Superannuation is held in trust for its members until a condition of release is met. Death is a condition of release so the trustee can pay the super death benefits of the deceased out.
However, under the SIS Act the death benefits can only be paid to certain people who are classed as “SIS Act dependants” or to the estate:
A SIS Act Dependant includes
– A spouse (married or de facto)
– Any child
– Any person with whom the deceased had an interdependency relationship
Or to the estate:
– The deceased’s legal personal representative (executor or administrator of estate)
Who the benefits are paid to amount the above is determined solely by the trustee of the fund, subject to the trust deed or a valid binding death benefit nomination (BDBN).
Under trust law a trustee cannot be directed by others – a trustee’s discretion cannot be vetted. To get around this trust deeds can direct that the trustee must follow a written direction such as a BDBN.
Some funds only allow a 3 year BDBN which then lapses. If you don’t or cannot renew then the BDBN expires and won’t be effective.
Without a valid BDBN the trustee will decide where your super goes. If you have your super in an industry fund strangers will decide. If you have 2 children and one is a member of your SMSF then this child will decide where your super goes – to themselves only possibly.
People’s super balances are increasing and together with life insurance proceeds it wouldn’t be unusual for an average person’s super balance to be over $1mil on death.
Tip – make sure you understand where your super will go when you die and do something about it if there is a chance it could end up somewhere you don’t want it to go.
Originally posted at
Not complying with court orders can lead a person to get into serious trouble.
In a recent case relating to a family law property settlement the husband was sentenced to 12 months imprisonment because:
– he withdrew $231,807 from a loan account, and then
– failed to make 48 months of repayments as required
The wife was to receive the house unencumbered (and the husband other assets) and the 48 monthly repayments were required to pay out the loan and discharge the mortgage.
The husband blamed his failing business for his need to breach the court orders.
The wife was the one who brought proceedings to court.
Parrish & Gallejo (No.2)  FCCA 2851
When preparing a will for a client I had to ask the question ‘what if your wife remarried?’
He started yelling “I will kill the bastard, who is he! He doesn’t even exist yet, but I hate him” – jokingly of course. Then I said ‘what if your wife died first and you entered a new relationship” – oh that is different he said
But it is a serious question. Spouses often remarry or enter into new relationships and this will affect the family assets that you leave behind – their owns assets plus assets they inherited from you.
Homer and Marge are happily married and have a few assets in each name. Homer dies and leaves everything to Marge. Nothing to the children and nothing on trust.
A short time after the funeral Marge enters into a dalliance with neighbour and widower Ned – who is renting and has no assets. Pretty soon Ned is staying over 4 nights per week and then moves in.
Marge then dies of a heart attack during a vigorous love making session.
Her will leaves everything to her kids. But Ned has grown accustomed to living in style on the money Homer left Marge. Ned also likes the bed Homer purchased and wears Homer’s dressing gown in the morning. He also feeds Homer’s dog!
Ned makes a family provision claim. He is an eligible person as he is now a ‘spouse’ of Marge – or was on her death. His new girlfriend has moved into the house too.
Ned gets awarded 30% of Marge’s estate and they live happily ever after.
If Homer had considered this in his will he could have taken evasive action to prevent or reduce the financial effect of a new spouse on the family.
See Discussion at:
A client has advised they were ‘advised’, on an expensive course, to deposit their wage into a bank account of the trustee of a trust rather than into their own personal bank account..
This is for asset protection supposedly.
The idea is that the money never touches your account so it cannot fall into the hands of creditors.
In situations such as this, the trustee would be holding the money for you as bare trustee. There is no asset protection if you were to go bankrupt, die or go through a family law property settlement as it is still your money.
Furthermore, you have additional issues to consider such as what if the trustee
You would probably have worse asset protection issues.
If you did end up bankrupt the money could easily be clawed back.
Tip: Don’t do this without proper legal advice tailored to your situation.
I don’t advise on property law, but this topic is relevant to asset protection.
The Torrens system of registration of title for real property was first introduced in the late 1800 and it has slowly been replacing the existing system since then. The existing system of title is known as ‘old system title’ and it was complex and cumbersome.
In old system title when a property was sold the ownership had to be proved by both the physical title and locating all the previous transfers relating to that title. Sometimes documents went missing and it was a real pain in the arse being both time consuming and costly.
Torrens was introduced as a system of registration to replace all of this. The name registered on title was the legal owner. This is enough proof.
Indefeasibility refers to the fact that what is registered on title is proof. So, a registered owner is proof of legal ownership. A registered mortgage is proof of the legal mortgage. It is said to be a ‘system of title by registration’.
