Author: netsol

Testamentary trusts can be very effective estate planning tools to assist in providing for spouses, children and grandchildren, and are becoming increasingly popular as more people become aware of their advantages.

A Testamentary Trust is any trust established under a will, but the term is usually used in the context of a discretionary family trust established under a will.

Why are they becoming more popular?

Their increasing popularity arises from the very considerable benefits that can flow from their establishment and use, including the fact that although assets of the trust may be controlled by the intended beneficiary, they do not form part of that beneficiary’s estate. Major benefits of a testamentary trust include the ability to protect assets and to possibly reduce tax paid by the beneficiaries from income earned from their inheritance – providing a greater level of flexibility and control over the distribution of assets to beneficiaries.

Reasons why you should consider a testamentary trust include:

CGT benefits

Assets owned by the deceased that would have been subject to capital gains tax (CGT) had the deceased sold them before their death, can pass through their estate to a testamentary trust without a CGT event occurring.

If an asset was a pre-CGT asset, the trust will receive a cost base equivalent to the market value of the asset at the date of death. If the asset is a post CGT asset, then the trust will inherit the deceased’s cost base. This is particularly important where the assets have significant unrealised capital gains. This also provides a good opportunity to “reset” the ownership of assets subject to CGT.

If for example, mum and dad own the shares in a company that is the corporate beneficiary of their family trust. The shares may have a nominal cost base but because of trust distributions made over a number of years (and often not paid in cash) the company may have become very valuable. All of that increased value is potentially subject to CGT if mum or dad changed the ownership of these shares during their lifetime. However, after their death the shares can be moved to a testamentary trust and dividends from the company can then be distributed by the trust to a range of beneficiaries, tax effectively.

In addition, trust assets may be transferred to beneficiaries without incurring CGT (but only in respect of assets of the trust that were owned by the deceased when they died).

Income Tax advantages

Income can be distributed from a testamentary trust to infant beneficiaries (under the age of 18) and taxed in those children’s hands at adult marginal tax rates (instead of at the top marginal tax rate as would otherwise be the case). Testamentary trusts may, over time, sell and replace the original assets received from the estate and the distributions to infant beneficiaries will continue to be taxed at (more beneficial) adult rates.

With the tax free threshold of $18,200 since 2013/14, testamentary trusts are even better vehicles for clients because children and grandchildren under the age of 18 years who receive income from a testamentary trust are taxed on that income at adult rates, and enjoy a tax free threshold of $18,200 (or $20,542 if the low income tax offset applies) and the marginal tax rates which apply to adults.

Without this special provision trust distributions to minors may only access a tax free threshold of $416 and thereafter the effective tax rate applied to the minor’s income is 66% of income up to $1,307 and 45% after $1,308, on the entire amount of income received.

Flexibility to the Trustee

The trustee can buy and sell underlying assets of the trust (and thereby enhance the value of the trust) without losing or endangering any tax advantage.

We suggest it is desirable that clients provide the trustee with some guidelines about the administration of the trust, but they should be carefully framed in order to avoid any confusion or legal or accounting complications.

Protection of assets

Testamentary trusts provide a level of protection to the assets held in the trust, including against creditors of the beneficiaries who may want to recover from the trust assets an amount owing to them by a beneficiary, and in the Family Law Court in the case of the divorce of a trust beneficiary.

It is quite common for a wife to guarantee her husband’s business venture and vice versa, to some extent we can all be at risk whether in high risk occupations or not. However, if a bankrupt has received an inheritance through a testamentary trust it will be protected from creditors.

In the Family Court, an inheritance held within a testamentary trust is unlikely to be the subject of a Family Court order in the case of a marriage break-up.

Protecting ’at risk’ beneficiaries

It is not uncommon for people suffering a variety of disabilities to be unable to properly manage their financial affairs.  At the same time, families may wish to ensure that an adequate fund is set up to meet the beneficiaries’ reasonable needs, and so as not to affect any pension rights they may have.

These people can be described as being ’at risk’, a description that may for example include people who are drug or gambling addicted, mentally or physically disabled or simply spendthrifts who are not capable of looking after any wealth that is left to them.  For these people a testamentary trust can be managed by a trustee (who should be) a responsible and capable person (or people) who take action for the benefit of the ’at risk’ person.

Summary

It is becoming much more common to steer away from the traditional husband and wife will, which provides for a husband and wife giving everything to each other and then to the children, and to replace this with one or more testamentary trusts controlled by the surviving spouse and/or children under which the spouse and children are potential beneficiaries.

If the funds in the estate justify it (and remember this may include the proceeds of life insurance policies, or superannuation), wills providing for testamentary trusts can provide that on the death of the spouse, sub-trusts come into existence for the benefit of each child and that child’s family – controlled by the child concerned.

