Testamentary Discretionary Trusts – Essential Clauses

All families are different and all Wills are different to meet the needs of each unique group and asset structure.

Whether you are employed or own a business, if you are retired or accumulating money in your superannuation fund, are all questions that need to be addressed in the drafting of your tailored estate plan.

Asset protection

The asset protection of a testamentary trust is very important for at risk professionals that may be subject to claims for negligence or business creditors. If you have deliberately structured ownership of your main residence in the name of  a spouse then it is a problem if they die leaving it directly to you as sole beneficiary. It may be better for the family if the asset is held in a trust to protect it from those risks. Having the choice to receive a property in your name or held on trust is a key element to a well drafted Will. In the same way, shares and control of trusts that hold significant assets, must be considered carefully. If you have created “investment” trusts and “bucket companies” to hold assets away from your trading business entity, then you need to consider how those shares or the control of those trusts are owned. Perhaps the shares should be held “on trust” so that they are not exposed to these risks.

Choice to dispense with estate trust

It is a big question whether you leave the power to dispense with an estate trust in the hands of a beneficiary or knowing their circumstances you oblige them to create a trust that protects the capital and ensures an income stream for a longer term. Consider if they may need to access part of the capital for medical or other emergencies.

Future Control of estate trusts

It is crucial to look forward and think about what pressures will be faced by your beneficiaries to access the capital and if they are in any way vulnerable to external influences. They may have a history of financial risk, alcohol or drugs, gambling and just plain spendthrifts. It may be better to require a jointly controlled trust with a sibling or independent trustee, to ensure that they are not accessing the capital in a wasteful or speculative way. You might need to consider who can control the trusts if you want the capital to flow through to the next generation as part of your bloodline. Perhaps excluding spouses from controlling a trust, is a way to prevent loss of the trust capital and ensure the grandchildren get their share.

Powers of appointment

The key to protecting assets in an estate trust is by defining who is “eligible” to be a trustee and exercise power over the trust. If a person becomes insolvent, is subject to a matrimonial dispute or suffers a disability, then a default clause should deem them ineligible and the executors or a nominated person are then appointed. This removes the control of the capital away from the affected person and protects it for that person and the other beneficiaries. That control might be restricted to lineal family members and ultimate control might vest in the grandchildren.

Class of Beneficiaries

It is a crucial element of the estate trust to define the “class” or potential individuals that can receive distributions of capital or income from the trusts. The most common way is to include all descendants of a nominated test person usually the Will makers parents, as well as any companies or trusts in which any of those people have an interest. Consider if real property is involved whether foreign beneficiaries should be excluded if there are children who are non-resident taxpayers as a beneficiary and if a separate trust must be set up for them. This is because capital gains tax exemptions will not apply to non-residents and penalty rates of land tax may be incurred.

Assets to be held and ongoing management

It is very important to think about what type of assets are going to form part of the estate and how management of those assets will need to be addressed into the future. If it is a share in a trading company that owns a business perhaps a buy/sell agreement is required, so the cash is released from the asset and no further trading risk is incurred by your successor. This can be achieved by a special purpose life policy to ensure the proceeds are deemed to be the consideration for the share sale price. If it is a passive real estate investment then it may require a common trustee where there are several beneficiaries holding that property in their respective trust.

Administrative Requirements on establishing a trust

All estate trusts are created as at the moment of death and the assets are held by the executors until such time as the estate can be distributed. Probate or proving the Will by lodging an Application in the Supreme Court is usually required. This enables the assets to be sold, transferred or collected and all tax and expenses paid. Once a net amount is realised the executor can then transfer the share of the estate to the Primary Beneficiaries as trustee of their own trust. This is as simple as opening a bank account with a bank or finance institution in the name of the trustee for the trust as named in the Will.

It is crucial to remember that once money is taken out of a trust it cannot be put back in. For example if it is used to pay for part of the purchase price of a main residence, especially if held jointly with a souse. The capital is then out of the trust and at risk. It is better to “loan” the funds by a commercial loan document, so on sale of the property the money is returned to the estate trust.

