Executors – Know Your Duties!

One of the most important pieces of advice that a person should receive if appointed to act as executor in a Will, is that the duties of an executor in administering a deceased estate are onerous.

The duties of an executor are set out in the legislation, case law and the deceased’s Will or other testamentary document.

This blog will highlight some of the principal duties of an executor and provide practical examples to illustrate how these duties are performed in reality. It is not intended to be a comprehensive summary of the duties and should you wish to find out more information about these, please do not hesitate to contact us.

This is arguably the most important duty of an executor. An executor must collect and get in the personal and non-personal assets of a deceased person.

  1. Get in the Assets of the Deceased

Some obvious examples of personal assets include real property, motor vehicles, household possessions and bank accounts. Non-personal assets are sometimes more complicated, such as debts owing, interest in a partnership, shares and superannuation (if there is a valid nomination in favour of the estate).

Likened with this duty, is the duty of an executor to manage and preserve assets or income earning investments of the estate for the benefit of those entitled them. 

For example, executors must maintain a policy of insurance over estate property and in cases where the deceased held an interest in rental properties, continue to collect rent. In more complex scenarios, the Court has recognised this duty extends to commencing legal proceedings to collect in estate property.

If a solicitor is assisting with the estate administration, the solicitor’s account will usually be used to collect estate monies.

  1. Duty to Account

An executor can be called upon by the Court to exhibit a full inventory of the estate and render an estate account if required.

Whether or not a demand has been made, an executor has a duty to account to the beneficiaries of an estate. This can be done informally, if no demand has been made. There is no format for accounting in an informal way. However, an executor must provide the beneficiaries with an itemised list of the following:

  • assets transferred;
  • assets realised and still held;
  • funds received from all sources;
  • payments for estate liabilities, distributions and money retained; and
  • provision for liabilities not yet paid – attention must be taken to ensure sufficient funds are withheld to pay all tax assessments.

If a formal account is demanded, further details are required, in addition to original supporting documents of the estate administration. These include receipts, statements and invoices. It is therefore imperative that an executor maintain accurate and detailed records during the estate administration.

  1. Fiduciary Duties

It is important for an executor to understand that they are in a position of trust and therefore, owe fiduciary duties to beneficiaries of an estate. 

An executor must not place themselves in a position of conflict between their duties to the estate and their personal interest.  For example, there is a conflict if an executor entered into a transaction for the sale of estate property to a related party (i.e. his or her spouse) for less than market value.

Another key fiduciary duty is to not obtain any unauthorised benefit from the fiduciary relationship, often referred to as the “no-profit rule”.  

An executor also has a fiduciary duty to exercise the powers and perform the duties of an executor in good faith, in the interests of the beneficiaries and to use reasonable care in doing so.

Other duties of an executor including paying the debts of the deceased, paying legacies given by the Will (and interest where applicable) and distributing the estate according to law.

As mentioned above, there are duties that we have not discussed here, and if you would like information on those, please do not hesitate to contact us on 07 3839 7555.

Company Loans and Record keeping – Where can it go wrong?

For many business owners, tax time is fraught with complexity and additional time spent searching for documents to give to the accountant.

But what if we have not prepared our records for the company in the movement of cash out of the company accounts? Will there be deemed dividends that bites us on the backside giving rise to large tax assessments payable when we least expect it.

Below is a short summary of some key points regarding internal loans and Division 7A ITAA 1936.

The practice of using dividends to make minimum yearly repayments on Division 7A loans, or to fully repay loans, has been common since the introduction of Division 7A of Part III of the ITAA 1936 (Div. 7A) on 4 December 1997. Division 7A is intended to prevent the tax-free use of company profits by shareholders and their associates. For tax purposes declared dividends can still be franked so the dividend strategy is commonly used to prevent unfranked dividends arising.

A journal entry cannot create or constitute a transaction in its own right, it can only record a transaction that has already occurred. If the records are not carefully maintained at the right time there is serious risk the ATO will overturn the entry and further tax will become payable. The intention of a taxpayer is irrelevant.

The law is very black and white, and the courts do not accept ‘backdated’ documentation.

You must be extremely careful when it comes to complying with rules governing the payment of a dividend by journal entry, to ensure on a complying Div. 7A loan.

What are the rules?