Testamentary trusts are a very powerful and useful estate planning tool. The flexibility of such trusts, especially if combined with a memorandum of wishes as to how the trust should be administered, can be an appropriate arrangement as well as providing a highly advantageous tax mechanism, for many years into the future.

To find out more about how testamentary trusts can benefit you, please contact us on 03 9308 0556 or email info@fordlegal.com.au.

The demand for residential accommodation has increased dramatically over the years and the ‘housing crisis’ features regularly in the press.

For investors, residential property is a popular choice for wealth creation with potential to provide good returns and capital growth.

This article provides general guidance and flags important considerations when renting out a residential investment property.

Understanding key rights and obligations

All Australian jurisdictions have specific laws in place to regulate the relationship between landlords and tenants. These laws are administered by the relevant government body in each state or territory and are aimed at balancing the rights between both parties.

Important provisions include:

• Payment of a bond by the tenant, usually up to the sum of four weeks’ rent, to cover damage, repairs or unpaid rent. Providing the landlord does not need to call on the bond, the amount is fully reimbursed to the tenant at the end of the lease.
• Tenants have a right to quiet enjoyment of the property – provided the obligations under the lease are maintained, the landlord must respect the tenant’s privacy and occupation of the property.
• Unless extenuating circumstances arise, the landlord cannot enter the premises unannounced and is limited to a prescribed number of inspections during the term of the lease for which notice must be given.
• Tenants must look after the property however the landlord is responsible for repairs and must ensure the property is safe and habitable (see below).
• Generally, landlords cannot increase rent during the rental period and must provide adequate notice of subsequent rental increases. Specific notice requirements must be followed when terminating the lease.
• Landlords must not charge tenants for outgoings such as council and water rates, strata levies, insurances and land tax.

Most government departments have plain language guides setting out the rights and responsibilities of the landlord and tenant. Property investors should ensure they are familiar with the terms relevant in their jurisdiction.

Using a reputable managing agent

Investors may want to save money by managing their own investment property. Whilst this might seem like a good idea, property owners should consider the benefits of having an arms-length arrangement with their tenant and the time involved in advertising, screening and checking references, conducting inspections, preparing property reports and lease agreements, arranging repairs, collecting rent, accounting and reporting.

A reputable managing agent will have local market knowledge and ideally a list of tenants with good references. They should have a sound understanding of residential tenancy legislation and be able to represent your best interests if things go wrong.

In most circumstances, management fees are tax deductible (ensure you check with your taxation advisor). Even if you are renting to friends, it might be wise to engage a property manager who can professionally carry out his or her duties if things turn sour.

Liability for injury and duty of care

Landlords owe a duty of care to their tenants and visitors to the investment property and must ensure the property is maintained in a safe condition.

In some circumstances, a landlord or managing agent may be liable for personal injury suffered by a tenant, if negligence can be shown.

For example, in one case a tenant sustained significant injuries to his hand when he struck and shattered a glass panel of the front door. The landlord and managing agent were found negligent for failing to install safety glass when previously arranging repairs to the door panel.

The Court found that the installation did not comply with the relevant Building Code despite the fact that the Code did not apply at the time that the property was built.

Whether negligence can be proven for injuries to tenants will depend on the circumstances. Generally, a decision will weigh in a tenant’s favour where the landlord has, or ought to have knowledge of an apparent defect but fails to rectify it.

If the landlord has no knowledge of the alleged defect then the duty is no more than taking reasonable steps to identify and deal with a risk of injury.

What should landlords do to mitigate liability?

Landlords should undertake regular property inspections to identify hazards and ensure the property is safe and fit for use. Inspections should be conducted with relevant Building Codes in mind and written records maintained. In some circumstances, landlords may wish to engage a professional building inspector to identify risk and recommend maintenance or modifications.

Tenants should ensure inspections include pool safety and smoke detector checks, as well as installations such as gas and electricity.

Urgent repairs that pose a risk should be attended to immediately.

Conclusion

Whether you’re a current or would-be residential property investor, it is important to understand your obligations as a landlord.

Occasionally problems arise and you may need assistance from an experienced property or leasing lawyer.

If you or someone you know wants more information or needs help or advice, please contact us on 03 9308 0556 or email info@fordlegal.com.au.

A co-owner is a person who owns land with one or more other owners. Co-owners may hold land as joint tenants or tenants in common. The way land is held is important in property law as it impacts on the way it can be dealt with generally, and what happens after the death of a co-owner.

Joint tenants hold property together as a whole – in other words it cannot be divided into shares. Joint tenancy is subject to survivorship provisions – when a co-owner dies his or her interest in the property is extinguished and automatically passes to the remaining owner/s. Consequently, that share cannot be given to anybody else, even if a contrary intention is contained in the Will of a deceased owner.

A tenancy in common can specify the individual shares of the property held by each owner. The shares need not be equal and co-owners are presumably free to transfer, sell or leave their share in the property by Will.

