Splitting SMSFs

Splitting Self Managed Superannuation Funds

Splitting assets held in a self-managed superannuation fund (SMSF) following the breakdown of a marriage or relationship and subsequent split of assets can be complex.

This article briefly summarises some key factors to consider when splitting a SMSF.

What is a Self-Managed Superannuation Fund (SMSF)?

A SMSF is a private superannuation trust fund that you manage and oversee including choosing investments and ensuring that the fund complies with superannuation and tax laws. A SMSF is established under a trust structure and its sole purpose is to provide its members with retirement benefits.

SMSFs commonly have diversified assets classes including shares, investment income, real property, and cash, to avoid the fund being exposed to the vagaries of a single asset class.

Considerations for splitting SMSFs

When considering a SMSF split in a family law separation, essential matters to keep in mind include:

1.       Documents

Copies of the following documents will help you to better understand the SMSF:

  1. the most recent up to date Trust Deed.
    1. A Register of Complying Superannuation Funds (RoCS) Search (via the Australian Tax Office [ATO] website) – to ascertain whether the SMSF is registered as a complying fund.
    1. The three most recent years financial statements, to:
      1. augment your understanding of the nature of the SMSF’s assets and its financial position; and
      1. show whether the SMSG has been audited and any areas of concern as to compliance.
    1. Member Statements.

2.       Valuation

It is vital to determine the value of the superannuation interests. Most SMSFs will have investments such as real property, cash or listed shares which are relatively straightforward to value. However, some SMSFs have assets such as collectables, antiques or units, valuation of which is more difficult.

A SMSF’s financial statements often document the values of its assets. However, the financial accounts are not always up to date, and their values are not always reliable. Reasons for this include:

  1. The financial statements are usually prepared annually, and the values ascribed to the assets as at that date may be out of date;
  2. Interest on dividends could have accumulated and taxation and other expenses could have been incurred since the financial statements were prepared;
  3. The financial accounts may contain reserves, where some of the SMSF’s assets have not yet been allocated to its members;
  4. There may be a dispute about the value of assets. For example, real estate values may not be market values. In that case, an expert valuer should value the real estate.

3.       Tax Implications

There may be tax implications dependent on the nature of the assets to be split.

Non-complying funds potentially have tax liabilities and ATO penalties.

An asset may have latent Capital Gain Tax (CGT). For example, if the SMSF is forced to sell investments (i.e. shares or real property) to implement a cash transfer, then the SMSF will be subjected to CGT on any capital gains made. In certain situations, CGT rollover reliefs provisions may be available to reduce or eliminate CGT where assets are transferred between SMSFs in specie (meaning a transfer of assets in its actual form without selling the underlying asset).

Specialised tax advice will assist you to devise a strategy based on the taxation consequences of rolling out your interest into another SMSF or an industry regulated fund.

4.       Membership and restructure of the SMSF

As a member of an SMSF, you are also a trustee with ongoing responsibilities. You must decide if you wish to remain in the SMSF, commence a new SMSF or open a different type of fund such as an accumulated regulated fund. The decision as to what is appropriate will vary from case to case.

Splitting a SMSF will typically require the fund to be restructured to comply with superannuation regulations and laws. Examples of restructures include:

  1. a person cannot be a single trustee and member, so a corporate trustee may have to be established in place of members being trustees; or
    1. a member spouse may resign as a director of a corporate trustee.

Types of Spitting Orders

A SMSF interest may be split in a financial agreement or by a court order.

There are generally two methods that a SMSF interest can be split – as a specific dollar amount (base amount) or as a percentage of the balance of the superannuation entitlements.  A base amount payment is the most common method used, as it guarantees the amount that a non-member spouse will receive from the split, while a percentage split may be higher or lower than the estimated value of the interest, depending on the interest’s value when the fund’s Trustee gives effect to the Court Order. The circumstances of your matter and the current economic circumstances dictate which type of split is appropriate.

Once the superannuation interest becomes subject to a payment split, the non-member spouse generally has one of the following options in respect of the interest:

  1. create a new interest in the same fund –– this option however may be precluded under the SMSF Trust Deed and is not recommended if the separation is acrimonious;
  2. transfer or rollover the interests into another complying fund (including a new SMSF or an industry regulated superannuation fund). If the non- member spouse does not wish to set up another SMSF and there is insufficient cash to be rolled over into an accumulation fund, SMSF assets may have to be sold; or
  3. if the non-member spouse has met conditions of release under superannuation laws – receive the amount as a lump-sum payment.

Once the non-member spouse has selected how the superannuation interest should be split, the SMSF trustee must generally give effect to that choice.

Superannuation splitting rules are complex, often requiring the advice of accountants, financial advisers and family lawyers working collaboratively to determine an optimal approach towards splitting superannuation.

Contact us today for expert advice on your SMSF and family law property settlement.

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Family Law Super Splitting

What are the superannuation splitting laws?

The superannuation splitting laws allow separating de facto or married couples to value and divide their superannuation after a relationship break down. One partner may split the amount remaining in their superannuation fund and make a payment to the other partner’s superannuation fund.