Under s. 109 E of the ITAA 1936, an unfranked “deemed dividend” arises to a shareholder (or associate of a shareholder) of a private company if they fail to make a minimum yearly payment by 30 June each year for a complying Div. 7A loan. Preferably a cash payment is made to the company, but often the company’s profits are used to pay a dividend by journal instead to demonstrate this obligation owed by the shareholder or associate.

Can there be a set off between parties to the loans?

A journal can only constitute a payment where the principle of “mutual set-off” applies. This requires two parties who mutually owe each other an obligation recording an agreement to set-off their respective debts due against each other. The liabilities are either fully or partly discharged and this allows the actual movement of cash to become unnecessary. The ATO provides guidance, in context of FBT in the miscellaneous tax ruling MT 2050.

The journal entry will only be effective if the shareholder’s obligation to the company to make the minimum yearly payment is set-off against an obligation owed by the company to the shareholder to pay the dividend. This dividend strategy is not available where the money is owed by an associate of a shareholder.

If the company owes no obligation to the shareholder — because no dividend was validly declared by 30 June to create the company’s indebtedness to the shareholder — the payment of the minimum yearly repayment by journal is ineffective.

Corporations Act 2001

What else do we need to worry about in record keeping for this journal entry?

The circumstances in which a dividend may be paid by a company are set out in section 254 T of the Corporations Act 2001 (Cth) and are also restricted by the company’s formal constitution. (which really should be signed by the Directors). The decision to declare and pay a dividend is recorded in a minute of meeting or a signed resolution (this must be filed in the corporate register within one month of the meeting or decision (see section 251 A of the Corporations Act).

Assuming the dividend is declared on 30 June (and not any earlier), the directors’ minute or resolution needs to be filed in the corporate register by 31 July following the end of the income year in which the dividend is declared.

What does the tax law say?

A company that makes a distribution which is able to be franked for tax purposes is required to give the shareholder a “distribution statement” (see section 202-75 of the ITAA 1997).

The distribution statement must be provided no later than:

  • if the company is a public company — the day on which the distribution is paid;
  • if the company is a private company — before the end of four months after the end of the income year in which the distribution is made, or a later time allowed by the Commissioner.

As Div. 7A applies only to private companies, the company must give a distribution statement to the shareholder within four months of year end, that is, by 31 October in that year.

What really happens in practice in the real world?

Consider the implications for doing anything that is contrary to the provisions in the tax law as breaches may carry significant penalties. Perhaps the amount of the dividend is unknown on 30 June, so the document can’t be prepared by that date. However, the dividend being set-off against the minimum yearly repayment is in respect of a loan made in a previous income year, so the amount of the minimum yearly repayment will be known in advance.

Since the High Court decision in Commissioner of Taxation v Bamford; Bamford v Commissioner of Taxation [2010] HCA 10,   making trustee resolutions by 30 June has become critical. The declaration of dividends is just as important in terms of record keeping.

All business owners should know their position within reasonable accuracy leading up to the 30 June deadline. Ask you accountant now whether declarations, resolutions or mutual set off should be recorded in writing, by Deed or signed and by what date, to ensure that the rules are complied with. Give us a call on 07 3839 7555 if we can assist with Div. 7 A Loans or Deed of Offset of loans between entities or email me at Tony.Crilly@perspectivelaw.com

Duties of a trustee – what must they do?

Most people of heard of a Family Discretionary Trust or an Estate Trust known as a Testamentary Trust. But what of the obligations of the people appointed to manage the trust? Can there be risks of a claim if you fail to get it right? Indeed there are risks in failing to act on qualified advice in a reasonable time and acting prudently taking account of the people the trust was set up for in the first place.

A trustee is a person formally appointed usually by a Deed to manage property on behalf of a class of people called the “beneficiaries”.  This role comes with obligations and duties that the trustee owes to the beneficiaries.  The fundamental duty of a trustee is to adhere to the terms of the trust deed and they must act in the beneficiaries’ best interests at all times.  The key duties that a trustee owes are as follows:

1. Duty to preserve

Trustees hold trust property on behalf of the beneficiaries.  The property must be in their name as trustee so that it is in their control.  In cases of multiple trustees, the title of the property needs to be held in all names. 

The trustees have a duty to preserve that property.  Assets need to be adequately insured otherwise the trustee may be responsible for the replacement value of the property if it is stolen or damaged.  If monies are lent there needs to be adequate security.  Any debts should be paid promptly.  Assets should be maintained and repaired as needed.

Assets should be invested to preserve capital and earn income.

