Business Succession and Company Structure

We are often asked to review, the corporate structure of a client, with a view to preparing for a sale. This can be as part of a wider succession strategy when a client wants to wind down and retire.

The key is lots of forward planning, especially consideration of the tax and practical consequences, well before listing for sale.

Frequently, clients need to separate the risks in the business and prepare a structure so that is more easily acquired by a third party.

An example of this is introducing an interposed Holding Company.

The main purpose of a holding company, is to secure the key assets, such as intellectual property (trademarks, patents, domains), key equipment and cash. These are the key assets that you may want to protect from unexpected liabilities and legal claims.

An operating company typically conducts all of the sales, has the business liabilities and contracts with customers, suppliers, employees and lenders.

A third party looking to buy the key assets, may not be interested in assuming the current or historical liability for business trading activity over a number of years conducted by the subsidiary operating company.

If you are looking at selling down the business, we recommend getting strategic legal and accounting advice well prior to offering the assets for sale. Call us now and ask us how. Tony.Crilly@Perspectivelaw.com 07 3839 7555

Terms Sheets

Business Sales – why a Terms Sheet counts

When it comes to selling a business, the precise details of negotiations between a buyer and a seller presents numerous challenges. Before starting to draft any formal legal documents, it is best to prepare a term sheet that reflects all the most important parts of the deal. Terms Sheets must state as precisely and simply as possible the fundamental terms (such as price) and conditions (such as due diligence) of a sale and will act as a touchstone throughout all further negotiations. By clearly stating the basic terms, the parties can get on and negotiate the finer legal points of a formal contract with confidence there is mutual agreement to buy and sell. Inevitably, there is a process of push and pull regarding the finer points of a contract, but by having a signed Terms Sheet defining the fundamentals, parties are more likely to avoid disputes.

What is a Term Sheet?

A term sheet is a non-binding document that outlines the terms and conditions of a potential business transaction. It is usually signed early in the phases of sale negotiations and serves as a starting point for more detailed legal agreements to be prepared and signed later.

A term sheet is a document that outlines the terms and conditions of a proposed business sale, whether it is in the form of an asset sale or a share sale. Very different considerations apply for each and it is critical that key conditions are identified at the outset. This might be how to deal with work in progress, earn out of future contract profit, or payment of dividends prior to the date for completion. A Terms Sheet is not legally binding for an absolute sale, but it is binding in terms of confidentiality and exclusivity in dealing with the other party.

It serves as a starting point for negotiations and can be used as a backup reference point during the due diligence process, when a buyer is checking the details of the business or company.

Term sheets typically include details on the purchase price, financing, governance, and other important terms of the transaction, such as profit multiples. Terms Sheets can be used in many different types of business transactions, including mergers of companies, acquisitions of smaller companies, and investments in shares in a trading company.

Why are Term Sheets Necessary for the Sale of a Business?

There are many reasons why term sheets are necessary for the sale of a business:

1. TO PROVIDE A CLEAR UNDERSTANDING OF THE TRANSACTION:

By specifying all the fundamental details of the transaction, including the purchase price, payment terms, completion date, and any conditions that need to be met before a final agreement is reached. This helps both parties have a clear understanding of what is expected of them and helps avoid misunderstandings or legal disputes later.

• TO SAVE TIME AND MONEY:

Negotiating the terms of a business sale can be a time-consuming and expensive process as it is very resource-intensive and requires legal, accounting, lending time and expertise. A term sheet allows both parties to discuss quickly and efficiently the key terms of the transaction and reach a point where the balance of the terms between buyer and seller are agreed to be mutually beneficial as recorded in the agreement. It helps to clearly define the terms of the deal upfront, which can help to avoid lengthy and costly legal negotiations later.

3. HELP TO PROTECT BOTH PARTIES:
   Serves as a legal document that can be used to protect the interests of both the seller and the buyer in the event of a dispute. A term sheet can include provisions that protect both the buyer and seller, such as confidentiality clauses and exclusivity provisions. It clearly outlines the terms and conditions of the sale, including any warranties or indemnities that may be included.

Finance and Tax Considerations

One of the most important considerations in any business deal is the financial requirement to fund the purchase price as well as any adjustments or expenses required in the transfer of ownership. Term sheets will often include details on the purchase price, financing arrangements, and any conditions that may affect the final price.