The Family Law Act treats superannuation as if it were property, although it differs from other types of property as it is held in trust. Splitting superannuation does not convert it into a cash asset: the super funds are still subject to superannuation laws and the usual conditions of release.

Am I entitled to a superannuation split? Do I have to pay super to my ex-partner?

You may be entitled to a superannuation split, or legally obligated to split your superannuation if you were married or in a de facto relationship and have separated. The Family Law Act defines a de facto relationship as two people not married to each other, not related by family, and sharing a relationship as a “couple living together on a genuine domestic basis”. A person seeking superannuation splitting orders must have been in a de facto relationship with the other person for at least 2 years unless:

  • there is at least one child of the relationship; or
  • a party makes a substantial contribution

In that case an application can be made seeking superannuation orders even if the relationship broke down before two years.

How much of my ex-partner’s superannuation am I entitled to/might I have to pay?

In a long relationship, where neither party had substantial superannuation at the beginning of the relationship, a superannuation split will often be calculated which equalises their superannuation interests. The parties add the value of all their superannuation interests, divide the total by two and split one party’s superannuation to the other party’s fund of choice to equalise their superannuation interests.

Alternatively, parties may negotiate a superannuation split tailored to their needs which forms part of an overall package of property settlement. For example, one party may wish to retain a greater share of the cash assets to purchase a property, while the other may be approaching retirement and prefer to retain their super. The party wanting more cash assets may concede their superannuation entitlements to negotiate a greater share of the cash assets.

The Courts have a wide discretion to determine a just and equitable division of the parties’ superannuation interests. If a Court determined the matter, a four-step process would be applied to determine each parties’ entitlement:

  1. the superannuation must be valued; then
  2. each parties’ financial and non-financial contributions to the acquisition, conservation and improvement of the superannuation fund must be assessed; then
  3. the Court will consider factors under s 75(2) or 90SF(3) of the Family Law Act, including:
    1. each party’s age and state of health;
    1. each party’s income earning capacity;
    1. if there are children of the relationship, with whom they live; and
    1. each party’s existing financial commitments and responsibilities.
  4. The Court determines whether in all the circumstances the settlement is just and equitable.

What if we cannot agree about how to divide superannuation?

If you and your ex-partner cannot reach agreement about how to divide your superannuation interests, you can apply to the Court for an order. The Court will apply the four step process to determine a just and equitable division of superannuation.

How long after a separation or divorce can I make a claim for superannuation?

If you were married:

  • If you have separated but not divorced, you can make a claim for superannuation at any time;
  • If you have divorced, you should make a Court application for superannuation orders within 12 months after the divorce.

If you were in a de facto relationship, you should make a Court application for superannuation orders within 2 years after you separated.

The Court may grant leave for a party to a marriage or de facto relationship to apply for a superannuation order after the limitation period if they can establish hardship. However, this can be a very expensive and complicated process, as a special application must be made to the Court seeking leave to proceed out of time and there is no guarantee that leave will be granted.

How can I obtain information about the value of my or my partner’s superannuation fund?

You can apply to the trustee of the superannuation fund for information about a superannuation interest of a member if you:

  • are an ‘eligible person’; and
  • have a genuine reason for needing the information.

An ‘eligible person’ includes:

  • the member;
  • the member’s spouse;
  • if the member or spouse is deceased, their legal representative; or
  • a person intending to enter into a superannuation agreement with the member.

To apply for information about the member’s superannuation interest, the eligible person will have to declare that they require the information in order to either

a) properly negotiate a superannuation agreement, or

b) assist them in connection with family law proceedings relating to the superannuation interest.

The applicant will also have to provide the member’s full name and date of birth.

What if my ex-partner has a defined benefit super fund or a self-managed fund?

Defined benefit funds provide benefits to members in accordance with a formula set out in the fund’s trust deed. The formula accounts for the member’s length of employment and their salary level at retirement. These funds are difficult to precisely value, and a forensic accountant may need to be engaged to value the superannuation interest.

Self-managed super funds are private funds arranged and managed by the parties themselves (often by a lawyer and/or accountant). The parties invest the fund monies by purchasing property, shares, bonds etc. to increase the value of the fund. The value of a self-managed super fund is the total value of the assets held by the fund.

How can my ex-partner and I formalise the agreement we reached to split our superannuation interests?

An agreement regarding the division of their superannuation interests can be formalised by parties entering into a Financial Agreement or applying to the Court for Consent Orders.

Alternatively, you can file an Application for Consent Orders with proposed Consent Orders in the Federal Circuit and Family Court of Australia. Once approved by a Registrar of the Court, the Orders become legally binding and enforceable on both parties and on the superannuation fund trustee.

Alternatively, parties can record their agreement in a Binding Financial Agreement (an Agreement). An Agreement is not filed with the Court. However, each party must be provided with independent legal advice before entering into an Agreement for it to be binding and enforceable. The advice must address the effect of the agreement on the rights of the parties and it’s advantages and disadvantages when the advice was provided.

What is the process for splitting superannuation?

