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While it is not something that QBM Lawyers generally practice in, this recent decision of the Childrens’ Court relates to parenting orders made in a surrogacy situation and has quite a fascinating summary of the Surrogacy Act 2010 and the considerations under it. https://www.sclqld.org.au/caselaw/QChC/2022/4

What happens where a person has died and there is a dispute as to whether they had capacity to make their last will? That can put the executor named in the last will in a difficult position, as their role is dependent on the last will being valid. There are remedies available for both the proposed executor and the person disputing capacity. A person can file a caveat in the Supreme Court, under rule 624 of the Uniform Civil Procedure Rules. That caveat can require proof of the will “in solemn form” which requires the Supreme Court to consider the circumstances surrounding the making of the will before granting probate. The Court will then consider the relevant evidence surrounding the making of the will to determine whether the will maker had proper capacity to make the will. If it is satisfied, it will issue a grant in solemn form. This was done recently in the matter of Campbell V Campbell [2022] QSC 34. The judgment is worth reading to see the sorts of factor that are taken into account. https://www.sclqld.org.au/caselaw/QSC/2022/34 For enquiries about wills and estates, please contact Jessica Murray or Peter Muller, on 5574 0111.

In the recent decision of Forster v Forster, the Queensland Supreme Court has considered mutual wills in the context of whether there is any duty from the surviving party to keep the ultimate beneficiaries informed of the status of their expectancy. It is easier to step this out: mutual wills are wills usually (but not always) used between husband and wife in which there is an obligation not to change the will without notifying the other party (to give them the opportunity to change their will); this notification cannot be given after the other party dies or loses capacity to make a new will; the idea is that in the mutual will each party is giving their estate in a certain way in reliance on the promise of the other that if they will give their estate in a certain way; a typical example is where there is a blended family. For example Timothy and Annabel get married. Each have assets that they have introduced to the marriage. Timothy has three children, Annabel has two. while Timothy and Annabel want each other to benefit from their assets if they die, they are worried about what might happen if there is another remarriage or a falling out with the stepchildren, after all one would usually prefer their blood relations; so in the mutual wills, Timothy would give his estate to Annabel but if she predeceased him, to all 5 children. Annabel would do likewise. this is similar to the facts in Forster, with a few assumptions made. Timothy dies, Annabel inherited his estate. What happened though is that one of Timothy’s blood children expressed concerns that Annabel might diminish her estate (eg by gifts or transfers to her blood children. Timothy brought an application seeking orders that Annabel disclose her assets and liabilities each year, and give notice of any transfer of property worth more than $50,000. The basis of the argument was that Annabel held the property as trustee for the children. After and exhaustive analysis of the relevant authorities the Court found that no such trust existed, as a result of which the application entirely failed. The Court went on to say however that if there was a trust relationship, then in the absence of fraud there was no obligation to account (provide information). Mutual wills are sometimes used in estate planning however they do have their own challenges. The fact that a party can be locked in to a will for decades which may have become problematic due to subsequent events means that caution must be used, and in our view parties should be independently represented if they decide to use them.

