sale of
¶20-130
equity to outsiders, it can be a major source of dissatisfaction for the old owner who continues to work
(for a period) in the business.
Good governance requires a structure with clearly-defined goals, roles, responsibilities and
accountabilities. It might include a board which includes members who are independent from
the family.
Once this is in place, it might be less of a shock when, say, a trade sale occurs and a new set of rules
is imposed. In addition, it can promote an increased level of (objectively-determined) accountability
for family members and they may then see themselves more as peers or colleagues rather than merely
family members. It can also provide a healthy and structured forum for debates and airing and
resolving disputes.
Will a court interfere with decisions of a trustee?

While consideration of the case law in this area is a separate topic, it is useful to remember that trustees
have fiduciary obligations, and in the event of a breach, remedies might include replacement of the
trustee or the vesting of the trust.
It would be unfortunate indeed if planning came undone due to inappropriate actions by the trustee.
It is something of a truism that when the economy is doing well the inefficiencies in businesses can be
hidden. However, when times get tough, those imperfections become apparent.
Whether it is to better prepare businesses to weather the tough economic times or to prepare them for
changes in ownership or control, the sooner robust governance measures are implemented the better.
¶20-130
405
Chapter 21
Interaction between family law and estate planning
Introduction...................................................................................................................... ¶21-100
How does a court divide property?................................................................................. ¶21-105
How does a court adjust for “financial resources”?.........................................................¶21-110
Family law proceedings versus claim against estate........................................................¶21-115
Is inherited property at risk in family court proceedings?............................................... ¶21-120
Factors influencing whether inherited property will be divided....................................... ¶21-125
Are future inheritances at risk in family court proceedings?........................................... ¶21-130
Binding financial agreements........................................................................................... ¶21-135
Strategies to address family law concerns...................................................................... ¶21-140

This chapter will examine generally some of the ways in which family law can impact on estate planning.
It should be noted that family law proceedings relate not only to marriages but also to de facto
(including same-sex) relationships.
A court may make an order dividing property of a de facto relationship where the period of the
relationship is at least two years. In addition, an order may be made regardless of the length of the
relationship in circumstances where there is a child of the relationship, where the party seeking the
order has made a (financial or non financial contribution) and it would be unjust if no order was made
or if the relationship was registered under state or territory law.1
There are three key reasons this chapter has been added to the 2011 edition.
First, there appears (from the author’s experience at least) to be an increase in the number of estates
where family law proceedings are on foot at the time of death of one of the parties. This may simply be
a reflection of the growing number of divorces. It may, however, also be the case that where a couple are
estranged and one of them is terminally ill, the other has been advised that their prospects of receiving
a share of the property pool is likely to be greater under family court proceedings (commenced before
death) compared to a post-death claim against the deceased’s estate under testator family maintenance
(family provision) rules.
Second, clients are increasingly concerned that their child’s inheritance (whether received or
prospective) may be the subject of a court order in the event the child’s relationship breaks down.
This leads to clients seeking advice on will-drafting strategies to limit the likelihood of an inheritance
becoming the subject of a court order.
Third, clients are increasingly interested in the use of binding financial agreements – both as between
themselves and their partner and also between the clients’ child and their respective partner.
This chapter sets out general principles only. A typical family law matter will involve many complex
issues and will of course be decided on its own facts, including the circumstances of the parties and
having regard to the law, not all of which is covered in this chapter.
¶21-105 How does a court divide property?

The approach that courts generally adopt when dividing property of the marriage or de facto
relationship (“the property pool”) was set out in the case of Hickey & Hickey & Attorney-General for the
Commonwealth of Australia2 where it set out four interrelated steps:
1 See ss 4AA and 90SB of the Family Law Act 1975. Note also that in some jurisdictions it is possible to register a relationship.
2 [2003] FamCA 395 at [39].
¶21-100
Interaction between Family Law and Estate Planning 407
first, the court should make findings as to the identity and value of property, liabilities and financial
resources of the parties at the date of the hearing;
second, the court should identify and assess the (financial and non-financial) contributions of the
parties as a percentage of the net value of the property. Note that non-financial contributions include
the contribution of one party as the “homemaker”;
third, the court should identify and assess the relevant matters in certain sections3 of the Family
Law Act (such as the earning capacity of the parties, and, to the extent relevant, the age, financial
resources and child-minding responsibilities of the parties) and determine the adjustment (if any)
that should be made to the contribution-based entitlements of the parties established at step 2;
fourth, the court should consider the effect of those findings and determination and resolve what
order is just and equitable in all the circumstances of the case.
(Note, the term “financial resource” in step 1. Property that is a “financial resource” does not form part
of the “property pool” which the court divides between the parties. However, a “financial resource” can
be taken into account when the court undertakes the third step.)
After going through the four steps, the court will divide the assets based on the financial and non-
financial contributions made by the parties and their future needs. The court can effect this division
in either of two ways: an asset-by-asset approach or a global asset approach.4 The global approach
is more convenient and may be preferred for that reason, especially where one party has made a
significant contribution as a homemaker. In shorter marriages however the asset-by-asset approach
may be preferred.
¶21-110 How does a court adjust for “financial resources”?

As stated above, assets that are only “financial resources” of a party cannot be divided between the
parties but may influence the division of the property pool.
3 That is, matters referred to in s 79(4)(d), (e), (f) and (g) (“the other factors”), including, because of s 79(4)(e), the matters referred to in
s 75(2) so far as they are relevant.
4 In an asset-by-asset approach, the court deals with each asset separately. In a global asset approach, the court pools the assets and then
makes one split, eg 60/40.
¶21-110
Example
Andrew and his wife Molly are separating. They have $1m in matrimonial assets, being a house property,
investments and motor vehicles.
In addition, Andrew and his two siblings are trustees of a testamentary trust established under the will of his
late father. The trust has assets valued at $2m. The beneficiaries include the three siblings and their families,
and distributions from the trust have historically been made on a needs basis - ie not automatically, one third
to each family.
In these circumstances, it is likely that the court would regard Andrew as having an interest in the trust that is
a financial resource but not matrimonial property.
The court might, for example, say “Instead of dividing the matrimonial property equally between Andrew
and Molly we take into account the $2m testamentary trust which has some value as a financial resource to
Andrew, and direct that the matrimonial property be divided $650,000 to Molly and $350,000 to Andrew”.
¶21-115 Family law proceedings versus claim against estate

Returning to the situation described in the introduction, where a couple are estranged and one is
terminally ill, there are three reasons one partner might consider commencing family law proceedings
prior to the death of the terminally ill partner:
first, the party instigating proceedings under family law might be awarded a greater share of the
property pool under a family law settlement than they would if they simply made a claim against
their deceased partner’s estate;
second, if the terminally ill partner held money in a superannuation fund (as is usually the case) the
family court may allocate part or all of the superannuation interest to the other partner.5 In contrast,
if a superannuation death benefit was paid directly to individuals and not to the member’s estate,
that superannuation would be beyond the reach of any claim made against the estate; and
third, if the terminally ill partner controlled a family trust (as is often the case) there is a possibility
that the family court would regard the assets of the trust as either:
a financial resource of the terminally ill partner, which may result in the other partner being
allocated a greater share of the property pool; or
part of the property pool, which would then be the subject of the court order.
¶21-120 Is inherited property at risk in family court proceedings?

An inheritance received during the marriage will invariably form part of the pool of property that a
court can divide between the parties.
5 Under s 90MC of the Family Law Act 1975 a superannuation interest is treated as property.
¶21-115
The leading authority for this is Bonnici and Bonnici.6 In this case, the husband received two
inheritances shortly prior to the end of what was a 21-year marriage. He argued that the inheritances
should fall outside of the divisible property pool. The husband argued that the inheritance should fall
into a category of assets protected from distribution, but the court rejected this argument.
Similarly, in Dashwood & Bennett7 the parties had been married for nearly thirty years before
separating in 2008. In late 2007 the wife’s mother died and the wife eventually received an inheritance
of just under $150,000. Referring to Bonnici, the court said:8
“There is no dispute that the wife’s inheritance should be treated as property rather than simply
a financial resource available to her.”
However, an inheritance received after separation but before trial may or may not be included in the
property pool.9 If it is not included in the property pool, the division of the pool will usually be adjusted
taking the inheritance into account as a “financial resource”.
¶21-125 Factors influencing whether inherited property will

be divided
Having established, then, that inherited assets (prior to separation, at least) will form part of the
property pool that may be divided, the next question is whether an inheritance will actually be divided.
As noted at ¶21-105, the court may deal with property on an asset-by-asset approach or by a global
approach. While these approaches may lead to different results for the treatment of inherited assets,
the final position of the parties will often be similar, regardless of which approach is taken. Keeping an
inheritance separate from other property may increase the likelihood of the inherited property being
retained by the recipient spouse, provided there are sufficient other assets to enable a just division of the
total property pool between the parties.
Whether the benefit of an inheritance will be shared between the parties or retained by the recipient
spouse will depend on a range of factors referred to in the third and fourth steps referred to in
¶21-105. Some of the likely important factors are:
how recently was the inheritance received – as a general rule, the longer the duration of the
relationship the less likely the court will be inclined to allocate a greater portion to the party
who received the inheritance;
6 (1992) FLC ¶92-272.
7 [2011] FMCAfam 93.
8 [2011] FMCAfam 93 at 72.
9 See, for example, GWH & PGH [2005] FamCA 388.
¶21-125
the size of the inheritance as against the total asset pool; and
the contribution (if any) of the parties to the inheritance.10
Example
Phil and Kim have been married for two years. They do not have children, they both work full time, have kept
their assets separate and have contributed equally to expenses. Phil’s mother died nine months ago and left
him an inheritance of $1m which has now been paid to him and which he has deposited in an account in his
own name.
Phil and Kim have now decided to divorce.
Phil’s inheritance will form part of the property that may be divided.
In these circumstances, it is likely that the court would regard Phil as being entitled to retain all, or the vast
majority, of his inheritance. As the inheritance was segregated, this would probably be done on an asset-by-
asset basis.
Example
Ali and Yung have been married for 15 years. They have three children. Yung has been the primary income
earner for the duration of their marriage as they started a family shortly after they were married. Ali gave
up her promising career as a lawyer to care for the children, perform all home duties and enable Yung to
advance his career. Yung’s mother died 10 years ago and left him an inheritance of $1m which was used to
pay off their mortgage. They have few assets other than their house property.
Ali and Yung have now decided to divorce.
Yung’s inheritance will form part of the property that may be divided.
In these circumstances, it is very likely that Yung would not retain the benefit of the vast majority of his inheritance.
¶21-130 Are future inheritances at risk in family court proceedings?

While property belonging to, say, a parent of one of the parties cannot be the subject of a court order, it
is the case that the division of the pool of assets between the parties can be adjusted to take into account
the likelihood that one party will receive an inheritance.
10 For example, in James and James (1978) FLC ¶90-487, where the wife had contributed by working on the husband’s parents property
which the husband ultimately inherited.
¶21-130
One of the early cases dealing with this possibility is White v Tulloch.11 The court said:12
“The answer is ultimately a question of fact and degree … In a case where the testator had already
made a will favourable to the party but no longer had testamentary capacity and there was
evidence of his or her likely impending death in circumstances where there may be a significant
estate, and where there was a connection to s.75(2) factors, it would be shutting one’s eyes to
realities to treat that as irrelevant. On the other hand, the bald assertion that one of the parties
has an elderly relative who has property and is or is likely to benefit that party is so speculative
that it would be inappropriate to contemplate it as relevant in a s.79 determination, it being too
remote to affect the justice and equity of the case in any worthwhile way.”
By giving the example of a testator who “no longer had testamentary capacity”, the court in Tulloch
appeared to tread conservatively around the issue of prospective inheritances. Recent cases suggest
that courts are increasingly willing to bring prospective inheritances into account.
For example, in De Angelis and De Angelis,13 the court said:14

“The discussion by the Full Court in White and Tulloch v. White (1995) 19 Fam LR 696 of this
question of the treatment of anticipated inheritances in property settlement proceedings indicates
that there is no absolute rule and that each case will depend on its own facts. However, we think
it important to remember that the Court is required in exercising the jurisdiction under s.79 of
the Family Law Act 1975 to accord justice and equity to both parties. The question therefore has
to be asked whether, in the present case, it would be just and equitable to the husband for the
Court to have ignored the probability that, in what could well be very short period of time (given
the ages of her aunt and mother), the wife could well be the owner of two properties having
a combined value of almost the same amount as the value of the parties’ property currently
available for distribution, and particularly in circumstances where the husband had been found
to have done substantial improvement and maintenance work on both properties?
We consider that it would have been unjust to the husband to ignore this matter even if it was
categorised only as a possibility and not a probability.” (emphasis added)
As noted in ¶21-100, each case must be determined on its own facts. Currently, however, whether a
court will take a prospective inheritance into account will most likely depend on matters such as:
the likelihood of the party receiving the inheritance;
when the inheritance could reasonably be expected to be received;
the amount of the likely inheritance; and
the needs of the parties.
11 (1995) FLC ¶92-641.
12 (1995) FLC ¶92-641 at 51.
13 (2003) FLC ¶93-133.
14 (2003) FLC ¶93-133 at 95-96.
¶21-130
¶21-135 Binding financial agreements

A binding financial agreement (BFA) is a written agreement entered into by two people which sets out
what is to happen to some or all of their property (including, if they wish, prospective inheritances) in
the event of their separation.
While BFAs are sometimes referred to as “pre-nuptial” agreements, that term is misleading as a couple
can enter into a BFA before, during or after the relationship.15
As the effect of the BFA is to override the court’s ability to deal with property of a relationship, strict
rules apply and these must be adhered to when making a BFA.
For example, before signing a BFA, each party must have received independent legal advice from a legal
practitioner about the effect of the agreement on the rights of that party and about the advantages and
disadvantages, at the time that the advice was provided, to that party of making the agreement.
A BFA can be set aside in certain circumstances, including:16

where the BFA was obtained by fraud (including non-disclosure of a material matter);
where a party entered into the BFA for the purpose of defrauding creditors or a person who is a de
facto of either of one of the parties;
the BFA is void or unenforceable;
in the circumstances that have arisen since the BFA was made it is impracticable for the BFA or a
part of the BFA to be carried out;
a payment flag is operating under Pt VIIIB on a superannuation interest covered by the BFA and
there is no reasonable likelihood that the operation of the flag will be terminated by a flag-lifting
agreement under that Part; or
the BFA covers at least one superannuation interest that is an unsplittable interest for the purposes
of Pt VIIIB.
¶21-140 Strategies to address family law concerns

The above discussion identifies a number of ways in which family law might have an adverse impact on
their estate planning.
The following table summarises these strategies and these are expanded on in the following text in this
chapter.
15 Ss 90B, 90C, 90D (if married) and 90UB, 90UC and 90UD (if de facto) of the Family Law Act 1975.
16 These and other circumstances are listed in s 90K of the Family Law Act 1975.
¶21-135
Concern Possible strategy

My partner might instigate family law proceedings Enter into a BFA now
shortly before my death
My partner might make a TFM claim against Enter into a BFA now and, perhaps, include intentions
my estate as to what should happen in event
of death
My former partner might make a claim against Negotiate in settlement
my estate
My gift in my will to child A might end up going to Request child A and partner to enter into a BFA
child A’s ex-partner
Set up a testamentary trust for child A and
descendants with (truly) independent trustees
Set up a single testamentary trust for children A, B
and C and all their descendants with A, B and C as
trustees
Set up a life interest trust for child A with child A’s
children to receive the capital (query if this gives child
A enough provision)
By-pass child A and set up trust(s) for child A’s
children (same query)
Give child A a small amount and remainder to a trust
for child A’s children (same query)
I’m settling my divorce but expect my spouse will Negotiate a periodic maintenance payment to spouse
receive a significant inheritance in the instead of a lump sum capitalised payment
near future
Family court proceedings commenced before death

If a couple is concerned that either of them might, prior to death of either of them, commence family
law proceedings that would then disrupt their estate planning, they could consider entering into a BFA.
It might be appropriate to also consider supporting the BFA with a mutual will arrangement – see
¶8-160.
TFM claims by partner

A BFA will not usually contract out the right of one party to make a testator family maintenance (TFM)
claim against the other’s estate.
However, when deciding whether a person in their will has made adequate provision for another, it is
open to the court to take into account the terms of a BFA (or a deed of similar effect), to the extent the
court considers this to be relevant.
¶21-140
In Kozak v Matthews17 the parties entered into a deed that effectively said one partner had no right to
the house that was registered in the other partner’s name. The registered owner died, and the surviving
partner made a claim against the deceased partner’s estate. In assessing this claim, the judge took the
deed into account when deciding whether provision made in the deceased’s will was adequate in all the
circumstances. The decision of the judge was affirmed on appeal.
Similarly, in Hills v Chalk & Ors18 the husband asked the court to order that he could bring a claim for
additional provision from his wife’s estate even though the statutory period for making the claim had
expired. The Court of Appeal of the Supreme Court of Queensland said:19
“The strength of a pre-nuptial agreement as one of the relevant factors must of course vary from
case to case: in this case, the brief summary of the evidence I have given suggests that this pre-
nuptial agreement provides considerable support for the view that the provision in the will was
‘adequate’ for the ‘proper’ maintenance and support of the respondent.”
Based on the above decisions, parties might receive some protection from TFM applications if they
refer in the BFA to their intentions in the event of their deaths. It is submitted that any such references
should be drafted carefully to avoid the BFA being deemed to be an informal will or codicil.
TFM claims by former partner

It should be remembered that the law in Victoria does not prevent a former partner from making a
claim against the other partner’s estate – see chapter 12.
In other jurisdictions, a former spouse is able to make a claim against a deceased’s estate– see Table 1
at ¶12-110.
If the possibility of a TFM claim by a former partner is a concern, any family law settlement should, to
the extent possible, be negotiated to carve out the other party’s right to make a TFM claim.
Binding financial agreements for a beneficiary

If a willmaker is concerned that their gift to a beneficiary will be at risk in the event the beneficiary
suffers a relationship breakdown, the willmaker may wish to consider talking to the beneficiary and
suggest that he or she and their partner should enter into a BFA. This may be a difficult conversation,
for obvious reasons.
However, where significant assets are involved it can be a very important conversation. It is also an area
where the willmaker’s adviser can become involved and add value as a “neutral” party. The presence of
an adviser (or counsellor) may help change the beneficiary’s reaction from:
17 [2007] QCA 296.
18 [2008] QCA 159.
19 [2008] QCA 159 at 209.
¶21-140
“You’ve never liked my partner and now you’re telling me not to trust him/her too!”
to:
“This is a prudent asset protection issue and a BFA has been suggested by the independent adviser as
a solution which people commonly use.”
Testamentary trust with independent trustees

A willmaker concerned that an inheritance (or prospective inheritance) might be taken into account in
a property settlement could consider the use of a testamentary trust with independent trustees.
In Ward & Ward20 the husband was one of three siblings. His mother, a widow, had made a will leaving
a one-third share of her estate to each sibling, absolutely. Two days before the husband and his wife
separated, the husband’s mother amended her will and instead of giving him a one-third share of the
estate absolutely the one-third share was to pass to a testamentary trust, the beneficiaries of which were
the husband and his two children and the trustees of which were the husband’s sister and the mother’s
solicitor. The husband admitted under cross-examination that the purpose of the change was to put the
inheritance out of reach of his wife. The mother died in 2003 and the family law case came before the
court in 2004.
The court said that the trust assets would not be brought into the marital property pool, but were a
financial resource:21
“In Bonnici, the inheritance had vested. This is not the case here. I am satisfied that the creation
of the testamentary trust was for the purposes, acknowledged by the husband, to put it out of
the reach of the wife. Certainly he has achieved that in a control sense. The wife cannot assert
any right to alter the husband’s contingent interest in the trust.
I am satisfied that it is likely on the balance of probabilities that the husband will receive the
whole of the entitlement of the testamentary trust personally. Once final orders are made then
any vesting of an interest in the trust will be ‘beyond the reach of the wife’. I expect it will vest
for the husband’s full benefit.
The contingent interest represents at this time a financial resource.”
As the court considered the assets in the testamentary trust to be a financial resource of the husband, it
was able to increase the wife’s share of the property pool to reflect the benefit of the “inheritance”.
It would have been interesting to see what the court would have done in Ward if the inheritance paid to
the testamentary trust was significant and there were insufficient assets in the property pool to make
a “just” adjustment. It would surely have been tempted to classify the assets of the trust as part of the
property pool, especially as it would be reasonable to expect the trustees to follow the direction of the
husband. The result might be different again, however, if the trustees were truly independent.
20 [2004] FMCAfam 193.
21 [2004] FMCAfam 193 at [31]-[33].
¶21-140
Single testamentary trust for multiple “primary beneficiaries”

A willmaker could consider setting up a single testamentary trust for children A, B and C and all their
descendants with A, B and C as trustees – see example at ¶5-115.
Life interest trust

A willmaker could consider structuring the testamentary trust as a life interest trust whereby:
child A and his children are entitled to the income of the trust, at the discretion of the trustee;
the children of child A, as they attain x years of age, receive the capital of the trust.
By-pass child
A willmaker concerned about the possibility of a child suffering a relationship breakdown
could consider by-passing the child and instead establish one or more trusts for the willmaker’s
grandchildren.
Child and grandchildren trusts

A willmaker could also consider a nominal trust for the child and one or more trusts for the
willmaker’s grandchildren.
Adjusting a family law settlement

If a client is getting divorced and it is likely that their partner will come into a significant inheritance
in the not too distant future, it might be in your client’s best interests to push for periodic maintenance
payments instead of a lump sum capitalised payment. Then, if the partner subsequently receives the
significant inheritance, the obligation to continue the maintenance payments may fall away.
¶21-140
417
Chapter 22
Finance and accommodation for aged and disabled clients
Introduction...................................................................................................................... ¶22-100
Aged care assessment ................................................................................................... ¶22-105
Costs of aged care .......................................................................................................... ¶22-110
Living arrangements ........................................................................................................ ¶22-115
Care plans and packages ............................................................................................... ¶22-120
Changing living arrangements ........................................................................................ ¶22-125
Home care packages program ....................................................................................... ¶22-130
Reverse mortgages ......................................................................................................... ¶22-135
Retirement villages .......................................................................................................... ¶22-140
Church, charitable and rental villages ............................................................................. ¶22-145
Demountable home parks ............................................................................................... ¶22-150
Residential care ............................................................................................................... ¶22-155
Reasons for entering aged care ...................................................................................... ¶22-160
Supported/concessional residents ................................................................................. ¶22-165
Tips for advisers .............................................................................................................. ¶22-170
Pre-paid funeral plans ..................................................................................................... ¶22-175
Special disability trusts ................................................................................................... ¶22-180
Long-term annuities and care annuities ......................................................................... ¶22-185

Over 3.2 million people in Australia are over 65 years of age, and this is expected to grow to over
9 million by 2061.1
In 2012, there were 0.42 million people aged 85 years and over in Australia, making up 2% of the
population. This is expected to grow to 5% by 2061, which will equate to around 2.25 million people.
The ageing population is driving the demand for aged care and with that brings material shifts in the
way in which people live and the management of their affairs. Such shifts can include the sale of a
residence and the purchase of a substitute residence, moving to a non-owned residence, substantial
changes to investments, becoming entitled to government benefits for the first time or to a different
level of government benefits, needing to have others (such as carers, attorneys and guardians) formally
involved in the person’s life, and changes in mobility and cognitive capacity.
It is estimated that 33% of men and half of all women who reach the age of 65 years will live in aged care
at some point. The facts overwhelmingly show that traditional residential care is not the best solution
for all older and disabled people – there are many other options. These options need to be considered
in both qualitative and quantitative terms for clients. There are countless studies into aged care which
illustrate the compelling fact that the emotional wellbeing of residents (through social interaction,
activities, trips, social outings, support etc) contributes actively to their health, happiness and longevity.
It will increasingly become part of an adviser’s role to assist clients on issues related to aged care options
and the management of their affairs.
¶22-105 Aged care assessment