Before finalising an Agreement or filing Consent Orders you must provide the trustee of the superannuation fund with ‘procedural fairness’ by writing to them advising that you are seeking superannuation splitting orders. You should provide the trustee with:

  • the member’s number and date of birth; and
  • the specific orders sought.

The trustee has 28 days to object to the proposed orders by writing back to you or attending the court hearing (if any). The letter from the trustee agreeing to the proposed orders is filed with an application for consent orders.

A party (generally the person who financially benefits from the split) provides the superannuation orders made by the Court to the trustee of the superannuation fund to implement.

What do I do now?

Mid Mountains Legal have extensive experience in a wide range of superannuation matters, including complex matters involving self-managed and defined benefit funds. Ask us for advice about your options and entitlements to empower you to make informed decisions.

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What is a Caveat?

A caveat is a type of statutory injunction preventing the registration of particular dealings with real property (i.e. real estate). It is a formal public notice or warning advising that there is an interest on the property for a particular reason.

The word caveat means ‘beware’ and lodging a caveat warns anyone dealing with the property that someone claims a priority interest in that property. The person lodging a caveat is a caveator.

Reasons for Lodging a Caveat

If you have a genuine interest in land (such as a registered mortgage), you may lodge a caveat to prevent registration of another dealing and protect your legal position. This is known as a caveatable interest.

Caveatable interests include:

  • a registered or equitable mortgage
  • a transfer
  • a purchaser under an agreement for sale
  • a tenant (in certain circumstances);
  • a registered proprietor and
  • contractual rights.

In NSW, the Real Property Act 1900 governs caveats. When a caveat is lodged at NSW Land Registry Services (NSWLRS), it prevents the registration of further dealings on the property’s title until the caveat:

  • is formally withdrawn by the caveator;
  • lapses;
  • is removed by a court order; or
  • the caveator consents to a registration by another party dealing with the property’s title.

Anyone with an interest in land or who wishes to claim an interest may lodge a caveat. A caveat can also be lodged by someone with an Australian court order restraining a registered proprietor from dealing with the property.

In NSW lodgement of caveats is electronic by a subscriber to PEXA (such as a solicitor or a licensed conveyancer).

What Detail Does a Caveat Require?

In NSW, when lodging a caveat, you need to include:

  • the caveator’s name and residential address or registered office, including an address for service of notices;
  • the name and address of the registered proprietor (we suggest that you do a title search to ensure the correctness of the information);
  • reference details for which the caveat relates;
  • particulars of the legal or equitable estate of interest;
  • a verified statutory declaration; and
  • the signature of the caveator, lawyer or another agent of the caveator.

What if I Incorrectly Lodge a Caveat Without a Caveatable Interest?

Only someone with a caveatable interest can lodge a caveat. Lodging a caveat without reasonable cause is a serious matter. A court may order you to compensate anyone who suffers a financial loss as a result of your incorrect caveat.

Challenging or Removing a Caveat

Ways in which a caveat can be challenged or removed include the property owner issuing a lapsing notice and the caveator submitting a withdrawal of caveat form.

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Priority Notices in NSW

A priority notice is a form of land dealing which, once registered on title:

  • acts as a notice to the public that someone intends to lodge a dealing on a title (e.g., a transfer, lease or mortgage); and
  • temporarily (i.e. for the period of the priority notice) prevents the registration of other dealings to preserve the priority-on-title of the dealing covered by the priority notice. Subsequent dealings are noted as ‘unregistered dealings’ until the priority notice is withdrawn or lapses.

So if for example you intend to lodge a transfer, you can register a priority notice to hold the transferee’s place on title until settlement.

Lodgement, duration and cost

Priority notices can only be lodged online via PEXA.

A priority notice’s initial priority period of 60 days from the date of registration can be extended once for 30 days. However, it can be withdrawn before the end of the 60 days (or a 30 day extension).

Priority notices cost $40.31 to register, $16.70 to extend, and $16.70 to withdraw. Lodgement and withdrawal of a caveat costs $147.70 to register.

Pros and cons

Pros

  • they are cheaper to register than caveats
  • they are quick and easy to lodge
  • registration of a priority notice does not require a caveatable interest–the only requirement is that you are a party to a land dealing
  • a single priority notice can remain on title for 60 to 90 days, and
  • sequential priority notices can be lodged without limit in relation to the same land dealing (when a previous priority notice lapses).

Cons:

  • unlike a caveat, a priority notice is time limited and lapses, and
  • priority notices do not prevent registration of all subsequent dealings (e.g. a caveat is not subject to a priority notice and there can be competing priority notices).

Priority notices vs caveats

One disadvantage of priority notices is automatic lapsing. After a priority notice is registered, subsequent dealings lodged for registration are noted on title as ‘unregistered dealings’ until the priority notice dealing is registered or the priority notice lapses or is withdrawn.

If the relevant dealing cannot be registered within the priority notice period, an unregistered dealing noted on title can be registered immediately on the lapse of the priority notice before a second priority notice can be lodged.

