What are the benefits of a discretionary testamentary trust, and who controls the assets?

A testamentary discretionary trust is used to manage family assets and businesses. It has significant tax advantages and asset protection benefits for beneficiaries, making it a popular option for testators who wish to provide financial security and peace of mind to their families.

Firstly, it is useful to outline the basic operational structure of a testamentary discretionary trust. These trusts are operated by the trustee, who controls the trust assets and makes discretionary distributions in favour of the beneficiaries. Conversely, the appointor of the trust has the important power to appoint and remove trustees. The trust deed will also stipulate the testator’s family members as the class of beneficiaries.

The trust itself is considered discretionary as the trustee can withdraw capital and distribute income as they see fit. This provides a high degree of flexibility to the trustee.

On the one hand, it is open to the trustee to retain the capital and produce income for the long-term benefit of the beneficiaries. This provides a protected environment for the environments from which the beneficiaries may benefit. This is especially important in circumstances where they are compromised or vulnerable or unable to support themselves or their dependants due to mental or physical disability, financial hardship from loss of employment, bankruptcy or matrimonial property disputes. The trustee can therefore securely invest the estate funds and generate income for the purpose of providing financial support to the beneficiaries.

The testator can express their preference for the trustee to retain the trust capital through a Statement of Wishes. With that being said, the trustee is not locked into this course of action. It is open to the trustee to remove the capital to suit the particular needs of the beneficiaries upon financial advice.

Finally, these trusts are also desirable for their tax advantages. We recommend that you seek accounting advice to further unpack the financial benefits of a testamentary discretionary trust to suit your particular circumstances.

If you would like further information about incorporating a testamentary discretionary trust into your strategic estate planning, please contact our office on (07) 3839 7555.

What is Probate, why is it necessary to obtain, and what common issues arise?

One of the most important steps of the estate administration process is obtaining a grant of Probate.

Probate is the seal of the Supreme Court of Queensland that officially recognises a Will as valid. It confirms that the formal requirements of the Will have been complied with and that the executor has been properly appointed. Furthermore, Probate demonstrates that due notice has been given that the document is the final Will of the deceased.

It is necessary to obtain a grant of Probate to allow the executor to administer the estate. This enables the executor to claim estate assets, pay the outstanding debts of the deceased, make investments on behalf of the beneficiaries, and distribute the estate assets. Financial institutions and banks will require a grant of Probate to ensure the validity of the Will and the executor’s ability to transfer estate assets.

There are a number of issues that can arise when applying for Probate. This blog article will step through nine of these issues.

  • Firstly, the Will is damaged or has holes in it from removed staples. In this case, the executor will need to explain how this occurred using a Form 111 – Affidavit of Plight. This Form requires a deponent to state on oath whether there were any other testamentary documents attached to the Will that have since been separated.
  • The testamentary capacity of the Willmaker is another common issue that arises in the context of Probate. This legal issue was raised In the Will of Esme Jane Ferris, heard by the Supreme Court of Queensland in 2020.[1] At the time of executing her second Will on 14 March 2016, Ms Ferris had been diagnosed with rapidly advancing Alzheimer’s disease. Moreover, her psychiatrist had recommended that she be admitted to a dementia unit for specialised care. This drew into question the testamentary capacity of Ms Ferris to radically alter her first Will which had been executed on 31 May 2005. Ultimately, the Court was satisfied that Ms Ferris did not have testamentary capacity at the time, and the second Will was therefore declared invalid. A grant in common form was instead ordered for the earlier Will.

In these cases, the onus of proving testamentary capacity falls on the plaintiff. Probate will not be granted where there is significant doubt as to the testator’s soundness of ‘mind, memory and understanding’ at the time of executing the Will.[2]

  • Another common problem occurs where the executor only holds a copy of the Will as the document is missing or lost. In this case, the executor will be required to complete a Form 9 – Application with supporting affidavit material.
  • Thirdly, if the Will has been incorrectly or inconsistently dated, one of the witnesses will need to file an affidavit using Form 107 – Affidavit of due execution of will/codicil stating that the Will was duly executed. This Form must be accompanied by a copy of the original last Will.
  • A Form 107 must also be completed where the attestation clause does not make clear that the testator was blind or illiterate at the time of executing their Will. One of the witnesses will be required to complete this Form to confirm that the testator was completely aware of the contents of the Will and approved of its execution.
  • Next, if an attestation clause was not included in the Will at all, a Form 107 will again need to be filled out by a witness or another person present while the Will was signed. They will be required to confirm the identities of those present during the execution of the document. Alternatively, an affidavit may be filed alongside a copy of the Will.
  • Moreover, a notice for Probate must include all known aliases of the deceased. If this does not occur, the process must be started again. A new affidavit using Form 104 – Affidavit of publication must be submitted, the notice must be re-advertised and re-served to the Public Trustee, and the registry counter must be attended to amend the headings of the filed documents.
  • A typographical error in the application for Probate regarding the date of the Will is much easier to fix as an amended application can be filed.
  • Finally, an application that has been submitted too early can be refiled after two weeks has passed since filing the last application and the publication of a death notice in the newspaper.

Evidently, obtaining a grant of Probate is an essential step of estate administration. At Perspective Law, we have the experience that is required to step you through this process. For further information, please do not hesitate to call our office on (07) 3839 7555 to discuss your specific needs.

[1] In the Will of Esme Jane Ferris (deceased) [2020] QSC 26.

[2] In The Will of Edward Victor Macfarlane Deceased [2012] QSC 20 at [9] – [10]

Key Points to Selling your Business

What are the essential points to consider when thinking about selling your business if you’ve been approached?