Currently, aged care assessment teams (ACATs) or certain approved aged care organisations conduct
assessments of people applying for care provision – no matter what their age, citizenship or residency.
An ACAT assessment is like a passport, inasmuch as an assessment needs to be done before any funded
care can be applied for. The government describes the purposes and benefits of an ACAT assessment as
follows:2
“If you can receive aged care services, an ACAT assessment will help you access the right services
for your needs and the care you require.
The assessment can help identify the type of care services to help you to stay at home. It can also
provide you with eligibility for care in an aged care home. Remember, your wishes are always
listened to and considered, and you will never be forced to make any decisions about your future
during your assessment.
1 Australian Bureau of Statistics, 3222.0 Population Projections, Australia, 2012, released 26 November 2013.
2 See www.myagedcare.gov.au/acat-assessments.
¶22-100
FINANCE AND ACCOMMODATION FOR AGED AND DISABLED CLIENTS 419
The assessment is an opportunity to identify options and you can make a decision once you
have received the outcome of your assessment. You are also welcome to have someone else –
perhaps a friend, family member, independent aged care advocate or your carer – attend your
assessment with you for extra support.”
When conducting an assessment, ACAT members:

“ will ask your permission to conduct the assessment;
may ask your permission to talk to your doctor to discuss your medical history before
they meet with you. But only if you agree, and your consent will be recorded by the
ACAT;
will ask you if you wish to apply for approval to receive certain aged care services. They
will explain these service options to you, and if you do want to apply, they will ask you to
sign an application form or the Aged Care Client Record;
will ask you questions about your day-to-day living activities and if you need help with
all or some of them. They’ll also talk to you about your general state of health and specific
health conditions. This will help them work out how much and what type of help you
need;
will talk to you about whether they think you need more support so you can keep living
in your own home, or if they think you might be better supported in an aged care home;
will give you information about all of the services that may be available in your local
area. You may also like to search for organisations or aged care homes yourself.
[After the assessment], you will receive a letter to tell you if you have been approved as eligible
for government services. Your letter will tell you what type of services you’re eligible for and
approved to receive, as well as the reasons why. You will also receive a copy of your completed
Aged Care Client Record.”
¶22-110 Costs of aged care

The costs of aged care are split, with a combination of government payments and a variety of user-pays
amounts. Recent changes to the funding models have seen, on average, a 50% increase in user-pays
amounts and a reduction in government payments.
While the considerations are complex, specialist advice can provide practical assistance for clients. The
imperative considerations for tax, financial and legal advisers to this group are:
income – budgets and net cashflow need to be calculated for clients, especially in light of potential
changes to residential and care situations as they occur in the future;
tax – imminent changes to the seniors and pensioners tax offset require careful ongoing planning,
even after the retirement of clients. These do change on a regular basis and it is worthwhile for
advisers to consider the various taxation rates from time to time;
¶22-110
wealth creation and retention – a client’s investments do not need to retire just because their
working life has finished. Advice from a suitably qualified adviser can assist a client to identify and
understand relevant risks;
risk management – whatever the age of clients, advisers should ensure that their investments meet
all relevant risk considerations;
estate planning – wills, powers of attorney, guardianship, trusts, SMSFs, binding and non-binding
nominations, disability trusts etc should all be considered and reviewed on a regular basis; and
Centrelink benefits – this is an important consideration whenever it is practical for clients (ie when
the benefits outweigh the costs), especially if clients need, or may need, immediate or future care.
For example, consideration might be given to:
access to pensions which may result in less stress on investments to create the necessary income
for clients;
the impact which the level of Centrelink benefits has on fees charged for clients. In general terms,
the higher the pension amount the lower the fees paid. It is always appropriate for advisers to
double-check the current schedules and thresholds for clients, as they constantly change;
health benefit savings; and
proposed legislative changes, such as (as at May 2015) the mooted removal of the seniors and
pensioners tax offset which may greatly increase tax payments for average pensioners.
With regard to Centrelink entitlements alone, there are different income and assets tests which need
to be considered. Whether clients are single, couples, or illness-separated are primary considerations,
as are whether they are homeowners or non-homeowners. All of these permutations are considered in
the calculation of fees and pension payments. Advisers can keep abreast of these variables by accessing
the information at www.humanservices.gov.au/customer/themes/older-australians.
It should be noted that there are strategies which may assist advisers, accountants, lawyers etc to
optimise these considerations for clients, including courses which can provide advisers with the skills
to provide full and balanced advice.
¶22-115 Living arrangements

There are a number of living arrangement options available to clients and most, but of course not all,
will be able to choose the living arrangement that they wish to have. This is a relevant discussion for
advisers to have with clients because different living arrangements give rise to different entitlements –
and these differences can be significant.
¶22-115
The following is a non-exhaustive list of the different types of living arrangements:
Non-homeowners Rentals
Serviced/supported living units
Church, charity and rental villages
Living with family
Living with carers
Granny flat entitlements
Homeless (now funded under the “Living Longer. Living Better” model)
Homeowners Own residence
Independent living units
Retirement villages
Caravan parks
Demountable home parks
Residential care Low care
High care
xtra service – where larger rooms, better facilities and enhanced meal and care
E
programs are implemented
Respite care – for short-term and/or emergency care
Currently, a large number of care plans are available for aged and disabled clients, both for those in
their own homes, including independent living units, as well as those in residential care.
¶22-120 Care plans and packages

A care package is a coordinated package of services which are tailored to meet specific care needs. The
range of services which may be offered include:
Personal services Showering, bathing, dressing and mobility etc

Support services ashing, ironing, cleaning, gardening, maintenance, meal preparation, transport
W
to doctors etc
Clinical care ursing and other health support services, including physiotherapy, dietician,
N
hearing and vision services
¶22-120
There are many types of care packages available under the following programs:
Service Number of people in Australia currently living

under this arrangement
Home and community care 616,000 aged 70+
Community aged care package 69,000
Veterans’ home care 69,600
Community nursing 31,400
Permanent residential care 215,000
Respite care 60,000 (1,517,555 days per annum)
Extended aged care at home New scheme funding
Extended aged care at home – dementia New scheme funding
It is worth noting that one person in 27 in permanent residential care is currently under 65 years of
age, and when you include respite days, the number is around one in four. These clients are commonly
referred to as YPIRACs (young people in residential aged care).
¶22-125 Changing living arrangements

Aged and residential care is often an urgent consideration due to families being in crisis mode as a
result of a sudden death, an illness or an acquired disability.
The triggers for clients to seek advice include the following:

whether a client should keep or sell the family home;
whether a consumer-directed care package can realistically work in a client’s current home;
whether a low-care (or high-care) package can be tailored for a client in their own, or rented, residence;
if a client has to enter traditional residential care, whether they should fund the care with
refundable accommodation deposits (these used to be called accommodation bonds), with daily
accommodation payments, or a combination of the two;
whether there will be an impact on pension entitlements;
how to assess the necessary care plans;
how to minimise the costs of care;
how to preserve assets for a client’s estate; and
how to gain and consider advice when it is often time-critical for accepting a placement.
Advisers need to know the following to make the best decision at the time:
what care services are needed and offered;
what options are available;
¶22-125
what the cost variables are;

what funding is available; and
whether financial circumstances can be restructured to optimise the cost of care.
There are a number of common misconceptions in these circumstances which need special, overlaid
consideration to get to the best result/solution for the client. These misconceptions are that:
the client will have to sell their home;
the pension will meet the costs of care;
the pension will not change;
the fees and charges are set; and
because someone else has done something that is right for them, the client should therefore do
the same.
¶22-130 Home care packages program

Since August 2013, the following package levels have been delivered on a consumer-directed care basis:
level 1 – supports people with basic care needs. Basic care needs are flexible and are tailored by the
care provider with the client;
level 2 – supports people with low-level care needs (equivalent to the former community aged care
packages). Low-care needs are tailored by the care provider with the client;
level 3 – supports people with intermediate care needs. Intermediate care needs are tailored by the
care provider with the client; and
level 4 – supports people with high-level care needs (equivalent to the former extended aged care at
home and extended aged care at home dementia packages). High-level care needs are tailored by the
care provider with the client.
Advisers are encouraged to access the links for this information at www.myagedcare.gov.au.
The exciting new innovation around this is that the client chooses from the types of care and services,
and who delivers these via the customer home care pathway.
Advisers may wish to consider the following when making recommendations for their clients:
(1) find information on the customer home care pathway at www.myagedcare.gov.au or www.
myagedcare.gov.au/aged-care-services/home-care-packages;
(2) obtain an ACAT assessment and evaluate services and needs for directed-to-home care options;
(3) determine suitable home care packages;
(4) set goals and commence care planning;
(5) understand the costs and funding;
¶22-130
(6) consider ongoing service delivery, monitoring and re-assessment; and

(7) moving from or exiting a package, depending on changing needs.
Again, fees are calculated on the assets and income-tested amounts, as well as the client’s status, eg
single, couple, illness-separated, homeowner, non-homeowner etc. Useful information may be found at
www.humanservices.gov.au/customer/themes/older-australians.
¶22-135 Reverse mortgages

The use of reverse mortgages to meet refundable accommodation deposits is a common strategy
which is often directly related to the desire to keep and rent the family home. Reverse mortgages
are a consideration when there is insufficient capital (apart from the home) to pay the refundable
accommodation deposit (which in turn minimises the daily accommodation payment) and/or there is
insufficient income to meet the daily accommodation payment and other expenses.
If the long-term objective is to retain the home, then serious consideration needs to be given to how this
debt will be met when the elderly person passes away. In particular, it will be important to understand:
the compound interest nature of the loan;
any costs associated with establishing the loan facility;
any penalties associated with discharging the debt (this is likely if the interest rate is fixed); and
the potential impact if interest rates change, as well as any assumed growth rate on the property and
how this will affect the ability to repay or transfer the debt at a later point in time.
If the care facility will allow it, serious consideration should be given to paying the refundable
accommodation deposit by periodic payment (as opposed to using a reverse mortgage).
It is important to be mindful of the fact that the payment of interest on a reverse mortgage does not
meet the exemption criteria for keeping and renting the former home.
¶22-140 Retirement villages

The retirement village segment of the market is growing rapidly, and has enhanced the ability of clients
to restructure their finances more than any other sector. Retirement villages also offer clients more
qualitative benefits (as mentioned at ¶22-100).
Retirement villages are defined as complexes of residential units or a number of separate complexes of
residential units on common land. Most residents are aged 55 or over and have retired from full-time
employment. Residents are provided with accommodation and services other than those provided in
residential care.
Not all facilities that say they are retirement villages are in fact retirement villages, as registration with
land titles and government agencies must be met in order to comply.
¶22-135
Statistics
At present, there are 1,850 registered retirement villages nationally. They service 134,000 residences,
with over 210,000 residents. This number is expected to treble in the coming years.
As retirement villages often have a focus on lifestyle and activities, they attract residents who are
sociable and physically active. The minimum age of residents is usually 55.
The main drivers in choosing a retirement village are the social, health, sport and no home
maintenance benefits. It is vital that consideration be given to both qualitative and quantitative factors
when considering the options around the care and changing needs of clients.
Retirement village facilities offer two types of accommodation:

independent living units; and
serviced apartments/supported living units.
As with all demographics relating to aged care, the ageing population is driving the demand for
retirement village and independent living for many clients. Some important considerations for advisers
are:
most residents enter as a couple;
the average age of a resident is 74;
retirement villages and independent living have traditionally offered the lowest level of care.
However, this is changing, as most facilities now provide for more advanced care for clients while
they are residents; and
some emergency care is always available, as well as ongoing care as the client needs change.
Retirement villages are usually bound by state or territory legislation.
Tip for advisers

As well as the financial analysis (mentioned earlier), advisers should help clients to compare their
options by asking the following questions:
What are your care needs now?
What are your care needs likely to be over the next 10 years?
At what point will the retirement village no longer be able provide the care service that you require?
How do you feel about living with other people who have care needs that are likely to increase?
How will you fund the next move?
¶22-140
Case study
John and Betty, both aged 74, have decided to enter a retirement village for the social and lifestyle benefits
that it offers.
As with many new residents, John and Betty have been on an age pension benefit, which has supplemented
their investment income. However, the proceeds of the sale of their home are far greater than the purchase
price of the unit at the retirement village. As a consequence, the extra funds they have following the sale and
repurchase have been assessed by Centrelink, and they have lost their age pension. As well as this, they will
soon have to pay PAYE tax when the pensioner tax offsets are removed.
They are also commencing a care program in their new retirement village residence (similar to what they
had in their home, before entering the village). However, the new fee structure means that they will now pay
$25,000 pa, instead of a $5,000 annual fee if they had retained their pension.
A growing number of facilities are offering an upfront management fee plan, which gives more
flexibility than the traditional deferred management fee option. The way that this works is that, instead
of paying a percentage fee on the final sale value of the unit (in say, 8 to 12 years), residents pay the same
percentage fee on the current value of the unit.
This has the effect of:
(1) lowering assets so that the pension is retained;
(2) lowering (or eliminating) the tax that is to be paid;
(3) lowering (or eliminating) the care fees that will be charged per resident;
(4) assisting the income needs of residents as a result of retaining or optimising Centrelink pension
payments;
(5) in the vast majority of cases, providing a larger capital payout for the family; and
(6) positioning you, as the family’s trusted adviser, for the trans-generational wealth transfer which
will start on the passing of the last of the parents.
¶22-145 Church, charitable and rental villages

Historically, church, charitable and rental villages have played an important part in the provision of
services for residents, including the Anglican, Catholic and Uniting churches, as well as ethnic-specific
communities such as the Dutch, Italian, Chinese and Greek communities. Church, charitable and rental
villages usually rely on donations and entry contributions from residents. As a generalisation, waiting
lists are longer and the standard of accommodation is lower, and they may have exit fees that are higher
than private enterprises.
There are two main funding models for consideration:
the subsidised rental model plus a deferred management fee (for example, 85% of the age pension
plus rent allowance); and
market price rent plus higher ongoing costs (with less or no deferred management fee).
¶22-145
Most church, charitable and rental villages keep units available for rental, whereas the vast proportion
of retirement villages operate as independent living units. This differentiation is important as renters
may qualify for rent assistance, whereas the residents of independent living units are treated as
homeowners and the value of their residence is excluded from their assessment for fees and pension.
¶22-150 Demountable home parks

Many people are taking up residency in demountable home parks as this allows them to access a sea or
tree change scenario as part of their retirement plan.
There are a number of advantages to these parks over some other lifestyle options, including:
demountable homes are cheaper to construct than “bricks and mortar” retirement village homes;
no stamp duty, rate fees, exit fees or sinking funds have to be paid; and
residents are eligible for rent assistance.
Usually, the loan, lease or licence is over land only because the home has the potential to be relocated
and belongs to the resident.
There are two main types of demountable home parks:

purposely built villages/communities which are marketed to retirees. These homes may have a
“bricks and mortar” look, and they may be larger with modern amenities and communal facilities.
They are often rented by way of leasehold agreements, ie a permanent or set period of residence; and
caravan parks with a mix of tourist and permanent residents, which are often rented by way of rental
agreements, ie no set period of residence.
Demountable home parks are regulated by various state laws, such as the Residential Tenancies Acts.
¶22-155 Residential care

As mentioned earlier, Australia’s ageing population is driving the demand for residential care. The
sector is heavily controlled by the government, and government funding must be allocated prior to
the commencement of a residential care facility. Advisers need to be aware of the following average
statistics regarding residential care:
the average resident is a widow in her early 80s;
the average life expectancy of residents is around three years after arriving at the facility;
a growing number of residential care facilities are being offered around Australia, particularly
in rural, regional and remote areas. Operators of these facilities usually receive different funding
because residents are often less able to pay;
¶22-155
residential care facilities are often on the same site as a retirement village or an aged care facility,
which means that there may be a trained nursing resource who may be partially outsourced for in-
home care for retirement village clients; and
residential care facilities are an important option when considering care for a client. However,
in a retirement village, clients purchase the residence and pay a regular service fee, whereas in a
residential care facility, clients pay a combination of deposit and fee amounts.
¶22-160 Reasons for entering aged care

The most common reasons for clients entering aged care include the following:
they are no longer able to cope with the family home;
there is a need for social contact;
there is a need for friendship;
they are transitioning from independence to care;
there is a need for sporting and social facilities;
they want to move closer to family;
their family is not able to care for them in their home;
their spouse has died;
they have suffered an illness or loss of mobility;
they are incontinent; or
they have dementia.
As mentioned earlier, there are a number of issues in the funding model which need to be considered:
accommodation payments (upfront/ongoing) – that is, refundable accommodation payments
(RADs), daily accommodation payments (DAPs) or a combination of RADs and DAPs;
ongoing fees – that is, basic daily care fees, means-tested care fees or extra services fees;
maximum RAD payments are published regularly;
RAD payments over $550,000 must be approved;
the balance of RADs are refunded when a resident leaves;
residents must be left with a minimum assets amount (currently $46,000);
residents may agree to deduct certain expenses from RADs, and pay DAPs on the balance when
considering their individual assets, income and expenses; and
the interest rate for DAPs is capped at the maximum permissible interest rate (currently at
6.36% pa).
For a client who is part of a couple, 50% of the combined couple income and assets is usually assessed
by Centrelink.
¶22-160
When assisting in protecting the family home from assessment, a number of issues must be considered.
For example, the value of a home is included in the assets tested amounts unless a “protected person”
resides there. A protected person is defined as:
a spouse or a dependent child;
a close relative on income support who has lived in the home for at least five years (as such, timing
issues can be important to the calculations); or
a carer who is on income support and who has lived in the home for at least two years (again, timing
issues can be important to the calculations)
¶22-165 Supported/concessional residents

Typical funding models may not apply to the poor and disadvantaged residents in our community.
It should be noted that:
the means-tested amount in relation to the accommodation supplement may differ for such persons.
Go to www.myagedcare.gov.au for the various assets and income tests;
the ratio of supported residents is a government requirement (currently, 18% of all beds);
the ratio of supported residents depends on the demographic assessment of the area; and
exceptions are considered.
Advisers should be aware that contributions to care costs are means tested:
they cannot exceed the cost of care;
income and assets tests apply;
if the client is part of a couple, half of the combined income and assets is attributed;
the annual cap is $25,000 (indexed);
the lifetime cap is $60,000 (indexed);
there are extra service fees;
hotel-type services are excluded from RADs/DAPs;
a resident can opt in/opt out; and
fees may be deducted from RADs if provided in agreement.
¶22-170 Tips for advisers

Some effective strategies for advisers include:
restructuring assets;
evaluating strategies and their impact on the aged care pension and aged care fees;
staggering entry into aged care;
renting the family home and paying DAPs;
¶22-170
low- or no-income investments in a company trust/structure (eg insurance bonds);

paying an RAD (including proposed service fee bonds for retirement villages);
long-term income streams (annuities);
gifting (subject to allowable limits);
pre-paying for a funeral/funeral bond (subject to allowable limits);
establishing disability trusts where applicable; and
considering trust and company structures – noting some of the points below.
Source and control test

Some important considerations for advisers when evaluating trust and company structures are the
source (where the money/assets originated from) and control aspects of the entities.
The following aspects are relevant considerations for advisers in this area:
assessment of assets;
taxation;
Centrelink treatment of trust income;
separate investment bonds rather than joint;
beneficiaries; and
withdrawals from some investments in a trust are treated as part capital and part income (from
bonds).
Tip for advisers when clients entering care

When dealing with a couple, the timing of an asset assessment can create very different outcomes. For
example:
a couple who enters aged care on the same day and submits their asset assessment after they enter
will each have 50% of the value of the home assessed in their assets;
a couple who enters aged care on separate days and submits their asset assessment on or after they
enter will have the value of the home exempted from the first to enter care and half-assessed against
the second to enter; and
a couple who completes their asset assessment prior to entering aged care will both declare that the
spouse lives in the home, thereby exempting the home from each in the asset assessment.
Tip
Advisers should be aware that sometimes the staggered entry of a couple into aged care will be
advantageous in that assets can be exempt from one entry in the calculation of fees and charges.
¶22-170
Rent the former home and pay DAPs

The rules around the former home and the exemptions that apply were changed in 2005 to allow
residents of aged care facilities to keep and rent their former home without the asset or income being
assessable.
To be eligible, a resident must meet two out of three of the following criteria:
not pay the RAD in full and pay interest on the outstanding amount by periodical payment;
pay DAPs;
rent the former home.
Exemptions
The following exemptions are important considerations with regard to fees and income:
the former home is exempt from Centrelink/Department of Veterans’ Affairs asset assessment when
calculating pension entitlements;
the income (rent) is exempt from Centrelink/ Department of Veterans’ Affairs income assessment
when calculating the pension; and
the income (rent) is exempt from Department of Health assessment when calculating the means-
tested fee.
Assessments
The following are important considerations for advisers when looking at longer-term issues:
the income is assessable for tax, and capital gains tax may apply to the eventual sale;
fully supported residents do not meet these criteria as no bond or charge is paid; and
the two-year rule still applies from the date of entry or the date of leaving or death (if a spouse or a
dependent child).
Keeping or selling the family home

When deciding whether to keep or sell the client’s family home, advisers need to consider the following:
capital requirements – money to bring the house up to a suitable standard for rental;
ongoing maintenance – capital and/or income to cover ongoing maintenance and repairs;
costs – rates, insurance, agents fees, and income tax offsets (the senior Australians and pensioner tax
offset, the low income tax offset, and the net medical expenses tax offset); and
capital gains tax – if the house is rented for more than six years, there may be capital gains tax
consequences on the sale of the house which also need to be factored in.
¶22-170
Supported resident eligibility

Advisers need to consider the following points as it may be possible for a client to qualify for supported
resident status (which can assist in paying lower care fees):
assessment of the home;
assessment of remaining assets;
ability to access care; and
impact of keeping and renting the family home on supported resident status.
In 2006, gifting rules for aged care were brought into line with social security gifting rules. These rules
change regularly and can be accessed at www.humanservices.gov.au/customer/enablers/assets/gifting.
Lowering assessment of income and assets

When advisers are determining strategies to lower the assessment of a client’s income and assets, the
following points may be of value:
reducing assets to access care;
the impact of lowering the capacity to pay a bond;
gifting over financial years;
life expectancy; and
trust alternatives.
These points should be considered in conjunction with gifting to reduce assets in order to attain
supported resident status. This may be valuable for those clients who are just over the pension and fee
thresholds.
¶22-175 Pre-paid funeral plans

Advisers should consider pre-paying and pre-arranging funerals depending on the individual situation
of clients and:
the limitations of funeral bonds;
the benefits of pre-paid funerals;
the ability to use the plan as security in certain circumstances;
which financial assets can be held within the income-free area in order:
to give an idea of how much residents can hold; and
to consider the extra cash flow over the years;
RAD payments;
the minimal DAPs if using the rent house/DAP strategy;
other nil income strategies, including:
¶22-175
care annuity;
growth investments in controlled trusts and/or companies, such as insurance bonds;
gifting excess cash flow; and
funeral bonds/pre-paid funerals etc.
¶22-180 Special disability trusts