But this doesn’t mean registered ownership takes priority in all cases.
An example is fraud. Where title to a property is fraudulently transferred to someone else then them being registered owner does not mean it is indefeasible. This can happen with mortgages too. There is a recent case where one spouse mortgaged a jointly owned property to borrow money by forging the signature of their spouse. Since this was fraudulent the lending bank could only recover half of their money.
Keep in mind that there are also unregistered or equitable interests. The legal owner may not be the beneficial owner of a property. This happens where they are acting as trustee under an express trust, such as a discretionary trust, or where a trust is implied such as a resulting trust. In these cases the courts will enforce transfer of title based on equitable grounds.
Then there claw back provisions in various legislation such as
Title of a property might be held by person A but the courts can reverse this and transfer it to person B and then to creditors, spouses, missed out beneficiaries etc.
So, in summary, indefeasibility does not mean a property dealing cannot be attacked, but it is evidence of the current legal ownership of property.
Discuss at https://www.phttps://www.propertychat.com.au/community/threads/legal-tip-223-indefeasibility-and-the-torrens-system.40248/ ropertychat.com.au/community/threads/legal-tip-223-indefeasibility-and-the-torrens-system.40248/
There are several issues which can arise when a member of a trust loses their mental capacity.
Trustees – a trustee must have mental capacity to act as trustee. Where capacity is lost, and that person is a trustee they will automatically be removed as trustee. The terms of the trust deed will need to be read to determine what happens next. Often it will be up to the appointor to appoint a new trustee.
A trustee’s attorney cannot act in their place.
Homer is trustee of the Simpson Family Trust. Homer has appointed Barney as his attorney, under an enduring power of attorney document, if Homer where to lose capacity. Homer does lose capacity and can no longer act as trustee. However, Barney cannot act as trustee in Homer’s place.
Appointors – The appointor of the trust is the person who has the power to hire and fire the trustee. Also called the Principal or Controller in some deeds. If an Appointor loses capacity often, they are automatically removed as appointor – this is often built into the deed of the trust. If this happens a successor appointor appointed by the trust deed or a second deed may determine who the next appointor is. Where there is none there may be no appointor of the trust. Where the trustee and the appointor are the same person this could causes problems as the trust would be out of anyone’s control and an application may be needed to the Supreme Court for them to appoint a new trustee (very costly).
Where the appointor is not automatically removed then the appointor’s attorney may be able to exercise the power of appointment of the appointor.
Homer has made an enduring power of attorney appointing Barney to act on Homer’s behalf. Homer is the trustee and Appointor of the Simpson family trust. Homer loses capacity. Barney cannot use the POA to become trustee, but he can exercise Homer’s power as appointor of the trust to appoint himself as trustee.
Beneficiaries – a beneficiary is just a potential recipient of income and/or capital of the trust. A beneficiary losing capacity doesn’t change this, they can still receive income and/or capital from the trust.
Company Trustees – If a director of a company loses capacity often the company constitution will work to automatically remove that person as director of the company. If a shareholder loses capacity their attorney can act in their shoes by using the voting power and shareholders can vote in a new director. A director’s attorney cannot act as director but must be appointed director of the company first.
It is also possible for a company to have successor directors or substitute directors. These are appointed by the constitution of the company and need to be set up before capacity is lost.
Homer is the sole director of Simpson Nominees Pty Ltd which acts as trustee for the Simpson Family Trust. Homer has appointed Barney as his Attorney. Homer loses capacity. Barney cannot simply start acting as director of the company or operating its bank accounts etc. The shareholders of the company must appoint a new director. In this company Marg owns 50% of the shares and Homer owns 50% of the shares so a meeting of shareholders would need to be called a vote counted – Barney could vote on Homer’s behalf and Marg on her own behalf (the constitution would deal with situations where there is a 50/50 tie in voting).
However, it is later recalled that the constitution of the company was amended a few years ago so that if the current director lost capacity Bart Simpson would immediately be director – no further consent was required (however the shareholders could vote Bart out, depending on the constitution of the company)
A worry for some people is that if they become shareholders of a company, they could somehow become liable for the debts of the company.
This is not the case unless the shareholders give a personal guarantee or become directors of the company perhaps.
Bart invests in Barney Pty Ltd which is a construction company. The company has virtually no assets. One day one of the staff members is seriously injured and sues the company. The company collapses and Bart is worried ‘they will come after him’.
This is generally not possible because Bart is a separate legal person to the company. His shares will be worthless, but there is where it ends.
However, there are some limited exceptions to this rule those for cases of fraud, the company acting as agent for the shareholder, shadow director roles, shams, parent companies and subsidiaries – all of which are very rare.