The ATO have issued several draft guidance products concerning distributions of trust income, and in particular distributions to adult children when the benefit of the distribution is enjoyed by the adults who control the trust. This is the link to the package https://www.ato.gov.au/Business/Business-bulletins-newsroom/Public-advice-and-guidance/Draft-guidance-products-impacting-trusts-released/ Of particular note is this https://www.ato.gov.au/law/view/document?DocID=TPA/TA20221/NAT/ATO/00001. The examples given in the document are relatively useful to explain the position of the ATO. Example 1 7. The ABC Trust’s beneficiaries include the members of the ABC Family. David is the sole trustee of the ABC Trust. David and his wife Rani have two children, Jenny (aged 22) and Paul (aged 19), who live with them in the family home. David and Rani have an existing mortgage on the home. Jenny and Paul are both full-time students and during the 2020-21 income year, they each earned approximately $12,000 from casual employment. 8. During the 2020-21 income year, the ABC Trust derives income of $720,000 (the trust’s net income is also $720,000). 9. A resolution of the trustee of the ABC Trust dated 30 June 2021 shows both Jenny and Paul are each presently entitled to $160,000 of the income of the ABC Trust, with David and Rani each presently entitled to $200,000. 10. Jenny and Paul are not paid any amounts. Instead, David transfers an amount equal to their entitlements to the mortgage offset account that he and Rani maintain. Jenny and Paul’s entitlements are recorded as having been fully paid in the accounts of the ABC Trust. David pays Jenny and Paul’s tax liabilities in relation to their entitlements from his personal funds. 11. David has taken these actions as Jenny and Paul have agreed that their entitlements from the ABC Trust will be managed by David for the benefit of all family members. David has determined that those entitlements should be applied to reduce the debt on the family home. 12. This arrangement raises the concerns mentioned in this Alert. By entering into this arrangement, the purported $160,000 entitlements of both Jenny and Paul are not subject to the top marginal tax rate. David has not managed the entitlements for the benefit of all members of the family. The arrangement has the result that the post-tax amounts of Jenny and Paul’s entitlements have been diverted to meet their parent’s individual liabilities in circumstances where their parents would have been able to meet them. David and Rani receive the same economic benefit from that income as if it had been appointed to them directly, but without the amounts being included in their assessable income and subject to tax at a higher marginal tax rate. The arrangement involving the making of the trust distributions and use of those amounts appears to be motivated by the tax outcome achieved rather than ordinary familial objectives. Example 2 13. The trustee of the Blue Family Trust is Azure Pty Ltd. Trevor is the sole shareholder and controller of Azure Pty Ltd. The Blue Family Trust derives assessable income in excess of $400,000 a year. Trevor’s daughter, Simone, is a beneficiary of the trust. Simone has recently turned 18 years of age and works part-time. Simone expects to derive assessable income from her work of approximately $20,000 a year. 14. Before the end of the 2020-21 income year, Simone meets with her father and agrees that any distribution resolved to be made by the Trustee will, after the payment of tax, be paid to Trevor to reimburse him for part of the fees for secondary schooling and costs of other extracurricular activities since Simone was five years old. Records maintained by the family show that these expenses amounted to $315,000. 15. The Trustee resolves to distribute $160,000 to Simone and pays this amount into an account held in Trevor’s name. Trevor pays income tax on Simone’s behalf. 16. This arrangement raises the concerns that are mentioned in this Alert. Simone is purportedly made entitled to a trust distribution and this amount is used to reimburse her parents for expenses that they would ordinarily meet. The arrangement, which results in Trevor obtaining the economic benefit of the trust income without that income being subject to tax at the top marginal tax rate he would otherwise have paid, appears to be more readily explained by the tax outcomes achieved, rather than any familial objectives. Example 3 17. The Green Trust’s beneficiaries include the members of the Green Family. Mary Green is the sole trustee of the Green Trust. Mary has an adult child, Genevieve (aged 19), who lives with her grandmother in order to be close to the university she attends. 18. It is agreed between Mary and Genevieve that Genevieve’s tuition fees of $20,000 will not have to be met by Genevieve but that they will be paid out of her trust entitlement. It is agreed between Genevieve and her grandmother that the grandmother will be paid board of $10,000 a year. 19. During the 2020-21 income year, the Green Trust derives income of $300,000 (the trust’s net income is also $300,000). 20. On 30 June 2021, Mary as the trustee of the Green Trust resolves to make Genevieve presently entitled to $40,000 of the trust income and make Mary entitled to the remaining $260,000. 21. $20,000 of the $40,000 that Genevieve is presently entitled to is paid to Mary, who has previously met the tuition fees of $20,000 as they fell due. $10,000 of that $40,000 is paid directly to the grandmother. The remaining $10,000 is paid to Genevieve, some of which is used to meet her tax obligations on the $40,000. 22. Although $30,000 of the $40,000 is not received directly by Genevieve, and might appear to be within the scope of this Alert, it is important that the $30,000 is applied to repay loans for legitimate expenses that might ordinarily be borne by an adult child and were temporarily met on Genevieve’s behalf (being tuition fees and arm’s length board). The remaining $10,000 was actually received by Genevieve. Accordingly, the concerns raised in this Alert do not arise in arrangements of this type.