She Threatened to Kill Her Father with a Crossbow,
and the Court Granted Her a Portion of His Estate Over Her Mother?
Many common expectations and assumptions exist ‘outside the law’, which guide and shape legal practices. In estate planning, it is ‘usual’ for people to gift most (if not all) of their estate to their surviving spouse, expecting that the survivor will then provide for their children on death. This is especially the case where the children are the children of both parents. The ‘usual’ presumption that follows is that the children will inherit their parents’ estate – or what is left of it – after both parents have died.
Because of this expectation, where there are disputes about the terms of a parent’s Will, these are often litigated between warring siblings after the death of the second parent.
It is far less common for these types of wars to erupt between the surviving parent and a child. But the recent Victorian case of Joss v Joss  VSC 424 is an interesting example of just this situation, and highlights the importance of considering the potential for family disputes at all stages of an estate plan.
The Facts: Peter Joss, and his wife Judith, had two children: Ronald and Jessica (who was named Jeffrey at birth). Peter and Judith financially supported Jessica, but repeatedly refused to give Jessica money to pay for her gender reassignment surgery. This refusal, and their general disapproval of her gender identity, impacted Jessica’s relationship with Peter and Judith.
Over the course of her relationship with her parents, Jessica engaged in objectively unpleasant conduct towards them, including that she:
Jessica returned to Australia in August 1999, and Peter gave her an allowance of $800.00 per week, the complimentary use of a company car, and agreed to pay for her medical treatment (but specifically excluding the gender reassignment surgery). If she agreed, Jessica was to have no further contact with Peter or Judith.
- broke into her parents’ safe (while they were away overseas) and stole money to buy a luxury car;
- moved to Germany for an internship at Deutsche Bank, which she knew would hurt her father (a Holocaust survivor), then when she needed money to return to Australia, chastised him for only buying an economy plane fare;
- accepted a gift of a house from Peter, only to abandon the property and allow it to fall into disrepair;
- entered into a marriage (in the United States of America) in circumstances amounting to immigration fraud, and again demanded funds from her parents for her legal fees in the resulting divorce and deportation proceedings;
- publicly announced to her parents’ synagogue that she was transgender;
- demanded that her parents give her an advance of $4 million dollars from her expected inheritance;
- travelled to Tajikistan to fight in Afghanistan (against her parents’ express wishes); and
- tried to move to Iran to fight against the United States of America, and again, when her family funded her return to Australia, expressed discontent at the extent of the funds advanced.
Although she accepted Peter’s support, Jessica was incensed enough to make a plan to kill Peter with a crossbow. Her plan was spoiled by a tip off from a taxi driver, which resulted in Jessica being detained in a psychiatric ward, and Peter and Judith obtaining a restraining order against her.
Despite the initial no-contact agreement, and the subsequent restraining order, Peter and Judith continued to contact Jessica. Her allowance was regularly increased, up to $1,600.00 per week.
Peter died on 22 March 2017. As is common between spouses, Peter’s last Will appointed Judith as his Executor and gifted her the entirety of his estate, valued at about $12.4 million. Under the terms of Peter’s Will, if Judith had died first, the estate would have been divided (although not equally) between Ronald and Jessica.
Dissatisfied with having received no provision, Jessica commenced proceedings seeking provision from Peter’s estate.
The Law: The Administration and Probate Act 1958 (Victoria) allows certain eligible claimants (including spouses and children) to make a claim to the Supreme Court, if they consider that they have been left without “proper maintenance and support” from a deceased person’s estate.
Whether a person has been left without “proper maintenance and support” depends on a number of factors, including the degree to which they were financially dependent on the deceased, the circumstances of the relationship between the applicant and the deceased, and whether the applicant has engaged in “disentitling conduct” (or in other words, bad behaviour).
The Decision: The Court determined that Jessica’s conduct towards Peter and Judith, whilst problematic, did not entirely extinguish Peter’s moral duty to provide for her. A key consideration was the degree of financial support that Peter had provided to Jessica during his life. For at least the last 20 years of Peter’s life, he was Jessica’s sole means of financial support, and the Court considered that by doing so, he had fostered a situation where Jessica, at age 61, was “not capable, by reasonable means, of providing adequately for her own proper maintenance and support.”
As terrible as Jessica’s course of conduct had been (including the foiled plan to murder her father), it was not enough to extinguish Peter’s moral duty to provide for Jessica from his estate.
After assessing Jessica’s reasonable future needs, the Court awarded her $3.225M.
Relevance in Tasmania: The corresponding legislation in Tasmania, the Testator’s Family Maintenance Act 1912 (Tasmania) contains similar provisions to those operating in Victoria. Like in Victoria, an applicant must satisfy the Court that they have been left without adequate provision from the deceased, based on what a wise and just Willmaker (in all of the relevant circumstances) should have provided for that person. Although a Victorian decision is not binding on a Tasmanian Court, a Supreme Court decision is “persuasive”, meaning that in similar circumstances, a Tasmanian case could result in the same outcome.