Special consideration needs to be offered by the estate planning adviser to meet the needs of all family
stakeholders in a long-term, equitable analysis of special family situations.
There are a number of complex, interacting considerations for advisers in this area:
to consolidate and retain/regain Centrelink benefits;
to grow capital through sound, effective investments;
to review and improve the tax situation;
to provide sound estate planning;
to bring order and security to the income needs and financial affairs of trust undergoing transition
to residential care services, or clients in their own homes; and
to tailor an effective financial plan to suit the needs of each potential resident.
There are a number of options which may be used, including family trusts, superannuation (see ¶2-120)
and disability support trusts (see ¶13-120).
Special disability trusts have advantages and disadvantages:
Advantages: there is a CGT exemption

there is a main residence exemption
unexpended income is taxed at the marginal tax rate (MTR)
the client can work up to 14 hours per fortnight
there is up to a $10,500 discretionary spend every year.
Disadvantages costs can be disproportionality high

they are complex
they have onerous audit, accounting and reporting requirements
there is no tax free threshold.
Each beneficiary can only have one special disability trust established on their behalf. They can have
other types of trust in addition to a special disability trust, but they will not qualify for the generous
special disability trust asset and gifting concessions.
¶22-180
Advisers need to consider a range of gifting and threshold concessions for these family situations. It is
often the case that, following the establishment of these special disability trusts, older family members
of a disabled person may qualify for Centrelink benefits which may have been otherwise unavailable
to them.
In addition, income from the assets of a special disability trust will not be counted for the application
of the income test to the beneficiary of the trust. The use of money from the trust to pay for care,
accommodation, the maintenance of trust assets, and discretionary spending for the person with the
severe disability will not be counted as that person’s income for income support purposes. The principal
home of this person would also be disregarded.
Table 1 and Diagram 1 address some of the points discussed above, but advisers should seek financial
and legal advice before establishing these entities.
Table 1: Comparison
Protective trust Special disability trust Superannuation

Tax on income MTR MTR 0%–15%
Capital gain 50% discount 50% discount 33.3% discount
Distributions Must be paid Accrued Condition of release
Centrelink assets test 100% Exempt first $609,500 Not assessed until age
(2013–14) pension age or income
stream commenced
Centrelink income test 100% Nil Excess of deductible
amount
CGT on transfer of assets Yes No Yes
to trust
Main residence No Yes N/A
exemption
Deprivation for donor/s No but may be controlled First $500,000 exempt Yes
trust from deprivation
Residual beneficiary Yes Yes Nominated SIS
beneficiary
Discretionary spending 100% $10,750 pa 100%
Acknowledgment: Table 1 is reproduced with the permission of Aged Care Specialists©
¶22-180
Diagram 1: Special disability trust concessions
Acknowledgment: Diagram 1 is reproduced with the permission of Aged Care Specialists©
¶22-185 Long-term annuities and care annuities

Long-term annuities and care annuities can also be used, but clients should be made aware of the tax
consequences and other concerns, as these are currently considered a negative by a growing number
advisers against their use. There is also some Centrelink concern over their advertised use, application
and function.
¶22-185
437
Chapter 23
Ten estate planning strategies
Introduction......................................................................................................................¶23-100
Strategy 1: the nuclear family...........................................................................................¶23-105
Strategy 2: the wealthy nuclear family............................................................................. ¶23-110
Strategy 3: problem children............................................................................................ ¶23-115
Strategy 4: the blended family ........................................................................................ ¶23-120
Strategy 5: the blended family and life interest................................................................ ¶23-125
Strategy 6: elderly and single...........................................................................................¶23-130
Strategy 7: same-sex couple........................................................................................... ¶23-135
Strategy 8: dealing with the family trust........................................................................... ¶23-140
Strategy 9: dealing with public offer superannuation interest......................................... ¶23-145
Strategy 10: dealing with a self-managed superannuation fund..................................... ¶23-150

This chapter sets out some common client scenarios which you as an adviser might encounter. I have
identified issues that you should raise and discuss with your client and where relevant I have suggested
answers and commented on these issues and included tables illustrating the solution.
Of course, each strategy is a generalisation and many of your clients will require variations – slight or
major – before the estate plan can be said to truly reflect their wishes and needs.
This chapter shows that an estate plan is more than just making a will and power of attorney. Much of
the work is extracting information from your clients and running through various scenarios to make
sure that their estate plan truly reflects their wishes.
For ease of reference, I will use broadly the same characters in each strategy, although their
circumstances change as set out in the introduction to each strategy. I have limited discussion to wills,
apart from the final two strategies that deal with superannuation. In practice, you would routinely
discuss financial powers of attorney, medical powers and guardianship with your clients also.
Your clients are (with thanks to Modern Family!):
Phil and Claire – married with three children, Haley, Alex and Luke.
Jay and Gloria – married (second time around for Jay) and have living with them Gloria’s son Manny.
Jay has two adult children by a previous marriage – Claire and Mitchell.
Mitchell and Cameron – same-sex relationship with daughter Lily.
¶23-105 Strategy 1: the nuclear family

Setting the scene:
Phil and Claire are married.
Their children Haley, Alex and Luke are all minors.
Phil and Claire assets are all jointly held and include a house, bank accounts and motor vehicles –
total value $500,000.
Phil has $150,000 in a public offer superannuation fund. He has $50,000 life cover through the fund.
Issues for Phil and Claire to consider:
¶23-100
TEN ESTATE PLANNING STRATEGIES 439
Issue Options Instructions

Personal Who to nominate for the important role Nominate each other at first instance
representatives of executor and trustee in the event they then Jay and Mitchell jointly as
both die. Consider alternatives alternatives
Are executors/trustees to be paid? No payment
Guardian for children Consider nominating in the will a Appoint Jay and Gloria as guardians
guardian for the children Clients don’t want to include wishes,
Consider including wishes regarding powers or payment
upbringing, schooling etc
Consider including powers regarding
accommodation for guardians, purchase
of motor vehicle etc
Will guardians be paid?
Nominating Outright gift or via testamentary trust? To each other outright
beneficiaries
What if the other Need for education trust? The children Elect not to set up education trust
predeceases? currently have different education
needs. For example, Haley has almost
completed school; Alex is a couple of
years behind her; and Luke a couple
of more years behind. Should the wills
set up an education fund to pay school
expenses to treat beneficiaries more
fairly and avoid one person’s inheritance
(eg Luke’s) being eaten up by school/
university fees?
Gift-over to children? Yes, to children equally
Outright or testamentary trust? Outright
At what age? At age 21
What if a child Consider need to provide for If deceased child is survived by a child
predeceases or dies grandchildren (or children), that child (or those children
before age 21? equally) to receive, at 21 years, the
inheritance the deceased child would
have received had they survived and
attained 21 years
If deceased child is not survived by a
child or children, the inheritance the
deceased child would have received
to pass to Phil and Claire’s remaining
children
What if they all die? If the family all die together (or no child Half to Phil’s siblings, half to Claire’s
survives and attains 21 years) who do siblings
they want to benefit from their estate?
cont …
¶23-105

Other issues for Should Phil make a binding nomination/ Discuss with client
discussion direction for his superannuation fund?
Is there a need to include Clients don’t want super trust/
superannuation proceeds trust and equalisation clauses
equalisation clause in will?
Is Phil’s insurance cover adequate? Does Discuss with client
he need income protection cover and
should this be held personally or in the
superannuation fund?
Should Claire take out insurance cover?
Phil’s strategy might look like:
¶23-105
Phil dies Personal Custodial Distribution of estate
and … representative guardian
Claire Claire n/a Claire
survives
1 1 1
Claire Jay and Mitchell Jay and /3 to Haley if she survives and /3 to Alex if she survives /3 to Luke if he survives
predeceases Gloria attains 21 years. If not, then: and attains 21 years. If not, and attains 21 years. If
and one then: not, then:
or more of If Haley leaves a Otherwise, If Alex leaves Otherwise, If Luke Otherwise,
Haley, Alex child or children add to Alex a child or add to leaves a add to
and Luke who survive and and Luke’s children Haley and child or Haley and
survive and attain 21 years, shares who survive Luke’s children Alex’s
TEN ESTATE PLANNING STRATEGIES
attain 21 to that child or and attain shares who survive shares

years children equally 21 years, to and attain
that child 21 years, to
or children that child
equally or children
equally
Claire Jay and Mitchell Jay and ½ to Phil’s siblings ½ to Claire’s siblings
predeceases Gloria
and no child
or grandchild
of Phil’s
survives and
attains 21
years
Note: “survives” means survives willmaker by 30 days; “predeceases” means fails to survive willmaker by 30 days.
¶23-105
441
¶23-110 Strategy 2: the wealthy nuclear family

Setting the scene:
Phil and Claire are married.
Their children Haley, Alex and Luke are all minors.
All their assets are both solely and jointly held and include a thriving real estate business, a house,
bank accounts and motor vehicles - total value $5,000,000.
Phil has $500,000 in a self-managed superannuation fund. He also has $500,000 life and TPD cover
through the fund.
Issues for Phil and Claire to consider:

Personal Who to nominate for the important role Nominate each other at first instance
representatives of executor and trustee in the event they then Jay and Mitchell jointly as
both die. Consider alternatives alternatives
Are executors/trustees to be paid? No payment
Guardian for children Consider nominating in the will a Appoint Jay and Gloria as guardians
guardian for the children Clients don’t want to include wishes,
Consider including wishes regarding powers or payment
Nominating Outright gift to each other or via To each other via testamentary trust
beneficiaries testamentary trust?
What if the other Need for education trust? The children Yes, set up education trust for
predeceases? currently have different education $500,000 (takes effect before children’s
needs. For example, Haley has almost testamentary trusts are established)
completed school; Alex is a couple of Important to provide vesting date for
years behind her; and Luke a couple trust (eg earlier of Luke attaining 23
of more years behind. Should the wills years or all children ceasing education)
set up an education fund to pay school and direct what will happened on that
expenses to treat beneficiaries more date (eg distribute in line with residue as
fairly and avoid one person’s inheritance if willmaker had died on vesting date)
(eg Luke’s) being eaten up by school/
university fees?
Gift-over to children? Yes, to children equally
Outright or testamentary trust? Testamentary trust (TT)
At what age? At age 28
¶23-110

What if a child Consider need to provide for If deceased child is survived by a child
predeceases or dies grandchildren (or children), that child (or those children
before age 28? equally) to receive, via testamentary
trust, at 21 years, the inheritance the
deceased child would have received, via
a testamentary trust, had they survived
and attained 21 years
If deceased child is not survived by a
child or children, the inheritance the
deceased child would have received,
via a testamentary trust, to pass to the
testamentary trusts for Phil and Claire’s
remaining children
What if they all die? If the family all die together (or no child Half to Phil’s siblings, half to Claire’s
survives and attains 28 years or leaves siblings
child who attains 21 years) who do they
want to benefit from their estate?
Other issues for Should Phil make a binding nomination/ Discuss with client
discussion direction for his superannuation fund?
Is there a need to include Yes, include super trust/equalisation
superannuation proceeds trust and clauses
equalisation clause in will?
Other issues for What will happen to the real estate Some issues may or may not be dealt
discussion business on Phil’s death? Has a strategy with by will
been put in place to enable it to continue
to operate if Phil died or became
incapacitated? Is key-man insurance
required? Is there a business partner
and should they enter into a buy/sell
agreement?
Is Phil’s insurance cover adequate? Discuss with client
Does he need income protection cover
and should this be held personally or in
the superannuation fund?
Should Claire take out insurance cover?
Phil’s strategy might look like:
¶23-110
Phil dies Personal Custodial Distribution of estate
444
and … representative guardian
¶23-110
Claire survives Claire n/a Claire
Claire Jay and Mitchell Jay and Education trust: $500,000
predeceases Gloria Terminate on specific date (eg Luke reaching age 23) or event (eg all children
and one or ceasing education)
more of Haley,
On termination, remaining funds to residue (as if Phil died that day)
Alex and Luke
survive and
attain 28 years
1 1 1
/3 of balance to TT for /3 of balance to TT for Alex /3 of balance to TT for Luke
Haley if she survives and if she survives and attains if he survives and attains
attains 28 years. If not, 28 years. If not, then: 28 years. If not, then:
then:
If Haley Otherwise, If Alex leaves Otherwise, If Luke Otherwise,
leaves a child add to Alex a child or add to leaves a add to
or children and Luke’s children Haley and child or Haley and
who survive TTs who survive Luke’s TTs children Alex’s TTs
and attain and attain who survive
21 years, to 21 years, to and attain
that child that child 21 years, to
or children or children that child
equally via equally via or children
individual individual equally via
TT(s) TT(s) individual
TT(s)
Claire Jay and Mitchell Jay and ½ to Phil’s siblings ½ to Claire’s siblings
predeceases Gloria
No child or
grandchild of
Phil’s survives
and attains
28/21 years
¶23-115 Strategy 3: problem children

Setting the scene:
The same as per ¶23-110 except Phil and Claire want a protective trust established for Haley who
has a drug problem.
They establish this with the executors to be the trustees of the trust and Haley not to ever take
control of her trust unless trustees determine it is appropriate for her to do so.
Diagrammatically, this could look like ¶23-110 except the trustee(s) of Haley’s trust would be the
trustee(s) of the estate – Claire if she survives Phil or, if she predeceases, Jay and Mitchell.
¶23-120 Strategy 4: the blended family

Setting the scene:
Your client is Jay.
Jay and Gloria are married.
Jay has two children by his first marriage, Claire and Mitchell, who are now both adults. Gloria has
one child, Manny, aged 10, who lives with her and Jay.
Most assets are held in Jay’s name and include a business, a house, bank accounts and motor vehicles
- total value $10,000,000.
Jay has $1,000,000 in a self-managed superannuation fund from which he is drawing a transition to
retirement pension. He has no life cover through the fund.
Issues for Jay to consider:
¶23-120
Issue Options Comments

Personal Could Gloria act solely? Preferably Gloria and Mitchell with Claire as a
representatives nominate two persons and an alternative further alternative
(perhaps independent)
Will executors be paid? No payment
Guardian for Manny If Gloria and Jay die together, consider Claire and Phil to be guardians
nominating in the will a guardian for
Manny
Consider including wishes regarding No wishes, special powers or payment
Nominating On Jay’s death, does he want his estate Estate to be divided between Gloria
beneficiaries to go to: (50%), Mitchell (25%) and Claire (25%)
Gloria solely or
Gloria, Claire and Mitchell or
some other option
Use testamentary trusts or outright Testamentary trusts
gifts?
What if a beneficiary If any of Gloria, Claire and Mitchell If Gloria predeceases, whole estate to
predeceases? predecease leaving children, do be distributed between Mitchell (40%),
those children receive the share their Claire (40%) and Manny (at age 25)
deceased parent would have received? (20%) via testamentary trusts
At what age? If Claire, Mitchell or Manny predecease,
their share to pass to their children who
attain age 25, via testamentary trusts
Further gift-over? Provision could be made in the Clients don’t require
event any child of Claire and Mitchell
predeceases or dies before age 25
leaving children of their own
Other issues for What will happen to the business on Discuss with client
discussion Jay’s death? Has a strategy been put in
place to enable it to continue to operate
if he died or became incapacitated? Is
key-man insurance required? Is there a
business partner and should they enter
into a buy/sell agreement?
¶23-120

Has Jay nominated a reversionary Jay makes a binding nomination
beneficiary to the pension in his nominating Gloria. If Gloria predeceases
superannuation fund? Should Jay make then to his estate with the executors
a binding nomination/direction for his able (if Manny is a death benefits
superannuation fund? dependant) to allocate death benefit to
a superannuation will trust for Manny
with Claire and Mitchell’s share to be
adjusted upwards accordingly
Has Jay been informed about family Discuss with client
provision principles, including the
possibility of Gloria making a claim for
greater provision?
Jay’s strategy might look like:
¶23-120
Personal Custodial Distribution of estate
448
representative guardian
¶23-120
Gloria Gloria and N/A ½ to Gloria via TT ¼ to Claire via TT ¼ to Mitchell via TT
survives Mitchell If Claire predeceases, then: If Mitchell predeceases,
If Mitchell then:
predeceases, If Claire leaves a Otherwise, If Mitchell Otherwise,
Gloria and Claire child or children add to leaves a add to Gloria
who survive Gloria and child or and Claire’s
and attain 25 Mitchell’s children shares
years that child shares who in same
or children in same survive proportions
equally take proportions and attain
Claire’s share 25 years
via individual that child
TT(s) or children
equally
take
Claire’s
share via
individual
TT(s)
1 2 2
Gloria Mitchell and Claire /5 to Manny via TT if he /5 to Claire via TT if she /5 to Mitchell via TT if he
predeceases Claire and Phil survives and attains 25 survives. If not, then: survives. If not, then:
(subject to years. If not, then:
Manny’s If Manny Otherwise, If Claire leaves a Otherwise, If Mitchell Otherwise,
father’s leaves a child add to child or children add to leaves a add to
rights) or children Claire and who survive Manny child or Manny and
who survive Mitchell’s and attain 25 and Luke’s children Claire’s
and attain shares years, that child shares who survive shares
25 years, in same or children in same and attain in same
that child proportions equally take proportions 25 years, proportion
or children Claire’s share via that child
equally take individual TT(s) or children
Manny’s equally take
share via Mitchell’s
individual share via
TT(s) individual
TT(s)
¶23-125 Strategy 5: the blended family and life interest

Setting the scene:
As per ¶23-120 (except Jay wants to give Gloria a life interest – see comments below).

Personal Could Gloria act solely? Preferably Gloria and Mitchell with Claire as a
representatives nominate two persons and an alternative further alternative
Guardian for Manny If Gloria and Jay die together, consider Claire and Phil to be guardians
nominating in the will a guardian for
Manny
Consider including wishes regarding No wishes, special powers or payment
Nominating On Jay’s death, does he want his estate No education trust
beneficiaries to go to: Legacy (not indexed) of $250,000 each
Gloria solely or to Claire and Mitchell outright (ie not via
Gloria, Claire and Mitchell or testamentary trust)
some other option including Balance in life interest trust (see ¶4-125)
education trust with Gloria as life tenant. On death of
Gloria (or earlier if she consents) balance
of trust to be divided between Mitchell
(40%), Claire (40%) and Manny (at age 25)
(20%) via testamentary trusts
What if a beneficiary If any of Gloria, Claire and Mitchell If Gloria predeceases, whole estate to
predeceases? predecease leaving children, do be distributed between Mitchell (40%),
those children receive the share their Claire (40%) and Manny (at age 25)
deceased parent would have received? (20%) via testamentary trusts
At what age? If Claire or Mitchell predecease their
legacy to pass (outright) to their children
who survive and attain 21 years.
If Claire, Mitchell or Manny predecease,
their share in remainder to pass to their
children who survive and attain age 25,
via testamentary trusts
cont …
¶23-125

Further gift-over? Provision could be made in the event Client doesn’t require
Manny or any child of Claire and Mitchell
predecease or die leaving children of
their own
beneficiary to the pension in his nominating Gloria. If Gloria predeceases
superannuation fund? Should Jay make then to his estate with the executors
a binding nomination/direction for his able (if Manny is a death benefits
superannuation fund? dependant) to allocate death benefit to
a superannuation will trust for Manny
and Claire and Mitchell’s share to be
adjusted upwards accordingly
Has Jay been informed about family Discuss with client
provision principles, including the
possibility of Gloria making a claim for
greater provision?
Jay’s strategy might look like:
¶23-125
Personal Custodial Distribution of estate
representative guardian
Gloria Gloria and N/A $250,000 legacy to Claire if she $250,000 legacy to Mitchell if he survives
survives Mitchell survives If Mitchell predeceases leaving a child or children
If Mitchell If Claire predeceases leaving a child who survive and attain 21 years then that child or
predeceases, or children who survive and attain children equally take the legacy
Gloria and Jay 21 years than that child or children
equally take the legacy
Balance of estate on life interest trust for Gloria
On Gloria’s death (or end of trust) then as per below as if “Gloria predeceases”:
TEN ESTATE PLANNING STRATEGIES
1 2 2
Gloria Mitchell and Claire and /5 (subject to superannuation /5 (subject to /5 (subject to superannuation
predeceases Claire Phil (subject equalisation) to Manny via TT superannuation equalisation) to Mitchell via TT if
to Manny’s if he survives and attains 25 equalisation) to Claire he survives. If not, then:
father’s years. If not, then: via TT if she survives. If
rights) not, then:
If Manny Otherwise, If Claire Otherwise, If Mitchell Otherwise,
leaves a child add to leaves a add to leaves a add to Manny
or children Claire and child or Manny child or and Claire’s
who survive Mitchell’s children and Luke’s children shares in same
and attain shares who shares who survive proportions
25 years, in same survive in same and attain
that child proportions and attain proportions 25 years,
or children 25 years, that child
equally take that or children
Manny’s share child or equally take
via individual children Mitchell’s
TT(s) equally share via
take individual
Claire’s TT(s)
share via
individual
TT(s)
Note: “ survives” means survives willmaker by 30 days; “predeceases” means fails to survive willmaker by 30 days.
¶23-125
451
¶23-130 Strategy 6: elderly and single

Setting the scene:
Jay and Gloria are divorced and Gloria and Manny returned to Columbia after Jay and Gloria
reached an amicable property settlement.
Jay has two children by his first marriage, Claire and Mitchell, both adults.
Although not as wealthy as he was pre-divorce, Jay has significant assets including a small business,
a house, bank accounts and motor vehicles – total value $5,000,000.
Jay has $1,000,000 in a self-managed superannuation fund from which he is drawing a transition to
retirement pension. He has no life cover through the fund.

