News

Dividing fences, neighbours and the obligation to pay

November 19th, 2020

Updated 19 November 2020

Neighbours do not have to have a dividing fence if each neighbour agrees.  However if one neighbour wants a dividing fence, then both neighbours of the adjoining land are responsible for the cost of building and constructing the fence.

Where a dividing fence is built on the common boundary line of adjoining land, the fence is owned equally by each of the adjoining land owners.  If the fence is not built on the common boundary line, then it is owned by the person whose land it is situated on (despite who contributed to paying for the fence).

As each neighbour owns a dividing fence equally, they each have a responsibility to contribute equally to the cost of building the fence and maintenance.  This rule only applies to a standard dividing fence, if you or your neighbour want a fence which exceeds the general requirements for a dividing fence, then the neighbour who wants the more expensive fence must pay the extra costs.

What constitutes a standard or sufficient fence? Generally a dividing fence must be between 0.5 and 1.8 metres high and made of any of the following materials: wood, chain wire, metal panels, bricks, rendered cement concrete blocks, hedge or other vegetation that creates a barrier or other material which fences are ordinarily constructed from.

Neighbours should not attach to a dividing fence anything (such as a carport, clothesline, shade sail etc) without the permission of the other owner.  If one owner causes damage to the dividing fence, then you may follow the same process in seeking your neighbour to remedy the damage.  Likewise if the fence requires maintenance during its lifetime, the process below can be followed.

Step 1: A notice to contribute

Before constructing or undertaking maintenance work on a dividing fence, you must provide to your neighbour a ‘notice to contribute’.  This notice should outline for a new fence:

• the type of fence you propose to construct (including height and material);
• how and when you propose to start construction;
• its placement on the land (this should generally be on the dividing boundary); and
• an estimated cost (including the amount of the neighbours contribution). You must include in this notice at least one quote for the fence.

It is important that you use the correct form which is available here.

For maintenance of a fence you must fill out the same form but with the details of the proposed maintenance work.

Make sure you keep a copy of the notice for your own records and note the date the notice was given to your neighbour.  If your neighbour agrees to your proposal, you should ensure that this agreement is recorded in writing.

If your neighbour does not provide you with written approval then you may not be able to claim from your neighbour their share of the costs and further, your neighbour may be able to apply to have the fence demolished or altered.

What if your neighbour won’t agree to the contribution notice?

You cannot begin construction of the fence until you have obtained your neighbours approval, unless the construction or proposed work is urgent (the legislation specifically defines when work is considered urgent).

If your neighbour has not agreed to the notice to contribute then you should always try to talk through any problems with your neighbour and find out why they are not willing to agree.  If this does not resolve any outstanding issues then you may take the further steps outlined below.  Any agreement that you and your neighbour reach in relation to the payment of costs of fencing should always be in writing.

Step 2: Neighbourhood mediation

Whilst mediation is not a compulsory step, it should be considered seriously by neighbours who cannot resolve a dispute on their own.  The service is offered for free and even if you apply to the Queensland Civil and Administrative Tribunal (“QCAT”) they may make an order requiring the neighbours to attend mediation.

Mediation involves an independent third party who will assist you and your neighbour to reach an agreement. If you cannot agree at mediation then as a last resort you can apply to QCAT.

More information on this service is available on the Queensland Government website.

Step 3: Apply to QCAT

If you cannot reach an agreement with your neighbour within one month after the notice to contribute was given, then you may apply to QCAT after a period of two months since the notice to contribute was given.  This application is made by lodging a ‘dividing fence dispute application’.

The cost of an application to QCAT is estimated to be between $27.45 and $352.00 depending on the nature of the dispute.  At the time of writing:

• if the value claimed is less than $500.00 then filing fee is $27.45;
• if the value claimed is between $500.00 and $1,000.00 then the filing fee is $70.45;
• if the value claimed is between $1,000.00 and $10,000.00 then the filing fee is $125.40; and
• if the value claimed is between $10,000.00 and $25,000.00 then the filing fee is $352.00.

The application form to QCAT is available here.

If you require assistance with resolving any dispute we would be happy to assist.  Please contact our office on 07 4036 9700.

How does domestic violence impact parenting arrangements?

