Business Succession and Estate Planning Bulletin

Transcription

1 March 2017 Business Succession and Estate Planning Bulletin In this bulletin: Enduring powers of attorney in estate planning Testamentary statements a useful tool when judiciously utilised Contact Paul Paxton-Hall Director Level 10, 15 Adelaide Street, Brisbane Qld 4000 Telephone: paul.paxton-hall@paxton-hall.com.au

2 Contents Enduring powers of attorney in estate planning... 1 Purpose & function of enduring powers of attorney... 1 Powers beginning upon loss of capacity... 1 Powers beginning immediately Superannuation... 2 Family trusts... 3 Family companies... 3 Conflict powers... 4 Substantial gifts... 4 Testamentary statements a useful tool when judiciously utilised... 5 Revell v Revell [2016] NSWSC Purpose of testamentary statements... 5 Court s view of testamentary statements... 6 Lawyer s role in testamentary statements... 6 w:\matter\270380\ doc March 2017 bulletin

3 Enduring powers of attorney in estate planning 1 This article discusses the importance of having an enduring power of attorney in place as part of your estate plan and related issues. Purpose & function of enduring powers of attorney 1. Your enduring attorney is a person who you appoint to make legal/financial and personal/health decisions for you as your substitute decision maker. 2. The personal/health powers can only begin upon your incapacity because you are always in charge of your own person. 3. The financial/legal powers can begin at any time chosen by you. Typically the financial/legal powers would begin either immediately, or upon your incapacity. Powers beginning upon loss of capacity 4. The advantage of having the financial/legal powers commence upon your incapacity is that it provides you some comfort that your attorneys will not act when you have capacity to manage your own legal and financial affairs. You remain in total control of your affairs. This could assist in preventing fraud or your attorneys taking advantage of you. However, some suggestions as to why a person may wish to have the power commence immediately are: (1) Your attorneys must always follow your instructions whilst you have capacity. The fact that a power has commenced does not authorise them to begin making decisions on your behalf! Whilst you can give instructions, they must follow them, and they cannot 'take over' your affairs simply because the power has commenced. (2) Having the powers commence upon incapacity does not prevent your attorney misusing the power after you lose capacity and the powers commence. (3) When an elderly person is in the slow and graduated process of losing capacity, it is not always clear when the powers commence. This can lead to uncertainty and repeated visits to medical practitioners (discussed further below). Powers beginning immediately 5. The advantage of having the powers commence immediately is that your attorneys can act for you in all circumstances. You do not need to lose capacity to make decisions for yourself for your attorneys to be able to act for you. 6. This may be useful if you are out of state or overseas. i.e. your attorneys can act when convenient for you. That said it is becoming rare in practice that there will be occasions when a facsimile or a scanned copy of your signature, or your instructions by telephone, will not be able to get you out of a financial or legal pickle when you are temporarily overseas. 1 Please note that in other States different rules apply for powers of attorney. This article relates to Queensland estates, though the principles are valid in other states of Australia with the appropriate modification to take account of the state specific legislative and common law rules. w:\matter\270380\ doc March 2017 bulletin 1

4 7. The second reason that powers beginning immediately are useful arises from the practical issues with obtaining certificates of incapacity. Not all medical practitioners are able or willing to provide a document certifying the incapacity of someone who has lost capacity. Some practitioners prefer to refer you to a specialist geriatrician, psychiatrist or neurologist, depending on the flavour of the capacity challenges. This can lead to significant delays in your attorney being able to obtain such certification, which is delaying them being able to act as your attorney. This is particularly the case for people who live in regional Australia without easy access to specialists. This may have a material impact on your finances or your business whilst your attorneys are trying to get this certification for you. This is avoided if the power of attorney begins immediately, rather than on your incapacity. 8. Lastly, some people, particularly elderly people who have capacity but recognize their capacity is diminishing and feel vulnerable and intimidated by complex legal or commercial transactions, prefer that their attorney/s be able to assist with these matters under their direction and in conjunction with them, rather than the elderly person having to maintain that role solely themselves. This is a great practical assistance, which would not be possible if the power of attorney commenced only upon incapacity. 9. Technically speaking it is not actually necessary for the person assisting you to be your attorney. You can appoint an agent or advocate (rather than an attorney) who, with your instructions, can assist in negotiating complex matters such as entering into aged care and the financial implications of this. However banks, government departments and health institutions typically will not deal with anyone other than an attorney whose power to act has commenced. This forces those elderly persons into a position in which they must have their attorney act rather than merely have their attorney assist them as their child or spouse, which is unfortunate. Superannuation 10. It is important for superannuation purposes that you have an enduring power of attorney in place. This is particularly the case if you have a self-managed superannuation fund (SMSF). 11. An SMSF must at all times ensure that the members of the fund are either: (1) the trustees of the SMSF; or (2) the directors of the corporate trustee of the SMSF. 12. If not, the fund risks becoming non-compliant with the attendant tax consequences (Note: there is a transition period of six months allowed under the Superannuation Industry (Supervision) Act 1993 (SIS Act) for the role of trustees and directors to be corrected). 13. The SIS Act allows an enduring attorney of a member to be appointed as trustee or director of the corporate trustee, if that member has lost capacity. Note that the attorney is not acting as attorney of the incapacitated person in this role. They are actually acting as the trustee in place of that person, and the attorney will have all the duties and responsibilities of a trustee or director. Their appointment as trustee/director is pursuant to section 17A(3)(b). 14. Therefore, if you are a member of a SMSF and you lose capacity, you need to have an attorney who can act in your place as director or trustee. If you do not have an w:\matter\270380\ doc March 2017 bulletin 2

