Author: heirsandsuccesses

Jonathan and Janet Smith both die within a few months of each other. They have one son Nick who is a poor financial manager with a history of failed business ideas. Nick’s last get rich quick scheme was to trade frozen concentrated orange juice futures, due to laziness and stupidity he lost all of his and his investors money and had to declare himself bankrupt. Jonathan and Janet left their entire estate to Nick; which was lost to the trustee in bankruptcy.

Had Jonathan and Janet created a testamentary trust for the benefit of Nick and his family, the estate would have been saved.

A testamentary trust is created by a Will (or codicil to a Will) and takes effect when the person who has created the will, dies. Testamentary trusts are usually set up to protect assets.

They are created if beneficiaries:

• are minors;
• have diminished mental capacity;
• won’t use their inheritance wisely; and
• does not want family assets split as part of a divorce settlement or become part of bankruptcy proceedings

Testamentary Trusts are flexible enough to be customised to suit the objectives and needs of the Will maker and beneficiaries. There are taxation and asset protection advantages associated with Testamentary Trusts, however the taxation advantages are secondary to the asset protection a trust affords.

The Will maker usually names a trustee in the Will who must look after the assets for the benefit of the beneficiaries until the trust expires.

The trust ends when a minor reaches a certain age or a beneficiary achieves a certain milestone, as specified in the Will.

A trust must have:

• Trust property
• The trust document (referred to as a deed)
• certainty of property and objects so that the trust is administratively workable;
• must comply with evidence requirements; and
• with trust rules.

A Will maker bequeathed shares in a company £2,000 on trust until the beneficiary turned 25. When the beneficiary reached 21 (the age of maturity at the time) he sought access to the capital and dividends immediately

The rights of the beneficiary were held to supersede the wishes of the Will maker the beneficiary that has an absolute interest in the trust property, is not bound to wait until the expiration of that period, but may require payment the moment they are competent to give a valid discharge.

Michael Rogers, the executor of the will of Kathleen Mary Rogers sought the directions of the court as to the proper interpretation of the will. Kathleen’s only child Alexandra was 16 when she died. Probate was granted on 14 October 2014. As Alexandra was a minor Michael held the residuary estate for her on trust after administration was completed. When Alexandra turned 18 clarification was sought

The relevant provisions are as follows:

 Residuary Estate

I give the residue of my estate to my daughter Alexandra Rogers Young, wholly. If she / they or their incidental beneficiaries predecease me, I give the residue of my estate to my nieces and nephews, whether in uteri or born in equal shares.

Incidental Beneficiaries

If any of my children do not survive me then that benefit which they would have received shall be divided equally amongst such children of theirs as survive them. If there are no such children, their share shall return the residuary estate.

Trust for Minors

The share of any beneficiary/ies who is/are under the age of 18 years shall be held in trust and be administered by the trustee for the purpose of support, welfare and education until he / she / they reach the age of 25.

If any minor beneficiary/ies should die prior to receiving all their share, then their share shall be held in trust and paid equally amongst their children. If there are no such children, their share shall return to the residuary estate.

(Kathleen made her Will using a Will form and words struck through are marked in strikeout. Words, which have been added by Kathleen in handwriting, have been underlined.)

As I have posted before Courts  construe the language of a will by using the “expressed intention” of the words of the Will maker. Kathleen made her Will using a will kit therefore as it is considered a home made will the court is able to make some allowances. It is only where the language used in the will is ambiguous that evidence of the Will maker’s intention is admissible.

In early 2014 Kathleen was told that she had cancer, and asked Michael to bring a copy of her will to her home; they discussed it for about three hours. Michael submitted, and the court accepted, that Kathleen was clear she wanted her estate to go to Alexandra when she was 25 years of age.

However, the overriding principle applied by the court is that a will is to be construed so as to give effect to the Will maker’s written intentions. The question concerning Michael is whether Alexandra acquires Kathleen’s estate at 18 or 25 years of age.

Alexandra submitted, and the court accepted, that her interest in the estate arose when her mother died notwithstanding Kathleen’s clear intention that the she should not receive the estate until she turned 25. The Will reads that the whole of Kathleen’s estate goes to Alexandra and is postponed only until she reached 18 years of age. Accordingly, she can require the termination of the trust and the transfer of the trust property.

The Court expressed its frustration with dealing with “homemade wills ”, calling them “a curse.” In this case the use of a ‘Will kit’ proved that point. Although Kathleen had a clear intention and the Will is reasonably straight forward the way that it is drafted meant that the parties had to seek directions as to its proper interpretation.

The court believed that if a competent legal practitioner had drafted the Will, this problem would not have arisen and the parties would have been spared a great deal of trouble and expense.

I was asked the other day what is a trust?  I have posted about Testamentary Trusts  including those for the provision of on-going support for a beneficiary under a Will.

However a trust in its most basic form is simply a relationship where A holds property for the benefit of B. A is known as the trustee and is the legal owner of the property which is held on trust for the beneficiary B. It is a relationship where the rights of persons for whose benefit the property is held is recognised and enforced by the courts.

The trustee can be an individual person, a group of individuals or a company. There can be more than one trustee and there can be more than one beneficiary.

Although the trustee is the legal owner of the relevant property, the courts will strictly enforce that the property must be used only for the benefit of the beneficiaries.

Trustees have a fiduciary duty towards beneficiaries and the courts will always enforce this duty rigorously.

In relation to a trust Australian courts have defined fiduciary duties include the duties:

• Not to place oneself in a position of conflict of duties relating to the beneficiary and the fiduciary’s interests;
• Not to make a profit out of the beneficiary’s trust;

Not act for one’s own benefit or the benefit of third parties, without the consent of the beneficiary.

The trustee has full control over the assets held by the trust so prior to naming a friend or relative as your trustee you should be sure that they are entirely trustworthy. Importantly trust administration is ongoing and complicated, and involves specialist financial understanding.

Where a parent is the trustee and their children beneficiaries the nature of the trustee’s duty is often misunderstood; importantly the children have rights under the trust that are enforceable by the Courts, although this rarely occurs.

One recent example is litigation concerning the Hope Margaret Hancock Trust (“the Trust”); established in 1988 by Lang Hancock,  his grandchildren Bianca, John, Hope and Ginia, were the beneficiaries of the Trust. Upon his death in 1992 his estranged daughter, and the beneficiaries mother, Gina Rinehart was appointed the trustee.

The trust property is a 23.4 per cent share in Hancock Prospecting  estimated to be valued at $4 billion.

The trust was supposed to vest, meaning the beneficiaries were to be paid their share of the money, in September 2011, when the youngest child, Ginia, turned 25. Three days before Ginia’s birthday, Mrs Rinehart wrote to her children explaining the trust was set to vest, but that they would be bankrupted if they took their money due to capital gains taxes. In order to prevent this they should enter into a deed that extended the vesting date.

Her children asked for evidence of these claims, which Mrs Rinehart refused to provide, they began court proceedings the basis of which were that by sending the letter and proposing the deed, Gina Rinehart demonstrated she was unfit to remain as trustee of the Trust.

Mrs Rinehart was found to have manipulated and misrepresented advice regarding the liability of capital gains tax and bankruptcy; and was

“… prepared to go to extraordinary lengths to retain control … she is capable of exerting enormous pressure and great influence to do so … she would likely attempt to overbear any trustee … who acted against her interests.”

Her eldest daughter Bianca was named by the court as the replacement trustee, (the court did not believe that her appointment was ideal but was far less unsatisfactory than the alternative) conditional upon her taking certain steps in the interests of transparency of administration of the trust.

Mrs Rinehart took Court action to prevent Bianca from accessing the trust documents. She lost.

Following on from Friday’s post where Colonel McKee left his estate in trust until after the death of his grandchildren for the purpose of establishing a school for orphaned children, I have been asked some questions about testamentary trusts.

Essentially a Will maker can leave a gift two ways:

• outright; or
• subject to certain conditions.

An outright gift enables the beneficiary to do what they like with it – this is usual where a person leaves property or an amount of money in a Will. However if there are any conditions imposed upon the gift by the Will maker it is effectively a ‘testamentary trust’.

The key elements of a testamentary trust are:

• Certain assets are singled out to be held in the trust, ‘trust property’;
• Someone is given control over the trust property, the ‘trustee’; and
• The trustee must manage the trust property (and its income) for the ‘beneficiaries’.

A testamentary trust is created by a Will (or a codicil to a Will); importantly to be valid, the Will must be valid.

The simplest type of testamentary trust is one that is created when you give a gift to someone that is held by the executor as ‘trustee’ until the beneficiary reaches a certain age. When the age is reached, the beneficiary will then receive the gift and the trust comes to an end.

However most people who talk about creating a testamentary trust in their will are thinking of something more sophisticated – think of Colonel McKee’s Will.

This kind of a protective trust enables the Will maker to control or influence the way the assets can be managed, used and accessed by their beneficiary.

They are often used where there is a concern that the beneficiary is unlikely to be able to manage their own financial affairs or are under the adverse influence of a third party; or the Will maker might want their assets to survive the beneficiary for the benefit of a subsequent generation.

The reason for this may vary depending upon the purpose of the trust; it may be to provide an income to the beneficiary, to allow for the education and maintenance of a beneficiary or both.

Commonly the trustees are other family members, lawyers, accountants or trustee companies.

The main reason to create a trust is to protect a gift. If the named beneficiary has a gambling problem, or has a history of making poor spending choices, the gift remains protected.

There can also be taxation benefits – although I am not going to discuss those here.

In a previous post I discussed Anna Nicole Smith’s Will where she left money to her son Daniel to be held in trust and distributed in three equal amounts when he reached age 25, 30, and the balance of the gift at 35.

A Will maker might leave this type of trust because if the beneficiary gets into financial trouble between 25 and 30 or 30 and 35 from a failed business or divorce only the assets they received at 25, or 30 are at risk; when they reach 30, or 35 they have another chance at properly managing this wealth.

John McKee, was an African American born free in Alexandria, Virginia in 1821; apprenticed as a bricklayer, he worked in a livery stable, a restaurant and dabbled in real estate until 1866, when he turned to investing in real estate full time.

McKee reportedly fought in the American Civil War and in June 1870 enlisted in the 12th Regiment of the Pennsylvania National Guard being promoted to lieutenant colonel of the 13^th Regiment in 1872.

When he died he was called “the wealthiest negro in the United States” with extensive mineral and real estate holdings including 300 rental properties in Philadelphia; his estate was estimated to be worth anything from $1,500,000 to $4,000,000,at the time. A son Henry Minton, daughter, Abbie Syphax, and six grandsons survived him.

McKee’s Will dated December 8 1899 left his daughter Abbie a modest house and a legacy of $300, with $50 for each of her children. His son Henry also received a $50 legacy; the residue of the estate was to be held in trust until after the death of his children and grandchildren living at the time of his death, when it was to be used for the establishment of a school for “poor colored male orphan children and poor white male orphan children (and by the term ‘orphan’ I mean fatherless children)” between the ages of twelve and eighteen to be known as Colonel John McKee’s College.

Although he wasn’t Catholic the Will named as executors and trustees of his estate his lawyer and the Archbishop of Philadelphia. Apparently notwithstanding his wealth when he contracted typhoid fever in 1896 Catholic nuns cared for him and other persons of color suffering from the disease, while many other white caregivers would not.

His Will asked that he be buried with his wife, however it was read after the funeral took place so his wishes were not carried out.

Abbie and Henry disputed the Will receiving respectively $26,500 and $25,000. In exchange for releasing any further claim on the estate Abbie later received $110,000; she remarried in 1904 and was reported to be “the richest colored woman in this city, and perhaps in the world.”

In the 1940’s it was believed that all of McKee’s grandchildren had died. A notice was placed by the executors and trustees that Colonel McKee’s estate was up for final disposition in the Orphans Court at Philadelphia asking for any surviving heirs to come forward.