October 15th, 2020

Domestic violence and parenting

It is important that children grow up in a safe environment where they feel secure, loved and protected.  Children who are exposed to domestic violence are far more likely to develop physical and/or mental health problems and, as adults, to become victims or perpetrators of domestic violence themselves.

If you are a parent who is a victim of domestic violence and you have a child who has been exposed to domestic violence, you can make an application for a protection order that not only protects yourself from domestic violence, but also protects your child.  Whilst the terms of domestic violence orders do vary, at a minimum, all protection orders ensure that the parent against whom the order is made, must be of good behaviour towards you and any children named in the order.

When applying for a protection order it is possible to seek additional protections which, for example, restrain the other parent from approaching your residence or place of employment, approaching you in a public place, or at a place associated with your child, such as a day care or school.  What orders will provide the necessary level of protection will depend on your individual situation.  We recommend that advice is sought prior to making an application for a protection order.

Protection orders

Whilst a protection order is made to protect those named in the order from domestic violence, it does not deal with the living arrangements or the authority to make decisions for your child.  Parents must carefully consider the following:

1. if there is no existing agreement in relation to the living arrangements for a child named in an order, whether or not a meaningful relationship between the child and parent (against whom the order is made) can still be maintained, taking into consideration the need to reduce any risk of harm to the child; and
2. if there is an existing agreement in place in relation to the living arrangements for a child named in an order, whether these arrangements need to be modified in light of the protection order, for the safety of the parent and child, and to ensure that a continuation of the existing arrangement does not lead to a breach of the protection order.

We recommend that parents obtain expert legal advice on their situation, as allegations of domestic violence, and the making of a protection order, adds an additional layer of complexity to parenting matters and need to be carefully navigated.  Parents should not assume that the making of a protection order enables them to withhold the child from the other parent.  Likewise, parents need to be careful that they do not facilitate any care arrangements that may place their child at risk. Parents who have had an order made against them should seek advice on options available to them to spend time with their child.

Domestic violence – next steps

Our experienced Cairns and Mareeba family lawyers are here to help, you can contact us on (07) 4036 9700 for expert advice on parenting and domestic violence matters.

Corporate Law Update

September 9th, 2020

Director Identification Numbers – more Than Just A Vehicle For Regulation

Miller Harris Business Legal Services: On 22 June 2020 the Commonwealth Government passed into law new legislation requiring company directors and executive officers of companies to obtain and hold a director identification number (“DIN”).

The DIN scheme is a further step in the Government’s ongoing campaign to reduce illegal phoenix activity, which you can read about further here.

When Will The DIN Scheme Commence?

Although the Act has been passed and assented to, the specific timeframes around commencement are unclear. In an earlier press release, the Government stated that it expected that the scheme would commence in early to mid-2021, however the global pandemic is expected to delay the commencement.

The introduction of the DIN scheme comes alongside the decision to amalgamate a number of business and company registers maintained by the government to reduce the complexity and administrative burden involved in the registers.

The DIN scheme means that all directors and executive officers of companies, both current and aspirational, will need to register for a DIN.

There will be a transition period of 12 months during which existing directors must register for a DIN, although the commencement of that period has yet to be fixed.

DIN Scheme For New Company Directors

For new directors, they will need to register within 28 days of being appointed.

Once the transition period ends, all existing directors will need to hold a DIN, and all new directors will need to acquire one before their appointment.

The largest hurdle to registration will be verification of identity, which again remains ambiguous, although it is suspected that the provision of a tax file number will go a long way towards verifying the officer’s identity.

A person’s DIN will remain with them for their lifetime.

Why You Should Not Ignore This

A person who fails to register in the required time, or attempts to register for multiple DINs, is liable to substantial penalties, including periods of imprisonment.

There are still some concerns with the new scheme, including the availability of information on directors, the security of the register, and the requirements for verification of identity, particularly for those directors residing overseas.

Given the importance the Government has placed on combatting phoenixing activity, it is unlikely that these issues will substantially impede the roll-out of the new scheme, and it may be considerable time before the issues are resolved or addressed, if at all.

These changes represent an ongoing measure in the war against phoenixing activity. With the recent changes to insolvency legislation, particularly surrounding phoenixing activity, it is more important than ever to ensure that you are complying with the legislation and your obligations as a director.

Should your require advice about your obligations as a director, or if you have concerns regarding insolvency and winding up, our professional team at Miller Harris Lawyers can assist you to work through what are inevitably tough times.