Consequently, if there is a caveatable interest, it may be preferable to lodge a caveat than a priority notice, especially if the registration date of the dealing is uncertain. A caveat remains on title indefinitely, preventing virtually all dealing with the title until it is either withdrawn (e.g., when the caveator receives payment) or is lapsed by the owner or an interested person. As lapsing can be complex (involving court proceedings if the caveator defends their caveatable interest), a caveat gives stronger protection than a priority notice for the priority of a proposed dealing.

Priority notices and caveats have distinct purposes:

  1. the priority notice preserves the priority of a dealing to be lodged for registration later;
  2. the caveat acts as a form of security and a warning to third parties that the caveator claims an equitable or legal interest in the land.

Where there is a caveatable interest, either can be used to protect the priority of an impending dealing. However, where a caveatable interest exists, registering a caveat is a safer bet.

Conclusion

Although priority notices can be used as a quick and cheap tool to preserve a future dealing’s priority on title, it is important to consider whether:

  • the dealing will be registered within the priority notice period, and
  • whether, in the circumstances, a caveat should be lodged instead.
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What is a Reseal of Probate?

The effect of a Grant of Probate or a Letter of Administration.

When a person dies the executors named in the person’s Will must apply to the Supreme Court of NSW for a grant of probate for the Will made by the deceased to be recognised. A Grant of Probate allows the executors to withdraw the assets from different entities. Until it is issued, none of the assets of the deceased can be distributed to the beneficiaries named in their Will.

If the deceased did not have a will, a letter of administration is granted to an administrator.

What is a Reseal of Probate?

A reseal of probate is the expression used when you need to apply to another state’s Supreme Court, so that a Will that has already obtained a grant of probate in one state, can be recognised in another state. Once a reseal of probate has been granted, the executor can also deal with the assets under the Will that are not located in the state where the original grant of probate was issued.

Obtaining a Reseal of Probate in NSW

The executor or administrator of deceased estate in another jurisdiction obtains the grant of probate or administration in the state or country where the deceased passed away.

However, a grant of probate is state-based and probate laws can differ between states and countries. A deceased’s assets, such as shares or investment properties, may be in various locations. Assets not located in NSW cannot be dealt with under a NSW grant of probate

Rather than requiring a fresh application for a grant of probate in NSW, you can apply to the Supreme Court of NSW asking that it recognise the original grant by resealing the original grant with the seal of the Supreme Court of NSW.

Not all foreign grants can be re-sealed. The Supreme Court of NSW will only recognise grants made in one of ‘Her Majesty’s Dominions’ (being certain Commonwealth countries and other Australian States and Territories. Probate granted in Western Australia , Northern Territory, South Australia, Queensland, Victoria , Australian Capital Territory or Tasmania can be resealed with the seal of the Supreme Court of NSW.

Why do I need to obtain a Reseal?

The Grant of Probate is proof that the named executor or administrator is authorised to deal with the estate’s assets. The asset holder (such as a bank, nursing home, share registry or NSW Land Registry Services) may require the grant before releasing the asset. If the Grant has been obtained outside NSW, the asset holder may require the Supreme Court to approve the Grant.

What is the effect of a Reseal of Probate or Reseal of Administration?

A re-sealed grant of probate or grant of administration made in another state or country has the same effect and operation in NSW. A resealed foreign grant must be accepted as if it had been made by the Supreme Court of NSW. The executor can then gain access to and distribute to beneficiaries the deceased’s assets located in NSW.

Can I avoid having to obtain a reseal in NSW?

Depending on the type, size and value of the asset(s) located in NSW, you may be able to avoid having to obtain a reseal in NSW by signing a declaration and/or indemnity as required by the asset holder. Each asset holder will have their own requirements. You should provide them with proof of the original grant and death certificate and ask them what their requirements are to release the assets. Shares may be released or transferred without the need for the grant to be resealed in NSW if it has been obtained in Australia and a section 1071B statement (which may be downloaded from the share registry) is completed.

How can I obtain a reseal in NSW?

An application for Reseal of probate must be made using the Court form accompanied by the information required by the legislation and rules of court. The process involves filing Court documents and advertising requirements.

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Home ownership and your Will

Real estate is one of the most valuable assets people own during their lifetime. Property owners may not realise that whether or not real estate passes to the beneficiaries named in their Will depends on the type of ownership.

Sole Ownership, Joint Tenants or Tenants In Common?

There are different ways to be the legal owner of a property asset. Each form of ownership has a different implication when it comes to deceased estates, so it is important to understand which applies to you.

Sole ownership means the property is exclusively owned by a single person and no other person has any interest in the property asset. If the deceased person was the sole owner of the property, the asset usually forms part of the estate for distribution in accordance with the Will (if there is one).

There are two ways of holding joint property. Where two or more people own property, they can hold it jointly as joint tenants or as tenants-in-common. The mode of ownership is significant and dictates what happens to the property on the death of one of the joint owners.

joint tenancy is the more common form of ownership and can be thought of as similar to a joint bank account. Ownership as tenants in common can be with two or more people and in equal or unequal shares.

Property Ownership as Joint Tenants

Joint tenancy comes with the ‘right of survivorship’. Owning a property as joint tenants means that when one joint owner dies, their interest in the home passes to the surviving joint owner, irrespective of what is in the deceased person’s Will. The deceased person’s share is not included in the deceased estate for distribution to beneficiaries.