Personal representative Who to nominate for the important Appoint Claire and Mitchell with Phil and
role of executor and trustee. Preferably Cameron as respective alternatives
nominate two persons and an alternative
Nominating On Jay’s death, does he want his estate Estate to be divided equally between
beneficiaries to go to Claire and Mitchell equally or Claire and Mitchell
some other option
What if a beneficiary If Claire or Mitchell predecease leaving Yes
predeceases? children, do those children receive the
share their deceased parent would have
received?
At what age? Age 25
beneficiary to the pension in his nominating his estate
superannuation fund? Should Jay make
a binding nomination/direction for his
superannuation fund?
¶23-130
¶23-135 Strategy 7: same-sex couple

Setting the scene:
Mitchell and his partner Cameron live together with their daughter Lily.
They are modestly wealthy, although this might change over time (and Mitchell may receive a
substantial inheritance from his father Jay).
Issues for Mitchell and Cameron to consider:

Personal representative Who to nominate for the important role Appoint each other
of executor and trustee in the event they Claire and Phil alternatives
both die. Consider alternatives
Guardian for Lily Who will act as Lily’s guardian? Claire and Phil to be guardians
Consider wishes regarding schooling, No specific wishes, payment etc
upbringing etc
Nominating Do they want to gift everything to each Lesser of $200,000 or 50% of estate to
beneficiaries other or make provision for Lily as well? Lily at age 21
Balance to each other
What if a beneficiary If the other or Lily predeceases? If the other predeceases, all to Lily but
predeceases? at age 25
If Lily predeceases or does not reach 25
years of age, all to the other
What if they all die (or Distribute 50% to Claire, the remaining
Lily survives but does 50% equally to Haley, Alex, Luke and
not attain 25 and has Manny at 21 years
no children)
¶23-140 Strategy 8: dealing with the family trust

Setting the scene:
Jay has a family trust which holds assets valued at $5m.
Jay is the sole trustee and appointor of the trust.
On his death he would like the trust to principally benefit Gloria and Manny along also with Claire
and Mitchell.
¶23-140
Question Options Issues to discuss

Who to succeed Jay as Could appoint Gloria, Claire and Mitchell Check trust deed and amend if
trustee and appointor If Gloria died, would be relying on Claire necessary
and Mitchell to “do the right thing” by
Manny. Would they?
Consider independent trustee
Perhaps a good case for a letter of
wishes to guide the trustees
Take some other Is it viable to direct that trust is to be Sale or transfer of assets will be a
action to compel wound up on Jay’s death and assets disposal for CGT purposes – will this be
distributions? distributed to certain persons (or to an issue?
his estate?)
Can the deed be amended (or a Will this give rise to a resettlement?
resolution made) to stream distributions Will it put each beneficiary’s entitlement
post his death? at risk of family law claim?
Can the trust be split? Will this give rise to a resettlement?
Will it put each beneficiary’s entitlement
at risk of family law claim?
¶23-145 Strategy 9: dealing with public offer superannuation

interest
Setting the scene:
Jay has $1m in a public offer superannuation fund plus insurance cover for a further $1m.
He would like the benefit to be divided between Gloria (60%), Claire (20%) and Mitchell (20%).
¶23-145

Without a binding If Jay wants Claire and Mitchell to Consider risk of three-year lapsing rule.
nomination, the trustee benefit, he should make a binding For example, if Jay was incapacitated for
would most likely give nomination or give a binding direction years before his death
much more of the Is a binding direction an option?
death benefit to Gloria/
Manny than Mitchell or
Claire
Can he make a Yes, as they are all “dependants” as Consider leaving all super to Gloria
nomination nominating defined under the SISA and equalising distributions via family
Gloria, Claire and However, only Gloria would be a death trust. Equalisation possible by will,
Mitchell all as benefit dependant (for tax purposes) but depends on estate assets being
beneficiaries and this may mean tax is payable on sufficient and also subject to claims – eg
that part of the benefit paid to Claire and by Gloria
Mitchell Manny would be a dependant (as a
financial dependant) – does this give
planning opportunities?
What if Jay made a It depends on the rules governing the Important to check with the fund trustee
binding nomination but nomination
one of the nominees Assume Gloria had died, could Jay On Gloria’s death, Manny would cease
died before him? make a new nomination appointing to be Jay’s stepchild and so would no
Manny, Claire and Mitchell all as longer fall within the “child” category
beneficiaries? in the definition of “dependant” in
SISA. Manny may, however, be an
SISA dependant if he was financially
dependent on Jay
Problems with binding Jay’s will establishes a testamentary But nominating Mitchell as a beneficiary
nominations trust for Mitchell because asset in a binding nomination exposes Mitchell
protection is important given Mitchell’s in the event he is being sued at the time
occupation as a lawyer of Jay’s death
What happens if Jay Has Jay made an enduring power of Who has Jay appointed as attorney?
loses capacity? attorney? Does he understand his attorney/s
may withdraw his money from his
superannuation fund prior to his
death (or roll it over into another
superannuation fund) and this would
render any binding nomination useless?
Are pensions an Gloria and Manny (until 25 years of age) Discuss with client
option? could receive a pension Project and compare financial outcomes
¶23-145
¶23-150 Strategy 10: dealing with a self-managed

superannuation fund
Setting the scene:
Jay is the sole member of a self-managed superannuation fund.
The fund has assets of $1m plus insurance cover for a further $1m.
Jay is the sole director of the company acting as trustee of the fund.
Issues for Jay to consider include all of the issues listed in strategy 9 plus the following:

Who will make the Jay must consider who to leave the Important to check:
decision regarding shares in his trustee company to the trust deed to see what it says on
the distribution of the death of a member
death benefit?
the company constitution
Remember Katz v Grossman-type
problems1
Does Jay want more Does the fund permit non-lapsing Consider court’s remarks in Donovan
certainty regarding directions or nominations? v Donovan2 regarding non-lapsing
death benefit nominations
recipients? Is an option to amend the deed and What if a nominee predeceases?
compel the trustee to pay the benefit to
certain persons/LPR?
What tax issues arise Selling assets or transferring assets out of Consider also tax issues based on death
on death? the fund would generally be a disposal for benefit dependant status of recipient -
CGT purposes. Stamp duty and possibly see strategy 9
GST issues might also arise
Does fund have any If the fund has borrowed to purchase an
borrowings? asset, what will this mean in the event the
fund is wound up?
Are disputes likely? If Jay is really concerned about the May have CGT consequences
ability of his successors to properly deal But may be simpler to divide super
with and divide his superannuation, between two funds (60% and 40%) or
he could consider moving part of his three funds (60/20/20)
superannuation benefit to a new fund and
deal with both superannuation Interests
separately
12
1 [2005] NSWSC 934. See ¶15-120.
2 [2009] QSC 26. See ¶15-120.
¶23-150

Are there reserves in If the fund has reserves, consider Consider risk of introducing new
the fund? permitting new members to join the fund members and trustees
Are there losses in If the fund has tax losses, consider Especially if an anti-detriment payment
the fund? permitting new members to join the fund is made and a deduction claimed (but
often difficult to make such a payment in
a single member fund without reserves)
¶23-150
459
Chapter 24
Integrated planning tools
Introduction ..................................................................................................................... ¶24-100

Client succession checklist.............................................................................................. ¶24-105
Business succession checklist........................................................................................ ¶24-110

Any legal document will only be as good as the instructions given and taken. Before approaching a
lawyer to properly draft a will, power of attorney, trust deed, buy-sell agreement or the like it is essential
that the relevant information is captured and that all important issues are discussed with the client.
This chapter includes two practical resources that can be used as a starting point when collecting client
details and raising issues with them. It is intended that they serve as a useful planning tool in collating
relevant information. References are made to specific parts of this book that provide more information
for further discussion and decision-making. They are not designed to raise all of the issues that will be
relevant to a client or to be a substitute for seeking proper legal, accounting or financial advice.
¶24-100
¶24-105 Client succession checklist
Part A – Personal details
Description Details Questions and book cross-references
Internal records Date instructions taken New will or review of existing will?
Instructions taken by Is this a will for Australian assets only?
Location of previous will
Undue influence issues? See ¶3-140
Testamentary capacity issues? See ¶3-145

Client details Full name Any reason to do an ID check?
Alias/other name/s known by
Home telephone
Work telephone
Mobile
Email
Occupation
Date of birth
Place of birth
Name and address of employer
Relationship status Married/de facto/divorced/separated/contemplation Has a binding financial/pre-nuptial agreement
of marriage been entered into, or is one contemplated?
Partner’s full name
Partner’s address
Partner’s contact details
Partner’s occupation
Partner’s date of birth
¶24-105
461
462
Part A – Personal details (cont)

¶24-105
If divorced/separated Name of former spouse/de facto Has a property settlement taken place?
Address of former spouse/de facto Are there any maintenance obligations?
Are any assets held jointly with former spouse?
Are there any court orders or agreements in
place as to care arrangements for children?
Children Own children Do any beneficiaries have protective trust needs?
Adopted children See ¶4-130
Foster children If yes, provide details as to nature, financial and
medical needs, carer and the like
Children of spouse
Deceased children – query if the deceased child
has left children surviving
For each child Full name Is there a risk that the beneficiary will suffer
Alias/other name/s known by a relationship breakdown after receiving an
inheritance? See ¶5-115 “Protection from
Contact details
divorce”
Date of birth
Is there a risk that the beneficiary will become
Occupation insolvent after receiving an inheritance? See
Relationship status ¶5-115 “Protection from creditors”
Taxation Date of last tax return Does willmaker want professional adviser copied
Name of accountant/tax agent into correspondence regarding succession
planning?
Other details
Part B – Assets and liabilities
Real estate Title reference Held sole or jointly as tenants in common or as
Address joint tenants? Distinguish between these. See
explanation in ¶1-125
Date acquired
Ascertain if title searches required to confirm
Duplicate title held by
details (recommended as often willmakers make
Mortgage? incorrect assumptions/recollections regarding title
If yes, name of mortgagee registrations)
Amount owed
Value of property
Cash Details of bank accounts
Account numbers
Account type
Values
Shares/debentures Company
Number
Sole/joint
Value
Date acquired
Id shareholder number
Other significant items Such as jewellery/antiques/paintings/heirlooms
Description, location, value, insurance details, date
acquired, acquisition price
¶24-105
463
Part B – Assets and liabilities (cont)
464
¶24-105
Liabilities Credit cards and loans
Names of institutions
Amount
Secured?
Sole or Joint
If joint, name of other holder
Has the willmaker given any guarantees?
Loan accounts for trusts
Moneys Due or coming to the willmaker
(eg inheritance or debt due to willmaker)
Details, amount
Shares in private companies Company name Ascertain if ASIC searches required to confirm
Directors details (recommended as often willmakers make
incorrect assumptions/recollections regarding
Shareholders
shareholdings/office bearers)
Assets
What is description of business (ie nature of
business, whether children work in business,
family dynamics)? (recommend company search
to confirm details)
Has passing of control of the business been
discussed by relevant family members? See
chapters 18 to 20
Are there loans to the company? Explain
consequences
Are there loans from the company? Explain
consequences
Is there a shareholders agreement?
Units in unit trusts Name of trust What is description of business (ie nature of
Trustee business, whether children work in business,
family dynamics)?
Unitholders
Review trust deed to confirm details
Assets
Has the passing of control of the business been
discussed by relevant family members? See
chapters 18 to 20
Are there loans to the trust? Explain

consequences
Are there loans from the trust? Explain
consequences
Is there a unitholders agreement?
Business succession Is there a need for a buy-sell agreement? See chapter 19
planning
Superannuation Name of fund Explain that superannuation does not normally
Value form part of the estate. See ¶15-110
Who are the eligible beneficiaries under the
deed? See ¶15-110
Are binding nominations an option? See ¶15-110
Who are the desired beneficiaries? See ¶15-110
Does willmaker understand tax consequences
of super and death? See ¶15-145
If fund is an SMSF, have issues been
considered? See ¶15-120
How will death benefit be paid? See ¶15-125
Can benefit be grossed-up under the anti-
detriment rules? See ¶15-140
Does willmaker want beneficiaries to have the
option to set up a superannuation proceeds
trust? See ¶13-110
¶24-105
465
466
¶24-105
Insurance Name of insurer Explain that insurance is not necessarily part of
Value the estate. See ¶1-125
Is there a beneficiary nomination?
Does willmaker want beneficiaries to have the
option to set up an insurance proceeds trust?
See ¶13-115
Family trusts Trust name Explain that assets do not necessarily form part
Date established of the estate. See ¶14-105
Vesting date Are there loans to the trust? Explain
consequences. See ¶14-140
Trustee
Are there loans from the trust? Explain
Appointor
consequences. See ¶14-140
Guardian
Explain options for dealing with family trusts.
Assets owned by the family trust (obtain copy See ¶14-120
of accounts)
Explain importance of nominating appropriate
successor trustees and appointors? See
¶14-125
Part C – Will instructions
Executors and trustees Full names Explain all issues including what the roles involve
Addresses and the skills required. See ¶3-160
Relationships to client One or more executors and trustees?
See ¶3-160
Occupations
Has trustee company or public trustee been
Substitute if any executor ceases/last executor
considered as an option? See ¶3-160
ceases
Are executors and trustees able to take a fee?

If yes, discuss options for commission. See
¶3-160
Is accountant or financial planner being
appointed? See ¶3-160
Custodial guardian of children Name/s Would guardian need a bigger house or motor
Address vehicle or is guardian to be compensated in some
way? See ¶4-150
Relationship
Wishes re organ donation, funeral etc Explain limitations on willmaker’s wishes
expressed in will. See ¶3-135
Disposal of assets Legacies Discuss priority rules for legacies, what happens
Name if beneficiary dies etc. See ¶4-105
Relationship
Address
Amount of gift
Age now
Age to receive gift
What happens if beneficiary predeceases?
¶24-105
467
468
Part C – Will instructions (cont)

¶24-105
Specific bequests and Name Discuss importance of correctly describing gift.
legacies Relationship See ¶4-110
Address Discuss what happens if item disposed of prior
to death, what happens if beneficiary dies etc.
Description of gift
See ¶4-110
Age now
Should the legacy be indexed? See ¶4-105
Age to receive gift
What happens if beneficiary predeceases?
Other instructions
Part D – Living powers
Attorney (general) List details of current (if any) If more than one attorney, are they joint or joint
Does it replace existing appointment? and several? See ¶2-105
Names and addresses of persons being appointed When is appointment to take effect? See
¶2-105
Limited to specific purpose? See ¶2-105
Attorney (enduring) List details of current (if any) If more than one attorney, are they joint or joint
Does it replace existing appointment? and several? See ¶2-105
Names and addresses of persons being appointed Name of alternatives, if any. See ¶2-110
When is appointment to take effect?
See ¶2-105
Limited to specific purpose? See ¶2-110
Is attorney to have the ability to charge?
See ¶2-110
Is attorney to have the ability to benefit from the
assets? See ¶2-110
Is attorney’s liability to be limited? See ¶2-110
Attorney (medical) or advance List details of current (if any) Consider if jurisdiction allows multiple
health care directive Does it replace existing appointment? appointees. See ¶2-115
Names and addresses of persons being appointed
Guardianship List details of current (if any) Will there be more than one guardian (not an
If new guardian, will it be in replacement of any option in most jurisdictions)? See ¶2-120
current?
Names and addresses of persons being appointed
¶24-105
469
¶24-110 Business succession checklist

Part A – Entity carrying on the business
Name of company/unit trust
Trading name (if applicable)
Registered office
Postal address
ACN/ABN
Has a family trust election been lodged (if applicable)?
Details of shares on issue or units on issue
Are all original constitutions/trust deeds (including any amending constitutions or amending deeds) available?
Are there any shareholder/unit holder agreements in place?
Part B – Details of principals (complete for each)

Name of shareholder/unit holder (and ACN/ABN if applicable)
Are shares/units held in the capacity as trustee of a trust?
If so, name of trust
Mailing address
Residential address
Business phone
Mobile phone
Email address
Preferred address for correspondence
Number of shares/units held
Name of accountant
Contact details of accountant
Name of lawyer
Contact details of lawyer
Name of insurance broker
Contact details of insurance broker
Other
¶24-110
Integrated planning tools 471
Part C – Planning your business succession agreement (BSA)

(1) Is the BSA to bind all principals?
(2) What trigger events do you want covered?
Death
Total and permanent disability
Trauma
Retirement
Conviction of a criminal office
Loss of a licence (specify type)
Other (specify)
(3) If a trigger event happens, how should the exiting principal’s interest in the business be determined?
BSA to specify the value
Market value
Market value less discount
(4) If the exiting principal departs because of an insurable event (eg death or TPD), how soon after the exit
should the transfer of ownership take place?
As soon as possible once the balance (if any) of the purchase price has been paid
3 months
6 months
12 months
(5) If the trigger event is not an insurable event (eg retirement), how soon after leaving the business should
the exiting principal be paid?
3 months
6 months
12 months
In instalments
(6) Should this agreement be able to be amended and, if so, on what basis?
Unanimous agreement
Majority agreement (based on numbers)
Majority agreement (based on value of shares/units
(7) Is insurance required?
(8) If so, where will insurance be held?

SMSF
Public offer fund
Own name
Other
¶24-110
Part C – Planning your business succession agreement (BSA) (cont)

(9) Who will pay insurance?
Owner pays
Business pays
Other
(10) What happens if premiums unequal?
¶24-110
473
Abbreviations
ABS Australian Bureau of Statistics

AFS Australian Financial Services
APRA Australian Prudential Regulation Authority
ASIC Australian Securities and Investments Commission
ASX Australian Stock Exchange
ATO Australian Taxation Office
AWOTE Average weekly ordinary time earnings
BDBN Binding death benefits nomination
BFA Binding financial agreement
BSA Business succession agreement
CFC Controlled foreign company
CGT Capital gains tax
DGR Deductible gift recipient
DIS Decision impact statement
ESS Employee share scheme
FBT Fringe benefits tax
FIF Foreign investment fund
GST Goods and services tax
ID Interpretive determination
IPO Initial public offering
ITEC Income tax-exempt charity
ITAA36 Income Tax Assessment Act 1936
ITAA97 Income Tax Assessment Act 1997
LPR Legal personal representative
MTR Marginal tax rate
NAV Net asset value
PAF Private ancillary fund
PAYG Pay as you go

PR Private ruling
PS LA Practice statement law administration
RBL Reasonable benefit limit
RSA Retirement savings account
SCT Superannuation Complaints Tribunal
SDT Special disability trust
SISA Superannuation Industry (Supervision) Act 1993
SISR Superannuation Industry (Supervision) Regulations 1994
SMSF Self-managed superannuation fund
SMSFR Self-managed superannuation fund ruling
TAP Taxable Australian property
TFM Testator family maintenance
TPD Total and permanent disability
TR Taxation ruling
WIP Work in progress

475
Glossary
Appointor Someone who has a right under the trust instrument to hire and fire trustees.
AWOTE Average weekly ordinary time earnings.
Bequest A gift of personal property by will.
Binding death benefit A nomination that conforms with the requirements set out in reg 6.17A
nomination (BDBN) Superannuation Industry (Supervision) Regulations 1994.
Codicil An addendum to a will, executed in the same way that a will is executed.
Commute Convert into a lump sum.
Custodial guardian A person appointed to care for minor children.
Cy-près scheme Where a donor has disposition to a charitable body and expressed a general
charitable intention that is impossible or impractical to put into effect. The courts
will allow the intention to be carried out as nearly as possible.
Devise A gift of real property (land) by will.
Discretionary The beneficiary of a discretionary trust. See discretionary trust.

beneficiary
Discretionary trust A trust in which the trustee has a discretion to distribute income and capital.
Donor The person giving powers to another under a document such as a power of
attorney or power of guardianship. Sometimes referred to as the principal.
Executor Appointed by the willmaker, the executor is charged with the responsibility of
administering the estate.
Family The term family trust does not have a legal meaning. It is commonly used, however,
to describe a discretionary inter vivos trust.
Grant of administration The document appointing a person to manage a deceased estate.
Guardian In the context of family trusts, a person whose approval is required before certain
decisions are made. Commonly relates to decisions such as: whether to distribute
capital, who to distribute capital to, whether to amend the trust deed, whether to
wind up the trust.
Informal will A will that does not meet the usual formal requirements but may nevertheless be
admitted to probate.
Intestate A person dying without a will is said to have died intestate. If a person dies with a
will dealing only partly with their estate they are said to be partially intestate.

Irrevocable A determination that cannot be subsequently revoked, and so is binding.

determination
Jurisdiction A geographic area subject to the same set of laws. In Australia, the main
jurisdictions are the states and territories, so that for example there may be tax rules
that differ between New South Wales and Victoria.
Key-person insurance A type of insurance available to employers to safeguard their business in the event
of the loss of a person designated as a key person.
Legacy A cash gift made from an estate.
Legal personal The executor (where there was a will) or the administrator (where there was no will
representative (LPR) or no valid appointment of an executor) of an estate.
Legatee The recipient of a legacy.
Life interest estate A trust created by will giving a person (the life tenant) the use of one or more assets
during their lifetime. In addition to a dwelling, the assets often include investments.
Differs from a use and enjoyment trust as the life tenant usually has broader rights –
for example, does not have to reside in the dwelling but may request the trustee to
rent it out and pay the life tenant the rental income.
Minor A person under the age of 18.
Mutual wills An arrangement whereby two people, typically husband and wife, make wills and
agree not to change their respective will without the consent of the other. Following
the death of the first of them, the survivor is unable to change their will.
Notional estate Property that the deceased disposed of or dealt with in a certain period before
death may be deemed to form part of the deceased’s notional estate. The main
consequence is that such property can be dealt with by a court when dealing with
a family provision claim. Note that notional estate legislation is currently NSW-
specific.
Nuncupative will A document confirmed to be a will by oral declaration by the willmaker.
Powers of guardianship A document pursuant to which a person (the donor) appoints a person to make
lifestyle, accommodation and medical decisions on their behalf should they
become mentally incapacitated.
Prescribed private See private ancillary fund.

funds
Primary beneficiary A non-legal term used to describe a person who is the main beneficiary of a
testamentary trust.
Principal See donor.
Private Ancillary Fund Private charities in the form of trusts, donations to which are tax-deductible
(formerly known as prescribed private funds).

Glossary 477
Privileged will An informal will made by a privileged willmaker. Most jurisdictions enable Defence
Force members to make privileged wills in writing or orally, regardless of their age.
Probate Proof of the will – issued by a court.
Protective trust The generic term for a trust established for people who are unable to look after their
own affairs.
Reasonable The maximum amounts that an individual could receive from a superannuation
benefit limit (RBL) fund or employer without incurring excessive benefits tax or losing all or part of a
pension offset. From 1 July 2007, this limit no longer applies.
Remainder Generally, the beneficiaries who receive the assets of the trust on the death of the
beneficiaries use and enjoyment beneficiary or a life tenant. Note, however, that it is possible for
there to be successive life tenants or use and enjoyment beneficiaries.
Residuary beneficiary The beneficiary to whom the remaining estate (ie those assets remaining after all
other debts are settled, legacies paid and bequests and devices distributed) is
distributed.
Reversionary The beneficiary of a pension following the death of the primary pensioner.
beneficiary
Revocable A determination that can be subsequently revoked.

determination
Sole purpose test The test set out in s 62 of the Superannuation Industry (Supervision) Act 1993. It is
a set of conditions that establishes valid “core” purposes for a superannuation fund.
Statutory wills Statutory wills are those made by a court or tribunal (depending on the jurisdiction)
for a person lacking testamentary capacity.
Superannuation A benefit received by an individual due to the death of another person. The benefit
death benefit does not necessarily originate from superannuation funds or moneys.
Testamentary capacity The mental state that is required to be able to make a valid will.
Testamentary trust Technically, any type of trust created by will is a testamentary trust, however the
term is commonly used to describe a trust created by will that has many features
similar to family trusts – such as the trustee has discretion when deciding who to
pay income and capital to.
Testator The person who made the will (a willmaker) technically is the male – a female is a
“testatrix”.
Total or permanent The definition may be set out in a trust deed (such as a superannuation fund deed),
disablement (TPD) legislation (such as the Superannuation Industry (Supervision) Act 1993) or another
document (such as an insurance policy).
Trust cloning Involves the creation of a new trust with terms that are identical to an existing trust.

Trust splitting Involves the appointment of separate trustees over different assets within an
existing trust. No new trust is created.
Use and enjoyment A trust created by a will giving a person (the use and enjoyment beneficiary) the
trust use and enjoyment of a certain asset – usually a dwelling – for a particular period
of time.
Vesting date The date at which the trust ends.