2. Duty to invest

Trustees have a duty to maximise the trust property, including investing the trust fund.  The trustee must exercise reasonable care and diligence and act the way an ordinary prudent businessperson would when managing their own affairs.

The trust deed itself will usually authorise a range of investments, otherwise, the authorised investments are governed by statute.  When considering the possible investments a trustee should consider:

  • The purpose of the trust;
  • The risks associated with certain investments;
  • The benefits of diversification;
  • Securing the best income return while ensuring the capital is maintained;
  • The needs of the beneficiaries.

3. Duty to account and provide information

Trustees have a duty to keep proper accounts.  The accounts should show the incoming and outgoing funds and be supported by receipts, invoices and any other documentation.  The accounts need to be up-to-date and accurate and any errors corrected as soon as they are found.  Generally trustees engage an agent to prepare the accounts and tax returns for the trust.

Beneficiaries have a right to request a copy of the accounts and they must be provided.  The trustee is entitled to be reimbursed for the reasonable costs of producing those accounts.  The trustees are also obliged to provide beneficiaries with full details of the trust fund, including particulars of the investment.

However, trustees are not obligated to provide their reasoning when they exercise discretion.  They do not need to provide minutes or any other notes.

4. Duty to act impartially

Trustees must act in the beneficiaries’ best interests, including present and future beneficiaries.  The interests of the beneficiaries must be balanced impartially when the trustee distributes income and capital.  A trustee cannot favour the interests of one beneficiary over the others.  When exercising their powers, a trustee must ensure that they act in good faith.

5. Duty to act personally

A trustee must act personally and cannot have someone make the decision for them, however, the trustee is able to obtain assistance, such as employing an accountant.  The trustee needs to be cautious of beneficiaries dictating how they are to exercise their decision to ensure they are making the decisions personally.     

There are circumstances where statute authorises the trustee to appoint a delegate, such as if they are incapacitated or absent from the jurisdiction.

6. Duty of undivided loyalty

The trustee has a duty of undivided loyalty to the beneficiaries.  They must avoid conflicts between the interests of the beneficiaries and their own interests.  If a conflict does arise then it is important that the beneficiaries are immediately informed.  The beneficiaries can give informed consent to the conflict if they agree to.

Trustees also cannot profit from the trust and cannot deal with trust property for their own benefit.  A trustee is able to receive remuneration for their role if allowed by the trust deed, as ordered by the Court or with the agreement of the beneficiaries.

7. Duty to act jointly

If there is more than one trustee appointed they must act unanimously unless otherwise stated in the trust deed.  This can cause difficulties where the trustees cannot agree.  Clauses should be inserted into the trust deed or the Will to minimise this risk arising, such as:

  • Stating that decisions can be made by way of majority;
  • Appointing an ‘umpire’ who can make a decision that is binding on all trustees or allowing one trustee to be able to make the decision;
  • Dispute resolution or arbitration clauses.

If you require further information regarding Estate Planning, please call us today on (07) 3839 7555.

Changes to Contracts – What will it cost you?

In the excitement of signing a contract for a new property, what happens if you later realise you need to make a change to the terms of the contract and it has already been signed? What will it cost you to make this change?

Why Amend a Contract?

Before a contract can be amended, you need to agree with the other parties’ reasons as to why the amendment is being made. Reasons being:

  • To fix an error, such as a spelling mistake;
  • To delete a term that the parties agree is no longer relevant;
  • To insert a detail which was omitted from the contract; or
  • Amend the purchase price of the property.

Considerations before Amending

It is essential that before any amendments are made to a contract that proper consideration is given to the suggested amendments, and the possible consequences of these changes in relation to the payment of transfer duty.

The Queensland Office of State Revenue (OSR) has released a series of rulings which determine the way in which transfer duty is assessed on varied agreements, and it is essential that you are aware of the potential consequences. Generally speaking, duty will be assessed on the amount stated in the contract, and a written agreement signed by the parties to the contract will be required if duty is to be assessed on a lower amount.

It is also important to consider that any incentives you insert into a contact, such as rental concessions or the inclusion of furniture for a separate fee, may be considered to be an additional part of the purchase price when assessing duty and duty may be assessed on a higher value.

Sometimes due to the nature of the amendment required it is not possible to amend the contract and it is necessary to end the existing contract and enter into a new one. This may be the case where an incorrect entity has been named on the contract, for example naming an individual as the purchaser rather than the trustee of a trust. In these circumstances it is necessary to enter into a deed of rescission, effectively cancelling the existing contract, and entering into a new contract.