The King v Portus; ex parte Federated Clerks Union of Australia (1949) 79 CLR 42
“The company…is a distinct person from its shareholders. The shareholders are not liable to creditors for the debts of the company. The shareholders do not own the property of the company…” (at 435)
I often see discretionary trust deeds which nominate the next appointor, upon the death of the current appointor, to be the Legal Personal Representative (LPR) of the last appointor upon their death. On death the LPR of the deceased is the executor or administrator of the will.
This is a bad idea!
Homer has set up a trust without getting legal advice. Homer is the sole appointor of the trust and there has been no thought given to what happens after his death. The deed is worded in such a way that the LPR of Homer will become the next appointor. The trust holds assets of approx. $2mil when Homer dies.
What could happen?
Solution – seek legal advice about appointing a successor appointor now, via a separate deed. If the trust deed doesn’t allow this, seek legal advice on having the deed amended to allow it.
Keep any clause relating to the next appointor being nominated in the will as a back up, and avoid having the LPR being the next appointor.
When entering any transaction, especially related party transactions, consider the clawback provisions under the Bankruptcy Act, the 2 main ones being:
Section 120. Undervalued transactions see
Most people forget about the state legislation as well:
e.g. Conveyancing Act 1919 (NSW)
Section 37A. Voluntary alienation to defraud creditors voidable
Each State has its own legislation similar to the s37A
What the above sections mean is that a transaction entered into with the intent of defeating creditors or putting property out of reach of the trustee in bankruptcy (if you were to go bankrupt) could be attacked. This can even apply to future creditors.
So, take care in how you do things, especially related party transfers such as changing title on property, declaring trusts or moving cash.
Testamentary Discretionary Trusts (TDT) are the best sort of trust out there, but someone has to die for them to come into existence. So, they are relatively rare. Also, the capital of the trust has to come from the deceased for the extra tax benefits to work (excepted trust income).
So, I cringe when clients approach me wanting to wind up a TDT that their parent has left them in control of.
Their idea usually goes something like this. I have a $1mil loan on my main residence and the trust holds $1mil worth of assets. If I wind up the trust, I can pay off my home loan and save interest.
It is a valid point, but once a TDT is closed it can’t be reopened again, and even if kept open new capital can be injected, but income generated from it would not qualify as except trust income and would not get the concessional tax treatment in the hands of children.
There is a simple way around this though, and that is to get the trustee to make you an interest free loan.
Bart’s dad Homer dies and leaves $1mil to a trustee of a TDT set up under his will. Bart has a $1mil home loan so winds up the trust and pays off the loan.
Lisa is in the same position, but she controls a separate, but identical trust. Lisa gets the trustee to lend her $1mil interest free which she uses to pay off her loan. She has not no deductible debt now. So, she uses the $3,000 she was paying the bank each month to pay back the trust.
The trust now has money with which to invest. The income from these investments can go to Lisa’s children tax free – because they can each earn $20,000 pa tax free so it will be ages before the trust’s income is more than this.
Meanwhile Bart is making the same investments as Lisa, but he receives the income himself and is taxed at 47%
Over the next 15 years or so Lisa would have probably repaid the full $1mil back to the trust so it is now generating about $40,000 per year in income which comes out tax free to her kids.
Once the kids start working, she will have to reassess where the income goes, but until then there are huge savings.
Tip – Don’t wind up a testamentary trust without careful consideration and legal advice.
Note that this would also give great asset protection as well.
Get some legal advice before trying this.
Some people want to help their elderly parent(s) purchase property. This might be the parents moving to a more suitable property or the parents becoming owners instead of renting.
Helping the parents into a property can also help the children too, because they may potentially inherit the property at a later date and there can be great tax concessional along the way.
There are basically 3 main ways an adult child could help a parent into a property:
b. loan – at interest or interest free
c. purchasing part of the property.
There are various estate planning consequences to each of these and also practical consequences.
Some things to consider:
An example of how It could work
Bart and Lisa are adults with one parent left – Homer. Homer lost his house years ago and is renting. Bart and Lisa each have their own homes fully paid off and some cash in the offset accounts to their separately owned investment properties.
Bart finds a property with development potential. It is just around the corner from where Homer lives in his rented flat. Bart is going to purchase the property and is deciding what entity to put it in when he has an idea.
The property purchase price is $500,000. He has enough cash to pay for it so he could just buy it outright, but since his dad is not getting a main residence exemption for CGT Bart talks to Homer, his dad, and they decide to buy it in Homer’s name.
Homer signs the contract and Bart lends him the 10% deposit with a promise to lend him the rest for settlement.