If you require any assistance at all, or further information, please contact us on 07 4036 9700

Should You Formalise The Parenting Arrangements For Your Children?

September 5th, 2019

Formalising the parenting arrangements for children after separation has many benefits for both the parents and children.  A formalised agreement provides a predictable and stable routine, reduces the chances of conflict, and reduces stress and the likelihood of the other parent acting contrary to the agreed arrangement.

There is no one better placed to make decisions about what parenting arrangements are in the “best interests” of children, than their parents.  However, an experienced family law practitioner can provide very useful, and sometimes critical advice, to assist parents to agree on, and formalise, all necessary parenting issues for their children.

Issues we commonly advise separated parents about include:

1. the various parenting arrangements parents might consider such as week-about, a shared week arrangement, and alternate weekend routines, including arrangements for special occasions such as birthdays, Christmas, Mother’s and Father’s Day;
2. how to “make legal” the agreed parenting arrangement to reduce the risk of the other parent absconding with, or holding over the children, or making threats to do so;
3. whether to enter into a parenting order – which is legally binding, or a parenting plan – which is not legally binding, but which has other benefits, including flexibility;
4. how to ensure the parenting arrangements still maintain a degree of flexibility where needed. This can be critical where one parent works on a fly-in, fly-out (FIFO) arrangement, does shift-work, or lives in another city;
5. other parenting issues such as domestic and international travel with the children, passport arrangements, choice of schools and medical providers;
6. concerns relating to who will care for the children when they spend time with the other parent;
7. what to do when a child is refusing to spend time with the other parent;
8. how parents can keep in touch with their children when they are living with the other parent;
9. concerns regarding alcohol, illicit substances and family or domestic violence; and
10. how to communicate with the other parent regarding a parenting issue about which they do not agree.

The feedback we commonly get from our clients is that formalising the parenting arrangements:

1. reduces stress for the children by providing a stable routine;
2. reduces anxiety and conflict for the parents by removing the need to communicate on a weekly basis with the other parent about what time the children will spend with each of them;
3. enables parents to plan their time with their children, including holidays and special occasions such as birthday and Christmas celebrations;
4. reduces their level of fear that the other parent may abscond with their child, refuse to return their child or otherwise act contrary to the formal parenting arrangements; and
5. reduces their level of fear that the other parent may make a court application seeking for the children to live with them or to move away.

It is strongly recommended that, in the initial stages of a separation, parents obtain legal advice from experienced family law practitioners about:

1. the law surrounding parenting issues and arrangements under the Family Law Act 1975(Cth) as relevant to the particular family;
2. the various parenting options, arrangements and issues they should consider;
3. whether a parenting arrangement should be formalised through a parenting plan or court orders;
4. the services available (some of which are free), to assist parents to discuss and agree on parenting arrangements; and
5. how they can make the agreed parenting arrangements “legal”.

At Miller Harris Lawyers, our experienced Cairns and Mareeba family lawyers are available to provide you with advice on general parenting matters and the application of the Family Law Act 1975 to your family situation, and specific parenting issues, to assist you to amicably resolve the arrangements for your children.

If you would like more information about how we can assist you to amicably resolve the parenting arrangements for your children, please feel free to contact our Cairns and Mareeba Family Lawyers on 4036 9700.

How to separate your property and finances following separation

June 12th, 2019

One of the first questions that we are often asked by clients going through a separation is, how do we separate our property and finances and protect ourselves?

It is important for separating couples to understand that there are only two ways in which you can finalise your financial relationship, so that it is binding and recognised by the courts, namely:

1. by court order; or

2. by entering into a binding financial agreement.

Separating couples are able to obtain a court order to record any agreement they reach by consent, by submitting an application for consent orders. This is a relatively inexpensive way to formally end your financial relationship. Consent orders will only be made if the judge considers that they are just to both parties. A court order may also be made during court proceedings, if one party commences proceedings because the parties are unable to reach an agreement. The majority of our matters are resolved through negotiation or mediation and then finalised through the consent order process.

The other option is a binding financial agreement, which must be drafted and executed in accordance with the family law legislation and regulations.