How Can We Help? It is not uncommon for people to leave their entire estates to their surviving spouse (and only to their children after the death of the second). Where there is a potential for conflict between a surviving spouse and a child, the decision in Joss v Joss makes it imperative for Willmakers to consider the potential for estate litigation to arise on the death of the first of them.
The outcome in Joss v Joss could have been mitigated (or possibly avoided), if Peter Joss’ estate plan had contemplated, and planned for, Jessica’s dissatisfaction about the terms of his Will.
Worrall Moss Martin Lawyers has specialist skills and experience in Estate Planning as well as Estate Litigation matters, and can help you with any enquiries.
Please contact Thomas Slatyer, Eve Hickey or Robert Meredith if you or your client need expert advice and guidance about the merits of any potential or actual, claims against an estate.
Alternatively, please contact our Estate Planning lawyers (Peter Worrall, Kimberley Martin, Casey Goodman or Ashleigh Furminger) if you, or your client, need expert advice and guidance about preparing a comprehensive estate plan, to mitigate against any potential Testator's Family Maintenance Claims against your estate.
Is Your Current Business Structure Right For You?
What Tax Advantages, Asset Protection and
Other Commercial Benefits Are you Missing Out On?
The importance of having the right legal structure for your business operations (or for particular assets of your business) cannot be understated.
Ideally, the right structure should be chosen when the business is established or purchased (with guidance and advice from an experienced advisor) … however this does not always occur. And even where it does occur, positive events – such as your business becoming larger and more profitable, or purchasing a new business asset – can make the original structure no longer appropriate.
There are a number of common structures used for legal ownership and trading in business. Each structure has its own advantages and disadvantages (from a tax, asset protection or compliance perspective, as well as other commercial benefits) which should be considered when establishing your business, or contemplating restructuring your business. Take a moment to consider them, and whether your current structure is right for you.
Sole Trader is an arrangement where a person trades as the individual legally responsible for all aspects of the business.
The advantages of being a sole trader include:
The disadvantages of being a sole trader include:
- it is the simplest form of business structure and it is relatively easy and inexpensive to set up and administer;
- the owner has complete control of the business; losses can be offset against other income of the sole trader (subject to non-commercial loss rules);
- there is no fringe benefits tax in relation to benefits to the sole trader;
- the sole trader is eligible for CGT discount and small business CGT concessions; and
- the assets transfer on death via the Will of the sole trader.
Partnership is an arrangement in which two or more individuals share the profits and liabilities of a business venture.
- the person is personally liable for all debts of the business (meaning the sole trader’s personal assets are at risk);
- all income is taxed in the hands of the sole trader (if the income is high enough, the maximum rate being 45% plus the Medicare rebate); and
- more proof is often required to substantiate deductions.
The advantages of a partnership include:
The disadvantages of a partnership include:
- it is relatively straightforward and inexpensive to set up and operate (via a partnership agreement);
- income can be split between business partners; partnership losses can generally be offset against other income losses (subject to non-commercial loss rules);
- there are no fringe benefits tax or workers compensation premiums payable in relation to benefits to the partners;
- rollover provisions apply for deprecation and trading stock on a change in the constitution of a partnership;
- it is eligible for CGT discount and small business CGT concessions; and
- depending on the documentation, the assets either pass under the partnership deed or via the Will of the relevant party.
Corporation is an arrangement where the business is operated by a registered company, which is a legal entity that separate and distinct from its owners. It enjoys most of the rights and responsibilities that an individual possesses, including the right to enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets, and pay taxes.
- partners are personally liable for business debts and liabilities (meaning the business partners’ personal assets are at risk);
- taxable income can only be split between partners in accordance with partnership ownership, which is usually fixed and contains no discretion;
- more proof is often required to substantiate deductions;
- CGT issues arise on introducing and retiring partners because fractional interests are acquired and disposed of for CGT purposes; and
- partnership ceases on the death of a partner.
The advantages of a corporation include:
The disadvantages of a corporation include:
- it provides potential limited liability protection for the business owner (or controller), meaning their personal assets are more protected;
- the corporation can employ its shareholders and officeholders - giving rise to the potential for salary sacrifice into superannuation;
- the corporation continues after death of individuals (with the shares in the corporation dealt with in each shareholder’s Will);
- the flat company tax rate of 26% (from 2020-21, and 25% from 2021-22) for small businesses and 30% for non-small businesses applies (which will represent a saving if individual marginal tax rates are higher);
- imputation (shareholders get the benefit of tax credits on the payment of franked dividends);
- use of the research and development tax incentive; and
- it can allow for division between the management and ownership of the entity.
Discretionary Trust is a form of trust deriving income, where the trustee has, under the trust deed, an unfettered discretion (or in rare cases, fettered) over distribution of income and capital between beneficiaries who are referred to generally or specifically. The trustee has wide investment powers. For the purpose of further limiting liability, in a business environment the trustee is usually a proprietary limited company, but it is possible to have an individual trustee or trustees.