5 attorney, depending upon the terms of the fund deed, your spouse or another member of your family may need to make an application to the Queensland Civil Administrative Tribunal (QCAT) for an administrator to be appointed for you. Achieving this within 6 months can be a marginal proposition given QCAT timeframes and will usually require a request for the matter to be expedited. Family trusts 15. One must also consider their family trust in their estate plan. The appointor/principal of a family trust (depending on the terms of the trust deed) is ultimate controller of the family trust because they have power to hire and fire the trustee. There is case law that provides the enduring attorney of a person can act in their role as principal/appointor of a trust. This means that if you are the principal/appointor of your family trust, and you lose capacity, your attorney may be able to act as principal/appointor for your family trust. 16. This potentially gives your attorney ultimate power over your family trust from when you lose capacity, even if this is not your estate plan. You may have appointed a successor appointor/principal in your will, but this will not take effect until your death. Until then, your attorney may be in control of your family trust. This needs to be considered in the context of your estate plan i.e. did you actually want all of your children to jointly take over the trust, but for practical or personal reasons you may have appointed only one of your children as your attorney. 17. In such a case you would need to review the terms of the family trust deed to determine if the trust deed allows the attorney to act as the appointor. There are many family trust deeds which require that upon the principal/appointor's incapacity they are automatically removed from that position. In such case their attorney would not be able to exercise their powers as appointor/principal because those powers ceased immediately when the appointor/principal lost capacity. 18. Alternatively, this may be precisely what your estate plan needs and you would rather your attorney, keeping in mind the spouse is commonly the primary attorney, to retain control of the family trust in the event of your incapacity but prior to your death. Family companies 19. Your enduring attorney cannot act in your role as director of a family company. The office of director is personal to the director appointed in accordance with the Corporations Act 2001 and the company constitution, and an attorney of a director has no power to act as director. Further, a director is automatically removed from office upon the director losing capacity. 20. However, it is possible for your attorney to act in your place as shareholder of a family company, provided that the constitution of the company allows this. Therefore your attorney may be able to act on your behalf as shareholder (in conjunction with the other shareholders, if any) and appoint a director. If the attorney wished to appoint themselves as director, they would need to have been authorized to enter into conflict transactions by you in the power of attorney document. 21. An alternative temporary succession plan for a family company with a sole director/shareholder is for the company itself to appoint an attorney. This is not an enduring power of attorney (because it is for a company and not a natural person), but a general power of attorney. The company would appoint an individual as its attorney in the event that the sole director is not available. w:\matter\270380\ doc March 2017 bulletin 3

6 22. The powers could be specified only to begin upon the incapacity of the director. Conflict powers 23. The Powers of Attorney Act 1998 (POA Act) prohibits conflict transactions unless the principal authorises conflict transactions. A conflict transaction is any transaction where your attorney has potential to benefit e.g. if they purchased property from you. 24. There will be a broad range of transactions your attorney may wish to enter into for your benefit which are conflict transactions. This is particularly so for spouses acting as your attorney and where you own property together with an attorney. 25. If you haven't authorised your attorney to enter into a conflict transaction, they may be barred from acting. 26. Whether this prohibition on entering into the transaction is appropriate depends upon the circumstances of each case. However, as a general comment, it is commonly appropriate and practical for spouses to be authorised to enter into conflict transactions, but not children. It is rarely necessary for a child to enter into a transaction with one of their parents. There will be exceptions to this where it is appropriate for children to have conflict powers, including where the child is the intended beneficiary of a family business, and owns part of that business with you. Substantial gifts 27. The POA Act treats gifts differently to other conflict transactions. Section 88 prohibits the gifting of a principal's property or money to any person, unless the principal authorises the gift, or the gift is: (1) to a relation or close friend of the principal and the gift is of a seasonal nature or because of a special event (e.g. a birth or marriage); or (2) a donation of the kind that the principal made when the principal had capacity or that the principal might reasonably be expected to make. 28. It would be extremely rare that a power to make substantial gifts would be required in practice. It is giving your attorney power to give away your estate. That said, you may be comfortable with giving this power to your spouse where you own the family home or other important family assets solely and you want to ensure that, if ever necessary, your spouse can transfer the home/asset to themselves. You should only do this if it accords with your estate plan. w:\matter\270380\ doc March 2017 bulletin 4