You cannot add money or assets to an estate trust, otherwise it will lose its status as a trust that can distribute “excepted trust income”, to children under 18 years. The trust can sometimes “gear” its assets, or borrow to purchase an asset, subject to the restrictions set out in the Will.

The trustee can then apply for a tax file number and open an investment account just like any individual to purchase shares, managed funds or other assets. Real property is then transferred into the name of the trustee and they can start to receive the rent and will need to pay the outgoings such as rates and utilities for the property. Each year before 30 June the trustee must sign a resolution declaring how the income and capital gains are to be distributed to the “class” of beneficiaries. This enables the person to allocate income to children in the family under 18 years of age and they take it as “excepted trust income”, which is taxed at adult rates. This can minimise the tax burden on a family group over many years and will most likely pay for the costs of setting up the trust many times over.

Vesting the Trust

It is important to remember that the estate trust once established can run for up to 80 years from the date of death of the person from whose estate it is derived. This means that a family group over many generations can create a means of investing the capital and they can all share income from the trust each year. The capital can grow and be used at important stages of their lives such as deposits for homes, cars, study and overseas travel. If the capital is reduced and the tax advantages are limited, it may be within the discretion of the trustee to wind up the trust and distribute the balance of the cash. A Will maker can restrict the access to the capital until specific age requirements are met. For example access to capital might be limited to 25% at age 25 years, 25% at 30 years and the balance 50% at age 40 years, if it is a substantial amount. This staged control, can achieve the long term goals of the willmaker to ensure a secure income stream for the beneficiaries and capital protection for as long as possible. The appointment of joint trustees can assist in achieving these goals.

So you can see there are many aspects to estate trusts and thousands of ways to draft the Will to cover all family circumstances. We recommend a very detailed discussion with your financial planner and accountant to ensure the best possible outcomes and benefits for all family members. Ask us how. Go to our website www.perspectivelaw.com and click “Start My Estate Plan Now”.

Fair Work Act – Is it Unfair?


Fair Work Act Update – Is it really fair?

Given the economic climate there is little room for failure of performance by employees, especially where it may be damaging to the business. How Employers terminate an employee can be risky and many finding themselves before the Fair Work Commission because they got it wrong. A claim for unfair dismissal is an accessible and cheap process for many employees and can end up costing employers a lot of time and money. Below we review some of the tips, traps, and various risk management measures available to Employers.

Should employers have a Social Media Policy?

The dramatic increase in use of social media platforms poses significant challenges in the workplace. If employers want to restrict potentially damaging comments by employees on social media about their organisation, they need to write and implement a suitable social media policy.

Glen Stutsel v Linfox Australia Pty Ltd [2011] FWA 8444

The employer terminated the employee for serious misconduct following the employee and friends making racially derogatory and sexually discriminatory comments about managers on his Facebook page.

The sexual comments about one manager were not made by the employee and the Commission considered it strange to hold the employee accountable for the comments of others. It was relevant that the employer did not have a social media policy and no other employees who made derogatory comments were the subject of any sanction by the employer. The Commission concluded the employee was not guilty of serious misconduct and there was no valid reason for termination, and therefore he had been unfairly dismissed. The Commission ordered he be reinstated and receive lost wages following termination. The case is currently the subject of appeal.

The Commissioner was critical of the employer for not having a social media policy.

Is the termination a Genuine Redundancy?

Employers who fail to observe the Fair Work Act 2009 (Cth) (the Act) redundancy requirements can find themselves exposed to unfair dismissal claims. A recent decision before the Fair Work Commission highlights these legal requirements which include the need to consider alternative positions and to consult with the affected employee about the redundancy.

Horn v Mastermyne Engineering Pty Ltd [2012] FWA 10846

The employee claimed he was not genuinely redundant because:

  • there was no consultation or any demonstrated effort to identify alternative positions in the employer’s business;
  • after termination, his duties were allocated to other employees not qualified to undertake the work; and
  • the employer subsequently advertised positions the employee was qualified for.

The employer claimed employee’s role was no longer required to be undertaken by anyone due to changed operational requirements, in response to a downturn in the coal industry. Senior Deputy President Richards considered it did not matter whether the employer redistributed the employee’s former duties to other employees, who were not qualified, as that was a matter for the employer.

The employer established it had investigated the availability of alternative positions in the employers group of companies; however, those investigations were unsuccessful. The positions advertised after the employee was terminated, were for fitters undertaking underground work – which the employee did not meet the regulatory requirements for. Richards SDP determined that there was no obligation on the company on this occasion to overcome the difference in skill and experience by retraining the employee.

The employer had held a “pre-start meeting” with employees at which the organisation review was explained, the record of that meeting was publicly available and employees had been invited to proffer suggestions to offset, avert or mitigate the proposed changes. Thus the employer had complied with the consultation provisions of the relevant Award.

Richards SDP concluded that the employee had been made genuinely redundant and the employee’s application was dismissed.

Is a system of employee warnings advisable?

A failure to document performance management procedures such as communicating expectations and issuing warnings properly, may expose an employer to an unfair dismissal claim if the employee is later terminated for poor performance.

Moumtzis v Dolina Fashion Group Pty Ltd [2013] FWC 501

In a business that has a large amount of creativity and experience as part of the role, it is difficult to define the boundaries of employment agreement. The employee in this case was terminated on the basis she was unfit for her position as a designer of women’s clothing. The employer had informed her that she had not achieved the required profit margins for the business and was purchasing expensive fabrics.

The employer did not put forward any evidence concerning performance discussions had prior to the termination and Vice President Watson was left to consider the uncontested evidence of the employee. She did not have any KPI’s, budgets or annual reviews and therefore her employer’s perception she was not performing, did not amount to a valid reason for termination.

The evidence did not establish that the employee had been warned of unsatisfactory performance prior to the termination. The fact there was no valid reason for termination, no chance for the employee to respond and no prior warnings, led to the conclusion the employee was dismissed unfairly. VP Watson ordered the employer pay the employee 22 weeks remuneration as compensation. Ouch!

Termination without an investigation is dangerous

Employers must keep clear records of all investigation processes particularly if they may have disciplinary consequences such as termination. Employers must warn employees that the specific conduct may lead to dismissal. The case of Read shows following proper procedures in the investigative stage and during disciplinary action is vital.

Read v Gordon Square Childcare Centre Inc T/A Gordon Square Early Learning Centre [2012] FWA 7680

Here the employee at a childcare centre had a parental complaint against them. The substance was their child was left unattended when upset by the employee, was not given breakfast, and on another occasion had been allowed to play with electrical outlets. This was investigated by the childcare centre management.

The evidence found that the employee had admitted she left the child unattended and that this was a failure to supervise and was a significant breach of childcare regulations. This was deemed serious misconduct which was not so serious that the employee’s employment should not continue and they were summarily dismissed..

It was significant that the employee was not warned that her conduct could result in termination. The Commissioner concluded the employee did leave the child unattended and unsupervised. This was a breach of the National Law and the Supervision Policy of the Centre. It was accepted, that the employee had previously allowed children to play under her reception desk where there were dangerous wires.

The employee was informed that her failure to supervise of a child was the reason for termination of employment. The childcare centre afforded the employee procedural fairness in the process of investigation because they had presented the allegations, allowed her to respond and then made a finding which in turn was communicated to her. The employee was also allowed a support person at both meetings with the employer. While previous discussions about performance did not constitute warnings, ultimately the Commissioner concluded that summary dismissal was fair.

Attend Fair Work Commission Proceedings

If a former employee brings an unfair dismissal claim before the Fair Work Commission, employers cannot afford to ignore such a claim. Regardless of size, time and resources, employers who ignore a claim run the risk of the Commission making adverse findings against them in their absence.

Bargmann v Stilnovo Pty Ltd T/AMurano and Gullotti [2013] FWC 1080

In this case the employer did not attend the scheduled telephone conference or provide submissions on request from the Commission. On that basis the Commissioner accepted the applicant employee’s evidence unchallenged and found that the employee had been unfairly dismissed.

What does this mean to Employers?

The following points must be noted:

  • Implement a suitable social media policy– without it, you are lacking a valuable system in managing the social media behaviour of your workforce;
  • Redundancy may not mean redundancy under the Fair Work Act unless you stick to the rules;
  • Failure to implement and document a warning process will damage your ability to defend performance based terminations;
  • Appropriate investigation, and compliance with natural justice requirements, can significantly assist in the defence of unfair dismissal proceedings;
  • Do not fail to respond to  the Fair Work Commission as it will find against an employer in absence of submissions

We have identified some common sense points arising from dealing with employees and the Commission but keep in mind the utmost effort is given to support employees if they file a claim. There are no cost consequences generally so you must factor in the time and expense of responding and representation if allowed.

Always keep your records clear and ask for the employee to sign an acknowledgement of the meeting record if possible. Seek assistance and try to mediate any emotional situations by always having a witness present in any discussions.

Voyage of the Beagle

This year is the start of my voyage through the world of blogging. A little bit like the ‘Voyage of the Beagle’ by Charles Darwin! It took him five years sailing around the world, but the result was a revolution in acedemic writings known as ‘The Origin of the Species’. I am hoping to create a fresh view of the world!

After many years of writing for legal publications, I have decided to share a few parts my clients have found interesting. My aim is to continue to build on these themes largely based in commercial and succession law. Given the diversity of our business, we see many interesting case studies. I would like to alert people to the issues and suggest a new persepctive  with a twist. Through these articles, I hope to demonstrate our point of difference, the reasons why we do things a certain way and to better engage with our clients in the future. Best of all I hope to get some feedback, so please let me know if you are watching!


In essence, our business is all about helping you create and maintain value both in your asset structures and personally.  This includes your business, your investments, your family and your superannuation. Here are a few reasons why we think we can make a difference to you in all of these areas.

Why engage our business

  • We build trusted relationships with our clients. We are genuinely interested in your business, your investments and your personal circumstances.
  • We deliver outcomes for clients as if we were acting for ourselves in a matter. This is an excellent risk management tool for us and for you.
  • We are not a sharp practice. If we do not consider you need to change your position we will tell you. We will not embark on time wasting activity. We do not increase project fees without good reason.
  • We are a safe pair of hands for your business. If we would not do it ourselves we will not recommend it.
  • If we think there is a risk identified in your project we will suggest a positive solution.
  • We do  a careful analysis of  a project, the estimated fees and the steps required to achieve the results you want, from the outset.

Team support

  • We have a strong philosophy of collaboration between our lawyers so you get the maximum advantage by the strategic approach we take.

Cost effective

  • We present a clear Proposal so you can see the likely costs for a Project and the estimated costs for each stage.
  • We help you make informed decisions about the engagement and assists by being much more specific about your requirements.
  • We like to help you budget and will work with you on an agreed Project fee schedule if required.

Confidential service

  • We are very careful about security of our clients personal data and transactions.
  • We like our privacy so we protect yours.

Quality services  

  • We are constantly updating our technical capacity and seek to deliver the best legal results every time.
  • This takes careful planning and procedures, in-fact our insurance company likes how we have a strategic plan and management process for every transaction.
  • This adds a great deal of value and ensures you get the right advice each time.


  • We strive to have accessibility and open communication with you as a our client.
  • We ensure you understand the process, the risks and the costs.
  • We engage with your other advisors to ensure we work within the strategic plans you already have in place both business and personal.

We welcome feedback, comments and suggestions. If there is a topic of law you would like to see on the page please let me know.