If you do not formalise your property settlement using one of the methods mentioned above, then the Family Courts will not recognise your agreement and it will not be binding. This is true even if the agreement has been recorded in a deed or statutory declaration or other alternative legal form. For this reason it is important that you have an experienced family lawyer assist you in formalising your property settlement agreement. There are other benefits for couples in finalising their property matters, including receiving an exemption on paying transfer duty on the transfer of any property between spouses.

If you are going through a separation and require assistance in separating your finances and property, contact our expert Cairns and Mareeba family lawyers today on 07 4036 9700 or 07 4092 3555 to book in for an initial consultation where we will discuss how to finalise your property matters and the four step approach used by courts when determining the overall division of your assets and liabilities.

Family and domestic violence leave entitlements

August 16th, 2018

On 1 August 2018, the FairWork Commission introduced unpaid domestic and family violence leave into all Modern Awards.

The move is seen as a significant step forward in addressing the prevalence of domestic violence in society, and providing assistance for those who need it most.

According to the Australian Institute of Health and Welfare, one woman is killed each week, and one man each month by a partner or former partner.

The determination by the FairWork Commission, which modifies the Modern Awards, was made on 1 August 2018. The changes therefore take effect with the start of the first full pay period that starts on or after that date.

The changes introduce an entitlement to 5 days’ unpaid leave to deal with family and domestic violence.

What is family or domestic violence?

Family and domestic violence is defined as violent, threatening or other abusive behaviour by a family member of an employee that seeks to coerce or control the employee, and that causes them harm or to be fearful.

Family member is given a broad meaning and includes:

1. a spouse, de facto partner, child, parent, grandparent, grandchild or sibling of the employee; or
2. a child, parent, grandparent, grandchild or sibling of a spouse or de facto partner of the employee.

Note:  A reference to a spouse or de facto partner also includes a former spouse or de facto partner.

Entitlement to leave

There are a number of important points to note about the leave entitlement:

1. the leave is available to all employees, including those employed on a casual basis;
2. the whole of the leave (5 days) is accrued at the start of a twelve month period.  That is to say, the entirety of the leave is available to an employee on their first day of work; and
3. the leave does not accumulate from year to year. At the start of each 12 month period the amount of leave resets to 5 days.

Taking leave

The circumstances in which the leave may be taken are as follows:

1. the employee is experiencing family and domestic violence; and
2. the employee needs to do something to deal with the impact of the family and domestic violence and it is impractical for the employee to do that thing outside their ordinary hours of work.

By way of explanation, the FairWork Commission added that the reasons for which an employee may take unpaid leave include:

1. making arrangements for their safety, or the safety of a family member;
2. attending urgent court hearings; or
3. accessing police services.

These are however only guidelines and do not represent the full extent of circumstances in which the leave may be taken.

In addition to meeting the requirements above, under the changes employees are also required to provide sufficient evidence to their employer that the leave was taken for the correct reasons.

Depending on the circumstances, such evidence may include a document issued by the police, a court, or even a statutory declaration.

Employees will also need to provide notice to their employers as soon as is practicable of the leave and advise of the expected period of leave.

The determination by the FairWork Commission states notice may be provided after the leave has begun where it is appropriate in the circumstances.

Final thoughts

These changes to the Modern Awards represent progress in addressing some domestic violence issues.  The largest point of debate so far has been whether the measures go far enough.  That is not for us to decide.

It is important however, to remember that currently these changes only apply to the Modern Awards, so only employees and employers using those awards are affected.

Will this change?  No one can be certain.  Both the current government and the Labor party have identified that they would like changes made to the Fair Work Act which would see all employees able to access the family and domestic violence leave.  Until the legislation is finalised however, we wouldn’t count on anything.

In the meantime, those employers and employees who are bound by the Modern Awards should make sure they are aware of their rights and obligations after the changes, and identify the pay period and date when they come into effect.

Finally, domestic violence affects not only those who are victims, but also those who are exposed to it.

If you feel you need to contact someone, 1800RESPECT is a national service that provides confidential information, counselling and support services on a 24-hour basis. They are available to everyone.  Not only victims but also those exposed to, or at risk of family and domestic violence. (Phone: 1800 737 732)

Please remember, if you or someone you know is in imminent danger you should contact the police immediately on 000.

If you have any questions about this article, or other enquiries related to employment matters, please do not hesitate to contact us.