The property will usually transfer to the surviving joint tenant without having to go through the courts. A copy of the death certificate is generally required as proof of the death.

Property Ownership as Tenants in Common

If the deceased person owned a property with someone (e.g. a spouse, partner, or someone else) as ‘tenants in common’, each owner (or ‘tenant’) owns a portion of the property asset. The ownership need not be in equal shares – it can be split any way the tenants in common agreed on when they purchased the property.

What happens to deceased estate when a tenant in common dies?

If a property is owned as tenants-in-common, there is no right of survivorship. If one of the joint owners dies their share of the property does not automatically go to the surviving owner. The deceased owner’s share of the property becomes an asset of their deceased estate for distribution in accordance with their Will (or if the person has no Will, as per the laws of intestacy).

What if joint owners’ circumstances change?

Owning property as joint tenants may be preferable for many people. However, difficulties can arise if circumstances change. For example, in the event of a relationship breakdown, a joint tenant may no longer want their share of the property to pass automatically to their estranged spouse or partner on their death.

 Can ownership be changed from joint tenants to tenants-in-common?

It is possible to apply to NSWLRS to have the ownership changed from joint tenants to tenants-in-common without the consent of the other property owner(s). Once registered at NSWLRS, a new certificate of title will be issued showing the registered owners as tenants in common (expressed in parts such as “1/2”).

There is a risk in that a person may believe their property will pass according to their Will, but in reality it may not. If you are in doubt about the mode of holding for any jointly owned property you have, and want to confirm what implications this has on your Will, seek advice by calling Anthony Steel on 0451 118 644.

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Superannuation and estate administration

Superannuation is becoming an increasingly significant asset. For many Australians, their super is one of their largest cash assets. Part of the administration of an estate may require superannuation to be dealt with.

How do I give superannuation away when I die?

Your Will is a legal document that deals with and distributes assets that you own. Superannuation does not normally form part of your estate and you can’t include it in your Will. It usually goes directly to the person that you nominate to receive the benefit from your superannuation.

Superannuation can not be left to someone in your will. If you don’t understand how you can distribute this money to your beneficiaries and erroneously include it in your Will it can cause problems.

Why can’t I leave Superannuation in my Will?

Unfortunately, when making a Will, the Will-maker can mistakenly believe that super is owned by them and will be distributed along with the rest of their estate. However, your superannuation isn’t considered as one of your assets and cannot be included in your estate.

Due to the way in which Superannuation schemes are set up the money in your Superannuation Account is not owned by you personally. It is owned and managed by the trustee of your Superannuation Fund person who holds it on Trust on your behalf. Only the trustee can distribute the money in your account. They can distribute your superannuation to your beneficiaries, but not as part of your Will.

The Trustee cannot simply do as they like with this money; there is legislation in place to protect your super.

How can I bequeath my superannuation?

Superannuation does not automatically form part of your Estate. You should ensure that you contact your Super Fund with information about your beneficiary or Estate.

What is a death benefit nomination?

A death benefit nomination is a non-binding nomination made by you. In it you express your wishes to the trustee of your superannuation fund about who you would like to receive your death benefit on your death.

What is a binding death benefit nomination?

A binding death benefit nomination is a binding nomination made by you directing the trustee of your superannuation fund who to pay your death benefit to on your death. Traditionally, binding death benefit nomination lapse after three years, so you need to update it before it expires. However, some funds now allow for non-lapsing binding nominations which need not be renewed.

A binding death benefit nomination specifies that the trustee must distribute superannuation in your account to the beneficiaries you nominate.

How do I ensure that my super is distributed according to my wishes?

You can ensure that your Superannuation is distributed according to your wishes by notifying your Superannuation Fund with your Binding Nomination and by inserting a Superannuation Will Clause in your Will.

In your Will you can stipulate who is to receive the benefits of your superannuation account. You nominate through your superannuation fund your legal representative as the beneficiary of your superannuation, who can then distribute it according to your Will.

For this strategy to work, your Will must include a superannuation clause and you must keep the binding nomination and the beneficiaries in your Will up to date.

A simpler option is to make a binding death benefit nomination with your superannuation fund and the money will be distributed to the named beneficiaries on your death.

There are only certain types of people who you can nominate under a binding death benefit nomination. These include a spouse, a de facto, children (in some circumstances including step children), dependents, inter-dependents, and your estate.

How do I make a Binding Nomination with my super fund?

You nominate someone using a death benefit nomination form or a binding death benefit nomination form.

What happens if I don’t make a Binding Nomination?

If you don’t make a binding nomination or it has expired at the time of your death, the trustee of the super fund has the ultimate discretion about who will receive that benefit. They can either pay the money directly to your estate or decide which of your beneficiaries should receive it.

Mid Mountains Legal are experienced in working with Wills and Estates and can ensure your peace of mind with comprehensive legal advice and guidance.

Contact Mid Mountains Legal on 02 47593742 or 0451118644 for a free phone consultation about your Will and distributing your Superannuation.