It’s important to carefully review and understand the financial terms of a term sheet, as they can have significant implications for the buyer or seller. For example, the purchase price may be structured as a combination of cash, debt, and equity plus post-sale consulting expenses, or it may include contingencies such as earn-out provisions that could affect the final price.

Tax considerations are also an important part of any business deal, and term sheets should include details on how taxes will be handled or adjusted between the parties as part of the transaction. This may include information on the tax implications for the buyer and seller, as well as any GST considerations as a going concern, tax credits, or incentives that may be available.

Inclusions and Conduct

Term sheets may also include provisions related to physical assets such as vehicles, stock, plants, fixtures, and fittings. These are important considerations, as they can have a significant impact on the value of the business. For example, if a business includes valuable manufacturing equipment or unique technology created by the seller, this could be a major selling point for the buyer and should be included on the term sheet.

In addition to physical assets, term sheets may also include provisions related to the conduct of the business and parties involved during the negotiation and due diligence processes. This may include restrictions on the seller’s ability to take on new debt or make significant changes to the business during this time.

Due Diligence and Legal Considerations

Due diligence is the process of thoroughly researching and evaluating a business before entering a contract. It’s an important step in the term sheet process, as it helps ensure that both parties have a clear understanding of the risks and opportunities associated with the transaction.

During the due diligence process, buyers typically review a variety of documents and perform various analyses to assess the financial health, legal status, and overall viability of the business. This may include reviewing financial statements, contracts, trademarks, business names, logos, patents, and other legal registrations.

In addition to financial and legal due diligence, term sheets may also include provisions related to liquor licences, intellectual property, and restraint of trade to be imposed after completion on the individual Directors. For example, the term sheet may specify which intellectual property assets will be transferred as part of the deal or outline any restrictions on the use of the business’s trade names or brands.

Checklist for the Sale or Purchase of Shares

If you are considering the sale or purchase of shares in a business, there are a few key points you should consider before signing any document:

1. Price: The price for the shares or assets being sold or purchased should be clearly stated in the term sheet. This can include the total purchase price, as well as any payment terms or contingencies.
2. Ownership and control: The term sheet should outline the percentage of ownership and control the buyer will have over the shares of the company after the transaction is completed.
3. Management and employment: It’s important to clarify any changes to management and the employment of key staff or Directors that will result from the sale or purchase of shares.
4. Liabilities and warranties: The term sheet should outline any liabilities or warranties that are assumed by the buyer or seller because of the transaction.
5. Closing conditions: The term sheet should specify any conditions prior to completion that must be met before the transaction can be finalised and the balance purchase price paid. These can include regulatory approvals, financing arrangements, and other contingencies.

Think carefully before you sign and always get legal advice before you do. There may be binding obligations, such as confidentiality, non-compete, or exclusive dealing clauses, that will be enforceable against you.

Call us now and ask us how to best draft a Terms Sheet that suits your circumstances.

Contact Tony.Crilly@Perspectivelaw.com or call 07 3839 7555.

If there is one thing we know for certain, it is that the property market in Queensland is booming. As a result of this increase in Buyers, we have seen an increased election by Sellers to try their luck at auction. Whilst an auction can (and usually is) a thrilling event to attend, the process is very different to your standard property purchase process (inspection, offer, contract).

Below are 6 tips to help you navigate your way through buying real estate at an auction.

1. Do your Research

The most important thing to remember is once the hammer falls, you are locked into an unconditional contract (more about that below). You want to make sure that what you are buying is actually what you are getting.  Some big-ticket items worth considering are: zoning, similar property sales in the area, local government overlays and flooding and school districts. A lawyer will be critical at the pre-auction stage to assist with your due diligence investigations. 

2. Understanding your rights

The key point to remember when purchasing at auction is that the contract will be unconditional. This means that not only should you consider the financial implications of an auction purchase carefully, but you should conduct all your due diligence searches and building and pest inspections prior to attending on Auction day. Another critical point is that auction contracts do not offer the protection of a cooling-off period. This means you will have to settle even if you change your mind within 24 hours. You must also bear in mind that even if you enter a private treaty contract within 2 business days of an unsuccessful auction of that property, cooling off period still does not apply.