Consider the following major recommendations:

It does not matter if you have one or a number of interested parties, these initial actions are critical in getting the best outcome:

  • Advise the buyer that you are seeking professional assistance to better prepare for the sale and to facilitate the process. Let them know that you are awaiting further advice before going ahead with any more discussions. This shows that you are serious about the negotiations and will only proceed if it is conducted professionally.
  • Sign an engagement agreement with a specialist business sale company experienced in mergers and acquisitions, including financial reporting and different share solutions. It is important you choose the right person that is knowledgeable in more than just the sale process.
  • Together with your accountant and agent, analyse your business to determine the market. This includes evaluating your business’ financial and systems strengths, financial and operational performance and any opportunities of the business.
  • Prepare an Information Memorandum containing “normalised” financials, excluding personal use items or income, assuming you are putting the sale on the broader market.
  • Review the working capital by removing excess assets from the balance sheet of business before the sale.
  • Provide a price estimate and be sure it meets your expectation and requirements.
  • Focus carefully on the information flow and ensure that trade secrets, pricing structures, key clients and staff are kept secret until the buyer is fully committed and bound by an unconditional contract. Ensure you get a confidentiality deed signed first and have contingency plans in plan to exit at any stage of the process, if the buyer proves unsuitable during negotiations.
  • Get specialist tax advice for your personal circumstances to ensure any CGT issues are anticipated and dealt with before undertaking the transaction. This is more so for larger, more complex transactions, including existing business structure and tax history, to minimise the assessable tax from the transaction.
  • Do not narrow down on just one buyer, at least without strict timeframes and exit clauses in place, so that you can still explore alternative options without committing too much time, costs, and professional engagement. Maintain the right to terminate within your discretion if the buyer becomes difficult on key points that may reduce the value of your outcome.
  • Do not allow the buyer to dictate the time frames without an end date for a mutual right to end the negotiations. Retain the leverage to exit if the sale process loses momentum.
  • Exercise great care and discretion when sharing sensitive information about your business by not giving too much or too little information at each stage, including the due diligence period.

You may only get one opportunity to maximise on the capital gain created in your business. The best outcomes can take years in the making, and it does take early professional advice to prepare for a sale.

Be sure to invest the time and money to prepare your business for a sale, targeting the right category of buyer with the optimum outcome. Often sellers ignore a slower sale process over a longer time frame, such as a 3 year period, when they can give the buyers’ financier greater comfort by a post-sale consultancy or retain a shareholding. This ensures a smoother transition that protects the buyer and the seller from loss of key employees, loss of customers and breakdown of the systems created.

If both parties have greater assurance regarding a continuation of profit then there is a greater likelihood of a better class of buyer that is better financed for a higher sale price.

Ask us now how we can assist you to get your business “sale fit” and ready for your retirement. Get your free checklist by emailing us of info@perspectivelaw.com

Sentimental the law is not

Happy New Year everyone, we hope that you and your family had an enjoyable break. 2020 was an incredible year which turned our lives upside down and altered our expectations forever. The threat of Covid 19 caused enormous stress to families, particularly to the elderly and the vulnerable in our society. We have all had to quickly adapt and utilize technology to our advantage and ensure that our economy continues to run albeit in a reduced capacity.

Our integral focus is on the outcomes that clients seek when giving legal advice and drafting legal documents. However, in the process of providing our assistance, it can be hard to explain that the law is a very tough task master, leaving little to no scope for moral or sentimental application. This is incredibly relevant to the preparation of a comprehensive estate plan. Assumption is the death of certainty therefore it is extremely important to cross check the facts with a fine-tooth comb when drafting an estate plan.

This includes:

  • Reading the Superannuation Fund Trust Deed to see what binding nominations can be made
  • Checking the balance sheets for companies and trusts in order to see what loans are repayable by or to the estate
  • Checking all the circumstances of potential beneficiaries who may be entitled to make a claim on your estate
  • Preparing all necessary evidence to ensure your Will is enforceable i.e is there a medical certificate to prove capacity

In addition to our research, we like to read Probate cases from earlier times as it provides a great deal of context as to the way courts interpret facts, apply the law and make judgements. It is important to note that judges will not apply a test of what is “fair” or “moral” as they will and must apply the law.

The case of Re Farrar’s Application Probate Division Court of Appeal 1966 is a compelling example. A wife was provided a house for herself and her five children by the husband, a surveyor, subject to a mortgage to a building society. The husband left and took up residence with his mistress elsewhere. He continued to pay the mortgage until he became very sick and made a new Will. He appointed his friend and surveyor as Executor leaving his entire estate to his mistress, and nothing for the wife and his children. When he died the Executor refused to pay the mortgage and the building society proceeded to give notice to take possession and sell the home. The wife gave Notice of a Claim for herself and the five children on the estate and sought an order from the court that the Executor must continue to pay the mortgage so that the house could be preserved, so they can continue to occupy it as their home. The registrar initially made an order that the Executor must continue to pay the mortgage. The court at first instance agreed and ordered the husband pays the costs. On appeal the Court found otherwise and concluded that the Executor was not obliged to continue to pay the mortgage, the house could be sold as a normal asset and that the wife could and should make an application for further provision from the estate in the normal course.

Justice Russell remarked: “I hope I do not appear unsympathetic towards to former wife and the children in their present situation, but I take this to be a court of law and not a court of sentiment and in accordance with law her case must fail.”

You can see that the application of the law will always be without consideration of fairness or moral high ground. It is a strict and unemotional application of the law. To make assumptions about the strength of a case, the goodwill or another party, the moral fibre of a relative or best intentions, is to ignore the harsh reality of the approach by the courts.

Our recommendation is to plan carefully, invest time and money in advance and make sure you prepare all necessary evidence to put your Will in the best position you can. Call us now to talk about how you can achieve this peace of mind regarding your estate plan and the commercial outcomes you want. Cheers