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Inheritances and family law

Will the Court give me back what I put in?

An inheritance is not a protected asset in family law property settlements. Depending when an inheritance is received, the family law courts exercise wide discretion about how it is treated.

Will an inheritance be included in the property pool?

The treatment of inheritances can result in bitter disputes between parties in family law property settlements. An ex-partner who received an inheritance may believe they should retain all of it whilst the other ex-partner may argue that it should from part of their shared pool of property to increase their overall entitlement.

The family law court’s treatment of an inheritance can be confusing. One inheritance can be excluded entirely from the property pool whilst another can be treated as a separate pool distinct from the other property. Whatever approach the courts choose to adopt, they will not ignore an inheritance.

An inheritance will only be considered where it has already been received or where evidence shows that party is likely to receive an inheritance in the very near future e.g. if a parent has lost the capacity to change their Will. The mere expectation of a future inheritance will not affect the division of assets of the relationship. The family law courts will not be interested in a possible inheritance an ex-partner might one day receive without evidence that the entitlement is more than purely speculative.

What will the family law courts consider?

A key issue in property settlement negotiations is how an inheritance received during a relationship is to be treated.

How an inheritance is dealt with in a property settlement depends on the circumstances of the particular case. Following are some of the factors taken into account in determining whether the inheritance forms part of the asset pool, or is ‘protected’ from distribution in the settlement.

  • the timing of the inheritance i.e. before cohabitation commenced, during the de facto relationship/marriage, or after separation
  • the intentions of the deceased;
  • how the money was used; and
  • the size of the inheritance compared to the value of the property pool.

The family courts will consider what weight, if any, should be given to the inheritance and assess it along with the parties’ other contributions.

If an inheritance is received shortly before or after the commencement of the relationship, it will be considered an initial contribution by that party and it’s value will included within the asset pool. The value of the inheritance as one of the contributions made by that party will be taken into account when determining that party’s entitlements on separation. The magnitude of the impact of the inheritance on adjustments to a party’s entitlements depends on it’s size and the amount of the party’s other contributions to the asset pool.

If an inheritance is received during the relationship, how it is treated depends on how it was applied and the intentions of the deceased. If the inheritance is spent on improving the family home, paying for the day to day expenses of the family and generally used for the benefit of both parties, it is likely to be treated as a financial contribution by the party who received it.

If an inheritance is received after separation, it will generally not be viewed as a contribution to the asset pool and may be ‘protected’ from distribution between the parties.

If the deceased had specific intentions for the inheritance, this may influence how it is treated. For example, if they specified that it was for the benefit of the family as a whole, it is more likely to be treated as part of the asset pool. If, however, the deceased specified that the bequest was to a party for a particular use who then kept the inheritance separate from the asset pool, it is likely to be treated as separate from the asset pool.

If the ex-partner of the beneficiary assisted with caring for the deceased (e.g. if a deceased parent lived with the couple) the inheritance is more likely to be treated as belonging to the family as a whole.

Where a large inheritance is received late in a relationship and the test of the asset pool is small and if a division of the balance of the asset pool would result in an unjust settlement considering the parties’ contributions, the inheritance may be treated as part of the asset pool. That is, if the party who has made the greater contribution is not the one who receives the inheritance, it may be included to give that party a just settlement.

Resolution of a property settlement

It is always preferable if possible for parties to family law property negotiations to settle the matter amicably. This can be achieved through direct negotiations, through lawyers, or by undergoing family dispute resolution. If a dispute cannot be resolved amicably, either party can file an application for property orders in the family law courts. An application must be filed within 12 months of a divorce becoming final or for de facto relationships, within two years of the date of final separation.

Call us for free advice on the status of an inheritance in a family law context.

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What is Probate & how do I apply for it in NSW?

What is a grant of probate?

An estate’s executor/s must collect the deceased’s assets, pay their debts, then distribute the assets to the beneficiaries. A grant of probate is a legal document that authorises an executor/s to follow the provisions of the will in managing a deceased estate.

Once the executor gives the grant of probate to those holding the estate’s assets (including banks or retirement villages holding bonds) or to whom the estate owes a debt they must transfer the assets to the executor (or to beneficiaries named in the will).

The Supreme Court of New South Wales (the Court) determines uncontested applications for grants of probate (known as grants in common form).

The Court can only grant probate if the deceased’s assets are located in New South Wales. If they are in more than one state or country the executor/s may have to apply for a grant in each state or country. However, assets held in other Australian states and in certain countries may only require a reseal of the NSW grant. This article is restricted to grants of probate in NSW

Must I obtain a grant of probate?

Not every deceased estate has to obtain probate. The type, size and value of the assets may be such (e.g. smaller amounts ) that an asset holders may release assets without the need to obtain probate.

Is there a difference between joint tenants and tenants-in-common?

When the deceased’s assets were jointly owned (i.e. where the co-owners [called tenants] did not own distinct shares of the property), the property automatically passes to the remaining joint tenant/s. For example, if all the deceased’s assets were held as a joint tenant with a surviving beneficiary/s probate would not be required.