3. Obligations regarding deposit

Items of import to confirm prior to bidding would be the deposit amount (is it a percentage of the winning bid or a fixed amount) and the timing of payment. Non-payment of a deposit by the due date, is a breach of the contract and can have serious implications. You want to ensure before committing yourself at auction, that you can meet the financial obligation when it falls due. It would also be prudent if the deposit is a large sum whether your bank will allow the transfer by EFT in one sum, or whether you will need a few days to make the payment. The deposit is not deemed paid until the entire sum is received by the deposit holder.

4. Buying without a finance clause

As mentioned, the auction contracts are unconditional which means you do not have the benefit of a finance clause. We recommend obtaining a pre-approval with your bank and even sending them a copy of the draft auction contract prior to attending. Other steps you can take might include arranging a property valuation prior to attending so you have a better estimate of the funds the bank might be willing to lend. Short of these steps, you would want to ensure that you are comfortable with the amount you are able to spend prior to attending and to stick to that amount. All too often an over eagerness to “win” at auction, can mean you lose in the long run if you over commit financially, and can’t arrange the finance come settlement day.

5. Check the contract

At the inspection of the property, the agent will have a contract available that will become the Auction contract if the property sells. Prior to attending an auction, it is prudent to have a solicitor check over the contract which can be done by simply requesting a copy from the agent beforehand. There is limited scope to negotiate on an auction contract. You should also confirm with the auctioneer if any last-minute changes have been made to the contract prior to bidding (although they should announce this to you when the auction commences).

If you are attending an auction, contact tony.crilly@PerspectiveLaw.com  to assist with your pre-auction needs to help make sure you are ready and confident come the big day.

Have you been nominated as an executor or are the next of kin for someone who has died without a valid Will? Did you know that, during his or her lifetime, they had a significant amount of debt? Are you concerned whether there are enough assets to repay the debt?

Before you take any steps in the estate administration, it is important to understand the key parts to administering an insolvent estate. (In this blog, the role of the executor or administration is collectively referred to as “the legal personal representative”). 

What is an insolvent estate?

A deceased estate is insolvent when there are insufficient assets to pay the liabilities of the estate.

In Queensland, an insolvent estate can be administered either under s s57 of the Succession Act 1981 (Qld) (“Succession Act”) or Part XI of the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”).

An insolvent estate will be administered under the Bankruptcy Act if there are debts of $10,000 or more (the current statutory minimum for petitioning bankruptcy) and the legal personal representative or a creditor seeks a sequestration order. In this case, the legal personal representative or the creditor can seek to have a trustee in bankruptcy appointed to administer the estate.

There are consequences for the legal personal representative failing to comply with the provisions of the Bankruptcy Act. For example, if the legal personal representative attends to payment or transfer of property of a deceased person after service of the petition for the sequestration order, he or she may be personally liable to the trustee in bankruptcy.

Further, it is an offence for the legal personal representative not to provide the Court and others with information regarding the personal affairs of the deceased and details of the estate administration.

Payment of debts in an insolvent estate

There are differences between administering an insolvent estate under the Bankruptcy Act or the Succession Act.

For example, under the Succession Act, the payment of funeral, testamentary and administration expenses take priority. Whereas, under the Bankruptcy Act, there are numerous other payments that are prioritised before the payment of estate expenses. A spouse must be careful of incurring debt for the deceased for estate expenses, as the trustee in bankruptcy will review and may reject them.

There are also provisions within the Bankruptcy Act to ‘claw back’ some transactions which occurred up to six months before the petition was presented. The Succession Act does not afford the legal personal representative the benefits in these provisions.

The Succession Act otherwise provides that the rules of bankruptcy apply with respect to the administration of insolvent estates.

Life insurance proceeds

If the assets of the deceased estate include life insurance proceeds, superannuation benefits and damages for personal injury, these are not liable to be applied or made available in payment of the deceased person’s debts. However, cases suggest that these assets may be applied towards debts arising out of the administration of the estate or debts personal to the legal personal representative.

Key points

If you are the legal personal representative of a deceased estate, then it is important to seek legal advice before taking any steps in the estate administration.

It is often recommended that the legal personal representative seeks an order for the administration of a deceased insolvent estate to the Federal Circuit Court or the Federal Court.

The legal personal representative should refrain from obtaining a Grant of Probate or Letters of Administration with/without the Will, as they may incur personal liability in circumstances where the deceased died with tax debts.

If you would like to speak with us about the administration of an insolvent or solvent estate, please contact Tony Crilly or Elizabeth Ulrick of our office on 07 3839 7555 or email us at info@perspectivelaw.com.