479
Index
A role
– aged and disabled clients.................................. ¶22-100
Aboriginal Australians – see Indigenous Australians – in making wills..................................................... ¶3-165
Accommodation – threshold issues.................................................. ¶1-135
aged and disabled clients....................................... ¶22-100 Aged and disabled clients
– church, charitable and rental villages................. ¶22-145 aged care
– demountable home parks.................................. ¶22-150 – assessment for.................................................. ¶22-105
– living arrangement options................................. ¶22-115 – costs of..............................................¶22-110, ¶22-160
– residential care facilities..................................... ¶22-155 – plans and packages.......................................... ¶22-120
– retirement villages.............................................. ¶22-140 – reasons for entering........................................... ¶22-160
– supported/concessional residents..................... ¶22-165 church, charitable and rental villages....................... ¶22-145
Accommodation bonds – see Refundable accommodation demountable home parks....................................... ¶22-150
deposits elder abuse.....................¶2-100, ¶2-110, ¶2-112, ¶20-105
Accountants finance and accommodation................................... ¶22-100
as advisers............................................................... ¶3-165 home care packages program................................ ¶22-130
as executor and trustee............................................ ¶3-160 living arrangements................................................. ¶22-115
Accounts – changes in......................................................... ¶22-125
executors, duty to keep............................................ ¶3-160 long-term and care annuities................................... ¶22-185
private ancillary funds............................................... ¶7-115 pre-paid funeral plans............................................. ¶22-175
public ancillary funds................................................. ¶7-118 residential care facilities........................................... ¶22-155
trustees, duty to keep..................................¶3-160, ¶8-170 retirement villages................................................... ¶22-140
Accumulation of income reverse mortgages.................................................. ¶22-135
private ancillary funds............................................... ¶7-115 special disability trusts............................................ ¶22-180
public ancillary funds................................................. ¶7-118 supported/concessional residents.......................... ¶22-165
Accumulation phase Aged and infirm person’s property
Northern Territory...................................................... ¶2-135
taxation of beneficiaries.......................................... ¶17-110
Aged care – see Aged and disabled clients
Ademption of bequest................................................ ¶4-110
Aged care assessment teams.................................. ¶22-105
Administration – see Estate administration
Ageing population..................... ¶22-100, ¶22-140, ¶22-155
Administration order
Annual leave
creditor petitions..................................................... ¶10-110
after death of employee.......................................... ¶15-155
legal personal representative petitions..................... ¶10-115
Appointors
Adult guardianship
changes to............................................................. ¶14-125
Northern Territory...................................................... ¶2-135
changing................................................................ ¶20-105
Advance personal plans family trust.............................................................. ¶14-110
Northern Territory...................................................... ¶2-135 powers................................................................... ¶18-135
Advances testamentary trusts................................................... ¶5-115
inter vivos................................................................. ¶4-150 Assessment
Advisers aged and disabled persons..................................... ¶22-170
aged and disabled clients........................¶22-100, ¶22-170 aged care assessment teams................................. ¶22-105
client strategies....................................................... ¶23-100 Asset protection
– blended families.................................¶23-120, ¶23-125 trust termination........................................................ ¶4-155
– elderly and single............................................... ¶23-130 Assets
– family trusts....................................................... ¶23-140 aged and disabled persons..................................... ¶22-165
– life interests....................................................... ¶23-125 claims against estate................................................ ¶6-145
– nuclear families...................................¶23-105, ¶23-110 control...................................................................... ¶1-120
– problem children................................................ ¶23-115 from deceased to beneficiary, no CGT...................... ¶5-110
– public offer superannuation interests................. ¶23-145 depreciable............................................................. ¶18-140
– same-sex couples............................................. ¶23-135 disposal in foreign jurisdictions
– self-managed superannuation funds.................. ¶23-150 – claims against estates......................................... ¶6-145
estate administration................................................. ¶3-165 – domicile............................................................... ¶6-115
future of financial advice reforms............................... ¶1-135 – estate administration........................................... ¶6-155
legal advice/practice prohibition................................ ¶1-135 – grants of administration....................................... ¶6-120
Ass
– identifying location............................................... ¶6-105 Bare trusts

– intestacy.............................................................. ¶6-125 buy-sell agreements............................................... ¶19-135
– movable or immovable........................................ ¶6-110 Beneficiaries
– multi-jurisdictional, tax issues.............................. ¶6-135 accumulation phase, taxation................................. ¶17-110
– non-residents, tax issues..................................... ¶6-140 CGT
– strategies............................................................ ¶6-150 – assessment to................................................... ¶11-120
– wills, construction of............................................ ¶6-130 – effect of death of life tenant............................... ¶11-120
disposing by will....................................................... ¶4-100 competing interests, balancing................................. ¶8-140
– ending a trust...................................................... ¶4-155 death of.................................................................... ¶4-110
– farmers................................................................ ¶9-115 – within 30 days of willmaker.................................. ¶4-160
– investments......................................................... ¶4-150 differential allocation to........................................... ¶15-145
– statutory rules..................................................... ¶4-160 distribution phase................................................... ¶17-110
family trusts............................................................ ¶20-105 inheriting or buying business assets........................ ¶18-140
foreign lower taxed............................................................... ¶5-110
– administering estate............................................ ¶6-155 non-residents......................................................... ¶17-115
– strategies............................................................ ¶6-150 predeceasing............................................................ ¶5-125
identifying location.................................................... ¶6-105 remainder................................................................. ¶4-125
inventory......................................................¶3-160, ¶3-165 Bequests..................................................................... ¶4-110
liquidity, SMSF........................................................ ¶15-120 Binding death benefit nominations...........¶8-150, ¶12-105,
multi-jurisdictional, tax and revenue.......................... ¶6-135 ¶12-125, ¶15-101, ¶15-110, ¶15-120
non-residents, tax issues.......................................... ¶6-140 Binding financial agreements.... ¶8-100, ¶12-115, ¶20-105,
ownership................................................................. ¶1-120 ¶21-100, ¶21-135, ¶21-140
protection from Binding nominees
– beneficiary........................................................... ¶5-115 superannuation funds strategy.................................. ¶8-150
– creditors.............................................................. ¶5-115 Blended families......................................................... ¶8-100
– divorce................................................................ ¶5-115 advising on estate plans........................................... ¶8-180
security in estate administration................................ ¶3-165 binding financial agreements..... ¶8-100, ¶12-115, ¶20-105,
whether dealt with by will.......................................... ¶1-125 ¶21-100, ¶21-135, ¶21-140
Attorney, power of – see Power of attorney cases involving......................................................... ¶8-175
Audits de facto relationships................................................ ¶8-175
private ancillary funds............................................... ¶7-115 divorce
public ancillary funds................................................. ¶7-118 – effect on powers of attorney................................ ¶8-125
Australian Capital Territory – effect on wills....................................................... ¶8-115
grants of administration............................................ ¶6-120 family trusts.............................................................. ¶8-155
Guardianship Tribunal............................................... ¶2-121 intestacy................................................................... ¶8-130
intestacy................................................................... ¶3-155 life interest trusts....................................................... ¶8-140
powers of attorney.................................................... ¶2-125 marriage
relationship legislation............................................... ¶8-105 – effect on powers of attorney................................ ¶8-120
wills – effect on wills....................................................... ¶8-110
– special rules........................................................ ¶3-115 mutual wills............................................................... ¶8-160
– validity requirements............................................ ¶3-110 relationship legislation............................................... ¶8-105
Australian Financial Services licence........................ ¶3-160 significant relationships.................. ¶8-105, ¶8-130, ¶8-135
Australian legal practitioner stepchildren.................................................¶8-150, ¶8-175
meaning................................................................... ¶1-135 superannuation funds............................................... ¶8-150
Australian Prudential Regulatory Authority use and enjoyment trusts.......................................... ¶8-145
powers................................................................... ¶16-115 Business income
Australian taxation date of death tax return.......................................... ¶11-110
non-resident estates...............................¶17-100, ¶17-105, Business opportunities
¶17-110 estate administration................................................. ¶3-165
Average weekly ordinary time earnings ................... ¶4-105 succession planning................................................. ¶1-115
Business structure
B primary producers, succession planning................... ¶9-110
Business succession agreement............................. ¶24-110
Bad debts................................................................. ¶18-140 Business succession checklist................................ ¶24-110
Bankruptcy Business succession planning
business succession planning................................. ¶20-105 CGT....................................................................... ¶18-140
deceased estates.................... ¶10-100, ¶10-120, ¶10-130 – disposal of assets.............................................. ¶18-140
family trustees........................................................ ¶14-125 – small business relief........................................... ¶18-140
Att
Index 481
demergers.............................................................. ¶18-140 event A1..................................................¶11-120, ¶18-140

documentation....................................................... ¶18-130 event C2................................................................. ¶11-120
documenting plan................................................... ¶18-135 event E4................................................................. ¶19-135
equity interests....................................................... ¶18-140 event K3.................................... ¶7-110, ¶11-110, ¶11-120
facilitator................................................................. ¶18-110 event K6................................................................. ¶18-140
family trusts............................................................ ¶20-105 exemptions
financing................................................................. ¶20-125 – CGT and death................................................. ¶11-120
finishing plan........................................................... ¶18-136 – main residence.................................................. ¶11-120
governance............................................................ ¶20-130 – rollovers................................................¶6-140, ¶18-135
overview................................................................. ¶18-100 – special disability trust......................................... ¶13-120
primary producers.................................................... ¶9-110 50% CGT discount.................. ¶11-110, ¶18-140, ¶19-165
recruitment............................................................. ¶20-115 gifts
remuneration strategies.......................................... ¶20-110 – charitable............................................................ ¶7-110
stamp duty............................................................. ¶18-140 – disposal triggers................................................ ¶11-110
tax issues............................................................... ¶18-140 – tax-exempt entities............................................ ¶11-120
Buy-sell agreements................................................ ¶19-100 income v capital........................................................ ¶4-125
CGT life interest estates.......................................¶4-125, ¶8-140
– concessions...................................................... ¶19-165 non-residents............................ ¶6-140, ¶11-110, ¶17-115
– life insurance proceeds...................................... ¶19-115 small business relief.................................¶18-140, ¶19-170
– non-arm’s length transfers................................. ¶19-125 use and enjoyment trusts.......................................... ¶8-145
– trauma cover..................................................... ¶19-120 Capital reductions
buy-sell agreements............................................... ¶19-180
contractual and drafting considerations.................. ¶19-110
Caravan parks
debt forgiveness and guarantees............................ ¶19-175
aged and disabled clients....................................... ¶22-150
discretionary insurance trusts.................................. ¶19-140
Care annuities
equity payments
– self-insurance model......................................... ¶19-125
Care plans and packages
– timing................................................................ ¶19-195
FBT........................................................................ ¶19-185
Caring relationships........................ ¶8-105, ¶8-130, ¶8-135
fixed/bare trusts...................................................... ¶19-135
Case studies
GST........................................................................ ¶19-160 blended families......................... ¶8-175, ¶23-120, ¶23-125
insurance premiums............................................... ¶19-145 death benefit claims................................................ ¶16-130
insurance proceeds................................................ ¶19-130 elder abuse............................................................... ¶2-112
models................................................................... ¶19-105 elderly and single people........................................ ¶23-130
share buybacks and capital reductions................... ¶19-180 family trusts............................................................ ¶23-140
sole purpose test.................................................... ¶19-150 husband and wife trustees and appointors............. ¶14-125
stamp duty............................................................. ¶19-160 individual trustee and appointor.............................. ¶14-125
superannuation funds to finance............................. ¶19-150 insurance-related disputes...................................... ¶16-125
nuclear families........................................¶23-105, ¶23-110
C retirement villages, couples entering........................ ¶22-170
same-sex couples.................................................. ¶23-135
Call options SMSFs................................................................... ¶23-150
buy-sell agreements............................................... ¶19-110 statutory wills............................................................ ¶3-120
Capacity to make will................................................. ¶3-145 Centrelink benefits
Capital gains aged and disabled persons..... ¶22-110, ¶22-135, ¶22-155,
testamentary trusts................................................... ¶5-110 ¶22-165, ¶22-175, ¶22-180, ¶22-185
Capital gains tax special disability trusts............................................ ¶13-120
aged and disabled persons..................................... ¶22-170 Charitable gifts – see also Gifting
buy-sell agreements advice from accountants/lawyers.............................. ¶7-125
– concessions...................................................... ¶19-165 cy-près applications.....................................¶7-110, ¶7-120
– life insurance proceeds...................................... ¶19-115 deductions............................................................. ¶11-110
– non-arm’s length transfers................................. ¶19-125 history of................................................................... ¶7-100
– trauma cover..................................................... ¶19-120 made by will............................................................. ¶7-110
charitable gifts.......................................................... ¶7-110 Charitable trusts
cost base adjustments............................................ ¶11-120 appointment of trustees............................................ ¶7-125
death...................................................................... ¶11-120 enforcement............................................................. ¶7-105
disposal of assets private ancillary funds............................................... ¶7-115
– business succession planning........................... ¶18-140 public ancillary funds................................................. ¶7-118
– pensions, superannuation................................. ¶15-150 tax and duty exemptions........................................... ¶7-105
Cha
Charitable villages Date of death tax return............................¶11-105, ¶11-110

aged and disabled clients....................................... ¶22-145 De facto relationships
Chattels cases involving......................................................... ¶8-175
identifying location.................................................... ¶6-105 primary producers.................................................... ¶9-120
movable or immoveable............................................ ¶6-110 property, how divided by court................................ ¶21-105
personal and household..............................¶3-155, ¶4-110 whether existing........................................................ ¶8-175
Children – see also Stepchildren Death
death benefits......................................................... ¶15-125 of beneficiary............................................................ ¶4-110
estate planning....................................................... ¶23-115 – within 30 days of willmaker.................................. ¶4-160
meaning of child.......................... ¶3-155, ¶8-150, ¶15-110 funeral arrangements, executor responsibility............ ¶3-160
of primary producers grants of administration............................................ ¶6-120
– disposal of assets................................................ ¶9-115 of legatee.................................................................. ¶4-105
– marriage breakdown........................................... ¶9-120 questions for clients about........................................ ¶1-105
Church villages role of advisers......................................................... ¶3-165
aged and disabled clients....................................... ¶22-145 Death benefit dependants....................................... ¶15-145
Claims against estates............................................. ¶12-100 Death benefit nominations....................................... ¶15-120
assets held outside Australia..................................... ¶6-145 Death benefit pensions
family law proceedings............................................ ¶21-115 commuting..............................................¶15-130, ¶15-150
how to claim........................................................... ¶12-115 tax treatment.......................................................... ¶15-145
strategies to protect against.................................... ¶12-120 Death benefit termination payments........¶15-105, ¶15-155
trends in claims....................................................... ¶12-105 Death benefits
use and enjoyment trusts.......................................... ¶4-120 challenging decisions.............................................. ¶16-110
who can claim........................................................ ¶12-110 superannuation
Client succession checklist..................................... ¶24-105 – contribution quarantining................................... ¶15-150
Clients – superannuation................................................. ¶15-110
elder abuse.................................... ¶2-100, ¶2-110, ¶2-112 – tax treatment..................................................... ¶15-145
questions to ask..........................................¶1-105, ¶1-130 Debt forgiveness.......................................¶14-140, ¶19-175
Cloning Debts
family trusts............................. ¶14-135, ¶18-140, ¶20-105
deceased estates
Commutation
– creditor petitions................................................ ¶10-110
death benefit pensions............................................ ¶15-130
– priority of........................................................... ¶10-135
Company constitutions
related party........................................................... ¶20-125
business succession planning..................¶18-135, ¶20-105
Deceased estates
Concessional residents
Bankruptcy Act, Pt XI
– effect of............................................................. ¶10-120
Concessions
– reason for using................................................. ¶10-105
special disability trusts............................................ ¶22-180
date of death tax return.......................................... ¶11-110
Conditions precedent
insolvency............................................................... ¶10-100
– Bankruptcy Act Pt XI, effect of........................... ¶10-120
Constructive trusts
– creditors............................................................ ¶10-100
primary producers.................................................... ¶9-135
Contribution quarantining – creditor’s rights.................................................. ¶10-120
death benefits......................................................... ¶15-150 – divisible property............................................... ¶10-120
Creditors – end of bankruptcy............................................. ¶10-130
asset protection from................................................ ¶5-115 – legal personal representatives............................ ¶10-115
claims against an estate............................................ ¶3-160 – non-divisible property........................................ ¶10-125
petition under s 244 of Bankruptcy Act................... ¶10-110 – priority of debts................................................. ¶10-135
rights, insolvent deceased estates.......................... ¶10-120 tax returns, responsibility for................................... ¶11-105
Cremation taxation.................................................................. ¶11-100
executor responsibility for ashes............................... ¶3-160 – legal personal representative liability for CGT..... ¶11-120
Cultural gifts Decision-makers
deductions.............................. ¶11-110, ¶11-115, ¶11-120 appointment under advance personal plan,
Cy-près applications.....................................¶7-110, ¶7-120 Northern Territory.................................................... ¶2-135
Deductible gift recipient status
D fundraising activities.................................................. ¶7-110
Daily accommodation payments private ancillary funds............................................... ¶7-115
aged and disabled clients........ ¶22-125, ¶22-160, ¶22-170 public ancillary funds................................................. ¶7-118
Cha
Index 483
Deductible gift recipients status – see also Charitable E

gifts
Deed of relationship Education trusts......................................................... ¶4-116
effect on powers of attorney........................¶8-120, ¶8-125 Elder abuse.......................¶2-100, ¶2-110, ¶2-112, ¶20-105
effect on will.................................................¶8-110, ¶8-115 Eligible persons
Deeds claims against estates..............................¶12-110, ¶12-125
family trust.............................................................. ¶14-115 Employee share schemes......... ¶18-135, ¶18-140, ¶20-110
restrictions on superannuation fund........................ ¶15-110 Employees
Defence force members employer payments after death of........................... ¶15-155
lump sum death benefits........................................ ¶15-145 recruitment............................................................. ¶20-115
wills.......................................................................... ¶3-115 remuneration.......................................................... ¶20-110
Demerger relief......................................................... ¶18-140 retention................................................................. ¶20-115
Demountable home parks skill development.................................................... ¶20-115
aged and disabled clients....................................... ¶22-150 Employer payments
Department of Veteran’s Affairs after death of employee.......................................... ¶15-155
asset assessments................................................. ¶22-170 Employment benefit trusts....................................... ¶13-118
Dependants Ending a trust............................................................. ¶4-155
death benefits, tax treatment.................................. ¶15-145 Enduring power of attorney....................................... ¶2-100
Depreciable assets................................................... ¶18-140 medical treatment..................................................... ¶2-115
Devises....................................................................... ¶4-115 Victoria..................................................................... ¶2-155
Digital estate management plans.............................. ¶4-165 Enduring power of guardianship............................... ¶2-100
Disabilities Equalisation clauses.................................................. ¶4-118
special disability trusts.............................¶13-120, ¶22-180 Equalisation power
Disability trustee provisions..................................................... ¶4-150
meaning................................................................... ¶2-121 Equity interests......................................................... ¶18-140
Disabled clients – see Aged and disabled clients Equity payments
Discretionary expenses buy-sell agreements
special disability trust.............................................. ¶13-120 – self-insurance.....................................¶19-105, ¶19-125
Discretionary insurance trusts – timing................................................................ ¶19-195
buy-sell agreements............................................... ¶19-140 Estate administration
Discretionary trusts – see Family trusts adviser’s role............................................................. ¶3-165
Disposal of assets – see Assets income during......................................................... ¶11-115
Dispositions Estate planning
statutory rules affecting............................................. ¶4-160 adviser’s role............................................................. ¶1-135
Disputes blended families.......................................¶23-120, ¶23-125
family trusts............................................................ ¶20-105 children................................................................... ¶23-115
insurance-related.................................................... ¶16-125 costs of aged care.................................................. ¶22-110
Distributions elderly and single people........................................ ¶23-130
inter vivos advances................................................. ¶4-150 family trusts............................................................ ¶23-140
non-estate................................................................ ¶4-150 interaction with family law....................................... ¶21-100
Distributions phase nuclear families....................................................... ¶23-105
beneficiaries............................................................ ¶17-110 public offer superannuation interests....................... ¶23-145
Dividends same-sex couples.................................................. ¶23-135
business succession planning................................. ¶18-140 SMSFs................................................................... ¶23-150
Divorce wealthy nuclear families.......................................... ¶23-110
business succession planning................................. ¶20-105 Estate proceeds trusts..............................¶13-100, ¶13-105
effect on wills...............................................¶4-160, ¶8-115 Estate tax return....................................................... ¶11-115
family trustees........................................................ ¶14-125 Estates
primary producers.................................................... ¶9-120 claims against............................. ¶3-160, ¶3-165, ¶12-100,
protection of assets.................................................. ¶5-115 ¶12-110, ¶12-115
questions for clients about........................................ ¶1-105 – foreign jurisdictions.............................................. ¶6-145
Documentation – protection strategies.......................................... ¶12-120
business succession plans......................¶18-130, ¶18-135 complex................................................................... ¶3-160
Domicile Excepted trust income
importance of........................................................... ¶6-115 employment benefit trusts....................................... ¶13-118
Donations estate proceeds trusts.............................¶13-100, ¶13-105
private ancillary funds............................................... ¶7-115 insurance proceeds trusts....................................... ¶13-115
public ancillary funds................................................. ¶7-118 minors trusts............................................................. ¶4-135
Exc
superannuation proceeds trusts.............................. ¶13-110 splitting and cloning................................................ ¶14-135

testamentary trusts................................................... ¶5-110 succession planning................................................. ¶1-120
Executors transfer of control................................................... ¶20-105
accounts, duty to keep............................................. ¶3-160 trustee....................................................¶14-110, ¶14-125,
advisers for............................................................... ¶3-165 ¶20-105
appointing................................................................ ¶3-160 – changing........................................................... ¶20-105
– charitable trusts................................................... ¶7-125 – company as...................................................... ¶14-125
funeral arrangements, responsibility.......................... ¶3-160 Farmers – see Primary producers
payment................................................................... ¶3-160 Federal Court of Australia
powers..................................................................... ¶3-135 appeals................................................................... ¶16-120
role........................................................................... ¶3-160 Fifty per cent CGT discount
Exemptions business succession planning..................¶11-110, ¶18-140
aged and disabled clients....................................... ¶22-170 buy-sell agreements............................................... ¶19-165
CGT Finance
– death................................................................. ¶11-120 aged and disabled clients....................................... ¶22-100
– special disability trust......................................... ¶13-120 – advisers, tips for................................................ ¶22-170
tax and duty, charitable trusts................................... ¶7-105 – funding aged care............................................. ¶22-160
– long-term and care annuities............................. ¶22-185
F – retirement villages.............................................. ¶22-140
– reverse mortgages............................................ ¶22-135
Fair dealing rule.......................................................... ¶5-135 – special disability trusts....................................... ¶22-180
Families – supported/concessional residents..................... ¶22-165
blended – see Blended families business succession plans......................¶18-135, ¶20-125
Family home – see also Main residence Financial dependants
keeping or selling.................................................... ¶22-170 death benefits, tax treatment.................................. ¶15-145
protection from assessment.................................... ¶22-160 meaning................................................................. ¶15-110
renting.................................................................... ¶22-170 Financial planners
use and enjoyment trusts.............................¶4-120, ¶8-145 as advisers............................................................... ¶3-165
Family law proceedings as executors and trustees......................................... ¶3-160
claim against estate................................................ ¶21-115 Financial power of attorney........................¶2-110, ¶15-101
financial resources, how adjusted by court.............. ¶21-110 Financial resources
future inheritances, whether at risk.......................... ¶21-130 family law
inherited property – how court adjusts for......................................... ¶21-110
– whether at risk................................................... ¶21-120 – meaning............................................................ ¶21-105
– whether to be divided........................................ ¶21-125 Financial statements
interaction with estate planning............................... ¶21-100 private ancillary funds............................................... ¶7-115
property, how divided by court................................ ¶21-105 public ancillary funds................................................. ¶7-118
Family law settlement Fixed trusts
adjusting................................................................. ¶21-140 buy-sell agreements............................................... ¶19-135
Family office............................................................. ¶20-120 Foreign jurisdictions
Family provision claims................................¶3-120, ¶3-155, disposing of assets in................................ ¶6-100—¶6-150
¶12-105, ¶21-100 Fringe benefits tax
Family trust distribution tax business succession planning................................. ¶18-140
business succession planning................................. ¶18-140 buy-sell agreements............................................... ¶19-185
Family trust elections.................. ¶5-120, ¶14-135, ¶20-105 Fundraising
Family trusts................................................¶8-155, ¶14-100 charitable gifts by will................................................ ¶7-110
adviser’s role in establishing...................................... ¶1-135 Funeral arrangements
appointor................................. ¶14-110, ¶14-125, ¶20-105 executor responsibility.............................................. ¶3-160
binding death benefit nominations.......................... ¶15-101 pre-paid plans........................................................ ¶22-175
cloning..................................... ¶14-135, ¶18-140, ¶20-105 Future inheritances................................................... ¶21-130
control, transfer of.................................................. ¶20-105 Future of financial advice reforms............................. ¶1-135
deed....................................................................... ¶14-115 Future service deductions....................................... ¶15-140
disputes.................................................................. ¶20-105
guardian..................................................¶14-110, ¶20-105
guardian provisions................................................. ¶14-132
G
incapacity............................................................... ¶15-101 Gifting – see also Charitable gifts
loan accounts......................................................... ¶14-140 aged care rules....................................................... ¶22-170
revocable determinations........................................ ¶14-130 to certain tax-exempt entities, CGT......................... ¶11-120
Exe
Index 485
deductible gift recipient status................................ ¶11-110 Income v capital