Co-ownership is a popular way for individuals to acquire interests in property – the pooling of resources and stronger borrowing capacity assists in obtaining finance which may otherwise not be possible.

Spouses and de facto partners usually hold property as joint tenants, whilst holding shares as tenants in common is a popular arrangement between other family members, friends or business entities.

Co-owners who are tenants in common each acquire a share proportionate to the contributions made. Any loan for the property is taken in all names and the parties are usually jointly and severally responsible for repayments and performance of all obligations.

What can go wrong?

Whilst there are benefits in co-owning property, disputes do arise causing financial and emotional anguish.

Property disputes between co-owners are often triggered by changing circumstances – a relationship or business breakdown, financial stress or the death of a co-owner. Some disputes arise simply because the owners do not understand the implications arising from how the interests in the property are held.

Co-owners may claim that interests held are disproportionate to contributions made, or argue over loan repayments, maintenance and other expenses, the use and development of the property and the entitlement to profits. Significantly, the dispute will be over when or whether to sell the property.

Co-owners have reciprocal rights and responsibilities regarding the property. Whether any of these have been breached or compromised may be a good starting point to determine the remedies available to compensate for damage or loss suffered by a co-owner.

What remedies are available?

The following are examples of typical issues arising between co-owners and the possible remedies available.

The parties wish to change the way the property is held

If the dispute involves the way in which the property is held, a joint tenancy can be severed or a tenancy in common converted into a joint tenancy.

This is done by lodging the appropriate Transfer with the relevant Government body authorised to deal with land titles in your State or Territory. Your Lawyer can assist with preparing the necessary documents and will consider any stamp duty implications.

Severance of a joint tenancy effectively changes the ownership of the property to a tenancy in common, in shares apportioned to the parties’ respective contributions. Once a joint tenancy is severed the co-owners may deal with or dispose of their individual interests as they wish.

Severance can be achieved either unilaterally or by agreement. Obviously, when parties agree there are less complications however the law recognises the right for a joint tenant to unilaterally severe a joint tenancy provided it is not unconscionable to do so. Your Lawyer can advise on the appropriate process and advise on any implications.

The parties cannot agree on selling the property

Parties who cannot agree on selling a co-owned property, or the specific arrangements for a party to buy out the share of the other/s, may apply for a partition order. A partition involves a physical subdivision of land which, in many cases, will be impractical and undesirable.

The more common order will be for the sale of the property. Generally, a trustee is appointed to sell the property and pay out any mortgage or other securities registered over the property before distributing the balance to the co-owners. Distributions will be commensurate with the respective contributions made by the parties and the surrounding circumstances.

Stamp duty and taxation implications may need to be considered and your Lawyer can advise whether these apply in your circumstances.

A co-owner ousts another co-owner of possession of the property

All co-owners have a right to occupation of the property. If a co-owner deprives another of this right, then the aggrieved owner may be entitled to compensation by way of an occupation fee.

Examples of ousting a co-owner include purposely changing locks to exclude a co-owner or the existence of domestic violence against a co-owner causing that person to retreat from the property.

A person contributes to the property but does not have legal ownership

A range of factors may lead to a property being legally held by a person despite another having made contributions towards the property. Financial contributions include paying the deposit for the property, making loan repayments or paying for or carrying out renovations or additions such as a granny flat.

These contributions are recognised as creating an ‘equitable interest’ in property. The law will presume that the legal owner of the property holds a share of the property ‘on trust’ for the person who has contributed to it. The share held is determined in accordance with the contributions made. In some circumstances, non-financial contributions may also be recognised.

If you have made contributions to a property which is not held in your name your lawyer may be able to negotiate with the legal owner to have your interest recognised. The same principles apply if your name is on the title deed but the contributions between you and the other owner/s are unequal and the interests shown do not reflect this.

If an agreement cannot be reached a beneficial interest in property can be determined by the Court. This will create a legal interest in the property allowing you to deal with that interest in accordance with general property law.

How do I prevent things going wrong?

You should always obtain legal advice when buying property. If buying with another person your Lawyer will assist you in deciding whether to hold the property as joint tenants or tenants in common.

If other purchasers (besides a spouse or de facto partner) are buying, you should consider having a property ownership agreement prepared. Ideally, this will set out the agreed interests held, options to purchase a co-owner’s share, distribution of proceeds on sale of the property, the agreed use, distribution of profits and responsibility for management.

Conclusion

Property disputes between co-owners are common. They can be very complex and often arise during the course of other legal issues such as family law proceedings and business disputes. Some disagreements are resolved by negotiation whilst others may need to be decided through the Courts.

If you need advice on a property matter, or you know somebody that does, please contact us on 03 9308 0556 or email info@fordlegal.com.au.

A commercial lease is a legally binding contract that gives a tenant certain rights over a property for a set period of time subject to the terms and conditions set out in the lease. A commercial lease is used when leasing property used primarily for a business.