Buying a business can be an overwhelming event for both the Buyer and the Seller and the opportunity to buy or sell at a price might seem simply too good to pass up. For this reason, many Seller or Buyer seek to jump into a contract too quickly, often without considering the fundamental aspects of the Business.

If issues are discovered after signing, it may lead to a substantial increase in legal fees to negotiate and to amend the contract. In a worse scenario, it may lead to a party being bound to complete a contract at a significant financial disadvantage.

Speaking to a lawyer before signing a business contract is always preferred, especially in Queensland where the agreement is not a REIQ contract. However, there are some key areas in which you should ensure mutual understanding with the other party, before signing a Contract.

1. Correct Entity Details

This is not always obvious, as either party may be unaware of the actual buying entity to begin with. Both parties will need to be sure that the correct entity is stated in the contract. For instance, is the Seller as owner of the business an individual, a trustee, an estate, a partnership, or a company? The Seller should be clear on the exact entity that owns the business name and assets, as the contract terms require the Seller to warrant that they have the ability to sell the assets.

Speaking to your accountant to ensure all entity details are correct is crucial.

2. Purchase Price

The Purchase Price is also not as obvious as it appears. If the Buyer and Seller agree about the Purchase Price (and the deposit), consider is the price to be paid at the Completion Date, or in instalments? Does the Purchase Price include the stock, or will that be assessed before completion and be added onto the price? Is there an earn out of pending contracts part of the sale price, meaning if they are not achieved is there an adjustment to the Price? All these issues should be clarified between the parties before the entering the agreement.

3. Key Dates and obligations leading up to Completion

The obligations between the parties in a Business Contract will differ on a case-to-case basis but can include negotiations on:

• a Buyer’s finance condition.
• a Buyer’s requirement to review the books and financial records of the business.
• a tuition period by the Seller prior to or after completion.
• due diligence searches to the buyer’s satisfaction of the business and assets.
• if there is a lease, the terms of the current lease.
• reviewing the list of business employees and their existing entitlements; and
• reviewing the list of plant & equipment to be included in the business sale (and what is being excluded).

The parties will need to agree on a reasonable date for confirming each condition, as well as the Completion Date.

4. Post Completion Obligations

The parties may also agree on further obligations after Completion, including the requirement by the Seller to assist in the Business (usually unpaid, but sometimes as a paid consultant) for a set period. The Seller should ensure that reasonable terms for the assistance (such as a maximum number of hours of assistance per day or week) whether by phone or in person are specified.

The Buyer and the Seller should also agree going into the Contract, the details of a restriction on the Seller after completion of competition, preferably by customers, suppliers, the area from the Business and the period.

These steps should be considered by both parties and discussed before a business contract is prepared or signed. If a contract is already prepared, to ensure that all terms between parties or the terms represented by the Seller or the agent are in included the contract, we recommend that you seek a review of the Contract by a qualified lawyer.

If you would like to speak with us about entering a business contract, please contract Tony or Jake our office on 07 3839 7555 or email us info@perstivelaw.com .

Quite often a client will come to us and say they have heard about a Will that provides for a ‘testamentary discretionary trust’ and they want to know if it is necessary and what it means.  This blog answers the seven main questions we are asked about testamentary discretionary trusts.

1. What is a testamentary discretionary trust?

A testamentary discretionary trust is simply a trust which is established in a Will.  The beneficiaries receive their estate distribution on the terms of a trust rather than in their personal name. 

The trustee has the day-to-day control of the trust.  An independent trustee can be appointed or the Primary Beneficiary can be the trustee of their own trust, either on their own or jointly with another person.  

There are two main benefits:

• Asset protection
  • A beneficiary does not own the assets in a testamentary trust which means that creditors will generally not be able to access the assets of the trust;
  • An independent trustee can be appointed if the assets are at risk, such as through the beneficiary suffering from a gambling problem or drug dependency;
  • The trust can offer protection from a family law breakdown;
  • The trust can be drafted such that a person is deemed ineligible to act as trustee if they are declared bankrupt;
  • To best safeguard assets, a will-maker might consider appointing two trustees and two appointors.

• Taxation advantages including:
  • Minor beneficiaries are taxed at normal adult rates on excepted trust income rather than at the penalty rates that usually apply to minors.  Income earned on assets forming part of the trust will generally be ‘excepted trust income’;
  • The trust can be used to stream different categories of income to different beneficiaries;
  • Income can be distributed to beneficiaries whose marginal taxation rate is low;
  • The class of beneficiaries can include tax-exempt entities.