to other charities, deductions.................................. ¶11-110 life interest estates, CGT........................................... ¶4-125
Goods and services tax Independent living
business succession planning................................. ¶18-140 aged and disabled clients........ ¶22-115, ¶22-140, ¶22-145
buy-sell agreements............................................... ¶19-160 Indigenous Australians
payments to executors and trustees......................... ¶3-160 intestate estates of................................................... ¶3-155
Grandchildren Indonesia
death benefits......................................................... ¶15-125 inheritance taxes...................................¶6-155 (Appendix 1)
trusts...................................................................... ¶21-140 Infant guardianship
Grants Northern Territory...................................................... ¶2-135
private ancillary funds............................................... ¶7-115 Inflation
Grants of administration............................................ ¶6-120 legacies and............................................................. ¶4-105
Grants of probate....................................................... ¶6-120 Informal wills............................................................... ¶3-115
Guarantees Information-gathering................................................ ¶1-115
buy-sell agreements............................................... ¶19-175 Inheritance rules
Guardian provisions Islamic..................................................¶6-155 (Appendix 2)
family trusts............................................................ ¶14-132 Inheritance taxes
Guardianship foreign..................................................¶6-155 (Appendix 1)
administration boards/tribunals................................. ¶2-121 Inherited property
Australian Capital Territory......................................... ¶2-125 family law proceedings
business succession planning................................. ¶20-105 – whether at risk................................................... ¶21-120
New South Wales..................................................... ¶2-130 – whether to be divided........................................ ¶21-125
Northern Territory...................................................... ¶2-135 Insolvency
powers of.................................... ¶2-100, ¶2-120, ¶14-132 Bankruptcy Act Pt XI, effect of................................ ¶10-120
Queensland.............................................................. ¶2-140 deceased estates
South Australia......................................................... ¶2-145 – administration.................................................... ¶10-105
Tasmania.................................................................. ¶2-150 – creditor petitions................................................ ¶10-110
Victoria..................................................................... ¶2-155 – creditor’s rights.................................................. ¶10-120
Western Australia...................................................... ¶2-160 – divisible property............................................... ¶10-120
H – foreign assets...................................................... ¶6-150
– legal personal representative petitions............... ¶10-115
Health directions – non-divisible property........................................ ¶10-125
advance personal planning, Northern Territory.......... ¶2-135 – priority of debts................................................. ¶10-135
guardians and........................................................... ¶2-125 questions for clients about........................................ ¶1-105
South Australia......................................................... ¶2-145 Insurance
Home care packages program business succession planning................................. ¶18-135
aged and disabled clients....................................... ¶22-130 buy-sell agreements................ ¶19-105, ¶19-170, ¶19-190
Hong Kong choosing where to place......................................... ¶15-145
inheritance taxes...................................¶6-155 (Appendix 1) claims against superannuation................................ ¶16-105
Household chattels.......................................¶3-155, ¶4-110 Insurance premiums
buy-sell agreements................................¶19-145, ¶19-150
I Insurance proceeds
Immovable property buy-sell agreements............................................... ¶19-130
foreign jurisdictions...........¶6-110, ¶6-120, ¶6-130, ¶6-145 Insurance proceeds trusts....................................... ¶13-115
Incapacity Insurance-related disputes
binding death benefit nominations.......................... ¶15-101 case studies........................................................... ¶16-125
control following, SMSFs........................................ ¶15-120 Integrated planning tools......................................... ¶24-100
questions for clients about........................................ ¶1-105 Inter vivos advances.................................................. ¶4-150
SMSFs................................................................... ¶15-101 Interdependency relationship...................¶15-110, ¶15-145
Income streaming Interdependent
testamentary trusts................................................... ¶5-110 meaning................................................................. ¶15-110
Income tax-exempt charity status Interest deductions.................................................. ¶18-140
fundraising activities.................................................. ¶7-110 International issues
private ancillary funds............................................... ¶7-115 business succession planning................................. ¶18-140
Income tests Internet wills............................................................... ¶3-130
aged and disabled clients.......................¶22-110, ¶22-130, Intestacy........................................................¶3-100, ¶3-155
¶22-160, ¶22-165 assets in foreign jurisdictions..................................... ¶6-125
Int
meaning of spouse................................................... ¶3-155 – insolvent deceased estates............................... ¶10-120

minors trusts............................................................. ¶4-135 – tax return........................................................... ¶11-105
partial....................................................................... ¶3-155 trustees.......................................................¶3-135, ¶4-150
Intestate estates Licensed trustee companies
distribution................................................................ ¶3-155 accounts, duty to keep............................................. ¶8-170
Indigenous Australians.............................................. ¶3-155 Life insurance proceeds
New South Wales law, non-Indigenous estate........... ¶3-160 buy-sell agreements................................¶19-115, ¶19-140
Investments Life interest estates.................................................... ¶4-125
costs of aged care.................................................. ¶22-110 main residence....................................................... ¶11-120
enduring power of guardianship................................ ¶2-120 Life interest trusts..................................................... ¶21-140
power of trustee..........................................¶3-160, ¶4-150 competing interests of beneficiaries.......................... ¶8-140
private ancillary funds............................................... ¶7-115 strategy.................................................................... ¶8-140
Involuntary treatment orders trustees, litigation against.......................................... ¶8-140
Queensland.............................................................. ¶2-140 Life tenants................................................................. ¶4-125
Islamic inheritance rules........................¶6-155 (Appendix 2) effect of death, CGT............................................... ¶11-120
Liquidity of assets
J SMSF..................................................................... ¶15-120
Living arrangements
Joint tenancies aged and disabled clients....................................... ¶22-100
deceased estates, CGT.......................................... ¶11-120 – changes in......................................................... ¶22-125
Jurisdictions – church, charitable and rental villages................. ¶22-145
foreign, disposing of assets....................... ¶6-100—¶6-150 – demountable home parks.................................. ¶22-150
multi-jurisdictional assets.......................................... ¶6-135 – living arrangement options................................. ¶22-115
– residential care facilities..................................... ¶22-155
K – retirement villages.............................................. ¶22-140
– supported/concessional residents..................... ¶22-165
Key person insurance.............................................. ¶19-190 Loan accounts
family trusts............................................................ ¶14-140
L Long service leave
after death of employee.......................................... ¶15-155
Land Long-term annuities
identifying location.................................................... ¶6-105 aged and disabled clients....................................... ¶22-185
movable or immoveable............................................ ¶6-110 Lower taxed beneficiaries
Lawyers testamentary trusts................................................... ¶5-110
Australian legal practitioner defined........................... ¶1-135 Lump sum death benefits
estate administration................................................. ¶3-165 tax treatment.......................................................... ¶15-145
as executor and trustee............................................ ¶3-160
making a will................................................¶3-130, ¶3-135
payment................................................................... ¶4-150
M
succession planning................................................. ¶1-115 Main residence – see also Family home
Leases CGT exemption.......................................¶11-120, ¶13-120
identifying location.................................................... ¶6-105 life interest estates.................................................. ¶11-120
movable or immoveable............................................ ¶6-110 special disability trust exemption............................. ¶22-180
Legacies........................................... ¶3-135, ¶3-160, ¶4-105 superannuation rules.............................................. ¶12-120
priority of debts....................................................... ¶10-135 use and enjoyment trusts.............................¶4-120, ¶8-145
Legal advice Malaysia
claims against estates............................................. ¶12-115 inheritance taxes...................................¶6-155 (Appendix 1)
prohibition................................................................. ¶1-135 Mandatory buy-sell agreements.............................. ¶19-110
Legal personal representative................................... ¶6-120 Marriage – see also Divorce
deceased estates effect on wills...............................................¶4-160, ¶8-110
– assessment of CGT........................................... ¶11-120 matrimonial property divided by court..................... ¶21-105
– insolvency..........................................¶10-115, ¶10-120 pre-nuptial agreements............ ¶18-135, ¶21-135, ¶21-140
– liability for tax return........................................... ¶11-105 Means tests – see Income tests
grants of administration............................................ ¶6-120 Mediation
Letters of wishes........................... ¶4-130, ¶4-145, ¶18-135 claims against estates..............................¶12-105, ¶12-115
Liability Medical conditions
legal personal representatives terminal, lump sum death benefits.......................... ¶15-145
– CGT.................................................................. ¶11-120 Medical enduring power of attorney............¶2-100, ¶2-115
Int
Index 487
Medical expenses Public Guardian........................................................ ¶2-121

special disability trusts............................................ ¶13-120 relationship legislation............................................... ¶8-105
Medical treatment wills
enduring power of attorney..........................¶2-110, ¶2-115 – special rules........................................................ ¶3-115
refusal, guardians and............................................... ¶2-125 – validity requirements............................................ ¶3-110
South Australia......................................................... ¶2-145 Not-for-profit organisations
Victoria..................................................................... ¶2-155 public ancillary funds................................................. ¶7-118
Memorandum of wishes............................................. ¶4-145 Notional estate provisions
Mental health treatment New South Wales...................... ¶8-150, ¶12-110, ¶12-125
Queensland.............................................................. ¶2-140 Nuclear families
South Australia......................................................... ¶2-145 case study.............................................................. ¶23-105
Minor beneficiaries
excepted trust income.............................................. ¶5-110 O
Minors trusts............................................................... ¶4-135
Mortgages Older Australians – see Aged and disabled clients
reverse, aged and disabled clients.......................... ¶22-135 Ongoing trusts............................................................ ¶3-160
Movable property Options
foreign jurisdictions........................ ¶6-110, ¶6-120, ¶6-130 business succession planning................................. ¶18-135
Muslim inheritance rules........................¶6-155 (Appendix 2) buy-sell agreements............................................... ¶19-110
Mutual wills....................................................¶3-125, ¶8-160
P
N Palliative care............................................................. ¶2-115
New South Wales South Australia......................................................... ¶2-145
claims against estates..............................¶12-105, ¶12-110 Partnership agreements........................................... ¶18-135
grants of administration............................................ ¶6-120 Pensioners – see Aged and disabled clients
guardianship............................................................. ¶2-130 Pensions
Guardianship Tribunal............................................... ¶2-121 death benefit – see Death benefit pensions
intestacy................................................................... ¶3-155 disability support..................................................... ¶13-120
notional estate provisions........................................ ¶12-125 superannuation......................................................... ¶8-150
powers of attorney.................................................... ¶2-130 – disposal of assets, CGT.................................... ¶15-150
relationship legislation............................................... ¶8-105 Perpetuities
wills rule against............................................................... ¶4-155
– special rules........................................................ ¶3-115 Personal chattels...........................................¶3-155, ¶4-110
– validity requirements............................................ ¶3-110 Police personnel
New Zealand lump sum death benefits........................................ ¶15-145
inheritance taxes...................................¶6-155 (Appendix 1) Post-nuptial agreements.......................................... ¶18-135
Non-arm’s length transfers Power of attorney
CGT rules, buy-sell agreements.............................. ¶19-125 Australian Capital Territory......................................... ¶2-125
Non-divisible property divorce, effect of....................................................... ¶8-125
insolvent deceased estates..................................... ¶10-125 elder abuse.................................... ¶2-100, ¶2-110, ¶2-112
Non-estate distributions............................................ ¶4-150 enduring......................................................¶2-100, ¶2-110
Non-lapsing nominations – duties.................................................................. ¶2-110
superannuation planning......................................... ¶15-110 – limiting................................................................. ¶2-110
Non-resident estates................................................ ¶17-100 – revocation........................................................... ¶2-110
50% CGT discount..................................¶11-110, ¶17-115 – SMSFs................................................................ ¶2-110
who is taxed?......................................................... ¶17-110 general........................................................¶2-100, ¶2-105
Non-residents – limiting................................................................. ¶2-100
tax issues................................................................. ¶6-140 – registering........................................................... ¶2-105
Non-will trusts.......................................................... ¶13-100 marriage, effect of..................................................... ¶8-120
Northern Territory medical enduring...................................................... ¶2-100
adult guardianship.................................................... ¶2-135 – duties.................................................................. ¶2-115
advance personal planning....................................... ¶2-135 – how created........................................................ ¶2-115
aged and inform person’s property........................... ¶2-135 – limiting................................................................. ¶2-115
grants of administration............................................ ¶6-120 – revocation........................................................... ¶2-115
infant guardianship................................................... ¶2-135 New South Wales..................................................... ¶2-130
intestacy................................................................... ¶3-155 Northern Territory...................................................... ¶2-135
powers of attorney.................................................... ¶2-135 Queensland.............................................................. ¶2-140
Pow
South Australia......................................................... ¶2-145 Protective trusts......................................................... ¶4-130

Tasmania.................................................................. ¶2-150 Public ancillary funds................................................. ¶7-118
Victoria..................................................................... ¶2-155 Public offer superannuation funds
Western Australia...................................................... ¶2-160 buy-sell insurance held in........................................ ¶19-150
Power of guardianship Public trustees
enduring................................................................... ¶2-100 making a will............................................................. ¶3-130
– how created........................................................ ¶2-120 Put options
– investment and superannuation........................... ¶2-120 buy-sell agreements............................................... ¶19-110
– limiting................................................................. ¶2-120
– revocation........................................................... ¶2-120 Q
New South Wales..................................................... ¶2-130
Queensland.............................................................. ¶2-140 Queensland
South Australia......................................................... ¶2-145 grants of administration............................................ ¶6-120
Tasmania.................................................................. ¶2-150 guardianship............................................................. ¶2-140
Victoria..................................................................... ¶2-155 Guardianship and Administration Tribunal................. ¶2-121
Western Australia...................................................... ¶2-160 intestacy................................................................... ¶3-155
Pre-nuptial agreements............. ¶18-135, ¶21-135, ¶21-140 mental health treatment............................................ ¶2-140
Pre-paid funeral plans.............................................. ¶22-175 powers of attorney.................................................... ¶2-140
Prescribed private funds — see Private ancillary funds relationship legislation............................................... ¶8-105
Primary producers...................................................... ¶9-100 wills
assets and cash flow................................................ ¶9-115 – special rules........................................................ ¶3-115
business structure.................................................... ¶9-110 – validity requirements............................................ ¶3-110
children and marriage breakdown............................. ¶9-120
constructive trusts.................................................... ¶9-135 R
resulting trust............................................................ ¶9-130
selling the farm......................................................... ¶9-125 Reasonable benefit limits
SMSFs, use of.......................................................... ¶9-125 abolition, effect of......................................¶4-140, ¶19-150
suicide and farmers.................................................. ¶9-105 Records
water rights and shares............................................ ¶9-125 executors and trustees............................................. ¶3-160
wind turbines............................................................ ¶9-125 Recruitment
Priority of debts business succession planning................................. ¶20-115
deceased estates................................................... ¶10-135 Refreshing strategies
Private Ancillary Fund Guidelines 2009..................... ¶7-115 superannuation funds............................................. ¶15-150
Private ancillary funds...................................¶7-100, ¶7-115 Refundable accommodation deposits.................... ¶22-125
accumulation of income............................................ ¶7-115 aged and disabled clients....................................... ¶22-160
control...................................................................... ¶7-115 reverse mortgages to fund...................................... ¶22-135
investment................................................................ ¶7-115 Related party debts.................................................. ¶20-125
Private companies Related party transactions....................................... ¶18-135
insurance premiums............................................... ¶19-145 Relationship breakdown – see Divorce
loan accounts......................................................... ¶14-140 Relationships, family – see Blended families
Privileged wills............................................................ ¶3-115 Remainder beneficiaries
Probate life interest estates......................................¶3-160, ¶4-125,
burden of proof......................................................... ¶3-145 ¶8-140, ¶11-120
role for advisers........................................................ ¶3-165 superannuation pensions.......................................... ¶8-150
special rules for wills................................................. ¶3-115 use and enjoyment trusts.............................¶4-120, ¶8-145
Property Remuneration strategies.......................................... ¶20-110
identifying location.................................................... ¶6-105 Rental villages
inherited – see Inherited property aged and disabled clients....................................... ¶22-145
life interest estates.................................................... ¶4-125 Residential care facilities
matrimonial, divided by court.................................. ¶21-105 aged and disabled clients....................................... ¶22-155
movable or immovable.............................................. ¶6-110 Resolutions............................................................... ¶18-135
use and enjoyment trusts.............................¶4-120, ¶8-145 Resulting trusts
Property pool.............................................¶21-105, ¶21-110 primary producers.................................................... ¶9-130
Protected persons Retirement – see Aged and disabled clients
entering aged care.................................................. ¶22-160 Retirement villages
Protection orders........................................................ ¶2-135 aged and disabled clients....................................... ¶22-140
Protective Commissioner Reverse mortgages
New South Wales..................................................... ¶2-130 aged and disabled clients....................................... ¶22-135
Pow
Index 489
Revocable determinations Stamp duty

family trusts............................................................ ¶14-130 business succession planning................................. ¶18-140
Risk management buy-sell agreements............................................... ¶19-160
costs of aged care.................................................. ¶22-110 Statutory wills............................................................. ¶3-120
Stepchildren – see also Children
S cases involving......................................................... ¶8-175
Self-dealing rule......................................................... ¶5-135 superannuation death benefits................................ ¶15-110
Self-insurance superannuation pensions.......................................... ¶8-150
buy-sell agreements............................................... ¶19-105 Streaming of income
Self-managed superannuation funds proposed rules....................................................... ¶17-110
testamentary trusts................................................... ¶5-110
adviser’s role in establishing...................................... ¶1-135
Subsidised rental
assets, liquidity....................................................... ¶15-120
control following death............................................ ¶15-120
Succession planning
control following incapacity..................................... ¶15-120
business opportunities.............................................. ¶1-115
death benefit nominations....................................... ¶15-120
clients, questions to ask..............................¶1-105, ¶1-130
death benefits, how to pay...................................... ¶15-125
family trust................................................................ ¶1-120
enduring powers of attorney..................................... ¶2-110
new legislation and case law..................................... ¶1-145
executor................................................................. ¶15-120
not limited to death................................................... ¶1-110
incapacity and........................................................ ¶15-101
overview................................................................. ¶18-100
legal personal representative................................... ¶15-120
primary producers.................................................... ¶9-100
used to hold land or run business............................. ¶9-125
professional advisers................................................ ¶1-100
Senior clients – see Aged and disabled clients
questions for clients about........................................ ¶1-105
Shareholders
reviewing.................................................................. ¶1-140
business succession planning
superannuation death benefits.................................. ¶1-120
– agreements....................................................... ¶18-135 Suicide and farmers................................................... ¶9-105
– changing........................................................... ¶20-105 Superannuation
Shares claims
business succession planning................................. ¶18-140 – binding death benefit nominations..................... ¶12-105
buybacks.................................................¶19-105, ¶19-180 – following death or incapacity............................. ¶16-100
identifying location.................................................... ¶6-105 – insurance.......................................................... ¶16-105
movable or immoveable............................................ ¶6-110 – strategies.......................................................... ¶12-120
Significant relationships...............................¶8-105, ¶8-130, enduring power of guardianship................................ ¶2-120
¶8-135 Superannuation Complaints Tribunal........¶8-150, ¶13-110,
Singapore ¶15-115, ¶16-110, ¶16-115
inheritance taxes...................................¶6-155 (Appendix 1) powers................................................................... ¶16-115
Small business relief Superannuation death benefits..................¶1-120, ¶15-105
capital gains tax.......................................¶18-140, ¶19-170 calculation of untaxed element................................ ¶15-145
Social Security (Special Disability Trust) (FaCSIA) commutation of pensions....................................... ¶15-130
Guidelines................................................................ ¶13-120 contribution quarantining........................................ ¶15-150
Sole purpose tests disposal of pension assets, CGT............................. ¶15-150
buy-sell agreements............................................... ¶19-150 funding................................................................... ¶15-140
South Australia reducing tax payable............................................... ¶15-145
grants of administration............................................ ¶6-120 succession planning................................................. ¶1-120
Guardianship Board.................................................. ¶2-121 superannuation trusts............................................... ¶4-140
intestacy................................................................... ¶3-155 tax treatment.......................................................... ¶15-145
mental health treatment............................................ ¶2-145 who can receive...................................................... ¶15-110
powers of attorney.................................................... ¶2-145 Superannuation funds
powers of guardianship............................................ ¶2-145 financing buy-sell agreements................................. ¶19-150
relationship legislation............................................... ¶8-105 non-estate distributions............................................ ¶4-150
wills strategy.................................................................... ¶8-150
– special rules........................................................ ¶3-115 Superannuation pensions.......................................... ¶8-150
– validity requirements............................................ ¶3-110 Superannuation planning
Special disability trusts.............................¶13-120, ¶22-180 incapacity............................................................... ¶15-101
Splitting, family trusts...............................¶14-135, ¶18-140 non-lapsing nominations......................................... ¶15-110
Spouse Superannuation proceeds trusts............................. ¶13-110
meaning....................................................¶3-155, ¶15-110 Superannuation trusts................................................ ¶4-140
Sup
Supported residents self-dealing............................................................... ¶5-135

aged and disabled clients........................¶22-165, ¶22-170 structuring issues...................................................... ¶5-125
tax advantages......................................................... ¶5-110
T Testator family maintenance.................................... ¶21-100
claims........................................ ¶8-135, ¶12-105, ¶21-140
Tasmania legislation...................................................¶2-130, ¶12-105
Guardianship and Administration Board.................... ¶2-121 Theft
intestacy................................................................... ¶3-155 from trust account.................................................... ¶3-160
powers of attorney.................................................... ¶2-150 Timing issues
powers of guardianship............................................ ¶2-150 buy-sell agreements, equity payments.................... ¶19-195
relationship legislation............................................... ¶8-105 claims against estate................................................ ¶3-160
wills couples entering aged care..................................... ¶22-170
– special rules........................................................ ¶3-115 making a will............................................................. ¶3-135
– validity requirements............................................ ¶3-110 Total or permanent disablement payouts
Tax agents buy-sell agreements................................¶19-100, ¶19-135
as advisers............................................................... ¶3-165 – tax on withdrawals............................................ ¶19-150
Tax losses – trauma cover, CGT............................................ ¶19-120
business succession planning................................. ¶18-140 – trauma cover, own vs any occupation................ ¶19-150
Tax offsets
Trading stock
business succession planning................................. ¶18-140
Tax returns
business succession planning................................. ¶18-135
Trauma cover
date of death...........................................¶11-105, ¶11-110
buy-sell agreements................................¶19-120, ¶19-150
estate administration............................................... ¶11-115
Trauma payouts
responsibility for...................................................... ¶11-105
Taxable Australian property
Trust accounts............................................................ ¶8-170
gifts triggering disposal, CGT.................................. ¶11-110
incompetence........................................................... ¶3-160
non-residents............................................¶6-140, ¶17-115
theft from.................................................................. ¶3-160
Taxation
Trust cloning.............................. ¶14-135, ¶18-140, ¶20-105
costs of aged care.................................................. ¶22-110
deceased estates................................................... ¶11-100 Trust deeds
inheritance taxes, foreign......................¶6-155 (Appendix 1) business succession planning................................. ¶18-135
multi-jurisdictional assets.......................................... ¶6-135 family trust.............................................................. ¶14-115
non-residents........................................................... ¶6-140 restrictions on superannuation fund........................ ¶15-110
testamentary trusts, advantages............................... ¶5-110 Trust splitting............................. ¶14-135, ¶18-140, ¶20-105
Tax-exempt entities Trustee companies..................................................... ¶3-160
testamentary trusts................................................... ¶5-110 accounts, duty to keep............................................. ¶8-170
Temporary residents making a will............................................................. ¶3-130
50% CGT discount..................................¶11-110, ¶17-115 obligations................................................................ ¶3-160
Terminal medical conditions Trustees
lump sum death benefits........................................ ¶15-145 accounts, duty to keep................................¶3-160, ¶8-170
meaning................................................................. ¶15-145 appointing...................................................¶3-160, ¶8-165
Testamentary capacity............................................... ¶3-145 – charitable trusts................................................... ¶7-125
Testamentary guardianship discretion................................................................ ¶15-110
Australian Capital Territory......................................... ¶2-125 family trusts............................................................ ¶20-105
Testamentary trusts.................................................... ¶5-105 – company as...................................................... ¶14-125
alternatives to........................................................... ¶5-140 investments.............................................................. ¶3-160
appointors, nominating............................................. ¶5-130 liability, disposing by will............................................ ¶4-150
asset protection........................................................ ¶5-115 litigation against........................................................ ¶8-140
capital gains............................................................. ¶5-110 non-resident issues................................................. ¶17-115
costs........................................................................ ¶5-105 payment......................................................¶3-160, ¶4-150
disadvantages.......................................................... ¶5-120 testamentary trusts................................................... ¶5-115
excepted trust income.............................................. ¶5-110 wills and intestacy
forward planning....................................................... ¶5-145 – powers and duties..................................¶3-135, ¶4-150
independent trustees.............................................. ¶21-140 – role...................................................................... ¶3-160
power to amend....................................................... ¶5-135 Trusts
power to invest......................................................... ¶5-135 automatic termination............................................... ¶4-155
power to lend........................................................... ¶5-135 buy-sell agreements................................¶19-105, ¶19-150
Sup
Index 491
education................................................................. ¶4-116 Wills............................................................................. ¶3-100