You should never sign a lease without understanding all of its terms and conditions. If you don’t understand what you are agreeing to you could experience serious financial and legal problems.

General terms

It is rare to find a commercial lease that is prepared by the tenant. It is almost always the landlord that prepares the lease when commercial premises are rented and the terms of the lease will generally strongly favour the landlord. Once the lease is signed the tenant is required to comply with the terms and conditions of the lease during their occupation of the landlord’s premises.

The lease sets out the obligations of the landlord and the tenant and the rights of each during the term of the lease and any options for lease that are exercised after the initial term of the lease has expired.

Commercial leases usually have longer terms than residential leases. This gives the tenant, usually a business, a longer security of tenure and allows them to transfer the lease if they sell the business before the lease has expired. This can be appealing to a buyer of that business to already have the lease in place.

Repairs & maintenance of the premises

The legal obligations of a landlord and tenant regarding maintenance and repair of the premises are set out in the lease.

In most commercial leases the tenant is responsible for the rented premises including walls, floors, fixtures and inclusions and the landlord requires the tenant to repair and maintain the premises during the lease term.

This will usually not include “fair wear and tear” on the premises, repairs to structural parts of the building or other expenditure of a capital nature (air conditioning, walls and the landlord’s plant and equipment).

The landlord is generally responsible for repairing and maintaining major structural aspects of the building including the roof and the building systems contained in it such as common areas and lifts.

Items such as air-conditioning, cool-rooms, heating fixtures and wall partitioning should be carefully defined in the lease to avoid costs and disagreements as commercial leases are often silent on items such as air-conditioning and cool-rooms which are capital items but used by a tenant in their day-to-day business.

Fixtures such as refrigeration and plant and equipment should be repaired by the landlord, but a tenant should ensure that this is written into the lease as it is not an automatic obligation.

Avoiding disputes – common scenarios

The majority of disputes that arise between landlords and tenants and the issue of who is responsible for repairing or maintaining the premises arise out of interpreting the terms of the lease, in particular what is meant by “maintenance” and “repair” and sometimes what is “structural”.

Structural repairs include repairs to the building support system and foundations, flooring and ceiling structures, column support, walls and roof but not partition walls, internal stairways, decorative features such as carpeting and sometimes plumbing depending on the building.

A “repair” is generally defined as an act necessary to fix something that has been damaged, whether accidentally or as a result of continued use. If a tenant or their staff or customers damages part of the premises the tenant is always responsible for the repairs needed to reinstate the item. It is when an item, say a latch on a cool-room door that is used frequently, wears out and requires repair that the landlord and tenant may not agree about who should fix it.

The landlord may say that the latch was damaged due to the tenant’s lack of care or proper or regular maintenance and the tenant may say that it was faulty or had reached the end of its useful life. Disputes may arise and cost the parties time and money so it is best to ensure that the lease is specific in the areas where the potential for disagreement exists.

“Maintenance” is generally considered to be the taking of some action to delay wear and tear or deterioration or breakage of an item. For example, cleaning and servicing of plant and equipment or proper disposal of waste and garbage. The common exception from “wear and tear” is where non-structural items such as carpeting have deteriorated over time and should be replaced by the landlord.

If a lease specifies that the tenant clears the drains, for example, and there is a plumbing issue the landlord may say that the reason the drains failed was that the tenant did not do proper maintenance. The tenant may say that the plumbing is old and needs updating and then a dispute exists about who is to fix the costly plumbing problem.

Both parties can lessen the likelihood of dispute by undertaking a full inspection report of the premises and both signing off on the report. This will establish and document what condition the premises was in prior to entry of the tenant and should be carried out and updated yearly.

A commercial lease should contain clear obligations and well-defined standards for the repair and maintenance of the premises under the lease to reduce the risk of dispute and misunderstanding between the parties.

The law is not always clear in this area particularly with regards to repairs and maintenance obligations. Even where legislation may say that a repair is the landlord’s obligation the lease (written by the landlord) can change this and make the tenant responsible. Each party should therefore ensure that they receive their own legal advice to ensure their best interests are protected in the lease.

If you or someone you know wants more information or needs help or advice, please contact us on 03 9308 0556 or email info@fordlegal.com.au.

It is well known that a Will is a legal document which sets out how a person wants their assets to be distributed once they die.

If you are over the age of 18 you can make a Will – provided you have capacity.

In general terms a person will have the necessary capacity if they:

• know what a Will is;
• know of the amount and type of property they are disposing of;
• understand the moral claims to which they should give effect when deciding to whom to leave their property; and
• are not delusional or suffering from a mental illness at the time they sign their will.

Who decides on capacity?

It is not the role of a lawyer to be an expert in assessing the capacity of their client.

However, a lawyer can be involved in carrying out a “legal” assessment of the Will maker’s capacity.

If there is a question about someone’s mental capacity to make a will, then an opinion, preferably in writing, should be obtained from that person’s treating doctor. The opinion should state that the Will maker has the required testamentary capacity to make a Will.

When should the Will be signed?

It would be ideal if the doctor could be present when the Will maker signs the will and even better if the doctor is one of the two witnesses to the will. In all likelihood this will not be possible.

Where there is the likelihood of the Will being challenged on the Will maker’s death on the basis of a lack of capacity, it is important to obtain contemporaneous medical evidence from the Will maker’s treating doctor or in some cases a geriatrician confirming the Will maker has capacity. It is prudent for the doctor to conduct a medical examination to determine this and then provide a written report confirming their opinion.

We feel that the Will maker should on the same day provide instructions to the lawyer and sign the Will.

Having a medical report stating that, in the doctor’s opinion, the Will maker had capacity and then on the same day the person provided instructions and signed their Will, places the Will maker in a strong position so far as capacity is concerned.

Could the Will be challenged?

It is important to address the issue of capacity in some circumstances because a Will can be challenged on the grounds that the Will maker did not have sufficient capacity when signing the Will. This arises most frequently where the Will maker is ill, for example, in hospital on medication or elderly and suffering from dementia.

It is difficult to set aside a Will on grounds that the Will maker lacked testamentary capacity if the Will is prepared by a competent lawyer who took appropriate instructions from the Will maker and was satisfied the Will maker had the requisite testamentary capacity to make a Will.

How your lawyer can help

If you are worried because you know someone who wants to make a Will and may not have capacity or may be in the early stages of dementia and you are not sure, then it is prudent to encourage them to consult a lawyer who is experienced in Will making and to do this as soon as possible.

It is also prudent to ensure the lawyer is made aware of this potential difficulty because as we suggest, it may be necessary for the Will maker to first attend their doctors surgery for an appointment with the doctor being able to provide a satisfactory written report so it can be taken to the lawyers office ahead of the Will making appointment but on the same day.

It is then a matter for the lawyer to be in a position to actually prepare the Will on the spot for checking and signing. Then the Will maker will have a Will that is dated the same day as a medical report saying they had capacity to understand the Will they signed.

As you can see there is a degree of planning that is needed, so speak to your lawyer to ensure that all the plans are worked out first.

If this is relevant to you or your family then please contact us on 03 9308 0556 or email info@fordlegal.com.au.

When commencing a business venture, it is necessary to consider the most appropriate type of business structure to put in place. Different business structures have different benefits and disadvantages. This article looks at trusts – how to set up a trust and the pros and cons of the trust structure.

Key features

A trust is an obligation imposed on a person (the trustee) to hold property or income for the benefit of others (the beneficiaries). A trustee is responsible for the operation of the trust. A trustee can be an individual, partnership or a company. There are a number of laws which govern how a trustee must perform his or her obligations to the trust. The primary obligation of a trustee is to act in the best interests of the beneficiaries of the trust.

Trusts are set up for a number of reasons, including family and charitable purposes. For business purposes, the most common types of trusts are:

• Discretionary trusts (also called a family trust): The trustees of a discretionary trust are able to distribute income and capital gains to beneficiaries in whatever way they desire. There is no fixed entitlement for each and every beneficiary.
• Unit trusts: A unit trust is like a company where the trust property is divided into a number of shares called units. The number of units held by each beneficiary determines his or her entitlement to a share of assets and income.
• Hybrid trusts: are a cross between a Discretionary and a Unit Trust. Beneficiaries hold a defined amount of units but the trustee has the discretion to vary each beneficiary’s entitlements and income.

How to set up a trust

A formal deed is required to set up a trust. A trust deed outlines the purpose of a trust, the property involved, the rights and obligations of the trustee and beneficiaries and how assets will be distributed to the beneficiaries. It is recommended that a trust deed be prepared by a solicitor.

A trust must have its own Australian Business Number (ABN), which can be obtained online through the Australian Business Register.

A trust must also have its own Tax File Number (TFN), which can also be obtained online from the ATO.

A trust must be registered for GST if annual turnover is $75,000 or more.

Trusts that run a business must complete a tax return, showing the income the trust earns, deductions it claims and the amount of income distributed to each beneficiary.

Pros and cons

The advantages of a trust structure include:

• Flexibility in how income is distributed
• Tax planning flexibility, including income splitting
• Asset protection
• Beneficiaries are generally not liable for the debts of a trust
• Beneficiaries of a trust pay tax on the income they receive from the trust at their own marginal tax rates
• A trust is more private than a company

The disadvantages include:

• A trust is a complex legal structure, which is expensive to set up and run
• There are considerable legal and compliance requirements
• There can be inflexibility, as powers are restricted by the trust deed and the law
• It can be difficult to make changes to the structure once it is set up

Conclusion

A trust might be an appropriate structure if a business venture will involve a sizeable amount of property and money. That is because a trust can be beneficial in protecting assets and minimising taxation obligations. Trusts are also a common structure choice for family businesses because various family members can be made beneficiaries of the trust that is operating the business.

A trust is the most complex of all the business structures, with complicated tax implications and legal and compliance requirements. As such, it is highly recommended that advice is sought from a solicitor to check whether a trust suits your circumstances.

If you or someone you know wants more information or needs help or advice, please contact us on 03 9308 0556 or email info@fordlegal.com.au.

 

Most of us accept that a valid Will is essential to determine how your estate is dealt with when you die. Your Will can appoint a family member or trusted friend to administer your estate, nominate guardians for young children, determine who will benefit, and create trusts to protect assets and safeguard vulnerable beneficiaries.

Without a Will, the administration and finalisation of your estate could be left to somebody you would not wish to involve, and the distribution of your assets will be pre-determined by legislation – an unfortunate outcome for a family who is already grieving.

Changes to intestacy laws

The Administration and Probate and Other Acts Amendment (Succession and Related Matters) Act 2017 (Vic) brought about various changes to estate and succession laws.

Of interest to those readers who keep putting off preparing a Will, are the reforms affecting how your estate will be distributed when you die without one. Whilst the laws aim to promote fairness for family members left behind by a person who dies without a Will, they are a timely reminder of the restrictive formula that applies when distributing an intestate estate.

Essentially, the legislation decides who gets what from your estate, unless a disgruntled family member contests the proposed distribution. In such cases, the application fuels conflict within the family, adds to the emotional turmoil and potentially depletes estate assets. Even more reason to get that Will prepared now!

Distribution of an intestate estate

Essentially, the reforms improved the position of a partner (spouse or de facto) of a deceased intestate person. The following summarises how statutory distribution will apply for partners of an intestate person who dies on or after 1 November 2017.

One partner and no children

The partner takes the whole of the estate – this is unchanged from the previous position.

One surviving partner and a child or children also of that partner

Previously where there was a child or children of the deceased and surviving partner, the partner would take the personal chattels, a legacy of $100,000, and one-third of the balance of the estate. The remaining two-thirds of the estate would be distributed equally between the surviving child or children. This was problematic in that it could leave the partner and remaining family with little financial security.

The statutory-imposed division of the estate would mean that, frequently the family home would need to be sold to provide the share allocated for the child or children of the relationship, even though they were the children of the deceased and his or her partner. Such circumstances would cause unnecessary upheaval and distress.

The laws now provide that when a person dies intestate leaving one partner and a child or children also of that partner, the partner will take the whole estate (unless there is more than one partner or a child or children of the deceased who is not also a child of the partner – see below).

One surviving partner and a child or children not of that partner

In this case a statutory legacy applies. The legacy amount is $451,909, indexed to account for inflation from the 2018-19 financial year. If the estate is worth equal to or less than the statutory legacy, the partner will inherit the residuary estate. If, however, the estate value exceeds the statutory legacy, the distribution is:

• the partner receives the personal chattels, the statutory legacy amount (and any interest if applicable) and half of the balance of the residuary estate; and
• the children of the deceased share equally in the remaining half of the residuary estate.

Multiple partners – with or without children

If the deceased leaves multiple partners with or without children, the distribution of the estate is in accordance with complex and restrictive provisions and may also necessitate an application for a distribution order.

No partners – children

The estate is divided equally between a surviving child or children. If a child of the deceased has died, then that child’s share will be taken by his or her surviving child and if more than one, equally.

No partners – no children

The estate is divided equally between the surviving parents, and if no parents, equally between surviving siblings. The estate is then divided ‘down the line’ between surviving nieces and nephews, grandparents, aunts and uncles and finally a child or children of that aunt or uncle.

Restrictions vs. testamentary freedom

It goes with saying, that most of us want to direct how our estate will be distributed when we die. While the formula set out in legislation attempts to reflect society’s expectations as to who should benefit from a person’s estate, these restrictive provisions cannot take account of the many and extraordinary circumstances within a family unit.

Many families are not ‘standard’ – they are blended, unique, dynamic, unconventional and have their own cultures, values and care arrangements.

A uniform untailored approach leaves no choice, no room for tax planning, no protection for vulnerable beneficiaries and unwelcome confusion for the surviving family.

Dying intestate cannot guarantee a fair or intentional estate distribution (according to the deceased) and may result in undesired consequences, such as:

• family members or friends completely missing out from an inheritance;
• a disproportionate distribution of assets between family members or the possibility of leaving out more needy beneficiaries;
• a distribution to a family member with whom the deceased shared no significant or meaningful relationship.

Summary

It is not difficult to avoid the likely uncertainty, additional legal costs and anguish amongst your loved ones after you die, by preparing a valid and carefully-considered Will.

No matter what your age, your health status or your financial and personal circumstances, putting off making a Will just doesn’t make sense. Good estate planning ensures your hard-earned assets go to those you wish, can strategise for tax-effective distributions and protect vulnerable beneficiaries.

If you or someone you know wants more information or needs help or advice, please contact us on 03 9308 0556 or email info@fordlegal.com.au.

When commencing a business venture, it is necessary to consider the most appropriate type of business structure to put in place. Different business structures have different benefits and disadvantages. This article looks at the sole trader business structure – how to set up as one and the pros and cons of this structure.

Key Features

A sole trader business structure is where the business and the owner are one and the same. A sole trader is the sole owner of a business, has all of the control of the business and is entitled to all of the profits. There is no separate legal entity, other than the individual owner.

Setting up as a Sole Trader

A sole trader can trade under his or her own personal name or a business name. If a business name is to be used, then it must be registered with the Australian Securities Investment Commission.

If the business is to be run under the personal name of the sole trader, all that is needed is to register for an Australian Business Number (ABN).  An ABN will also need to be obtained if a business name is registered. An ABN can be obtained online through the Australian Business Register.

Regardless of whether business is to be run under the personal name of the sole trader or a business name, a Tax File Number (TFN) is needed. If the sole trader has been employed in the past, it is likely that he or she already has a TFN which is sufficient for the purposes of running a business as a sole trader.

A sole trader must be registered for GST if his or her annual turnover is $75,000 or more.

Pros and Cons

The advantages of setting up as a sole trader include:

• It is easy to set up, with minimal start-up costs and less paperwork than other structures
• A sole trader has complete control of the business and keeps all of the profits
• It offers privacy (in comparison to the reporting requirements of other structures)
• It is easy to change the legal structure later if need be

The disadvantages include:

• Unlimited liability of a sole trader for all debts of the business and all other liabilities (such as negligence)
• Tax is paid at the sole trader’s marginal tax rate, which may be higher than the company tax rate
• It can be difficult to raise finance
• The business ceases to exist upon the death of the sole trader. As such, continuity of the business is limited and succession planning is difficult

Conclusion

This type of business structure might be appropriate if the proposed business venture is small (with minimal capital investment) and/or the sole trader intends to run his or her business alone and without partners. That is because this is the simplest form of business structure, with lower establishment costs and with few legal and compliance requirements.

If you or someone you know wants more information or needs help or advice, please contact us on 03 9308 0556 or email info@fordlegal.com.au.

Buying a commercial property (such as a warehouse, office building or retail space) is more complicated than buying a residential property. There are complex contract terms, detailed planning information and additional legal and commercial implications if the premises are leased.

In this article we set out some of the key issues in relation to buying a commercial property.

Contract for sale

The contract will typically be prepared by the seller’s lawyer and will set out the terms and conditions for the sale of the property. Essential terms will include, for example, a description of the property, the purchase price, a list of any fixtures or fittings that are included in the sale and the settlement date.

The contract will also include detailed special conditions which relate specifically to the property and the terms on which the seller is offering the property for sale. These special conditions need to be examined and explained to the purchaser by a lawyer who is experienced in the purchase and sale of commercial properties.

The sale of each commercial property is a unique transaction and general terms in the contract will usually be negotiated and varied by the parties.

Name of the purchasing party

In commercial sales, it is important to ensure that the contract correctly identifies the entity buying the property. There are a number of different entities which can purchase commercial property including individuals, individuals in partnership, companies, trustees of discretionary trusts, superannuation funds or a combination of entities.

If you are thinking about buying a commercial property you should speak with your accountant or lawyer prior to the purchase about the buying entity which best suits your tax or asset protection needs.

If the sale is completed and you decide that someone else should own the property (for example, a trustee of a trust) then this could require a transfer of the property and payment of additional stamp duty and capital gains tax.

 Goods and services tax

The sale of commercial premises will often attract GST. Whether or not you are required to pay GST on the sale price of the property can make a significant difference to your cash flow.

GST is generally imposed where a seller is registered or required to be registered for GST and is conducting an “enterprise”. If you are the buyer and registered for GST, you can claim the GST component in your next business activity statement, however, you will need to pay the money upfront to the seller.

There are some exemptions to the application of GST. For example, a seller does not need to apply GST if the property is part of a “going concern”. This might apply if the property is a business premises or a tenanted building. A seller may also be able to use the margin scheme to work out the GST that applies to the sale of the property. This should be detailed in the contract.

When it comes to GST in commercial property it is important to seek advice as it can affect the amount required to be paid at settlement and the stamp duty which is assessed as payable.

Existing leases

A buyer is bound by any leases disclosed in the contract of sale. If you are buying premises subject to a lease you should have the lease reviewed by an experienced lawyer. That is because the specific terms of the lease can have an impact on the commercial viability of the purchase. A lease to a poor tenant, paying under market rent, for a lengthy lease term is a vastly different commercial proposition to a lease to a quality tenant paying market rent.

Due diligence

There are a number of searches and enquiries, including legal, physical and technical, which should be carried out when purchasing a commercial property. These include rates and water search, title search, company search (if the seller is a company), a search of the contaminated land register and land tax search.

A buyer can consider inserting a clause in the contract that the purchase of the property is subject to the buyer being satisfied with its due diligence inquiries, to be undertaken within a specified time.

Conclusion

Purchasing a commercial property is an important investment decision with significant financial implications. A good lawyer can help you negotiate the sale contract and ensure that your interests are protected during the purchasing process.

If you or someone you know wants more information or needs help or advice, please contact us on 03 9308 0556 or email info@fordlegal.com.au.

Making a Will is important, particularly if you are part of a blended family. A blended family is a family in which one or both partners have a child or children from a previous relationship. Careful estate planning now should ensure that all of your intended beneficiaries are provided for when you die and that the potential for conflict within the family unit is minimised.

There is no one-fit solution when it comes to estate planning for the blended family. The dynamics and needs within families evolve and personal assets may fluctuate from year to year. However, by identifying the potential issues that might arise within each family unit, and considering some options to address these, an effective estate plan can be accomplished.

The important thing is to discuss your circumstances and objectives with your legal advisor so that your wishes can be properly set out in your Will and other estate planning documents. These documents should be reviewed regularly to take account of changing circumstances.

Competing interests – the common issue

The most typical issues faced by a Will-maker within a blended family are the competing interests of past and present partners, biological children and step-children. The Will-maker is likely to want to look after the current partner and also children from previous relationships. There may also be children of the present relationship and children from the partner’s prior relationship to consider.

Traditionally, a Will for a married couple provides for the estate to go to the surviving partner in the first instance and then upon their death, to the children. This is likely to be inappropriate for blended families – not only must the children of the deceased wait until the step-parent dies before inheriting, but there is a risk that the surviving partner may change their Will so that the deceased’s own children miss out. A further risk is that the assets may over time diminish, leaving little for the deceased’s children.

In some instances, if adequate provision is not made from a deceased estate, an eligible beneficiary may be able to make a family provision claim causing distress, delay and uncertainty during an already stressful time.

The following may provide some helpful suggestions when considering these complex issues.

Immediate gifts and interests in real estate

When making your Will, you may choose to provide an immediate gift to your children upon your death rather than your children waiting to inherit after the death of your partner. A life insurance policy nominating the children as beneficiaries might be appropriate in this instance.

If the estate is significant, the Will could provide for an immediate gift of real estate, money or other valuable asset to the children. This will safeguard against the possibility of your children missing out on an inheritance should your partner later change their Will or your estate assets diminish.

If you and your partner hold real estate as joint tenants, you might consider changing this to a tenancy in common. A joint tenancy means that the share of property held by a deceased tenant automatically goes to the surviving tenant. This cannot be altered by Will. However, if the property is held as tenants in common, your share may be left to your children subject to leaving your partner a life interest in that share of the property.

A life interest will provide your partner a continued right to reside in and use the property until he/she dies at which stage your share will revert to your children. Note however, that life interests can be complex due to circumstances such as health and aging of the surviving partner who may need to downsize or move to an aged care facility. These issues should be carefully considered and discussed with your legal advisor.

Testamentary trust

A testamentary trust is a trust contained in a Will that comes into effect upon the testator’s death. A testamentary trust provides flexibility and control in asset distribution amongst beneficiaries and assists in protecting your assets from third parties and creditors. Assets can be preserved so that they can pass through future generations and the trust can provide for different scenarios.

Testamentary trusts are generally tax effective and may be worthwhile considering in your estate planning if the value of your likely assets warrants the establishment and administrative costs.

Choosing your executor

Your executor is your personal legal representative when you die. He or she has the role of ensuring that the wishes set out in your Will are followed. Your executor will deal with your estate lawyers, accountants, financial advisors and real estate agents. He or she will maintain estate accounts, pay bills and generally oversee the administration of your estate.

Generally, a person’s spouse or child will be nominated for this role. However, because of the dynamics involved in blended families it may be preferable to appoint one or more neutral friends or professionals who you trust so that the role may be carried out with impartiality.

Conclusion

These are some important points worth remember when considering estate planning for the blended family:

• Talk to your partner about your estate planning objectives.
• List all assets including those held separately and jointly.
• Consider everybody from the family including spouses, previous spouses, biological and step-children, and identify those whom you wish to benefit – preparing a family tree may be helpful.
• Contemplate if your choice of beneficiaries might leave open the potential for a family provision claim. You may need to discuss this with your legal advisor.
• Choose impartial executors.
• Discuss your objectives with your lawyer so the relevant documents can be prepared.
• Ensure that you have binding death benefit nominations in place for your superannuation and life insurance policies.
• Review your Will and plans regularly, and immediately if your personal, health or financial circumstances significantly change.

If you or someone you know wants more information or needs help or advice, please contact us on 03 9308 0556 or email info@fordlegal.com.au.