BEWARE! The consequence of releasing assets to an executor without a grant of probate

July 31st, 2018

An executor, when administering an estate, may try to avoid obtaining a grant of probate of the deceased’s will.  In this situation, the executor will often request that the party holding the assets on behalf of the deceased (i.e. a bank) waive the production of a grant of probate and simply distribute the assets to the executor named in the will.

Generally, upon receiving these requests the party releasing the deceased’s assets will, in exchange for dispensing with the requirement for the production of probate, request that a release and indemnity form be signed by the executor of the estate.  Whilst most of these requests to waive probate typically arise in low value estates where it would be uneconomical to obtain a grant, it is still important to handle these requests with great caution and care.

Be warned, a release and indemnity form signed by a “purported” executor, in exchange for waiving the requirement to produce a grant of probate, may be insufficient protection against future claims.  The recent case of Public Trustee v CBA & Ors [2018] SASC 25 is a timely reminder to all banking personnel, accountants, stockbrokers, financial planners, insurance brokers, company directors, superannuation fund trustees, and business owners (essentially anyone releasing funds/assets to an executor of an estate) of the importance of probate and why you should always think twice before waiving the requirement for the production of a formal grant.

Public Trustee v CBA & Ors [2018] SASC 25

The deceased, Ms Martin passed away on 3 October 2008, aged 90.

Ms Martin had made three wills following the death of her late husband in 1987:

• will dated 29 April 2008, appointing Ms Martin’s son Michael as the executor (“the 2008 will”);
• will dated 16 October 2007, appointing Michael’s estranged wife Alba as the executor (“the 2007 will”); and
• will dated 22 October 2002, appointing the Public Trustee as executor (“the 2002 will”).

A grant of probate in solemn form was made on 15 May 2013, propounding the 2002 will.  The reason that a grant of probate was issued for the 2002 will and not the later wills is because the court determined that Ms Martin did not have the requisite capacity at the time the 2008 and 2007 wills were prepared.

At the date of Ms Martin’s passing she had account with the Commonwealth Bank of Australia (“CBA”) and the Bank of South Australia (“Bank SA”).

In June 2009, Michael sought payment of the proceeds of those accounts to him, as the executor of the estate pursuant to the 2008 will.

CBA wrote to Michael requesting that a certified copy of probate be provided in order to release the funds, along with several other forms to be completed.  Michael responded to CBA requesting that “…probate be waived as there is no property in the Estate of my late mother, only cash, and I would like to distribute it to the Beneficiaries”.

CBA agreed to waive the production of a grant of probate upon the condition that Michael complete and sign a “Claim for Assets Held on Behalf of Deceased Customer form”, along with a few other forms. Michael returned the signed form to CBA, whereby he agreed to indemnify the CBA against all action, suits claims or demands in respect of Ms Martin’s account.  CBA then closed the account held in Ms Martin’s name and released the funds, being $69,290.33, to Michael.

Similarly with respect to the proceeds held by Bank SA, Michael wrote to an officer at Bank SA requesting that probate be waived “as there is no property in Ms Martin’s estate, only cash, to be distributed among the beneficiaries”.

Michael provided several documents to Bank SA, including a “Deceased Estates Statutory Declaration”, signed and dated by Michael wherein he declared that he was the executor of Ms Martin’s estate and indemnified Bank SA “from and against all claims, demands, actions, proceedings and losses of whatever kind and extend arising out of our incidental to such instructions…”. Again, Bank SA agreed the waive probate and paid out the proceeds, being $108,461.00, to Michael.

Following the grant of probate being issued in 2013, the Public Trustee demanded that CBA and Bank SA repay of the proceeds in those accounts to them, as the lawful executor of Ms Martin’s estate.

The banks refused to make the repayment sought by the Public Trustee and asserted that they had already paid the monies to Michael pursuant to a valid release and discharge that he gave to each of them on behalf of Ms Martin’s estate.

The Public Trustee then brought proceedings against CBA and Bank SA, alleging that the banks were indebted to repay those amounts. 

At the date of the hearing, Michael’s whereabouts were unknown to the Public Trustee.

The issue for the court to determine was whether CBA and Bank SA were liable in debt to the Public Trustee for the proceeds in the accounts (totalling approximately $177,751.00) and whether the defence of discharge was made out in respect of the debt claimed.

The court held that:

1. the Public Trustee, as executor of Ms Martin’s estate had a claim in debt against the CBA and Bank SA pursuant to contracts between customer and banker;
2. Michael was liable to account for the assets of Ms Martin’s estate that he illegitimately dealt with in his capacity as an executor de son tort*; and
3. CBA and Bank SA took a risk in circumstances where they could have acted conservatively and prudently by insisting upon the production of a grant of probate. Without a grant of probate, CBA and Bank SA could not obtain a valid release from Michael as a person claiming to be the executor of Ms Martin’s estate pursuant to an unproven will.
4. CBA and Bank SA were required to pay out the monies to the Public Trustee as the lawful executor of the estate, however the banks were entitled to set-off its claim in equity pursuant to the indemnity given by Michael (and the other living children) against the Public Trustee’s claim to the extent of the amount that Michael (and the other living children) would otherwise have received from the residuary estate.

Lessons to be learned

When releasing assets of a deceased to an executor, without the production of a grant of probate, exercise caution and care.  Strictly speaking, any party holding assets of the deceased, no matter what their value, may insist on sighting a grant before releasing the assets to an executor.  However, as mentioned previously, obtaining a grant of probate may not always be appropriate or practical for an executor, especially when the value of the assets of an estate are minimal.

It is sometimes difficult to balance the fine line of requesting the production of a grant of probate and waiving/dispensing with the requirement.  It will often depend on the circumstances at hand and weighing up the associated risks.

As set out in the case of Public Trustee v CBA & Ors [2018] SASC 25 it is important to remember that only a lawful executor, appointed pursuant to a grant of probate, is able to give a valid and effective release and discharge.

If you would like further information about the production or waiving of a grant probate in estate administration matters or are an executor who needs assistance applying for a grant of probate, please do not hesitate to contact our wills and estate planning solicitor Bianca Stafford.

*An executor de son tort is a person who has no authority to act as personal representative but who nevertheless intermeddles in the administration of an estate and is considered to be the duly appointed representative and is held liable accordingly.

5 Ways to Assist a Loved one Through Separation

July 27th, 2018

Separation is one of the most difficult things an individual can go through.  It is understandable that you, as a loved one of a person going through a separation, want to be there and show your support.  As family lawyers we see how important the support of loved ones is during separation.  Here are a few tips on how you can be there for your friend or family member during a separation:

Listen

Your loved one will talk to you when they are ready, and you should be prepared to listen.  A lot of the time listening will be the best thing you can do for the person.

Be Positive

Try to focus on being positive.  Don’t raise your own grievances regarding the separation; be neutral, separation is not a competition.  It is not uncommon for the loved ones of a person going through a separation to express their own negative opinions regarding the separation, and the conduct of one party.  This will only make it harder for your loved one to make decisions to make them move forward.

Don’t Give Legal Advice

Don’t give advice that you are not qualified to give.  Instead, assist your loved one to obtain the services they need to assist them to move forward, whether it be legal advice from a lawyer or counselling from a psychologist.

Be There

Separation is not just the loss of your significant other, but can also be a loss of lifestyle, friends, family, financial support and dreams.  After separation people often feel very lonely and isolated.  They go from having someone they share all their time with, to having to get used to going it alone.  Only, they are not alone.

Encourage your loved one to spend time doing things for themselves that they may not have been able to do during the relationship.  Check in regularly with your loved one and be inclusive, spend time with them and make an effort to invite them to your own social events and to reconnect with their friends.

Find Support for Yourself

If you are a loved one of someone going through a separation, then it is likely that you too have lost a relationship or friendship as a result. You may have lost a sister or brother-in-law or a daughter or son-in-law, and this is significant.

Make sure that you look after yourself and have someone (other than the person going through the separation) that you can talk to and who can support you through the separation.  If you have a person who you can express any grievances with and discuss the separation with, then it is more likely that you can be positive around your loved one.

For more information regarding your family law matter, please contact our family law department.

The Restructure of the Family Courts

June 21st, 2018

The government last week announced a proposal to restructure the family court system.  The proposal is one of most significant changes to Australian family law in many years.

How to reduce tax and protect your wealth for future generations through the use of a testamentary discretionary trust

June 13th, 2018

Do you want to minimise tax implications and ensure that your hard earned assets are passed on to future generations in a protected environment?  If your response was “Yes!”, then a testamentary discretionary trust might be just what you need in your estate plan.