Be aware that if the cancellation and entering into of the new agreement is deemed to be a resale agreement, duty will be payable on both contracts. A resale agreement occurs if the cancellation of the original contract results in you, or a related party, receives a financial benefit from the cancellation other than:

  • A release from the cancelled agreement; or
  • An interest in the property to the extent that the value of this interest does not represent a profit due to the resale agreement.

It is essential that you seek advice as to the proper process to ensure that you comply with the transfer duty requirements and do not become liable to pay more duty than what you have budgeted for.

Amending before signing

Whenever possible, it is best to review the contract and have any changes made to the contract before it is distributed for execution.

Sometimes this is not possible, such as when you are meet at the property to sign the contract and notice an error or change you wish to make to the printed contract. In these circumstances you can amend the contract by hand and initial the changes. These changes must then be initialed by the other parties to become binding. This is also a way which negotiations in price can be carried out when you make an offer by way of signed contract, with the parties hand amending a purchase price until a consensus is reached.

Amending after signing

Despite everyone’s best efforts, the reality is that sometimes errors remain unnoticed until the contract is fully signed, or event after the signing of the contract can necessitate changes. Depending on the nature of the amendment required, there are different methods which can be used to amend the contract.

In the case of minor amendments, such as a spelling error or missing words, the usual process is that the parties agree to amend the contract to correct these details. This is done by exchange of letters by the solicitors acting in the transaction, who then hand amend the contract.

One of the most common changes made to a contract is an adjustment to the purchase price in the event of an unsatisfactory building and pest inspection. Although you can request that a seller undertakes repairs to the property, another alternative is to request a variation to the purchase price so that you may undertake these works yourself.

For small variations to the purchase price, it is usual that by exchange of letter the parties agree to reduce the price by way of adjustment at settlement. In these situations, the contract is not physically amended, and the change is only reflected at settlement.

If there is a substantial variation to the contract, it is best to prepare a Deed of Variation detailing the change which is then signed by the parties. This deed is then read in conjunction with the contract, which when read together contain the agreement between the parties. If there is a substantial variation to the purchase price, it is best to prepare a Deed of Variation, as this will be required when calculating the transfer duty payable.

Take Aways

Although ideal to have a contract in perfect order before signing, this is not always possible. In the case that changes are required, there are several options open to you, but exactly how you amend the contract will depend on the substance of the amendments.

If you require further information regarding purchasing or selling property, please call us today on (07) 3839 7555.

Blockchain Technology and Commercial Contracts – A New Way Forward

Blockchain and Commercial Contracts

Many of our clients are familiar with the blockchain platform for property settlements called PEXA. This was created by the banks to ensure a cheaper more efficient way of having the existing mortgagee release their mortgage security and at the same time receive funds directly from the incoming lender as provider of the funds. Participating solicitors and the Department of Natural Resources Queensland are members and this allows for a seamless transaction through from signing the contract of Sale electronically, to lodging the Transfer documents online. The Office of State Revenue Queensland is not yet fully integrated but they allow a unique transaction number to be used in the workspace.

This is far more efficient, has security protocols that are rigorous and allows for a more efficient transaction for all parties.

Now we are looking at the next stage of blockchain technology and legal contracts. The future is here with the announcement this week of a new Digital Platform for settling Commercial contracts and exchange of payment.

A new platform called “Lygon” has started being used and utilised successfully to effect settlement of a Commercial agreement.

The move makes the first step to complete an alternative payment method in a commercial contract and represents a watershed moment for Australia’s legal profession.

The distributed ledger technology is just beginning and this will help to rapidly modernise and improve legal processes. Instead of wet signatures on paper documents exchanged in physical form, parties can now look to exchange funds for the on-line steps completed as part of a platform based system for commercial agreements.

Payment guarantees in commercial contracts have always been paper based which inevitably caused delays risks and inefficiency. The new “Lygon” platform, with the support of major banks and IBM blockchain technology will help parties to commercial contracts enjoy greater efficiency and security over guarantees.

The CEO of Lygon stated the usage of the platform offers major advantages to lawyers.

In February this year, Lygon created the first digital bank guarantee in the world, and it was also the first time blockchain had been used in the Australian banking sector in a live, real-world application for commercial contracts.

This is an exciting move forward in the use of blockchain and commercial agreements and it is clear we have only just begun exploring how widely it can be used by the legal services profession.

It is important to note that the engagement of the banking institutions to enable issue of a bank guarantee for fulfillment of commercial contract terms, is an exciting innovation and one we will watch closely.

It makes sense in the time of Bitcoin that we adapt and create new ways of commercial dealings that can be wholly conducted on line, without paper based documents and the old fashioned ways of wet sealed documents exchanged in hard copy.

Ask us how we use PEXA for all our property transactions and how it works to create efficiency and security, contact us today at tony.crilly@perspectivelaw.com or 07 3839 7555

Avoiding Estate Litigation – Why A Statutory Will Might Be Your Best Answer

About statutory wills

To put it simply, a statutory will is a Will or Codicil made by the Court on behalf of a person that lacks testamentary capacity.

The legal framework

In April 2006, Queensland introduced a statutory framework for the manner in which the Court may make a statutory will. An application, usually by a litigation guardian, on behalf of the adult is made to the Court under the provisions of the Succession Act 1981 (Qld).

The circumstances in which the Court may make an order are summarised as follows:

  1. The person must lack “testamentary capacity” and be alive when the order is made;
  2. The applicant is the appropriate person to seek the orders;
  3. Adequate steps have been taken to allow representation of other persons with a proper interest; 
  4. The proposed Will or Codicil, would have been made by the testator if the person had testamentary capacity; and
  5. The Court considers the proposed Will or Codicil is suitable.

However, it is only when an order for leave to proceed is made that the Court will proceed to hear the substantive application. The court must first be convinced the circumstances warrant such application.

There are a number of factors that the Court considers on the hearing of an application for leave. The full list is set out in the legislation. Some of the factors include evidence of the lack of testamentary capacity (and the likelihood of the person ever regaining capacity), the size and character of the estate, evidence of the person’s wishes and the likelihood of a family provision application (claims on the estate).

When should you consider making an application?  

The decision in Re APB, ex parte Sheehy [2017] QSC 201 is a great example of a situation when an application to the Court for a statutory Will should be made.

The case involved a 91 year old male, who had a very large estate.  The adult (referred to as APB in the judgment) held assets valued at approximately $70,000,000. He had a significant interest in a shopping centre which was operated under a joint venture agreement. He wanted the venture to continue after his death.

There were unusual circumstances leading up to the application, involving a number of people befriending the adult when he was vulnerable, with the intention of advancing their own interests. He was alienated from family and friends. There was also evidence of Will making without the requisite capacity.

The Court considered whether APB would make provision from his estate for those people. It also considered the amount of provision for his three children, their respective spouses and his grandson. 

Due to the complexity of the estate assets, including a property joint venture, there was an issue whether there should be one or two testamentary trusts established by the Will and who was to be appointed as trustee and executors.

The case shows, and it was recognised that, had these issues not been determined prior to the adult’s death, it is most likely that costly and complex litigation would have ensued. Both the adult and the parties were clearly better off resolving the issues before the courts whilst the adult was alive and to preserve and protect his assets.

Take away points

So, whilst some may feel daunted by the process of applying to the Court on behalf of a person without testamentary capacity, for an Order authorising a Will, it may save loss of potential assets and avoid disputes in the longer time.

This is particularly so in circumstances where there are multiple parties seeking to benefit from an estate, the nature of the assets are inherently complex and there is evidence of a lack of testamentary capacity.

If you would like to fund out more, please contact either Elizabeth Ulrick or Tony Crilly at Perspective Law on 07 3839 7555.

Tax and Duties of Executors and Trustees – Are you liable for tax?

Executors and Trustees are personally liable for the tax assessable on a trust estate, so it is critical that they be absolutely sure the extent of that tax liability. But how can you be sure? What action can you take? What forms of application can you make, to ensure you are protected as far as possible from future claims or a re-assessment?

The requirement of self-assessment puts much greater responsibility on taxpayers to ensure their income tax returns were correct before lodgement with the ATO. Much greater certainty about the ATO’s views on the technical enforcement of the tax law is necessary to protect yourself from strict liability. 

Consider firstly, what is “advice” in terms of a communication from the ATO? Advice consists of “public” and “private rulings, which are very different and have a weight that applies at public or private levels. public and private rulings are now ‘binding’ on the ATO and it is recommended that trustees obtain clarity using these.

Public Rulings  

Public rulings explain the application of the tax law to taxpayers generally (for example Taxation Rulings and Determinations), a class of taxpayers (Class Rulings) or a particular arrangement (Product Rulings). These apply particular sections of the legislation in detailed factual circumstances, to confirm a binding position taken by the ATO regarding assessments.