The trustee can remain in place for up to 80 years or earlier if the trustee decides to vest the trust.

2. Do I need to set it up now?

The terms of the trust form part of the Will.  However, the testamentary trust only comes into operation after the testator’s death.  After signing the Will no further steps need to be taken until the testator dies.

3. What are the ongoing costs of the trust?

The trust will need a tax file number and tax returns will need to be lodged each financial year.  There can be associated accounting costs.

4. Is my estate large enough to warrant setting up a trust?

Regardless of the size of the estate, the trust still offers asset protection and tax advantages.  As long as the ongoing costs of the trust are not disproportionate to the benefit and your assets form part of your estate (property held as joint tenants and assets held by a family trust for example for not form part of your estate) the trust can be advantageous.

It is also possible to give beneficiaries (once they have reached the preservation age) the option of whether they take their distribution personally or on the terms of the testamentary discretionary trust.

5. Will the trust make it complicated for my Executors?

The trust does not need to be complicated.  At Perspective Law we take the time during the estate planning process to ensure our clients understand the terms of the trust and that it upholds their wishes.  We also assist beneficiaries of deceased estate and can provide guidance in relation to the setting up of the testamentary trust, including referrals to accountants or financial advisers.

Most of our clients feel at ease after completing their estate plan and knowing their Will reflects their wishes and provides tax advantages and asset protection for their beneficiaries.

6. Is the cost of preparing the Will worth it?

The cost of drafting a Will which includes testamentary discretionary trust is more expensive than the cost of a simple Will.  However, the testamentary trust can result in significant tax savings for your beneficiaries.  The asset protection also makes the Will an investment.  If, for example, estate assets are distributed to a beneficiary in their personal name and they have been declared bankrupt, the assets will vest in the bankruptcy trustee.  This alone makes the Will worthwhile.

7. I already have a family trust – can I just use that?

It is possible to name family trusts as a beneficiary of the estate.  However, assets that pass into a testamentary trust are subject to a much lower tax rate.  Entitlement to concessional rates of tax will generally be limited to income from the transferred assets and not from assets subsequently acquired.  This is different to a testamentary trust where all the income of the trust estate can be taxed concessionally.

Other considerations include:

• The vesting date of the family trust will be sooner than the possible vesting date of any testamentary trust as the trust does not come into operation until the testator’s death;
• There can be uncertainty around the control of the family trust at the time of death;
• Alternatively, the family trust can be an eligible beneficiary of a testamentary trust and distributions can be made to the family trust from the testamentary trust.

To discuss further, call Lauren Nolan now or email us at lauren.nolan@perspectivelaw.com

In the Queensland property market, solicitors are often an afterthought when it comes to commencing the sale or purchase of a residential property. Unfortunately, by the time “legal” gets subbed into the game, the agent has already scored straight down the middle with the contract signed sealed and ready to be delivered. The result can often be problematic, particularly if you are dealing with a more complex transaction.

An issue that comes up more often, is having the correct name on the contract.  Often, this is due to a fundamental misunderstanding of the process and the importance of having this decision made prior to signing. The liability for stamp duty attaches to the entity from the time the contract is signed (not when the contract goes unconditional, or when it settles). Particularly for buyers, once the contract is in place, varying the purchasing entity can have adverse implications for stamp duty (read here: doubly duty). Should you find yourself in a situation, during the contract, where you advise that the name on the contract needs to be changed as “it was always meant to be purchased in the trust, but the seller said we needed to sign urgently and the trust wasn’t set up yet”, careful consideration is required.  

The most important thing to do in this situation is to act promptly. Depending on how much time has passed since the matters genesis, and the severity of the change required, you may be able to withdraw from the contract under the cooling off period. This carries the risk of the seller requiring a termination penalty so may not be desirable in all circumstances. The most common course of action however,  while the contract is unconditional, will be to make a request with the other side to enter into a deed of rescission. This secures the property, while the correct contract is drawn up and executed by the (correct) parties. 

The problem with this approach is that it relies strictly on mutual agreement between the parties. In a Sellers’ market, this approach is not always successful. If the seller refuses, and the contract is unconditional, the buyers have no choice but to complete the purchase or risk losing their deposit.