Bart then realises that if Homer dies his sister Lisa will end up with half the property. So to make things fairer he talks to Lisa and gives her 2 options
Bart and Lisa decide to ‘go 50/50’ and each lend Homer $250,000 and Homer settles on the property. It is a 5 year interest free loan which they intend to renew each 5 years.
Bart arranges various approvals and the property is now worth $1mil when Homer dies 4 years later.
Under the terms of the will of Homer 50% of his assets would go into each of 2 testamentary discretionary trusts with one controlled by Bart and one controlled by Lisa.
They each now have 50% of an additional property which would be could be sold tax free or held onto with a cost base of $1mil. There has been no land tax along the way because this was Homer’s main residence and they have each gained further tax deductions by using cash in their offset accounts.
Furthermore, any income generated from the property from that point could be streamed to their minor children, as beneficiaries of the trust, with each child getting around $20,000 without having to pay tax.
Just before Homer’s death they also forgave the loans they made him – so this meant that an extra $500,000 was driven into the testamentary discretionary trust so they could generate even more tax free income.
Legal Tip 208: Helping an Elderly Parent Buy a new property https://www.propertychat.com.au/community/threads/legal-tip-208-helping-an-elderly-parent-buy-a-new-property.39377/
Written by Terryw Lawyer at www.structuringlawyers.com.au
I would like to tell you, but it is a secret.
These are trusts, usually set up under a will, where property is left to a person on an undisclosed trust for someone else.
Homer dies and leaves $100,000 cash for his mate Barney, but leaves it to Ned on the understanding that Ned gives Barney $100 per week for the next 100 weeks (so Barney doesn’t waste it all in the first week).
Barney is not recorded as the beneficiary under the will.
Naturally there may be problems with enforcing these trusts as no one may know about them other than the trustee. The beneficiary may realise or find out though but even then they will probably have difficulty proving the trust if there is no written evidence. As such you really must trust your trustee when doing this.
There is also the half secret trust, and that is when the trust is partially disclosed in the will. For example the will might say that Ned is the trustee (using above example) but not who the beneficiary is or the terms of the trust. This might have a higher chance of being enforced as it is evident that there is a trust, but not who for and for how long and how much.
Written by Terryw who is a lawyer at www.StructuringLawyers.com.au
When one spouse dies often the surviving spouse remarries. This will mean any inheritance received by the surviving spouse could be at risk of not ending up in the children’s hands.
Homer and Marge are happily married and have 3 kids, they prepare their wills so that if one dies the survivor gets everything, if they both die the kids share everything equally. Sounds good so far.
Marge inherits Homer’s assets which were 50% of the main residence, 50% of the investment property and 425 pens stolen from his employer over the years.
So far all is well.
A year after Homer’s death Marge gets on tinder and eventually marries a guy called Barney.
Marge’s will is now revoked by the marriage, marge dies and under the intestacy laws of NSW the assets of Marge get shared by Barney and the kids.
Even if Marge didn’t marry Barney, he might still be able to take a share because he is a de facto spouse. If the will was in place still, he could make a family provision claim. There is also the possibility that Marge will knowingly prepare a new will and leave Barney something – or everything.
So, when making a will consider that your spouse could enter a new relationship after your death and plan for it. Assume it will happen.
A Bucket company is a company set up to receive profits from another entity – usually a discretionary trust. The bucket company usually does nothing else, except receive money and make loans or directly invest perhaps. Over time the value of the bucket company will rise as money is coming in but not going out. Therefore, it will become increasingly important to consider in regards to estate planning and asset protection.
One estate planning strategy is to set up one separate bucket company for each child so that when the controller of the companies dies each company’s control can be passed on rather than having multiple people inherit the control of one company.
Homer has 3 kids. He wants to leave them approximately the same amount of his assets 1/3.
Homer has decided to set up a discretionary trust to use to invest in shares. He seeks legal advice on the difficulties with leaving the control of the trust to more than one person so has that covered. But after a while the dividends of the share investments are building up so Homer sets up 3 bucket companies with 3 separate discretionary trusts with one trust holding the shares in each bucket company.
When the dividends come in, he causes the trustee of the share trust to distribute 1/3 to each company. Over a period of time the companies end up with large amounts of retained earnings which and then lent back to the share trust.
Each of the bucket companies is then passed to each child – actually nothing is passed but the control of the bucket companies is arranged so that Child A controls Trust A and Bucket Company A.
This way things will be easy to divide. There is no more than one child involved in one company so if they want to cause the company to make loans, invest, pay dividends or close down they can do so without the need to effect or even consult with their siblings.
For a Discussion go to: