Keeping it in the bloodline

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This presentation discusses strategies to safeguard family wealth in order to 'keep it in the bloodline'. Some of the topics covered include having an appropriately crafted estate plan, using trusts, excluding beneficiaries and asset transfers.

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Keeping it in the bloodline

  1. 1. Keeping it in the bloodline: Strategies to safeguard family wealth Matthew Burgess May 2013 #22097641/v6 1
  2. 2. Housekeeping ■ Questions and interaction welcome ■ Handouts ■ Jon facilitating ■ Wine; text book; kids’ book; hats #22097641/v6 2
  3. 3. Overview ■ Appropriately crafted estate plan ■ Exposure of trusts in relationship breakdowns ■ Family Court’s ‘trust busting’ powers ■ Cases continuing to evolve ■ Excluding beneficiaries ■ Asset transfers: Family Trusts to Testamentary Trusts #22097641/v6 3
  4. 4. 1. Asset protection 2. Trusts 3. Key decisions #22097641/v6 4
  5. 5. Asset protection ■ During lifetime – marriage breakdown ■ Inheritance forming pool of relationship assets ■ Bankruptcy or insolvency – exposure of assets held in trusts #22097641/v6 5
  6. 6. 6 #22097641/v6 6
  7. 7. Right people ✗ ✓ Beneficiary’s creditors Spouse (current!) Tax office Children Former spouses Grandchildren Lawyers Trust #22097641/v6 7
  8. 8. Toolkit ■ Appropriately structured wills ■ Appropriately structured trusts ■ Succession of trusts and companies ■ Binding financial agreements TDT B FA WILL #22097641/v6 8
  9. 9. Example #22097641/v6 9
  10. 10. 1 #22097641/v6 10
  11. 11. Testamentary discretionary trusts (TDTs) ■ Established pursuant to a will ■ Effective upon death of the willmaker ■ Asset protection ■ Tax flexibility ■ Trustee – legal ownership and control Succession TRUST Beneficiaries #22097641/v6 11
  12. 12. Family Court’s trust busting powers ■ Financial resource versus property of the marriage ■ Understand practical outcome of each option ■ The following options are available to a court in dealing with interests in a trust □ the assets of the trust are ignored □ the assets of the trust are treated as property of the parties (or either of them) □ the assets of the trust are not included in the property pool but treated as a financial resource of the parties (or either of them) #22097641/v6 12
  13. 13. #22097641/v6 13
  14. 14. Themes from decisions ■ Family Law Courts can □ set aside transactions entered into before the end of the marriage □ look past legal documentation □ make orders binding on third parties ■ Beneficiaries’ proprietary rights in trusts continue to evolve ■ Relevant factors □ control □ source of trust assets □ purpose of trust and beneficiaries □ distributions #22097641/v6 14
  15. 15. Keach v Keach & Ors (No. 2) ■ The husband’s interest in a discretionary trust was not to be included in the asset pool ■ Facts □ H’s father (F) set up 4 trusts – one for each of his children □ F wanted to protect the assets of the trust from any matrimonial breakdown □ H and W lived in a house owned by the trust for many years #22097641/v6 15
  16. 16. #22097641/v6 16
  17. 17. Keach v Keach & Ors (No. 2) ■ No sham □ High threshold for ‘sham’ □ F’s intention was clear □ F ‘controlled’ the trust □ H had no ownership, no control ■ Court could not include property of a third party unless there was a ‘sham’ #22097641/v6 17
  18. 18. Example #22097641/v6 18
  19. 19. Trust busting cases Pittman v Pittman Beeson v Spence Originally a discretionary trust Discretionary trust set up during marriage Husband entitlements later fixed Wife changed control after separation Irrevocably given 25% of all assets All evidence suggested trust was intended to benefit husband as well #22097641/v6 19
  20. 20. Trust excluded cases Harris v Harris Morton v Morton Husband’s mother, son and friend were directors Two brothers (one the husband) were jointly in control Husband’s mum appointor True joint control, meant neither controlled trust or bucket company All changes to control done as part of estate plan Assets of trust only a resource Husband didn’t control Close relationship does not automatically mean a sham #22097641/v6 20
  21. 21. #22097641/v6 21
  22. 22. Example #22097641/v6 22
  23. 23. Practical recommendations ■ TDTs (lineal descendent) ■ Review structure of TDT and discretionary trust: □ □ □ □ how many? who are trustees? who are appointors? who are beneficiaries? ■ Independent controllers ■ Source of trust assets ■ Intergenerational transfer of wealth – custodian role vs controller ■ Structure pre-death distributions appropriately (loan vs gift) ■ BFA to complement estate plan #22097641/v6 23
  24. 24. #22097641/v6 24
  25. 25. Excluding beneficiaries ■ Assume equalisation not wanted or available ■ Strategies outside the estate ■ Statutory declarations ■ Letters of wishes ■ Stanford decision #22097641/v6 25
  26. 26. Strategies outside the estate ■ Family trusts ■ Binding nominations ■ Joint tenancy ■ Gift and loan back #22097641/v6 26
  27. 27. #22097641/v6 27
  28. 28. Statutory declarations ■ Court attitude ■ Counterintuitive crafting ■ Less can be more ■ Do properly, or not at all #22097641/v6 28
  29. 29. Letters of wishes ■ Court attitude ■ Multiple 'versions' ■ Sending in advance ■ Again, do properly #22097641/v6 29
  30. 30. Stanford ■ Factual matrix ■ Comprehensive estate plans ■ Only one potential gap ■ ‘The Vibe’ invoked #22097641/v6 30
  31. 31. #22097641/v6 31
  32. 32. Example #22097641/v6 32
  33. 33. Family trusts to will transfers ■ Legal steps ■ Revenue consequences ■ Practical consequences ■ Relevant cases #22097641/v6 33
  34. 34. Legal steps ■ Read the deed ■ Perpetuity period ■ Adequate powers ■ Adequate consideration #22097641/v6 34
  35. 35. Revenue consequences ■ Stamp duty ■ Capital gains tax ■ Excepted trust income ■ Deed provisions ■ FTE ■ Future growth #22097641/v6 35
  36. 36. Practical consequences ■ Control issues ■ Automatic vesting ■ Ultimate vesting ■ Segmented asset ownership #22097641/v6 36
  37. 37. #22097641/v6 37
  38. 38. Relevant cases ■ Power to distribute (Bamford) ■ Wait and see rule (Nemesis Australia) ■ Excepted trust income (AW Furse No. 5 Will Trust) ■ ATO attitude (SCCASP Holdings) ■ Control (Montevento) #22097641/v6 38
  39. 39. Contact Matthew Burgess www.matthewburgess.com.au T +0403 209 977 E mwb@matthewburgess.com.au #22097641/v6 39
  40. 40. #22097641/v6 40

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