Probate is required if the deceased owned real estate solely in their name or as a tenant in common (i.e. as a distinct share) with a surviving beneficiary. The certificate of title (or title deed) shows if the ownership of real estate was as joint tenants or tenants in common. New South Wales Land Registry Services (NSWLRS) can provide this information.

What are the asset holder’s requirements to release assets?

Asset holders differ in their requirements for releasing assets. If there is no real estate, the executor (especially if they are the sole beneficiary) should ask the asset holders (e.g. banks, superannuation funds, insurers) if they will transfer the assets without a grant of probate. They may be willing to do so if the executor gives them a certified copy of the death certificate, the will, a declaration signed by the beneficiary/s of their entitlement, and/or an indemnity in case there is subsequently a claim on the estate.

Superannuation is not considered part of the estate. Depending on the terms of the policy, neither are the proceeds of life insurance. However, a trustee may require probate before they will determine who is entitled to superannuation or insurance proceeds.

What is the timeframe for lodging an application?

If an executor files an application for probate after 6 months from the date of death of the deceased, the court requires an explanation for the delay by way of an explanation in the affidavit of executor or an Affidavit of Delay (using UCPR Form 40).

Who can apply?

Executors

The Will-maker (testator) should nominate an executor/s in the will. If an executor is not nominated in the will it is not possible to apply for probate. In that case a beneficiary named in the will can apply for letters of administration with the will annexed.

The testator may nominate an executor as their first choice (the instituted executor/s) and an alternate executor (the substitute executor/s) if the instituted executor predeceases them or is unable or unwilling to act. A substitute executor can only apply for probate if the conditions specified in the will for substituted appointment exist.

If the testator has nominated more than one instituted/substitute executor all of the named executors should apply unless one or more has died (the death certificate must be attached) or have filed a court form indicating that they do not want to apply (renouncing probate). The affidavit in support must explain why other executors are not applying.

If the instituted executor predeceased the testator, the substitute executor refers in the affidavit of executor to the case number of the probate application for the deceased executor or attaches a copy of the death certificate.

If the executor’s name in the will differs from their name in the application for probate this must be explained (e.g. by annexing a copy of their marriage certificate to the affidavit of executor).

If the testator has not specifically named an executor (eg. appointing someone holding an office at the time of their death), the affidavit of executor must include evidence supporting the applicant’s entitlement to apply.

Marriage or divorce after execution of Will

A testator marrying or remarrying after making a will may revoke the will. If the testator married after the will was made, you should seek legal advice as to whether the will has been revoked. A will which says it was made “in contemplation of marriage” would not normally be revoked by a subsequent marriage.

Divorce also normally revokes the former spouse’s entitlement under the will and their rights to be the executor.

Renouncing or resigning as executor

If an executor appointed under a will is unwilling to take on the role they can renounce probate. If there are several instituted executors, the remaining instituted executors can apply. Otherwise, the substitute executor/s may apply if the will says that the substitution is triggered by the instituted executor’s renunciation of probate or their unwillingness to act.

An executor’s renunciation of probate is included in the notice of intention to apply for probate (published on the Online Registry).

Executors cannot renounce probate once a grant has been made. An executor can be removed after a grant has been made only by a Court order revoking the grant of probate.

An executor may delegate their executorial duties only to the NSW Trustee and Guardian or a trustee company.

Where an executor/s is unwilling or unable to apply but is not prepared/is unable to formally renounce probate, a notice must be served on the executor/s requiring them to apply for probate. If they do not comply with the notice:-

  1. the other executor/s may apply without that executor; or
  2. there is no other executor/s, a beneficiary may apply for letters of administration with the will annexed.

If an executor is unable to apply or renounce for medical reasons or is overseas or cannot be located, evidence must be provided with the grant of probate reserving their right to later apply.

The Will

The original Will

The original will (and any codicils) must be filed with the probate application and will be retained by the Court. A will or codicil must be in writing and signed by the testator and two witnesses and be verified that the will is not a carbon or photocopy.

If you cannot find the original will but have found a copy, or if the will is unsigned or has not been properly witnessed, it may still be possible to apply for probate.

Unsigned/undated Will

If the will is undated, you must provide evidence as to when it was executed. If there is another will, this will establish which is the latest will. You should provide an affidavit by an attesting witness or from people with information as to when the will was made or the possible range of dates when it was made.

An affidavit of an attesting witness will be required if there is any doubt as to the proper execution and witnessing of the will. If the will has any hand-written amendments not initialled by the testator and the witnesses, an affidavit of attesting witness as to whether the amendments were made before the will was executed will be required. Affidavit evidence may also be required if it appears that other documents were attached to the will which have subsequently been removed, or if the will has been torn or defaced since it was executed.

Codicils

A codicil is a document that amends a previously executed will. If the testator has made a codicil/s, the application will be for probate of the will and the codicil/s.

Applying for Probate on a copy of a Will

If the original will cannot be found but there is a copy which is believed to be the last will of the deceased then the executor named in the copy may be able to apply for probate on the copy of the will. The actual copy of the will must be filed with the probate application.