7 Testamentary statements a useful tool when judiciously utilised Revell v Revell [2016] NSWSC A testamentary statement is a statement made by the testator (person making their will) to explain why they made their will the way they did. 2. It often used when the testator is concerned that their will may be contested after their death (though it can be used in other circumstances). The common way wills are contested is by a family provision application under the Succession Act 1981 (Qld) (Succession Act). 3. For example, if a testator decides to leave 75% of their estate to child A and 25% to child B, this seems on the face of it to be unfair. However the testator may have good reasons for this including: (1) child A worked long hours for many years in the testator s family business when child B did not; (2) the testator provided significant sums of money to child B during his or her life, and paid for child B s education and training, but child B did not exploit the opportunity given to them and instead lived unproductively; or (3) other good reasons. 4. The right of a person to claim for further provision is not absolute, and there are regularly circumstances where a person who comes within the eligible class of claimants under the Succession Act does not have the grounds to be successful. However the claim needs to be considered and opposed if prudent by the executors to uphold and enforce the testator s wishes. A testamentary statement can assist in this circumstance. Purpose of testamentary statements 5. The purpose of the testamentary statement is twofold: (1) the testator hopes the explanation in the statement might assuage a feeling in the potential claimant that they were not treated fairly under the will, and ultimately persuade the person not to make a claim; and (2) if a claim is made, the statement assists the Court understand the reasoning of the testator in forming their will, and helps demonstrate the wisdom and judiciousness of the will. 6. After your death, you can no longer speak up for yourself. You cannot explain your reasons. Your surviving family members will be able to tell their side of the story, whether that be in support of your decisions in your will, or against the decisions. There are times when their story will be hyperbolic and perhaps not strongly aligned with reality. 7. Regardless of the cogency of the arguments put forward by claimants against your estate, if your side of the story is not represented, their arguments may be given greater weight and acceptance than true fairness demands. The voiceless are shouted down easily. w:\matter\270380\ doc March 2017 bulletin 5

8 8. A testamentary statement is your opportunity to put on the record your reasoning for your decisions in your will. You can tell your story. 9. The statement ought to be prepared carefully without haste. The statement can reflect natural emotions but should do so in a considered and tempered manner. 10. The statement should not be a condemnation of anyone but rather is a conscientious explanation of reasoning. Court s view of testamentary statements 11. Testamentary statements do not bind the Court and do not mean a person cannot contest a will. A statement cannot make up for what is otherwise a glaring lack of adequate provision by a testator to a deserving spouse, child or dependant. 12. However the Court will give consideration to a testamentary statement where it provides cogent reasons for the design of the will and assists the Court to understand the reasonable basis for the lack of provision. 13. In Revell v Revell [2016] NSWSC 947, the Court considered such a statement in the context of an adult claimant who received $1.5M but claimed an extra $1.5M out of an estate totaling $10M. The testator, who was the claimant s father, had written a statement explaining his decision. 14. The passage of time, and the fact the father was not accurately apprised of his son s precise circumstances, mean the statement had some inaccuracies. (This is difficult to totally avoid when writing such statements, particularly when they are written some years before death.) The Court however, still placed value on the statement and said: "For those reasons, this is not a case, in my view, where I should discount the weight to be given to Tibby s written explanation because it was, to some extent, based on incomplete or inaccurate information: Salmon v Osmond at [72] per Beazley P. As I have endeavoured to explain, the importance of the statement lies in its sentiment, its conviction and its indication of careful thought. When it is coupled with all of the other evidence that I have summarized, including the historical relationship between father and son, I do not think that Tibby would have felt it appropriate to change his will even if he could have been aware of his son s circumstances at the date of the hearing." (per Pembroke J, at paragraph 34) Lawyer s role in testamentary statements 15. Lawyers ought not to prepare such statements. They need to be written by the testator. However we strongly recommend that you have your lawyer review such statements to ensure their content is appropriate and will be of assistance rather than be a hindrance to the Court, if ever needed. 16. The statement should be prepared at the same time as your will and other estate planning documents, should corroborate your will and be stored confidentially with your will. You can determine if the statement is only released to the beneficiaries if a claim is made, or if is to be released to them in any event. w:\matter\270380\ doc March 2017 bulletin 6

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