A public ruling provides protection until it is withdrawn, or when it specifies that it ceases to apply.

You don’t need to know of the existence of a public ruling to rely on it.

What are not Public Rulings?

The Income Tax (IT) and Capital Gains Tax (CGT) Determination series which were published prior to 1 July 1992 when the legislative framework for public rulings was established, are not legally binding on the Commissioner. Income Tax Ruling IT2622 (about present entitlement during the stages of administration of deceased estates)  is of particular importance in this regard. The Commissioner will treat these determinations as “administratively binding”.

A draft public ruling is a document that sets out the Commissioner’s preliminary view about the way in which a relevant provision applies. This means that reliance on a statement in a draft ruling provides the same level of protection as ‘guidance’ (penalty and interest protection). 

In the context of deceased estates and trusts , rulings within this category include TR 2004/D25 (about absolute entitlement) and TR 2010/D1 about the meaning of income of a trust estate.       

Private Rulings

In the absence of a binding ATO position, a trustee or executor might apply for a private ruling from the ATO. This gives the person certainty about how the facts will be applied to the law and assessment made, rather than assuming a position which could be open to interpretation. No one  wants a nasty surprise by way of a re-assessment long after the estate assets have been distributed.

The ATO is bound to follow a private ruling on which the rule relies. This is unless a section of the Act, is repealed or amended to have a different effect, or a Court makes a judgment that takes a view about the section that is more favourable to the rule.

A ruling assists in deciding whether the taxpayer has taken reasonable care when determining penalties. Be careful not  to rely on views  in edited versions of private rulings  published on the ATO  Legal Database.  The devil is always in the detail.

A private ruling  provides protection to the taxpayer it is issued to and only for the tax years covered. (There is an exception where a trustee obtains a private ruling in relation to a trust. In that case, the private ruling will apply to the beneficiaries of the trust (other than an indirect tax or excise ruling) and to any trustee that replaces the applicant trustee, for as long as the ruling remains current.

An edited version reflects the law (and the Commissioner’s view of the law) at the time it was issued – so it is very important to check if either have changed since the ruling was published.

For example, there are issues about the application of the complex partial main residence exemption provisions. For executors who are risk averse, we would suggest that they obtain a private ruling.

What can a ruling be about?

A private ruling can cover anything involved in the application of a relevant tax law, including issues relating to:

  1. Liability for tax;
  2. Administration;
  3. procedure and collection;
  4. ultimate conclusions of fact (such as residency status);
  5. Status to apply for a private ruling:

You can apply for a private ruling about:

  1. your own affairs
  2. the affairs of another entity (including a person) if you’re their agent or legal personal representative (LPR).

Various private ruling application forms together with instructions are available on the ATO website. The person applying for the ruling must indicate whether or not they will include detailed reasoning to support their application and should do so to support their case. An application must contain a full description of all relevant facts and circumstances.

The website also lists supporting information that should accompany private ruling applications on particular topics (including for example, those about death benefits, child maintenance trusts and capital gains for deceased estates).

A word of warning trustees must note carefully. The ATO will not be bound by a private ruling if you do not provide all material facts or the scheme which the ATO has ruled upon is not implemented in the way set out in the ruling.

Refusal to rule

The ATO may decline to give a private ruling in some circumstances, including if:

the making of the ruling would prejudice or unduly restrict the administration of the law – for example:

  1. the application is frivolous or vexatious;
  2. the arrangement is not seriously contemplated;
  3. making the ruling would not have any practical consequences – (e.g. the transaction in question occurred in the past and the amendment period has expired).
  4. the issue has been, or is being considered  – (e.g. in an audit relating to the particular question);
  5. the taxpayer has made an objection on the same matter;
  6. information requested by the ATO was not provided in a reasonable time;
  7. the ATO exercises a particular power available under the law, rather than provide advice on how that power would be exercised, (e.g. you should normally ask the Commissioner for an extension of time to lodge a form rather than seeking a ruling on the issue).
  8. the ATO considers that the correctness of a private ruling will depend on certain assumptions and it chooses not to make a ruling subject to those assumptions; (go figure!)
  9. you decline to pay the cost of obtaining an accurate valuation required for the ruling.