- it is more expensive and complex to establish, administer and wind up;
- corporations laws and ASIC regulations need to be adhered to;
- CGT small business retirement exemptions can be difficult to access;
- CGT discounts are not available for sale of company assets;
- losses must be carried forward until recouped and are subject to tests; distributions are treated as dividends and top-up tax may be payable;
- loans to shareholders may be treated as dividends; and
- shareholders and directors need to be careful when considering spending the company’s money (Division 7A issues).
The advantages of a discretionary trust include (subject to the specific terms of the trust):
The disadvantages of a discretionary trust include:
- the income of the business can be split between the beneficiaries at the discretion of the trustee;
- the trustee can distribute income to a corporate beneficiary and use the 30% company tax rate;
- there is a potential for limited liability if using a corporate trustee;
- it can employ family members - giving rise to the potential for salary sacrifice into superannuation;
- potential (but limited) asset protection against divorce;
- assets held in a trust fall outside the assets subject to a family provision (TFM) claim; and
- the trust can access the CGT discount and CGT small business exemptions; and the family trust continues despite the death of individuals.
Unit Trust is a form of trust arising by the vesting of property in a trustee pursuant to a trust deed governing, amongst other things, investment powers, and where beneficiaries’ entitlements as to capital and income are fixed by reference to their unit holdings. Each unit holder has real and effective control of his or her units in the trust and the income generated by those units.
- it is more costly and complex to establish and administer;
- all decisions must be made (and properly recorded) by reference to the trust deed of the trust; and
- the trust may be subject to fringe benefits tax and workers compensation premiums where the owner has an employment relationship with the trust; and losses must be carried forward (retained in trust) and cannot be distributed to beneficiaries.
The advantages of a unit trust include:
The disadvantages of a unit trust include:
- the income of the business can be split between the unitholders;
- there is a potential for limited liability if using a corporate trustee; and
- the trust can access the CGT discount and CGT small business exemptions; and the trust continues despite the death of individuals.
A Self Managed Superannuation Fund (SMSF) is a superannuation trust structure that provides financial remuneration to its members in retirement. It is common for SMSFs to hold business assets or interests that are leased to the business. A SMSF however cannot operate a business.
- it is more costly and complex to establish and administer;
- all decisions must be made (and properly recorded) by reference to the trust deed of the trust;
- the trust may be subject to fringe benefits tax, and workers compensation premiums where a unitholder has an employment relationship with the trust; some non-assessable amounts cannot be distributed without a reduction of the cost base of the units for CGT purposes;
- losses must be carried forward (retained in trust) and cannot be distributed to unitholders; and
- the split of income is fixed in accounting with the units without there being a discretionary distribution, unless it is a hybrid trust.
The advantages of assets being held within a SMSF include:
The disadvantages of assets being held within a SMSF include:
- it provides a tax effective way of separating the business operations from the ownership of the assets, whilst achieving asset protection in the process; any income is concessionally taxed at 15% in accumulation phase and 0% in pension phase (generally);
- upon sale of a SMSF asset: for accumulation phase assets (and provided the asset has been held for more than 12 months), any capital gain is eligible for a discount of 1/3rd; and for pension phase, no CGT would be payable;
- the business can claim a tax deduction for rent;
- assets transferred on a member’s death directly to a nominated beneficiary fall outside the assets subject to any Testator’s Family Maintenance claims; and
- utilising exemptions, farmland can be transferred with no duty or CGT consequences in many circumstances.
If you aren’t sure whether your current business structure is right for you, perhaps it is time to make an appointment with your business advisor, accountant or lawyer to discuss your options. Whilst it can appear daunting and complex, the experience of seasoned professionals will allow you to navigate these decisions efficiently and with confidence. The initial professional costs involved will more than save you from unnecessary costs down the line.
- the assets cannot be used as security for future borrowing;
- a lease payment needs to be made each year from the farm business to the SMSF - if not in pension phase this can impact cash flow; additional administration work is required with the SMSF with financial statements and an annual return being required to be lodged each year;
- there are strict liabilities, and not insignificant penalties, for incorrect administration of the SMSF;
- superannuation death benefits tax may apply to the payment of the death benefits of a deceased member; and
- CGT and duty may be payable on assets that are sold or transferred to pay death benefits after the death of a member of the fund.
How Can We Help? Worrall Moss Martin Lawyers has specialist skills and experience in estate planning and succession law, and can help you to with any enquiries about your current business structure and estate planning and can provide advice about how to deal with them. Please contact our lawyers (Peter Worrall, Kimberley Martin, David Bailey, Casey Goodman or Ashleigh Furminger) if you, or your client, need expert advice and guidance about your current business structure.
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This newsletter contains material for general educational purposes and is not designed to be advice to any particular person about their own affairs as it does not take into account the circumstances of the reader as an individual. It is recommended that appropriate professional advice be obtained by each reader so that reliance can be taken upon that advice.
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