employment benefits.............................................. ¶13-118 advantages in having................................................ ¶3-105
ending...................................................................... ¶4-155 advisers, role of........................................................ ¶3-165
estate proceeds...................................................... ¶13-105 bequests.................................................................. ¶4-110
family – see Family trusts capacity to make...................................................... ¶3-145
fixed/bare, buy-sell agreements.............................. ¶19-135 charitable gifts made by............................................ ¶7-110
insurance proceeds................................................ ¶13-115 construction of.......................................................... ¶6-130
minors...................................................................... ¶4-135 defence force members............................................ ¶3-115
ongoing.................................................................... ¶3-160 devises..................................................................... ¶4-115
protective................................................................. ¶4-130 divorce, effect on.........................................¶4-160, ¶8-115
resulting.................................................................... ¶9-130 domicile, importance of............................................ ¶6-115
special disability.......................................¶13-120, ¶22-180 education trusts........................................................ ¶4-116
superannuation......................................................... ¶4-140 equalisation clauses.................................................. ¶4-118
superannuation proceeds....................................... ¶13-110 informal.................................................................... ¶3-115
testamentary – see Testamentary trusts internet..................................................................... ¶3-130
kits........................................................................... ¶3-130
U lawyers, role of.......................................................... ¶3-135
legacies.................................................................... ¶4-105
Undue influence letters of wishes........................................................ ¶4-145
making of will............................................................ ¶3-140 life interest estates.................................................... ¶4-125
United Kingdom marriage, effect on.................................................... ¶4-160
inheritance taxes...................................¶6-155 (Appendix 1) minors...................................................................... ¶3-115
United States of America minors trusts............................................................. ¶4-135
inheritance taxes...................................¶6-155 (Appendix 1) mutual.........................................................¶3-125, ¶8-160
Unitholder agreements............................................. ¶18-135 need for.................................................................... ¶3-105
Use and enjoyment trusts.............................¶4-120, ¶8-145 privileged.................................................................. ¶3-115
protective trusts........................................................ ¶4-130
V reviewing.................................................................. ¶1-140
Victoria special disability trusts............................................ ¶13-120
claims against estates.............. ¶12-105, ¶12-110, ¶12-115 statutory................................................................... ¶3-120
grants of administration............................................ ¶6-120 superannuation trusts............................................... ¶4-140
Guardianship Board.................................................. ¶2-121 testamentary trust..................................................... ¶5-105
intestacy................................................................... ¶3-155 undue influence........................................................ ¶3-140
Law Reform Commission.......................................... ¶2-155 use and enjoyment trusts.......................................... ¶4-120
medical treatment..................................................... ¶2-155 validity
powers of attorney.................................................... ¶2-155 – foreign jurisdictions.............................................. ¶6-130
priority of debts....................................................... ¶10-135 – requirements....................................................... ¶3-110
relationship legislation............................................... ¶8-105 whether assets dealt with by..................................... ¶1-125
water rights and shares............................................ ¶9-125 Wind turbines............................................................. ¶9-125
wills Winding up
– special rules........................................................ ¶3-115 private ancillary funds............................................... ¶7-115
– validity requirements............................................ ¶3-110 public ancillary funds................................................. ¶7-118
Witnessing requirements
W power of attorney.......................... ¶2-105, ¶2-110, ¶2-115
– Australian Capital Territory................................... ¶2-125
“Wash sale” arrangements – New South Wales................................................ ¶2-130
superannuation funds............................................. ¶15-150 – Northern Territory................................................ ¶2-135
Water rights................................................................ ¶9-125 – Queensland......................................................... ¶2-140
Water shares............................................................... ¶9-125 – South Australia.................................................... ¶2-145
Western Australia – Tasmania............................................................. ¶2-150
Guardianship Board.................................................. ¶2-121 – Victoria................................................................ ¶2-155
intestacy................................................................... ¶3-155 – Western Australia................................................ ¶2-160
powers of attorney.................................................... ¶2-160 Work in progress
powers of guardianship............................................ ¶2-160 business succession planning................................. ¶18-140
relationship legislation............................................... ¶8-105
wills Y
– special rules........................................................ ¶3-115
– validity requirements............................................ ¶3-110 Young people in residential aged care.........................¶22-120
You
Cases Flegeltaub v Telstra Super Pty Ltd [2000] VSC 107..... ¶16-105
Flinn v Flinn [1999] VSCA 109....................................... ¶9-135
A G
Ashton v Ashton (1986) FLC ¶91-777.......................... ¶5-115 Gartside v Inland Revenue Commr [1968] AC 553........ ¶5-115
Atlantis Holdings Pty Ltd in its capacity as trustee Goodwin v Goodwin (1991) FLC ¶92-192.................... ¶5-115
of the Bruce James Lyon Family Trust, Re [2012] Granby Pty Ltd v FCT 95 ATC 4240........................... ¶19-125
NSWSC 112............................................................... ¶3-160 Gregory v Hudson [1997] NSWSC 140...........¶5-115, ¶5-135,
Australian Super v Woodward [2009] FCAFC 168....... ¶16-125 ¶20-105
Gregory v Hudson [1998] NSWSC 582......................... ¶5-135
B GWH & PGH [2005] FamCA 388................................ ¶21-120
Bamford & Ors; FCT v [2010] HCA 10.......................... ¶4-125
Barns v Barns [2003] HCA 9..........................¶8-160, ¶18-135 H
Barnsdall v FCT 98 ATC 4565.................................... ¶19-125 Haque v Haque (No. 2) (1965) 114 CLR 98.................. ¶6-110
Baumgartner v Baumgartner (1987) 164 CLR 137........ ¶9-135 Hartigan Nominees Pty Ltd v Rydge (1992) 29
Bonnici and Bonnici (1992) FLC ¶92-272................... ¶21-120 NSWLR 405................................................................ ¶4-140
Boulton v Sanders [2003] VSC 405.............................. ¶3-120 Hickey & Hickey & Attorney-General for the
Burrows v Walls (1885) 5 De GM & G 233.................... ¶8-170 Commonwealth of Australia [2003] FamCA 395........ ¶21-105
Burton, Re; Ex parte Wily v Burton (1994) 126 Hills v Chalk & Ors [2008] QCA 159............................. ¶3-125,
ALR 557.......................................................¶5-115, ¶20-105 ¶12-115, ¶21-140
Hitchcock v Pratt [2010] NSWSC 1508...................... ¶12-125
C
CAC, Re [2009] QGAAT 63........................................... ¶2-120 I
Cheerine Group (International) Pty Ltd v Young [2006] Ioppolo v Conti [2013] WASC 389.............................. ¶15-110
NSWSC 1047............................................................. ¶2-105 Ioppolo v Conti [2015] WASCA 45.............................. ¶15-110
Collis v FCT 96 ATC 4831........................................... ¶19-125
Cornall v Nagle [1995] 2 VR 188................................... ¶1-135 J
D James and James (1978) FLC ¶90-487...................... ¶21-125
James v Day [2004] VSC 290....................................... ¶8-175
D03-04135 [2004] SCTA 42....................................... ¶16-130
D03-04143 [2004] SCTA 45....................................... ¶16-130 K
D04-05094 [2004] SCTA 193..................................... ¶16-130
D05-06110 [2005] SCTA 199..................................... ¶16-130 Kanto v Vosahlo [2004] VSCA 235................................ ¶3-145
D06-07084 [2006] SCTA 185..................................... ¶16-130 Katz v Grossman [2005] NSWSC 934.........¶15-120, ¶23-150
D08-09084 [2009] SCTA 37....................................... ¶16-130 Kavalee v Burbidge (1998) 43 NSWLR 422................ ¶12-125
D09-10016 [2009] SCTA 67....................................... ¶16-120 Kembrey v Cuskelly [2008] NSWSC 262..................... ¶12-125
D09-10028 [2009] SCTA 58....................................... ¶16-120 Kennon v Spry [2008] HCA 56.......................¶5-115, ¶20-105
Dashwood & Bennett [2011] FMCAFam 93................ ¶21-120 Kestel v Superannuation Complaints Tribunal
Davidson v Davidson (1991) FLC ¶92-197................... ¶5-115 [2010] FCA 1300....................................................... ¶16-110
Davidson’s Trust No. 2, Re (1994) FLC ¶92-469........... ¶5-115 Kozak v Matthews [2007] QCA 296............................ ¶21-140
De Angelis & De Angelis (1995) FLC ¶92-641............. ¶21-130
Delaforce v Simpson-Cook [2010] NSWCA 84............. ¶9-135 L
Donovan v Donovan [2009] QSC 26.......................... ¶15-110,
¶15-120, ¶23-150 Lewis v Balshaw (1935) 54 CLR 188............................ ¶6-120
Duncan v Lawson (1889) 41 Ch D 394......................... ¶6-110 Lieberman v Morris (1944) 69 CLR 69........................ ¶18-135
Dwyer v Ross (1993) 34 FCR 463................................. ¶5-115 Lungely, Re [1965] SASR 313....................................... ¶6-115
E M
Elmslie & Ors v FCT 93 ATC 4964.............................. ¶19-125 Macedonian Orthodox Community Church St Petka
Essex & Essex [2009] FamCAFC 236........................... ¶5-115 Incorporated v His Eminence the Diocesan Bishop
of the Macedonian Orthodox Diocese of Australia and
F New Zealand & Anor [2008] HCA 42........................... ¶3-160
Malek v FCT 99 ATC 2294.......................................... ¶15-110
Fifteenth Eestin Nominees Pty Ltd v Barry Rosenberg Matsis, Re; Charalambous v Charalambous & Ors
& Anor [2009] VSCA 112............................................. ¶9-135 [2012] QSC 349.......................................................... ¶3-120
Index 493
McInnes (by her next friend Gayle McInnes) v Insurance T

Commission of Western Australia [2011] WADC 17..... ¶2-120
McIntosh v McIntosh [2014] QSC 99.......................... ¶15-110 Tatham v Huxtable (1950) 81 CLR 639......................... ¶5-135
McKenzie v Topp [2004] VSC 90.................................. ¶8-175 Tillott, Re [1882] 1 Ch 86.............................................. ¶8-170
Morton v Attorney-General of Victoria, Supreme Court Tito v Waddell (No. 2) [1977] Ch 106............................ ¶5-135
of Victoria, unreported, 23 December 1996................. ¶7-120 Trustee of the Estate of the Late AW Furse No. 5
Mulligan (dec’d), Re [1998] 1 NZLR 481....................... ¶8-140 Will Trust v FCT (1990) 21 ATR 1123......................... ¶19-125
Munro v Munro [2015] QSC 61................................... ¶15-110
Muschinski v Dodds (1985) 160 CLR 583..................... ¶9-135 U
Unger v Sanchez [2009] VSC 5841............................ ¶12-110
N
Nicholson & Ors v Knaggs & Ors [2009] VSC 64.......... ¶3-140, V
¶3-150 Viertel, Re [1996] QSC 66............................................. ¶4-110
Noel v Cook [2004] FCA 479...................................... ¶15-110
W
O
Ward & Ward [2004] FMCAfam 193...............¶5-115, ¶21-140
Ogden & Ogden [2010] FMCAfam 865......................... ¶5-115 Webb v Teeling [2009] FCA 1094.................¶15-110, ¶16-130
Oppenheim v Tobacco Securities Trust Co Ltd [1951] White v Tulloch (1995) 19 Fam LR 696....................... ¶21-130
AC 297....................................................................... ¶1-100 Wilkins v Wilkins [2007] VSC 100.................................. ¶9-130
P
Paulin, Re [1950] VLR 462............................................ ¶6-145 Lesiglation
Petersen v Micvski [2007] VSC 280.............................. ¶8-175
Aboriginal Affairs Planning Authority Act
Pope v DPR Nominees Pty Ltd & Ors [1999]
1972 (WA)................................................................... ¶3-155
SASC 337................................................................... ¶5-115
Aboriginal Affairs Planning Authority Act
Popple v Rowe [1998] 1 VR 65..................................... ¶8-150 2012 (WA)................................................................... ¶3-155
Public Trustee v Till [2001] 2 NZLR............................... ¶3-145 Acts Interpretation Act 1901
s 22B....................................... ¶8-105, ¶15-155 (Appendix)
R Acts Interpretation Act 1954 (Qld)
s 32DA................................................................... ¶12-110
Richstar Enterprises Pty Ltd v Carey [2006]
Administration Act 1903 (WA).................................... ¶3-155
FCA 814......................................................¶5-115, ¶20-105
Administration and Probate Act (NT)..........¶3-155, ¶12-115
Roberts, FCT v; FCT v Smith 92 ATC 4380................. ¶20-125
s 14(2)...................................................................... ¶6-120
Rogers v Rogers [2001] VSC 141................................. ¶9-135 s 96........................................................................ ¶12-115
Rowley, In the goods of (1863) 2W & W (IE & M) 115.... ¶6-120 Administration and Probate Act 1919 (SA)................ ¶3-155
Administration and Probate Act 1929 (ACT)............. ¶3-155
S s 9(2)........................................................................ ¶6-120
Administration and Probate Act 1935 (Tas)............... ¶3-155
Saunders v Vautier (1841) 4 Beav 115........................ ¶13-105
Administration and Probate Act 1958 (Vic).............. ¶3-155,
Schaefer v Schuhmann [1972] AC 572......................... ¶8-160
¶12-105
Schmidt v Rosewood Trust Ltd (Isle of Man) [2003] Pt IV..........................................................¶8-150, ¶12-110
UKPC 26..................................................................... ¶4-140 s 39........................................................................ ¶10-135
Siahos & Anor v JP Morgan Trust Australia Ltd s 39(3)(b)(ii)............................................................. ¶10-135
[2009] NSWSC 20....................................................... ¶2-105 s 39A...................................................................... ¶10-135
Sigg (dec’d), Re Estate of [2009] VSC 47..................... ¶8-175 s 39B...................................................................... ¶10-135
Simpson v Cunning [2011] VSC 466............................. ¶4-110 s 90(a).................................................................... ¶12-110
Simpson-Cook v Delaforce [2009] NSWSC 357........... ¶9-135 s 90(b).................................................................... ¶12-110
Singer v Berghouse (1994) 181 CLR 201.................... ¶12-115 s 90(c).................................................................... ¶12-110
Slade Bloodstock; FCT v 2007 ATC 4261.................. ¶19-185 s 90(e).................................................................... ¶12-110
Slade Bloodstock v FCT [2007] FCAFC 173.............. ¶18-140, s 90(f)..................................................................... ¶12-110
¶19-185 s 90(i)...................................................................... ¶12-110
Spina v Permanent Custodians Ltd [2009] s 90(k).................................................................... ¶12-110
NSWSC 206............................................................... ¶2-105 s 91(2)(b)................................................................ ¶12-110
Stein v Sybmore Holdings [2006] NSWSC 1004......... ¶14-115 s 99........................................................................ ¶12-115
s 99A(1).................................................................. ¶12-115 s 90B...................................................................... ¶21-135

s 99A(3).................................................................. ¶12-115 s 90C..................................................................... ¶21-135
Adult Guardianship Act (NT)...................................... ¶2-135 s 90D..................................................................... ¶21-135
Advance Personal Planning Act (NT)......................... ¶2-135 s 90K...................................................................... ¶21-135
Aged and Infirm Persons’ Property Act (NT)............. ¶2-135 s 90MC.................................................................. ¶21-115
Aged and Infirm Persons’ Property Act s 90ML(4)............................................................... ¶15-110
1940 (SA)................................................................... ¶2-145 s 90MU(1)............................................................... ¶15-110
Bankruptcy Act 1966...................................¶5-115, ¶10-100 s 90UB................................................................... ¶21-135
Pt IV....................................................................... ¶10-110 s 90UC................................................................... ¶21-135
Pt XI........................................................¶10-105, ¶10-120 s 90UD................................................................... ¶21-135
s 118 to s 122........................................................ ¶10-105 Family Provision Act (NT)
s 244.......................................................¶10-110, ¶10-115 s 4(2)...................................................................... ¶12-115
s 245.......................................................¶10-110, ¶10-120 s 7(1)...................................................................... ¶12-110
s 246(1).................................................................. ¶10-110 s 7(1)(a)................................................................... ¶12-110
s 247.......................................................¶10-115, ¶10-120 s 7(1)(c)................................................................... ¶12-110
s 247A.................................................................... ¶10-120 s 7(1)(d).................................................................. ¶12-110
s 248...................................................................... ¶10-105 s 7(1)(e)................................................................... ¶12-110
s 249.......................................................¶10-120, ¶10-125 s 7(1)(f).................................................................... ¶12-110
s 249(1).................................................................. ¶10-120 s 7(2)(a)................................................................... ¶12-110
s 252.......................................................¶10-120, ¶10-130 s 7(2)(b).................................................................. ¶12-110
Charitable Funds Act 1958 (Qld)................................ ¶7-100 s 7(3)...................................................................... ¶12-110
Charitable Trusts Act 1962 (WA)...................¶7-100, ¶7-120 s 9(1)...................................................................... ¶12-115
Charitable Trusts Act 1993 (NSW)................¶7-100, ¶7-120 s 9(2) to (4)............................................................. ¶12-115
Charities Act 1978 (Vic).................................¶7-100, ¶7-120 s 9(5)...................................................................... ¶12-115
Children and Young Persons (Care and s 20........................................................................ ¶12-115
Protection) Act 1998 (NSW).................................... ¶12-110 s 21........................................................................ ¶12-115
Civil Procedure Act 2010 (Vic) Family Provision Act 1969 (ACT).............................. ¶12-110
s 97(6).................................................................... ¶12-105 s 7(1)(a)................................................................... ¶12-110
s 97(7).................................................................... ¶12-105 s 7(1)(b).................................................................. ¶12-110
Commonwealth Powers (De Facto Relationships) s 7(1)(d).................................................................. ¶12-110
Act 2003 (NSW)......................................................... ¶8-105 s 7(1)(e)................................................................... ¶12-110
Commonwealth Powers (De Facto Relationships) s 7(1)(f).................................................................... ¶12-110
Act 2003 (Qld)............................................................ ¶8-105 s 7(2)...................................................................... ¶12-110
Commonwealth Powers (De Facto Relationships) s 7(3)...................................................................... ¶12-110
Act 2004 (Vic)............................................................. ¶8-105 s 7(6)...................................................................... ¶12-110
Act 2006 (Tas)............................................................ ¶8-105 s 9(2) to (4)............................................................. ¶12-115
Act 2006 (WA)............................................................ ¶8-105 s 20........................................................................ ¶12-115
Commonwealth Powers (De Facto Relationships) s 21........................................................................ ¶12-115
Act 2009 (SA)............................................................. ¶8-105 Family Provision Act 1982 (NSW)............¶12-110, ¶12-115,
Consent to Medical Treatment and Palliative Care ¶12-125
Act 1995 (SA)............................................................. ¶2-145 Family Relationships Act 1975 (SA)........................... ¶8-105
Corporations Act 2001.................. ¶3-160, ¶8-170, ¶13-120 s 11A...................................................................... ¶12-110
Pt 9.2....................................................................... ¶7-115 Guardianship Act 1987 (NSW)................................... ¶2-130
Crimes (Sentencing Procedure) Act 1999 (NSW) Guardianship and Administration Act 1986 (Vic)...... ¶2-155
s 17.......................................................................... ¶1-135 Guardianship and Administration Act 1990 (WA)...... ¶2-160
De Facto Relationships Act (NT)................................ ¶8-105 Guardianship and Administration Act 1993 (SA)....... ¶2-145
s 3A........................................................................ ¶12-110 Guardianship and Administration Act 1995 (Tas)...... ¶2-150
De Facto Relationships (Northern Territory Guardianship and Administration Act 2000 (Qld)...... ¶2-140
Request) Act 2003 (NT)............................................. ¶8-105 Guardianship and Custody of Infants Act 1934
Disability Discrimination Act 1992........................... ¶16-110 (Tas)............................................................................ ¶2-150
Disability Services Act 1986......................¶15-125, ¶15-130 Guardianship and Property Management Act 1991
Domestic Relationships Act 1994 (ACT)................... ¶8-105 (ACT).......................................................................... ¶2-125
Domicile Act 1982...................................................... ¶6-115 Guardianship of Infants Act (NT)............................... ¶2-135
Family Law Act 1975................... ¶8-150, ¶15-110, ¶20-105 Guardianship of Infants Act 1940 (SA)...................... ¶2-145
s 5.......................................................................... ¶21-100 Income Tax Assessment Amendment (Superannuation
s 79........................................................................ ¶21-130 Measures No. 1) Regulation 2013.......................... ¶15-150
Index 495
Income Tax Assessment Regulations 1997 ITAA97......................................................................... ¶7-115