How can this issue be avoided you might ask and I offer three words: Review, Collaboration and Education.

First and foremost contract reviews. This is the most obvious route to success as it allows the solicitor to pick up the omission or error before it becomes a problem.

Collaboration, with agents, clients, the accountant and (the other side to the extent permitted by law) to ensure everyone is engaged once the issue arises. Often dealing directly with the agent at the outset to clarify entity with them, goes a long way towards securing a successful outcome. The agent is the indispensable connector, they are the go between for the buyer and seller and often have a better relationship with both parties. They also have a vested interest in a successful outcome.  Collaboration is also important with client and lawyer. Discussing the issues with the purchaser directly so they understand exactly the stamp duty issues as they arise (and before they become disastrous), can often lead to a more thorough, considered and effective solution.

Finally education. Advising the agent early first and foremost is so important. It is usually an agent who will prepare the contract, so giving clarity to an agent as to stating the correct purchaser is critical and helps a long way in preventing a ‘repeat’.  The value of having a solicitor review the contract prior to signing cannot be understated.

Please contact our office today to speak with Katherine Blood on 07 3839 7555 if you wish to discuss your contract or via Katherine.Blood@Perspectivelaw.com

As land tax can be a significant expense for investment property owners, when considering a lease, it will be of interest for both the potential lessor and the tenant whether the land tax can be recovered from the tenant as an outgoing.

The following chart lists a simplified set of questions and outcomes for landlords and tenants to consider when looking at land tax.

A. Residential or Retail Leases

Tenants in a retail shop lease cannot be required to provide land tax by the landlord. While landlord’s outgoings can be recovered in retail shop leases, clause 7(3) of the Retail Shop Leases Act 1994 (Qld), specifies that land tax cannot be included as a recoverable outgoing.

In residential leases, the Lessor must pay all charges, levies, premiums, rates or taxes for the premises, which includes council rates and land taxes, per clause 163 of the Residential Tenancies and Rooming Accommodating Act 2008 (Qld).

B. Leases that commenced between 1 January 1992 to 30 June 2009.

Commercial leases that commenced during the period between 1 January 1992 and 30 June 2009 cannot recover land tax from the tenants, even if there are provisions in the lease that allows for it.

However, per the decision in Vikpro Pty Ltd v Wyuna Court Pty Ltd [2016] QCA 225 in leases that commenced during this period, with land tax arising on or after 30 June 2010 which has: –

• already been paid by the tenant, then that amount can be retained by the landlord and the tenant cannot seek to recover the land tax already paid; or

• been ordered by the court to be payable by the tenant, that order can still be enforced.

• Leases after 30 June 2009

Since the decision in Vikpro Pty Ltd v Wyuna Court Pty Ltd and a legislative change in 2017, landlords in commercial leases that commence after 30 June 2009 will be able to recover land tax arising from 30 June 2010 onwards, as long as the lease permits it.

Potential tenants seeking to enter into a lease requiring contributions of outgoings, including land tax should ensure that they receive sufficient disclosures on the anticipated costs, including by seeking a land tax clearance search.

If you have any questions about a commercial lease and the recovery of land tax, please call us on (07) 3839 7555.

As with most estate administration matters, we see clients that are left with difficult circumstances after their parent has passed away. Sometimes, those clients are survived by step parents, who were married to the deceased parent for only a short duration and had no biological children together.

Common issues that arise during the course of these matters, include: the deceased parent failing to leave a valid Will or failing to execute a valid binding death benefit nomination for payment of their superannuation death benefits. The clients are left to deal with these complicated issues, which can lead to disputes and causing legal and accounting fees to be unnecessarily incurred.

Steps can be taken during your lifetime to ensure that your family is safely provided for on your death. Below is a non-exhaustive list of common estate planning traps to avoid.

1. Marriage (and civil partnership) revokes a Will

A Will is revoked by the marriage of the testator. If a testator enters into a civil partnership, their Will is also revoked.

However, if the Will contains gifts of property to the spouse of the deceased at the date of death (or other dispositions of property), or appoints the spouse as Executor (or as Trustee, Guardian or any other appointment), then the Will is not revoked to that extent. They may be left with the power to distribute assets to themselves which could be unintended.

To avoid this mistake, consider whether a Will should be made in contemplation of marriage. Generally, the solemnisation of the marriage will not revoke the Will.