Searches must be done to locate the original Will

The affidavit of executor must explain where the copy was found and set out all the searches made for the original will or any later will. These must include:-

  1. searches through the deceased’s personal papers and effects;

If the copy shows that the original will was prepared by a solicitor then enquiries should be made with the firm of solicitors to check that they do not have the original will, and as to their usual practice when wills were prepared for their clients (ie whether they normally held originals in safe custody or gave the client the original).

If the will was last held by a solicitor then an affidavit by the solicitor or someone in that solicitor’s firm should be provided as to the searches they have undertaken for the original will.

If the evidence suggests that the original will was last in the possession of the deceased there is a presumption that the deceased revoked the will by destroying the original. To rebut this presumption, the application must be supported by evidence indicating that the deceased did not intend to revoke the will. This can include:

  1. conversations with the deceased regarding their will, and
  2. evidence of no substantial change of circumstances since the will was made that may have led to an expectation that the deceased may have changed their will.

List those entitled under intestacy

The affidavit of executor must say who would be entitled if there was no will (called “intestacy”).

A limited grant

A grant of probate on a copy of a will is a limited grant. Although the original will is unlikely to be found, the grant is limited until the original will is found and an application for a grant of probate of the original will is made.

Applying for Probate of an informal Will

A will must be signed by the testator and witnessed by two witnesses who both saw the testator sign. Nevertheless the Court may grant probate for a will that does not meet these requirements if it is satisfied that the deceased intended the document to be their will.

Caveats and contested proceedings

A person with an interest in a deceased estate can file a form called a caveat preventing the Court from issuing a grant. There is a filing fee and a caveat remains in force for 6 months. It must be served on known applicants or potential applicants for a grant of probate or administration of the estate.

Reasons for filing a caveat include where:-

  1. someone wants to challenge the validity of an informal will; or
  2. a will that appears to be valid but it is claimed that the will is a forgery; or
  3. there is doubt as to the testator’s testamentary capacity, or
  4. it is claimed that the will was executed under undue pressure; or
  5. there is more than one possible will naming different executors.

An executor who wants to proceed with an application for a grant of probate can apply to the Court for removal of a caveat if they believe that the caveator has no standing or that there is no real dispute as to a will’s validity.

If there is doubt as to a will’s validity, contested proceedings can be commenced for probate to be granted in solemn form. Such proceedings are commenced by statement of claim and determined by a judge.

https://www.supremecourt.justice.nsw.gov.au/Pages/sco2_probate/sco2_filing_instructions/applying_for_probate.aspx
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Granny Flat Agreements

What is a granny flat agreement? A granny flat agreement (also known as a granny flat interest) is an interest in accommodation for life. It is a family arrangement offering an alternative for elderly family members (which for this article we assume are parents) who may otherwise have to move into a nursing home or aged care facility. It allows a parent to move in with a relative (which for this article we assume is their child) in exchange for the transfer of an asset without affecting their Centrelink entitlements. Parents are granted a granny flat interest in their child’s home in exchange for exclusive occupancy. The parent, their partner or a trust or company they control must not own the property in which they have a granny flat interest. Does the agreement relate to an actual granny flat? A granny flat agreement need not relate to a separate dwelling known as a granny flat. It can relate to a room or a separate building on the land but must allow for the parent’s exclusive occupancy of the space. What are the requirements for a granny flat agreement? A granny flat agreement will usually include an exchange of assets (possibly property and/or cash) for the parent’s right to live in their child’s property for life. The agreement creates either a life tenancy (which grants the parent the right to live in the property) or a life interest (which grants a parent a right to use and benefit from the property as they wish) but not legal title to the property. The agreement should set out whether the parent pays rent, outgoings, utilities maintenance and repair costs. The agreement says what will happen if the it ends, which may be due to the parent’s death, or their medical needs meaning they can no longer live at the property, or by agreement. The agreement should deal with how the parent will be compensated for giving up their granny flat interest if it ends by agreement. If the parent leaves the property within 5 years, Centrelink reviews the granny flat interest. If their reason for leaving is:
  • something you could expect when you created the granny flat interest – the gifting rules will apply; or
  • something that was unexpected – the gifting rules may not apply.
Unexpected reasons may include sudden illness, family relationship breakdown, elder abuse or property damage. Centrelink implications Before entering into a granny flat agreement, you should seek financial planning advice to ensure that the arrangement will not affect your parent’s Centrelink entitlements. Centrelink will apply the reasonableness test to determine whether the value of the asset transferred for the interest was more than the it is worth. If they assess that the amount paid was more than the value of the granny flat interest, the parent will be considered to have deprived themselves of an asset, which may affect their Centrelink entitlements. Do I need legal advice before entering into a granny flat agreement? Centrelink does not require a granny flat agreement to be in writing but it is highly recommended. A parent should seek financial and legal advice before entering into a granny flat agreement. A properly documented granny flat agreement will ensure that:
  • the parent has the security of tenure; and
  • all parties agree regarding the interest granted, the particulars of the asset exchanged, the parties obligations during the currency of the agreement, and the parties obligations when the agreement ends.
If you need advice regarding granny flat agreements, contact us today.
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