What is a testamentary discretionary trust? 

A testamentary discretionary trust (or “TDT”) is a trust that is created by the provisions of a will and only comes into effect upon a person’s passing, as opposed to during their lifetime.

Like a normal trust, a TDT provides for a range of beneficiaries, in addition to the primary beneficiary, all of whom are discretionary beneficiaries – so that it is up to the trustee of the trust to determine in any particular year who should receive the income or capital of the trust.

The beneficiary of a testamentary discretionary trust does not have any defined interest or fixed entitlement to the trust assets unless and until the trustee makes a determination in their favour.  The beneficiary merely has a right to be considered and have the trust administered in accordance with the terms of the trust.

What are the advantages of a testamentary discretionary trust?

Asset protection

I find that the main reason clients choose to implement TDTs in their wills is for asset protection.  By giving a primary beneficiary of the estate the option to inherit via a TDT, the primary beneficiary does not have to inherit those assets personally.  This would be attractive if you have a beneficiary who:

1. faces the prospect of financial difficulties or bankruptcy arising from carrying on business, giving guarantees or failure of insurers;
2. faces difficult family or domestic circumstances (e.g. the breakdown of a marriage or de facto relationship);
3. is poor at handling their finances;
4. suffers from an addiction; or
5. has the prospect of a contested personal estate when the primary beneficiary subsequently dies.

Example of how it works – asset protection

To illustrate the benefits of a TDT where a spouse has a high risk profile and exposure to bankruptcy, I will use the factual scenario of Tom and Jane.

• Tom and Jane are married with two children, Jack aged 9 and Kate aged 12.
• Tom is a director of a company and has a high risk profile.
• Tom and Jane are looking at buying a new house. Their accountant suggests that Jane purchase the house in her name (as the low risk spouse) so that the house is not exposed to creditors.
• This asset protection measure could unravel if Jane passes away and leaves everything to Tom absolutely, as the house would then be exposed to creditors.
• Instead, if Jane gifts her assets into a TDT (of which Tom, Jack and Kate are beneficiaries) then Tom will not have direct ownership, which offers better protection of the house against creditors.

Income tax benefits

There are also significant taxation benefits, particularly where any beneficiary is under the age of 18 years.  Unlike a family trust (set up in your lifetime), children under the age of 18 are eligible for tax concessions for the income they receive from a TDT.  Income received by minors through a TDT is taxed at normal adult rates, which means that they are entitled to receive the benefit of the tax free threshold.  A TDT enables the trustee to stream or split income amongst the beneficiaries, depending on their personal marginal tax rate, to reduce the amount of tax incurred.

Example of how it works – income tax benefits

• Jane had a life insurance policy worth approximately $400,000.00. After Jane passes away, those proceeds are invested, earning 7.5% of income per year (i.e. $30,000.00).
• If Jane did not include a TDT in her will and gifted everything to Tom, then Tom would have to pay tax on the income generated, $30,000.00, at his personal marginal rate. If Tom is already a high income earner, that could be at 47%, which is $14,100.00.
• Instead, if Jane has a TDT set up in her will, the trustee could resolve to distribute this income equally between Jack and Kate to be used towards their schooling fees.
• As Jack and Kate have no other income, the distributions to them ($15,000.00 each) are tax free, as each distribution to the child is below the current tax free threshold of approximately $20,000.00.

As you can see, TDTs can allow for some significant tax savings.

Should I have a TDT in my will?

In my experience, TDTs generally appeal to people who:

• want to pay less tax;
• have children or plan on having children;
• want to ensure that their assets are protected for future generations;
• have beneficiaries who are high income earners; or
• don’t trust their beneficiaries with money.

TDTs can be quite flexible and therefore appeal to a diverse range of people.  It is important to remember that TDTs cannot be created retrospectively and must be included in the willmaker’s will before death.  For this reason (and the fantastic benefits of TDTs outlined above), TDTs should at least be considered by every person when they prepare a new will.

If you would like more information about TDTs, please do not hesitate to contact Bianca Stafford, an Associate in our Wills and Estate Planning team.

*Disclaimer – The information provided in the document is current at the date of publication and is a general summary which is not intended to be nor should it be relied upon as a substitute for legal or other professional advice.