A successful Wall Street lawyer T John McKee, who lived as a white man for forty-five years stepped forward to claim the estate of his grandfather.

T John McKee provided proof he was Abbie’s son born Theophilus John Minton Syphax; he  had a light complexion, had changed his name in 1904 and passed as white. He cut off relations with his family and married a white woman with whom he had two children. However he died in August 1948 prior to inheriting the estate.

The Court considered the estate to be inadequate to establish a school in accordance with the exact terms of the Will. Colonel McKee’s great grandchildren argued for an intestacy; the Court found that since the purposes of the Will could not be fulfilled precisely as Colonel McKee had specified, the estate should be used for the purpose most nearly approximating Colonel McKee’s educational goals, and directed that it be used to establish scholarships to fatherless young men of all races from the Philadelphia area in Pennsylvania.

 

I was asked the other day about what happens in the instance that an executor named in a Will cannot be found. You might think that this wouldn’t cause a problem but the executor has to:

Notify all beneficiaries;

Manage the property or goods left in the will;

Value the estate;

Complete income tax returns;

Apply for a grant of probate;

Pay all debts and liabilities;

and then Divide the estate.

Barry Mathews died at Iron Knob South Australia in June 2010. Barry’s estate was valued at around $46,000.00.

Following Barry’s death, his friend John Davidson located an original will that had been prepared using a Will kit and executed in January 2002.

If you have seen a Will Kit it comprises an instruction booklet and pre completed forms that allow the person making the Will to write the names of executors in the spaces provided. Barry completed the section as follows:

• Appointment of a Personal Representative (Executor/Executrix):

I appoint My Cousin Heather Manfield Personal Representative hereunder and if he/she shall not act for any reason, then I appoint as alternate Personal Representative John Davidson of Leigh Creek to act hereunder.

The will kit booklet provided the following details about Heather Manfield:

PERSONAL REPRESENTATIVE

Name HEATHER MANFIELD

Address Roadside Delivery Penola Postcode Phone ( )

John searched Barry’s papers and made inquiries as to the whereabouts of Heather Manfield; he could not locate her. John then instructed a solicitor to conduct searches for her whereabouts.

Property searches revealed that no one with the name “Heather Manfield” was listed as a registered proprietor of real estate in South Australia. Searches of the electoral roll revealed a “Heather Joy Manfield”; when contacted she informed the solicitor that she was not Barry’s cousin and was unaware of anyone else residing in South Australia with the name “Heather Manfield”.

A search of the register of Births, Deaths and Marriages found no record of death of a person named Heather Manfield within the last 10 years..

In April 2011, the Penola Post Office was contacted but had no record of the whereabouts of Heather Manfield. Similarly the two persons who witnessed Barry’s will had no knowledge of the existence or location of Heather Manfield.

John asked the court to make an order passing over Heather Manfield as executor as she was missing and is therefore unable to take up the administration of the estate, and granting probate to him. The Court agreed having regard to the estate’s due and proper administration and its beneficiaries.

Barry like many of us had created a Will but had not got around to updating it when his circumstances had changed. Although his estate wasn’t large the fact that John had to go to the trouble and expense of trying to locate an executor would have reduced the amount that was available to pay beneficiaries.

An executor’s year refers to the period of time within which an executor is expected to complete administration of a deceased estate or be in a position to distribute the estate.

The period has been held by Courts to be one year from the death of the Will maker. If legacies have not been paid within the executor year,  interest is payable from the end of this 12 month period until date of payment at a rate of interest fixed either by legislation or the Court.

Whilst this principle applies, in practice, it depends upon what is reasonable in the circumstances.

Kate Stephens died in August 1983, her will, split her property into three parts, leaving one part to each of her three children. She appointed two of her children executors of the will, the daughter didn’t want to act as executor so the Son was granted probate in November 1984, some 15 months after the mother’s death.

The principal asset in the estate was a house sold in January 1985.

The son and daughter argued over a cream jug he reckoned she had taken without authority; the daughter required full details of his administration. In June 1985, she signed a receipt for one sterling cream jug and one silver sugar basin, and wrote,

“I now require that within seven days you as executor provide me with an accounting in writing in respect to the estate.”