2. Divorce or annulment (or end of a civil partnership or de facto relationship) revokes a Will

If a testator’s marriage ends by divorced or is annulled, and their Will contains dispositions of property to the former spouse, or appointments of the former spouse, then these provisions are revoked.  For example, a gift of real property to a former spouse is revoked and the gift takes effect as if the former spouse had died before the testator.

There are some exceptions. For example, appointments of the former spouse as Trustee of property for minor children of their marriage, will not be revoked.

The effect of termination of a civil partnership or the ending of a de facto relationship on a Will, is the same as those effects for divorce or annulment.  

An important tip is to ensure a Divorce Order is obtained from the Family Court. Otherwise the former spouse is still considered a spouse of the testator.  

3. Death Benefit Nominations

You can provide the Trustee of a Superannuation Fund with a death benefit nomination (which can be binding or non-binding) for payment of your death benefits. The death benefits can be paid to the legal personal representative (i.e. Executor or Administrator) or a dependant or dependants of the member.

The legislation provides a nomination ceases to have effect three years after the day it was first signed by the member. If the nominations lapses, it may be deemed non-binding and the trustee has discretion to pay the death benefits as it sees fit.

If a member struggles to remember to renew their death benefit nomination, consider rolling the funds into a Self-Managed Superannuation Fund, which enables a member to make a non-lapsing and binding nomination (provided the trust deed expressly allows it). Accounting and tax advice should be obtained to consider whether a Self-Managed Superannuation Fund is suitable for individual circumstances.

4. Tenants in Common and Joint Tenants

When purchasing real or personal property with one or more persons (or entities), you will need to consider the form of ownership.

An important factor to consider is whether to hold property as “tenants in common” or “joint tenants”. Tenants in common hold their interest in the property separately. Their interest is registered on title as a fraction of ownership.

This means that on the death of one of the tenants, their interest in the property forms part of their estate and is distributed in accordance with their Will.

If property is held as joint tenants, then on the death of a joint tenant, their interest vests automatically in the surviving joint tenant. Their interest will not form part of their estate on death. This is not often discussed during a conveyance and can have devastating effects at the time of death.

Holding property as tenants in common can mean that beneficiaries will need to commit to owning property with another person (or entity), which may be a partnership if it is a commercial or residential investment property.

If the circumstances do not allow for those beneficiaries to receive the cash equivalent of the deceased’s interest in that property, they will end up holding the deceased’s share in the property, proportional to their share of the estate.

If you would like to plan your Will and avoid these and other devastating estate planning traps, please do not hesitate to call Tony Crilly or Elizabeth Ulrick on 07 3839 7555 or email us brisbane@perspectivelaw.com.

If you want 24/7 answers, please go to our website and click on the section “Start your estate planning now”.

If you have an estate to discuss, please click on the link “Start your estate administration now”.

Ever wanted to know the best way to secure a Loan to your children for purchase of their home?

Make sure that you have a formal Loan Agreement with conditions or a term for repayment and it is not just in writing and repayable on demand.

Have you ever wondered how long you can be chased for a debt or how long you have to recover your unpaid debts?

In most states in Australia, the limitation period for debts is for six (6) years, except in Northern Territory where it is for three (3) years. This means that the creditor can pursue the debt from six (6) years from the date of when:

1. The debt became due and payable; or
2. The last date a payment was made towards the debt; or
3. The date the debtor acknowledged in writing that they owed the debt.

It is imperative that you get the calculations correct, as failure to establish the limitation period, may mean that you will be unable to successfully recover your debt and the debt will become statute-barred.

A statue-barred debt is when the debt becomes older than the limitation period in your State or Territory (being six (6) years in all states in Australia, except in Northern Territory where it is three (3) years). Therefore, a creditor will no longer have legal right of recovery for a statue-barred debt. However, if the debtor acknowledges the debt in writing, or makes any payments towards the debt, then this resets the clock on the six (6) year limitation period.

References:

• Section 10 of the Limitation of Actions Act 1974 (QLD)
• Section 35(3) of the Limitation of Actions Act 1974 (QLD)
• Section 36 of the Limitation of Actions Act 1974 (QLD)

We recommend a formal Loan Deed and Mortgage registered on title to the property. That way, it is very clear the legal rights of enforcement should the child divorce or die and the property becomes part of a dispute. Call us today on 07 3839 7555 if you would like to discuss this further.