So consider these possible opportunities to clarify and obtain certainty as a trustee or executor in any potential tax liabilities. In some cases taxpayers have looked back over many years and raised concerns about historical tax returns and to ensure they will not be assessed at any future time, they lodge a voluntary submission for assessment. If the ATO decides there is nothing to assess then the trustee will be relatively insulated from any further re-assessments.

If we can assist with the estate administration and work with your accountant to ensure certainty for you as the “at risk” trustee or executor, please give us a call on (07) 3839 7555.

Consider your Insurance requirements before you enter into a Contract to Purchase

The Risk of a residential Property passes to a Purchaser one Business day after the contract date.

When a purchaser enters into a contract to purchase a residential property in Queensland it is a standard term of the contract that the property is at the buyers Risk from 5.00 pm on the next business day after the contract date.

What Insurance should the buyer obtain?

For the standard standalone dwelling the buyer should obtain Building insurance, contents insurance and public liability cover.  Should a claim arise during the period between contract and settlement insurance companies are aware of these standard conditions in the contract and will rely upon these contract terms if they are entitled to do so.

Contents Insurance

A common misconception by buyers is that they do not have any of their possessions in the residence before settlement and therefore there is no need for contents insurance. The contents insurance is an important aspect of the insurance requirements as most building insurance policies will not cover any damage caused to the internal part of the dwelling due an insurable event (i.e. storm damage to the internal fixtures and fittings such as curtains, shutters, blinds, stoves, fridges, microwave, washing machines, dryers, built in BBQ, exhaust and fans). These items are normally covered by a contents policy.

Body Corporate Contracts

Though there are a few exceptions, the Body corporate normally has a Building insurance policy for the complex and the building is covered under the Body Corporate policy. The internal area of each lot is therefore the responsibility of the lot owner or buyer under a contract of sale and contents and public liability insurance should be arranged with respect to the property within the time frames as set out above.

When insuring your unit you must also consider whether your policy covers any escape from your unit (i.e. water leaks) that may damage other units and whether your policy covers this eventuality in the event the Body Corporate insurer declines to cover the event or whether the assistance of an insurance broker to ensure you are fully covered should be considered.

When do you think about insurance?

Think about your insurance requirements before you enter into a contract to purchase.

The above examples are the standard considerations that a buyer must take into account when arranging insurance after signing a contract, however not all properties or situations are the same and the short time frame from the contract date to the time risk passes to a buyer can leave buyers limited opportunity to secure insurance if the property they are intending to purchase is outside the standard or if there are other circumstances which may affect their ability to obtain insurance; for example:

  1. Is the proposed purchase price in excess of the upper limit of cover offered by some insurance companies – do you need specialist assistance?
  2. Is there a natural event imminent that would cause insurance companies to decline offering insurance i.e. Cyclone warnings;
  3. Is there something particular about the property you are purchasing that would require specialised insurance assistance.

Should the Seller continue their Insurance Policies until settlement?

The simple answer is yes. The property is still your property until settlement has been completed and there are a variety of events that can take place which can prevent completion of the sale, even after the contract goes unconditional.  A seller should always ensure that their position is protected and not rely on the buyers to adequately insure their property.

If you require further information regarding purchasing property, please do not hesitate to call us and talk through any of these issues on (07) 3839 7555.

Changes to QLD’s Enduring Power of Attorneys and Advance Health Directives

On 30 November 2020 new forms for Enduring Powers of Attorney (“EPAs”) and Advance Health Directives (“AHDs”) were introduced by the Queensland Government.  These new forms are mandatory and the previous forms can no longer be used

EPAs are one of the most important documents a person can sign.  By executing an EPA, you are giving someone the power to make decisions on your behalf in relation to personal/health matters and financial affairs.  An AHD is an additional document which enables you to give someone power in relation to your future health care.  We provide further information regarding EPAs here https://crillylaw.blog/2021/02/01/what-is-an-enduring-power-of-attorney-and-why-is-it-necessary/ and AHDs here https://crillylaw.blog/2021/02/09/advance-health-directive-benefits-to-you-and-your-family/.

The key changes to EPAs and AHDs include:

  • Explanatory Guidelines have been released for each form.  It is important to review these Guidelines as you complete the EPA and AHD;
  • You are now able to state your views, wishes and preferences.  These are not binding on the attorney, however, your attorneys are required to consider your views when exercising their power.  For example, you could specify the area where you wish to live or religious concerns. You are still able to set terms for your attorneys which are binding and must be followed; 
  • You can nominate persons who your attorneys must notify when exercising their powers, what information they need to provide and when.  For example, you may wish for your attorneys to let family members or other attorneys know when they are about to begin exercising their power;
  • In your AHD you can give specific instructions about blood transfusions;
  • The witness to your EPA must certify that you are capable of making the EPA freely and voluntarily.  This is in addition to the prior requirement that the witness be satisfied that you are capable of understanding the nature and effect of the EPA. This change is to ensure that you are not being pressured into making the document;
  • Capacity Assessment Guidelines have been introduced which emphasise the presumption that an adult has capacity and that attorneys need to take into account their human rights.  The guidelines can be used to determine whether the power has commenced or the support that the adult needs;
  • Your attorneys cannot enter into conflict transactions unless authorised by the principal or the Court.  A conflict transaction occurs where there is a breach between an attorney’s duty to you and their own interests.  An example is where spouses own property jointly which needs to be used for the sole benefit of only one spouse. Authorisation can be obtained retrospectively, however, the attorney would be in breach of their obligation until authorisation is obtained.  Conflict transaction clauses should be drafted carefully and limited to particular transactions where possible;
  • EPAs made interstate and in New Zealand under Queensland legislation will be recognised in Queensland;
  • There are additional eligibility requirements.  For EPAs, the attorney must have capacity and must not have been a paid carer for the principal for three years prior to their appointment.  For AHDs, an eligible attorney must not be a service provider for a residential service where the principal resides.

Although it is possible to download the forms and complete at home, it is always recommended to obtain legal advice.  EPAs have the ability to extend to superannuation, companies and family trusts.  It is vital that they contain terms, powers and limitations as appropriate to each individual and their particular circumstances.

If we can assist with preparing your EPA, AHD or any other aspect of your estate plan, please call Tony or Lauren on 07 3317 4313. Otherwise you can go to our website at any time and click “Start your estate plan Now”.

Joint Tenants or Tenants in Common – How it will impact your ownership rights

If you are considering purchasing a property with another person, it is important that you understand how you will own that land. When more than one buyer is involved, you will have the option to elect to be either joint tenants or tenants in common.

Though these terms may sound similar, each of these agreements confer different rights and interests upon owners. Regardless of whether you are buying property with a partner, family member or friend, determining which type of ownership is right for you before purchasing property can prevent substantial legal and financial difficulty in the long run.

It is critical that you decide how to hold the property before you sign a contract, as any change can incur further stamp duty at the normal rates. It is possible to transfer from one name into joint names as spouse and it will be exempt from stamp duty. However, the same opportunity to does not apply to the reverse for a transfer from joint names into one name only. You might do this for asset protection purposes because that person is at risk of creditors in a trading company.

The Differences between Joint Tenancy and Tenants in Common

Joint tenancy is where two or more people jointly and equally own property together rather than a quantified share of it. At law, joint tenants are recognised as the single owner of the property. This type of arrangement is common between married or long-term couples.

As it is not possible to separate each tenant’s share, there are limited circumstances in which joint tenancy agreements can come to an end. Such circumstances include but are not limited to where the property is sold to a third party, or where one joint tenant transfers their interest in the property to another person. On the death of one joint tenant, the property “vests” automatically in the surviving person. All that is required is to record the death on title and the property will be in the sole name of the survivor. This is an important step as you cannot sell the property unless and until it is in the correct name.

In contrast, tenants in common own separate and distinct shares of a single property.  These shares may be equal or unequal. For example, one tenant in common may own a 10% share of the property, while the other owns the remaining 90%. These shares may be disposed of as each owner chooses. Though each owner will own a portion share of the property, the land is not physically divided between them. Rather, each tenant in common is entitled to full physical possession of the land.

However, the key difference between these arrangements concerns what happens to the property after one owner passes away. In this situation, if a property is owned by joint tenants, the deceased’s interest in the property is transferred to the surviving tenants. The property does not become an asset of the deceased’s estate. This is called the “right of survivorship”.

In a tenant in common arrangement however, no such right of survivorship exists. Instead, the property will become an asset of the deceased’s estate. As a result, the deceased owner’s share must be transferred only to the beneficiary of the estate or be otherwise dealt with by the estate’s legal representative.

Due to these essential differences in your rights as owner, it is important to ensure you enter into the ownership arrangement that is right for you.

At Perspective Law, we can assist you to evaluate your circumstances and make sure that you are entering an arrangement tailored to your needs. Should you be interested in our advice or more information, please contact us for an obligation free discussion (07) 3839 7555.