This did not happen; and in August 1985, the daughter issued a summons requiring her brother to prepare and file accounts and complete the administration of the estate. On 17 September, the son’s solicitors wrote to his sister giving an informal outline as to what had happened in the estate, containing full accounts together with a distribution of the major part of the estate. This did not satisfy the daughter who continued to press for an account.

In December 1985 the Court ordered that proper accounts be filed because in any event the daughter was entitled to an account and hoped that such an order might end the matter. In fact although hostilities had ended, the parties sought a decision of the Court to resolve the question of costs.

The three duties of an executor are to keep, deliver, and to vouch accounts so as to be able to report to beneficiaries within a reasonable time showing what has been received and paid. In the absence of very strong reasons to the contrary, if they doggedly refuses to do so he will be ordered to pay costs.

In the present matter the Court was troubled that the daughter’s request for accounting came very soon after the grant of probate, as the executor normally has a year to administer the estate, file accounts and make distributions without penalty. However, it did seem extraordinary that with a relatively small estate, with one main asset which had been sold and the purchase moneys taken in in January 1985, that it took another seven months for the main distribution to be made.

The Court found that the executor should have acted far more quickly than he did to answer his sister’s requests properly and wind up the estate as soon as was reasonably practicable. However, some of the sister’s demands went beyond what she was entitled to. The Court ordered costs to be paid from the estate.

 

Yesterday for the umpteenth time I posted that you should make a Will.

As I’ve posted before a Will is a planning document to be updated throughout your life as your circumstances change. You should also consider the level of insurances that you have to cover loss of income, and a life policy to ensure that your loved ones are cared for.

Importantly you need to be aware of the assets that can be disposed of by a will: property held as tenants-in-common; assets owned by you personally: a bank account, or a car; life insurance proceeds (where the estate is specifically mentioned as being the beneficiary).

Importantly your Superannuation is not an estate asset unless you have stipulated in a binding nomination that it is to go to your estate.

Christopher Webb married Kim Birchell in 1981. Their daughter, and only child Rebecca, was born in 1984.

Christopher joined a Superannuation Fund in February 1988.

Christopher and Kim separated in 1994 but never divorced nor did they divide their assets. Including retaining joint tenancies over both their family home and a holiday home.

Christopher started a relationship with Jill Teeling in 1997.

In February 2000 Christopher nominated that 25% of the Superannuation death benefit go to Kim, 25% to his mother, Olive, and 50% to his daughter, Rebecca.

Superannuation funds are governed by the individual funds trust deed and in this case Christopher’s nomination was not binding on the trustee, who had the absolute discretion to pay the benefit to or for the benefit of Christopher’s dependents as it thought fit.

In August 2006 Christopher died. As he still held the properties with Kim in Joint tenancy, by right of survivorship she automatically became the sole owner of the family home and the holiday home.

The trustee of the Superannuation fund apportioned Christopher’s death benefit as follows:

• $250,000.00 to OLIVE MAY WEBB, the deceased’s mother;
• $547,712.00 to KIM LORRAINE WEBB, nee BIRCHELL, the deceased’s widow;
• $100,000.00 to JILL TEELING as a financial dependant; and
• $1,293,137.00 to REBECCA LOUISE WEBB, the deceased’s daughter.

Jill requested that the trustee reconsider submitting she should be accepted as Christopher’s de facto partner and that adequate provision should be made for her from the fund.

As part of her submission Jill’s solicitors submitted that the allocation to Kim was grossly unfair, particularly having regard to her ownership of the family home and the holiday home and her long estrangement from Christopher. The Trustees dismissed these objections and confirmed its preliminary determination.

Jill appealed to the Superannuation Complaints Tribunal that she was not satisfied with the trustee’s failure to recognise her as a financial dependant and her future loss as Christopher’s de facto partner.

Jill claimed that the apportionment was unfair and sought a greater share of the fund as it did not adequately provide for her future financial security. She complained about the apportionment to Christopher’s wife, Kim, and as Christopher’s Mother Olive had died by the time the determination was confirmed, to the estate of his mother.