reg 295-465.01...................................................... ¶19-150 Div 83A................................................................... ¶20-110
Sch 1...................................................................... ¶19-150 Div 104................................................................... ¶19-140
Inheritance (Family and Dependants Provision) Div 115....................................................¶11-120, ¶19-165
Act 1972 (WA).......................................................... ¶12-115 Div 125................................................................... ¶18-140
s 7.......................................................................... ¶12-110 Div 128..................................................................... ¶5-110
s 7(1)(a)................................................................... ¶12-110 Div 140................................................................... ¶18-140
s 7(1)(b).................................................................. ¶12-110 Div 149................................................................... ¶18-140
s 7(1)(d).................................................................. ¶12-110 Div 152................................................................... ¶18-140
s 7(1)(e)................................................................... ¶12-110 Div 165................................................................... ¶18-140
Inheritance (Family Provision) Act 1972 (SA)............ ¶8-160 Div 170................................................................... ¶18-140
s 6(a)...................................................................... ¶12-110 Div 203................................................................... ¶18-140
s 6(b)...................................................................... ¶12-110 Div 204................................................................... ¶18-140
s 6(ba).................................................................... ¶12-110 Div 723................................................................... ¶18-140
s 6(g)...................................................................... ¶12-110 Div 725................................................................... ¶18-140
s 6(h)...................................................................... ¶12-110 Div 727................................................................... ¶18-140
s 6(i)........................................................................ ¶12-110 Div 974................................................................... ¶18-140
s 8(1)...................................................................... ¶12-115 Subdiv 30-B............................................................. ¶7-115
s 8(6)...................................................................... ¶12-115 Subdiv 30-BA......................................................... ¶11-110
s 9(2) to (4)............................................................. ¶12-115 Subdiv 30-D........................................................... ¶11-110
s 14........................................................................ ¶12-115 Subdiv 118-B......................................................... ¶11-120
Instruments Act 1958 (Vic)............................¶2-105, ¶2-155 Subdiv 152-C......................................................... ¶11-120
Interpretation Act 1987 (NSW)................................... ¶3-115 Subdiv 295-F.......................................................... ¶15-150
ITAA36
s 6-10..................................................................... ¶19-140
Pt IVA.........................¶5-145, ¶14-135, ¶18-140, ¶19-150
s 8-1.........................¶19-145, ¶19-175, ¶19-190, ¶20-125
Div 6....................................................................... ¶18-140
s 15-15................................................................... ¶19-140
Div 6AA.................................................................... ¶5-110
s 15-50................................................................... ¶18-140
Div 6E..................................................................... ¶11-120
s 25-35(1)(a)........................................................... ¶18-140
Div 7A...................................... ¶14-140, ¶18-140, ¶19-145
s 25-95................................................................... ¶18-140
Div 13A....................................................¶18-140, ¶20-110
s 30-15........................................ ¶7-110, ¶7-115, ¶11-120
s 6(1)...................................................................... ¶18-140
s 30-230................................................................... ¶7-110
s 44(4).................................................................... ¶18-140
s 30-230(2)................................................¶7-110, ¶11-110
s 45........................................................................ ¶18-140
s 30-230(6)............................................................. ¶11-115
s 45A...................................................................... ¶18-140
s 45B...................................................................... ¶18-140 s 36-6..................................................................... ¶19-140
s 96B...................................................................... ¶18-140 s 70-85................................................................... ¶11-110
s 96C..................................................................... ¶17-110 s 70-90................................................................... ¶18-140
s 97......................................... ¶11-120, ¶17-110, ¶19-140 s 70-100................................................................. ¶11-110
s 98......................................... ¶11-120, ¶17-110, ¶17-115 s 70-105(3)............................................................. ¶11-110
s 99......................................... ¶11-115, ¶17-110, ¶17-115 s 70-105(5)............................................................. ¶11-110
s 99A....................................... ¶11-115, ¶17-110, ¶18-140 s 70-105(6)............................................................. ¶11-110
s 99B.......................................................¶17-110, ¶19-140 s 70-105(7)............................................................. ¶11-110
s 102AAM.............................................................. ¶17-110 s 82-65................................................................... ¶15-155
s 102AG(2)(a)............................................................ ¶5-140 s 82-70................................................................... ¶15-155
s 102AG(2)(c)(iv).......................................¶13-115, ¶13-118 s 82-140................................................................. ¶15-155
s 102AG(2)(c)(v)...................................................... ¶13-110 s 82-145................................................................. ¶15-155
s 102AG(2)(c)(vi)...................................................... ¶13-118 s 100-230............................................................... ¶18-140
s 102AG(2)(d)(i)............................................¶5-110, ¶5-140 s 102-5(1)............................................................... ¶11-120
s 102AG(2)(d)(ii)...................................................... ¶13-105 s 104-10(2)(b)......................................................... ¶14-135
s 102AG(2A)............................ ¶13-105, ¶13-110, ¶13-115 s 104-10(3)(a)..........................................¶18-140, ¶19-110
s 102AG(7)............................................................. ¶13-105 s 104-10(4)............................................................. ¶11-120
s 109C(3)(a)............................................................ ¶19-145 s 104-10(5)............................................................. ¶11-120
s 160X...................................................................... ¶5-110 s 104-71................................................................. ¶19-135
s 170(10AA)............................................................ ¶19-110 s 104-75................................................................. ¶19-140
s 177EA.................................................................. ¶18-140 s 104-90................................................................. ¶19-140
s 279...................................................................... ¶19-150 s 104-215.................................... ¶5-110, ¶7-110, ¶11-110
Sch 2C................................................................... ¶19-175 s 104-230............................................................... ¶18-140
– Div 245.............................................................. ¶14-140 s 105-70................................................................. ¶19-140
s 109-5(1)............................................................... ¶11-120 Legal Profession Act 2004 (NSW)

s 110-25................................................................. ¶11-120 Pt 2.2....................................................................... ¶1-135
s 112-20..................................................¶18-140, ¶19-125 s 4(1)........................................................................ ¶1-135
s 112-20(1)............................................................. ¶11-120 s 5(a)........................................................................ ¶1-135
s 115-30(1)............................................................. ¶11-120 s 6(a)........................................................................ ¶1-135
s 115-40................................................................. ¶19-165 s 13.......................................................................... ¶1-135
s 115-45................................................................. ¶18-140 s 14(1)...................................................................... ¶1-135
s 115-227............................................................... ¶11-120 s 14(2)...................................................................... ¶1-135
s 115-230..................................................¶4-125, ¶11-120 s 14(3)...................................................................... ¶1-135
s 115-230(5)........................................................... ¶11-120 s 14(4)...................................................................... ¶1-135
s 116-30.................................. ¶11-120, ¶18-140, ¶19-125 s 14(5)...................................................................... ¶1-135
s 118-37...................¶19-120, ¶19-135, ¶19-140, ¶19-190 s 15(1)...................................................................... ¶1-135
s 118-60(1)............................................................... ¶7-110 Medical Treatment Act 1988 (Vic).............................. ¶2-155
s 118-105............................................................... ¶11-120 Medical Treatment (Health Directions) Act
s 118-110............................................................... ¶11-120 2006 (ACT)................................................................. ¶2-125
s 118-135............................................................... ¶11-120 Mental Health Act 1977 (SA)...................................... ¶2-145
s 118-145............................................................... ¶11-120 Mental Health Act 2000 (Qld)..................................... ¶2-140
s 118-190(3)........................................................... ¶11-120 Personal Property Securities Act 2009...................... ¶4-110
s 118-195............................................................... ¶11-120 Powers of Attorney Act (NT)...................................... ¶2-135
s 118-200............................................................... ¶11-120 s 7............................................................................ ¶2-105
s 118-300.................¶19-115, ¶19-135, ¶19-140, ¶19-190 s 8............................................................................ ¶2-105
s 118-300(1)............................ ¶19-105, ¶19-120, ¶19-150 Powers of Attorney Act 1998 (Qld)............................ ¶2-140
s 128-10................................................................. ¶11-120 s 25.......................................................................... ¶2-105
s 128-15....................................................¶5-110, ¶11-120 s 60.......................................................................... ¶2-105
s 128-15(3)............................................................. ¶11-120 Powers of Attorney Act 2000 (Tas)...............¶2-105, ¶2-150
s 128-15(4)............................................................. ¶11-120 Powers of Attorney Act 2003 (NSW).............¶2-105, ¶2-120
s 128-20................................................................. ¶11-120 Powers of Attorney Act 2006 (ACT).............¶2-105, ¶2-110,
s 128-50................................................................. ¶11-120 ¶2-125
s 128-50(3)............................................................. ¶11-120 s 8............................................................................ ¶2-110
s 128-50(4)............................................................. ¶11-120 Powers of Attorney and Agency Act 1984 (SA)........ ¶2-105,
s 152-10................................................................. ¶11-120 ¶2-145
s 152-10(2)(a)......................................................... ¶19-165 Probate and Administration Act 1898 (NSW)............ ¶3-155
s 152-55(1)............................................................. ¶19-165 Property Law Act 1969 (WA)...................................... ¶2-160
s 152-55(2)............................................................. ¶19-165 Property Relationships Act 1984 (NSW).....¶8-105, ¶12-110
s 203-25................................................................. ¶18-140 Protected Estates Act 1983 (NSW)............................ ¶2-130
s 204-30................................................................. ¶18-140 Registration of Deeds Act 1856 (WA)
s 292-95................................................................... ¶2-120 s 143........................................................................ ¶2-105
s 295-460............................................................... ¶19-150 Registration of Deeds Act 1935 (SA)
s 295-465............................................................... ¶19-150 Pt 2.......................................................................... ¶2-105
s 295-470................................................¶15-140, ¶19-150 Registration of Deeds Act 1957 (ACT)
s 295-480............................................................... ¶19-150 s 4............................................................................ ¶2-105
s 295-485............................................................... ¶15-140 Relationships Act 2003 (Tas).........................¶4-160, ¶8-105
s 302-60................................................................. ¶15-145 s 4(1)........................................................................ ¶8-105
s 302-65................................................................. ¶15-145 s 5(1)........................................................................ ¶8-105
s 302-90................................................................. ¶15-145 s 5(2)........................................................................ ¶8-105
s 302-195............................................................... ¶15-145 s 11.......................................................................... ¶8-105
s 302-195(2)........................................................... ¶15-145 Relationships Act 2008 (Vic).......................¶8-105, ¶12-110
s 303-10..................................................¶15-101, ¶15-145 Relationships (Miscellaneous Amendments) Act 2009
s 307-5.................................... ¶15-130, ¶15-150, ¶19-150 (Tas)............................................................................ ¶8-105
s 307-290............................................................... ¶15-145 Same-Sex Relationships (Equal Treatment in
s 310-195............................................................... ¶15-125 Commonwealth Laws – General Law Reform)
s 855-15................................................................. ¶11-110 Act 2008..................................................................... ¶8-105
s 995-1(1)............................................................... ¶15-110 Same-Sex Relationships (Equal Treatment in
Land Title Act 1994 (Qld) Commonwealth Laws – Superannuation) Act 2008..... ¶8-105
s 132........................................................................ ¶2-105 Social Security Act 1991.......................................... ¶13-120
Law Reform (Gender, Sexuality and De Facto s 23(1).................................................................... ¶13-120
Relationships) Act 2003 (NT)..................................... ¶8-105 s 1209M(2)............................................................. ¶13-120
Index 497
s 1209M(4)............................................................. ¶13-120 s 23(3).....................................................¶16-110, ¶16-115

s 1209M(6)............................................................. ¶13-120 s 28........................................................................ ¶16-115
Status of Children Act 1996 (NSW).......................... ¶12-110 s 37(1).................................................................... ¶16-115
Statute of Charitable Uses 1601 (UK)........................ ¶7-100 s 37(3).................................................................... ¶16-115
Succession Act 1981 (Qld).............. ¶2-140, ¶3-100, ¶3-155 s 37(4).................................................................... ¶16-115
s 5AA..................................................................... ¶12-110 s 37(6).................................................................... ¶16-115
s 40........................................................................ ¶12-110 s 46(1).................................................................... ¶16-120
s 40(a).................................................................... ¶12-110 s 46(2).................................................................... ¶16-120
s 40A...................................................................... ¶12-110 s 46(4).................................................................... ¶16-120
s 41........................................................................ ¶12-110 s 46(6).................................................................... ¶16-120
s 41(1).................................................................... ¶12-115 s 47(1).................................................................... ¶16-125
s 41(6).................................................................... ¶12-115 s 47(2).................................................................... ¶16-120
s 41(8).................................................................... ¶12-115 Superannuation Industry (Supervision) Act 1993.... ¶19-150
s 44(4).................................................................... ¶12-115 s 10........................................................................ ¶15-110
Succession Act 2006 (NSW).................................... ¶12-125 s 10(1)...................................................................... ¶8-150
s 3.......................................................................... ¶12-110 s 10A...................................................................... ¶15-110
s 3(3)...................................................................... ¶12-110 s 17A(3)(b)(ii)..............................................¶2-110, ¶15-101
s 6............................................................................ ¶3-115 s 52(2)(f).................................................................. ¶15-120
s 7(1)........................................................................ ¶3-110 s 52(6)(a)(iii)............................................................. ¶15-120
s 15.......................................................................... ¶4-160 s 59........................................................................ ¶15-110
s 18.......................................................................... ¶3-120 s 59(1A).................................................................. ¶15-120
s 18A........................................................................ ¶3-115 s 62........................................................................ ¶19-150
s 57........................................................................ ¶12-110 s 65(1)(b)................................................................ ¶19-150
s 57(1)(b)................................................................ ¶12-110
s 66.......................................................................... ¶9-125
s 57(1)(d)................................................................ ¶12-110
s 101...................................................................... ¶16-115
s 57(1)(e)................................................................. ¶12-110
s 263(1)(c)............................................................... ¶16-115
s 57(2).................................................................... ¶12-110
s 315...................................................................... ¶16-115
s 57(f)..................................................................... ¶12-110
Superannuation Industry (Supervision)
s 58(2).................................................................... ¶12-115
Regulations 1994
s 58(3).................................................................... ¶12-115
reg 1.03C............................................................... ¶19-150
s 59........................................................................ ¶12-110
reg 1.04AAAA(2)..................................................... ¶15-110
s 59(1)(b)................................................................ ¶12-110
reg 4.07D............................................................... ¶19-150
s 59(3).................................................................... ¶12-115
reg 4.07D(2)............................................................ ¶19-150
s 75........................................................................ ¶12-125
s 76........................................................................ ¶12-125 reg 6.17A................................................¶15-110, ¶15-120
s 93........................................................................ ¶12-115 reg 6.17A(5)............................................................ ¶15-101
s 94........................................................................ ¶12-115 reg 6.17AA............................................................. ¶15-110
s 99........................................................................ ¶12-105 reg 6.17B............................................................... ¶15-110
Succession Amendment (Family Provision) reg 6.21...................................................¶15-135, ¶15-145
Act 2008 (NSW)....................................................... ¶12-125 reg 6.22.................................................................. ¶16-110
Superannuation (Resolution of Complaints) Superannuation (Resolution of Complaints)
Act 1993................................................................... ¶16-100 Regulations 1994
s 4.......................................................................... ¶16-115 reg 5....................................................................... ¶16-115
s 4A........................................................................ ¶16-115 Tax and Superannuation Laws Amendment
s 11........................................................................ ¶16-115 (2014 Measures No. 5) Act 2015............................. ¶15-145
s 14(1).................................................................... ¶16-115 Tax and Superannuation Laws Amendment
s 14(1A).................................................................. ¶16-115 (2014 Measures No. 7) Bill 2014.............¶19-105, ¶19-115,
s 14(2).................................................................... ¶16-115 ¶19-120, ¶19-135, ¶19-150
s 14(3).................................................................... ¶16-115 Tax Laws Amendment (2009 Measures No. 6)
s 14(3)(b)................................................................ ¶16-110 Act 2010....................................................¶14-135, ¶18-140
s 14(5).................................................................... ¶16-115 Act 2010................................................................... ¶13-120
s 15(1).................................................................... ¶16-115 Act 2011................................................................... ¶11-120
s 15(2).....................................................¶16-110, ¶16-115 Testamentary Guardianship Act 1984 (ACT)............. ¶2-125
s 19(1)(a)................................................................. ¶16-115 Testator’s Family Maintenance Act 1912 (Tas)........ ¶12-110
s 19(1)(b)................................................................ ¶16-115 s 2(1)...................................................................... ¶12-110
s 23(2).................................................................... ¶16-110 s 3A(a).................................................................... ¶12-110
s 3A(b).................................................................... ¶12-110 s 21.......................................................................... ¶3-120

s 4.......................................................................... ¶12-115 s 26.......................................................................... ¶4-160
s 6(b)...................................................................... ¶12-110 Wills Act 2008 (Tas)
s 6(c)...................................................................... ¶12-110 s 6............................................................................ ¶3-115
s 6(d)...................................................................... ¶12-110 s 9............................................................................ ¶3-115
s 11(1).................................................................... ¶12-115 s 10.......................................................................... ¶3-110
s 11(1)(4)................................................................ ¶12-115 s 20.......................................................................... ¶6-160
s 11(2).................................................................... ¶12-115 s 26.......................................................................... ¶3-115
Testator’s Family Maintenance and Guardianship s 27.............................................................¶3-120, ¶4-160
of Infants Act 1916 (NSW)......................................... ¶2-130
Transfer of Lands Act 1893 (WA)............................... ¶2-105
Trustee Act 1925 (NSW)
s 102........................................................................ ¶8-170 Rulings, determinations etc
Trustee Act 1936 (SA)................................................. ¶7-120 ID 2001/729........................................................... ¶11-120
Trustee Act 1958 (Vic) ID 2001/730........................................................... ¶11-120
s 8............................................................................ ¶8-145 ID 2002/146........................................................... ¶19-150
s 37.............................................................¶4-105, ¶4-135 ID 2003/128........................................................... ¶19-110
Trusts Act 1973 (Qld).................................................. ¶7-120 ID 2003/1190......................................................... ¶19-165
Trusts Act 1994 (Tas).................................................. ¶7-120 ID 2004/264........................................................... ¶13-105
Water Act 1989 (Vic) ID 2004/458............................................................. ¶7-110
s 33AV...................................................................... ¶9-125 ID 2004/688........................................................... ¶15-150
Wills, Probate and Administration Act 1898 (NSW) ID 2007/128........................................................... ¶11-120
s 84A........................................................................ ¶4-105 ID 2007/224............................................................. ¶2-120
Wills Act (NT) ID 2008/142............................................................. ¶2-120
s 7(1)........................................................................ ¶3-110 ID 2010/1............................................................... ¶15-140
s 10.......................................................................... ¶3-115 ID 2010/76............................................................. ¶15-145
s 14.......................................................................... ¶4-160 ID 2015/2............................................................... ¶15-130
s 15.......................................................................... ¶4-160 ID 2015/3............................................................... ¶15-130
s 18.......................................................................... ¶3-115 ID 2015/10............................................................. ¶19-150
s 19.......................................................................... ¶3-120 IT 2622................................................................... ¶17-110
Wills Act 1936 (SA) PBR 1011302167450............................................. ¶14-125
s 5............................................................................ ¶3-115 PS LA 2003/12..........................................¶5-110, ¶11-120
s 6............................................................................ ¶3-115 PS LA 2005/1 (GA)................................................... ¶4-125
s 7............................................................................ ¶3-120 PS LA 2005/21....................................................... ¶18-140
s 8............................................................................ ¶3-110 PS LA 2007/9..........................................¶18-140, ¶19-180
PS LA 2010/1........................................................... ¶4-125
s 11.......................................................................... ¶3-115
SMSFD 2008/3....................................................... ¶15-120
s 12.......................................................................... ¶3-115
SMSFD 2010/1....................................................... ¶19-150
s 20.......................................................................... ¶4-160
SMSFR 2008/2....................................................... ¶19-150
s 25.......................................................................... ¶4-160
SMSFR 2010/2......................................................... ¶2-110
Wills Act 1968 (ACT)
TA 2008/7.............................................................. ¶15-150
s 8............................................................................ ¶3-115
TD 14..................................................................... ¶19-120
s 9(1)........................................................................ ¶3-110 TD 93/37.................................................................. ¶4-125
s 11.......................................................................... ¶3-115 TD 1994/34............................................................ ¶19-115
s 16A........................................................................ ¶3-120 TD 2004/14............................................................ ¶14-135
s 20.......................................................................... ¶4-160 TD 2007/3.............................................................. ¶19-150
s 31C....................................................................... ¶4-160 TD 2012/21............................................................ ¶14-120
Wills Act 1970 (WA) TR 95/25................................................................ ¶20-125
Pt X.......................................................................... ¶3-115 TR 95/27.................................................................. ¶7-115
Pt XI......................................................................... ¶3-120 TR 95/35................................................................ ¶18-165
s 8............................................................................ ¶3-110 TR 98/4.................................................................. ¶13-105
s 14.......................................................................... ¶4-160 TR 2005/12............................................................ ¶20-125
s 17.......................................................................... ¶3-115 TR 2006/4.............................................................. ¶14-135
s 19.......................................................................... ¶3-115 TR 2006/14................................. ¶4-125, ¶8-140, ¶11-120
Wills Act 1997 (Vic)..................................................... ¶3-115 TR 2008/1.............................................................. ¶15-150
s 6............................................................................ ¶3-115 TR 2008/7.............................................................. ¶15-150
s 7(1)........................................................................ ¶3-110 TR 2011/D3............................................................ ¶15-150
s 16.......................................................................... ¶4-160 TR 2012/6.............................................................. ¶19-150

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Estate & Business

A practical and strategic guide for the trusted adviser

Bernie O’Sullivan, CTA

© The Tax Institute 2015

Acts other than fair dealing

Ken Schurgott, BAppSc, LLB, BA(Acy), MAppFin, MLS, LLM, CTA

How this book is structured

This publication is also available online (located at successionplanningonline.com.au),

Chapter 1: Succession planning and the professional adviser 1

¶1-105 Talking the talk.................................................................................................................2

¶1-110 More than just a will.........................................................................................................2

¶1-115 A team effort and a business opportunity........................................................................3

¶1-120 The starting point: asset ownership.................................................................................4

¶1-125 How assets are dealt with................................................................................................4

¶1-130 Ten questions to ask your client......................................................................................5

¶1-135 The adviser’s role – threshold issues...............................................................................6

¶1-140 An ongoing process.......................................................................................................10

¶1-145 New legislation and case law.........................................................................................11

Chapter 2: Attorneys and guardians 13

¶2-105 General power of attorney.............................................................................................15

What is a general power of attorney?............................................................................15

¶2-110 Enduring power of attorney...........................................................................................19

¶2-112 Elder abuse....................................................................................................................26

¶2-115 Medical enduring power of attorney..............................................................................27

Who can witness a medical enduring power of attorney?.............................................28

¶2-120 Enduring power of guardianship....................................................................................30

¶2-121 Guardianship and administration boards and tribunals.................................................32

¶2-125 Australian Capital Territory.............................................................................................35

¶2-130 New South Wales...........................................................................................................39

¶2-135 Northern Territory...........................................................................................................41

¶2-145 South Australia...............................................................................................................45

¶2-160 Western Australia...........................................................................................................52

Chapter 3: Wills and intestacy 53

¶3-105 Why have a will?............................................................................................................54

¶3-110 Requirements for a valid will..........................................................................................55

¶3-115 Special rules for wills.....................................................................................................57

¶3-120 Statutory wills................................................................................................................60

¶3-125 Mutual wills....................................................................................................................61

¶3-130 Who to see when making a will.....................................................................................63

¶3-135 The role of the lawyer.....................................................................................................64

¶3-140 Undue influence.............................................................................................................67

¶3-145 Capacity to make a will..................................................................................................68

¶3-155 What happens if someone dies without a will?..............................................................70

¶3-160 Executors and trustees..................................................................................................77

¶3-165 A role for the adviser?....................................................................................................85

Chapter 4: Disposing of assets by will 89

So what can go wrong?.................................................................................................95

¶4-116 Education trusts.............................................................................................................96

¶4-118 Equalisation clauses......................................................................................................97

¶4-120 Use and enjoyment trusts..............................................................................................98

¶4-125 Life interest estates......................................................................................................100

¶4-130 Protective trusts...........................................................................................................104

¶4-135 Minors trusts................................................................................................................105

¶4-140 Superannuation trusts..................................................................................................106

¶4-145 Letters of wishes..........................................................................................................107

¶4-150 Trustee provisions........................................................................................................108

¶4-155 Ending the trust............................................................................................................110

¶4-160 Statutory rules affecting dispositions...........................................................................111

¶4-165 The treatment of digital assets upon death.................................................................112