The Tribunal set aside the trustee’s decision and substituted its own decision distributing the fund as follows:

• 52% to Kim Webb ($1,139,241),
• 26% to Rebecca Webb ($569,620) and
• 22% to Jill Teeling ($481,987).

The estate of Olive Webb received no benefit from the fund.

An appeal by Christopher’s daughter to the federal court was dismissed.

Most of us have had money put into a superannuation fund. Importantly each fund has its own trust deed. So check with your fund to see if your death benefit nomination is binding and if it isn’t how it will be divided in the event of your death.

At social functions I sometimes find myself being asked for answers to people’s legal questions; depending on how I’m feeling (I’ve had a good day, the company is good and the wine is reasonable) I sometimes answer, for information purposes only; it does not constitute legal advice.

When answering such a query there is an unspoken understanding that I accept no liability for anyone who asks for and then uses this general legal information.

So the other night I was asked what happens if you died without a will and you’re in a same sex relationship, would your partner be eligible to inherit?

As regular readers know an intestate estate is divided according to a formula set out by State law.

In most jurisdictions this covers same-sex partnerships; and may include multiple partners.

In most states and territories a de facto relationship exists where two persons who are not legally married and are not related by family have a relationship as a couple living together on a genuine domestic basis.

For a number of years de facto, same-sex couples and partners in affairs have had the same rights as married couples in terms of maintenance and division of assets.

A heterosexual couple who live together for two years — or who have a baby while living together — are considered to be “domestic partners” and the same legal obligations as married couples apply.

In NSW a person “in a close personal relationship” with the deceased is eligible to apply for family provision.

Similarly registration of a relationship by domestic partners in Victoria, affects the legal treatment of the relationship in the context of intestacy, and superannuation benefits. Whereas estate law is state-based, family law is governed by the federal government .

Importantly intestacy laws only apply when you die without a valid Will. So if you’re worried about who will get your estate there is a pretty easy way to alleviate your concerns make or update your will!

So how about this (and I realize it sounds like something I have said before; because I have) – go out and make a proper Will.

 

 

 

 

Anton Yelchin, 27, who played Chekov in recent “Star Trek” movies, was killed in a freak accident earlier this year.

Anton was on his way to rehearsal when he got out of his car in the driveway of his home; the car slid backwards, pinning him against a brick pillar and a security fence. When he didn’t show up for rehearsal his friends went to his house and found him dead by his car.

Anton was born in March 1989, to Irina Korina and Viktor Yelchin, in Leningrad; emigrating to the United States as refugees when Anton was six months old. Irina worked as a figure skating choreographer and Viktor as a figure skating coach.

It would appear that Anton had not made a Will. Irina and Viktor have applied to court to be named administrators of his $1.3m estate.

Irina and Viktor have also commenced legal proceedings against Fiat Chrysler, which made the Jeep that crushed Anton. The Company recalled the car model in April after the vehicle was investigated for its gearshift design. Less than a week after Anton’s death, a class action lawsuit was filed against Fiat Chrysler alleging the car manufacturer did little to correct the confusing gearshift design in its vehicles.

Although Anton was a young man without a partner or children not having a Will has exacerbated a difficult situation for his parents. His tragic death highlights the fact that we are all vulnerable to events outside our control. Therefore having a basic plan for your estate is better than having nothing in place.

A Will makes sure your loved ones are looked after at a difficult time. It is not only about the distribution of your assets but also assists to clarify your funeral arrangements, name the executor of your estate and who will be guardian to your children.

When you consider that a Will is a planning document it makes sense that when you make a Will you consider financial planning, powers of Attorney and advance care directives.

Also just as you revisit financial plans overtime you should also regularly make changes to your Will particularly if you have a family business you wish to leave your children, own assets overseas, or you have a disabled child or step children.

Some people believe that making a Will is like going to the Dentist – something that we begrudgingly do. However it is something to assist your loved ones and to plan for your family’s future. It should be part of your financial plan that includes life and income protection insurance, advance care directives and powers of attorney.