commercial

Superannuation Death Benefit Nominations

Did you know that on your death, your superannuation balance will not necessarily be dealt with in accordance with your wishes unless you have a valid beneficiary death benefit nomination in place. That’s right, your Will probably doesn’t have any effect as regards your super.

The trustees of most super funds have a discretion as to who to pay a benefit to and usually, the fund rules specify the member’s dependants as the class of beneficiaries to be considered first, with the trustee to determine the amounts/proportions.

Imagine what happens if you are separated (but not divorced) and you are living with another person (as a de facto) – a dispute could easily arise. What if you have children? What would/should the split be?

If you have no dependants, the trustee will likely pay it to your estate, but why take the risk? and does your Will adequately deal with that asset?

To minimise disputes and avoid applications to the Superannuation Complaints Tribunal or the Supreme Court of NSW, make a nomination. There are generally 2 types: Non-binding and Binding

NON-BINDING NOMINATIONS

A non-binding nomination is an indication to your trustee of your preferences but it is, as it states – non-binding so the trustee can ignore it. This can be a good idea if there are significant changes in circumstances before your death where you haven’t got around to updating your nomination. The trustee’s discretion could prevent it going to your ex or avoid the situation of you accidentally omitting one of your kids from a benefit.

BINDING NOMINATIONS

A binding nomination is exactly that – binding (provided that it is valid as at the date of death). There are 2 sub-categories of binding nomination: lapsing and non-lapsing.
  • LAPSING – Most funds provide for the lapsing type – these need to be renewed every 3 years or the nominations lapse.
  • NON-LAPSING – Some Self-Managed Super Funds (SMSFs) and some retails funds allow in their deeds for nominations that never lapse (unless you update it). Older SMSF Deeds and their Rules do not allow for the non-lapsing type and may need to be updated.

There are requirements for making any nomination legally valid, witnesses etc.

Speak to us about your estate planning and ensure your wishes are properly documented.

FURTHER INFORMATION
If you would like any further information in relation to superannuation death benefit nominations or updating SMSF deeds , please contact us on (02) 9521 2455 or email craig@mckilloplegal.com.au

Minimizing risk in your business

Running a business is risky and small businesses can be especially so. Minimizing risk in your business is crucial.

Often, SME owners put their own personal assets on the line, whether to borrow funds from a lender to start up or buy stock or equipment or by signing a guarantee in relation to suppliers and others for the debts of the business.

There are several methods of protecting personal assets from creditors, but it is a process that many don’t follow. Some are quite simple and easy to put in place. They include…

Placing assets in a spouses’ name or in a family trust

In most circumstances, creditors will not be able to make a claim upon assets owned by your spouse or held by a discretionary trust, provided that you are not the trustee. If your spouse is the trustee, then he or she is the person who will usually decide how to divide up the income or capital of a trust (or not to).

Of course, stamp duty and capital gains tax issues must also be considered before acquiring or transferring assets as well as the potential operation of claw back provisions. The loss of the principal place of residence CGT exemption or the land tax issues may be a factor weighing against doing this.

In the end, it is weighing up risk vs benefits and making an informed decision regarding any asset protection measures.

Encumbering assets if you cannot transfer them

An asset that is mortgaged to its value is not attractive to a creditor. The mortgagee in such a case is the only entity that will benefit from the subsequent sale of the asset.

A guarantee form a person without assets is effectively valueless. Often businesses don’t check to see what a guarantor actually owns.

If you seek a guarantee from a director of another business, you could make some inquiries about their credit/financial position before creating an account,

Correctly structuring your business

Sometimes it is not feasible to establish an asset-holding entity and a trading entity (as many small business start-ups are strapped for cash) but it can be a great way to protect the business assets from day to day trading risks. Even getting the type of business structure right from the beginning (sole trader, partnership, company, trust or combination etc) can have a massive impact on your business.

It is possible to establish a company with a single director  and/or single shareholder. The company dealing with third parties, supplies, customers and the like is the entity that may be liable to them, not the shareholders.

The shareholders are only liable to the company for the unpaid amounts (if any) on any issued share capital. This liability is usually a nominal amount such as a dollar. Shareholders have no liability to third parties unless they agree to it, such as by giving a guarantee.

Company directors may have some liability but only in limited circumstances can the corporate veil be lifted. Courts may be prepared to lift the veil in limited circumstances, such as in the case of insolvent trading, fraud or misrepresentation, inappropriate transactions or where public policy requires it.

Charging assets (and properly recording the charge)

Before lending money to your business, a charge should be created in the correct form and that form recorded as against assets such as real property (by way of mortgage recorded at Land and Property Information or another State’s land titles registry) or against non-real estate assets (by way of a Specific or General Security Deed and making a registration on the Personal Property Securities Register (PPSR)) to secure repayment of that money in preference to other creditors should the business fail.

Having proper terms of trade

Most businesses, if they have them at all, have terribly inadequate terms and conditions of trade. Often they are just copied and pasted from other documents and not tailored, leaving businesses thinking they are adequately protected when they really are not covered at all.

T&Cs should be built to protect your particular business and should be a work in progress, tweaked to solve or prevent problems that have arisen in your business from occurring again,

Avoiding personal guarantees altogether

A guarantee is a contract by which a guarantor promises that another person or entity will comply with his, her or its obligations to a third party and if they don’t, the guarantor will. The most common example involves bank loans where a guarantor such as a parent promises to repay the loan of their child if the child defaults.

Becoming a guarantor can be extremely risky, particularly when large liabilities are involved. Under most guarantees, the guarantor becomes immediately and primarily liable to repay the debt (and the lender does not have to wait for attempt to recover from the borrower before calling on the guarantee).

As a practical matter, many businesses cannot obtain finance unless a personal guarantee is provided. If this is the case however, whenever the loan is actually repaid or if the business can prove it is financial stable and secure, the guarantee should be discharged so that the guarantor cannot continue to rely on it at a later date concerning subsequent transactions.

Managing staff

One of the biggest risks to your business is that of staff leaving, and worse still, taking valuable information and assets with them.

Having appropriately drafted Employment Contracts with restraints of trade in them is a must.

Superannuation contributions

In many circumstances, superannuation entitlements can be protected from bankruptcy trustees. There may be no protection for example where the payments are made for the primary purpose of defeating creditors.

Making contributions to super is getting harder and harder with the Federal Government’s recent changes to the superannuation laws however, this can be an effective long term tool for wealth creation and asset protection. This will also usually involve the assistance of your financial planner.

Business succession planning

If you are in business with another person, what happens to your business if you or your business partner gets seriously injured or dies?

Do you have an appropriate and valid Will, Enduring Power of Attorney and Appointment of Enduring Guardians in place?

Usually having these estate planning documents is not enough. Presumably your business partner would give all of his or her assets to their spouse on their death through their Will. What if you don’t want to me in business with your business partner’s partner?

You should have in place business succession documents to deal with this such as a Buy/Sell Deed with appropriate insurances, a Shareholders Agreement (for companies), Unitholders Agreement (for unit trusts) or a Partnership Agreement (for businesses operating through a partnership structure).

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to starting a new business, commercial law, business disputes or estate planning/business succession issues generally, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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Justices of the Peace

A Justice of the Peace (JP) can perform certain functions like witnessing Statutory Declarations or Affidavits and certifying copies of documents.

The NSW Department of Justice has updated the Justice of the Peace Handbook for JPs in NSW. The handbook contains guidance for JPs, tips to avoid common risks and answers to frequently asked questions.

Witnessing a Stat Dec or Affidavit

When witnessing a NSW Statutory Declaration or Affidavit, the JP must see that person’s face as well as confirm that they have known the person for at least 12 months or sight approved identification documents. The current approved versions of Statutory Declaration and Affidavits contain amended wording in this regard but it should be added if it is not there.

If the person refuses to remove any face covering, the JP must refuse to witness the execution of the document unless there is special justification (which means a legitimate medical reason, but does not include religious beliefs or cultural practices).

Approved identification documents include drivers licences, Medicare card, birth certificate, passport (so long as they have not expired/been cancelled). Expired passports are acceptable so long as they did not expire more than 2 years ago.

Quick JP facts

  • JPs may not charge or receive any benefit for providing JP services.
  • A JP is not authorized to witness an Enduring Power of Attorney.
  • JPS cannot conduct a marriage unless they are also a licensed Marriage Celebrant.
  • The Jury Act 1977 does not provide an exemption for JPs from jury duty.
  • A JP May not provide legal advice unless they are also a registered Australian Legal Practitioner.
  • A JP must not unreasonably refuse to provide JP services.

The Code of Conduct for Justices of the Peace was reviewed in 2014 and updated by the Justices of the Peace Regulation 2014.

What is a restraint of trade?

Post engagement restrictions

Often, employment contracts and contractor agreements contain restrictive covenants or ‘restraints of trade’ to protect businesses when an employee or service provider / contractor leaves.

So, what is a restraint of trade? A restraint of trade is effectively a restriction on the employee or contractor as to where they may work and who they may work for during, and for an agreed period after the termination of, their engagement. Restraints often restrict an employee’s ability to work for competing businesses and within a certain geographical area for a specified period of time.

How far can they go?

A valid restraint should only restrict activities reasonably necessary to protect the legitimate interests of the business that has the benefit of it. Those legitimate interests may include clients, referral relationships, trade secrets, confidential information and the like.

A restraint clause that is too wide, and therefore too restrictive, is generally unenforceable. A restraint should be tailored to accurately reflect the nature of the business activities being protected and only go so far as to protect them, when looked at reasonably. Where restraints seek to protect more than is reasonably necessary to protect the business, they can be struck down. There are public policy considerations in not preventing competition. Restraints are read strictly against the business that seeks to impose it.

Where there are no restraints in the employment or services agreement, there is no restraint and the business will only be able to rely upon their common law rights, which are often inadequate.

How are they enforced?

To enforce a restraint, the court requires that the party seeking to enforce it show that the restraint is reasonable – this will depend on the nature of the business, the restraint period, the restraint area and the nature of the work undertaken by the person or entity affected by it.

Often, enforcement takes the form of an injunction, seeking damages or an accounting for profits.

Further information

If you would like any more information in relation to employment law, disputes or business issues generally, please contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au

Why you should look at your estate planning

There are at least 3 documents you should consider as part of your personal estate planning:

  1. A will;
  2. A power of attorney; and
  3. Appointing an enduring guardian.

A WILL

A Will is a legal document that details who will take care of your assets and distribute them on your death in accordance with your stated wishes. Consider:

  • Who you would want to control your estate if you died?
  • What would happen to your estate if you didn’t have a Will?
  • Who would look after your children until they are adults?
  • That life insurance proceeds, jointly owned assets and superannuation benefits are likely not to form part of your estate on your death.
  • What would happen to your business if you died? Business succession is often overlooked or not adequately dealt with by lawyers in wills.
  • Who would control your family trust if you died? Have you even read the trust deed?
  • How your family could best receive any inheritance from your estate having regard to such things as:
    • their own estate planning; asset protection measures; and
    • tax minimisation issues.

If your Will does not consider the above issues adequately or at all, then your intended beneficiaries could be receiving far less from their inheritance than you might hope and paying more tax than is necessary each year after you die.

If you pass away without having a valid Will in place (dying intestate), then your estate will be divided up without regard to your wishes at all.

TESTAMENTARY TRUSTS 

Testamentary trusts can save your family thousands in tax each and every year though income splitting opportunities and also provide a level of asset protection to benefit future generations. See our previous article on Wills with Testamentary Trusts.

POWERS OF ATTORNEY

Who would make decisions about your finances or assets if you were unable to (such as if you are in a coma, are unconscious or suffer from mental incapacity such as dementia)?

You can appoint a power of attorney to be able to manage your affairs. If you do not, the NSW Civil & Administrative Tribunal (NCAT) can appoint a person that you do not know to control your assets and make decisions for you.

APPOINTING AN ENDURING GUARDIAN

Who would make decisions regarding your medical and dental treatment and where you live if you are permanently or temporarily incapable of doing so?

If you don’t nominate somebody as your enduring guardian, then NCAT can appoint a person to make those decisions, which can include what medical treatment you get or if life support is not maintained.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to estate planning, business succession or any  commercial law issues, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

Trusts – who is who in the zoo?

TYPES OF TRUSTS

There are many different types of trust including those created by wills (testamentary trusts) or by the operation of law, but for the purpose of this article, we are referring to the usual types of trust structures that accountants and lawyers prepare for their clients to operate businesses, own assets and the like, including:
  • unit trusts,
  • family/discretionary trusts,
  • hybrid trusts.

Trusts are often used to ensure that the person or entity with the legal ownership of assets is different to the persons or entities that enjoy the benefit of those assets.

WHAT IS A TRUST DEED?

The Trust Deed is a document that governs the terms of the Trust and sets out the rights and obligations of the Trustee, the Appointor and the Beneficiaries.

SETTLOR

The Settlor is often a person who has started the Trust (often an accountant or lawyer that obtained or drafted the Trust Deed at the request of a client) by paying a nominal amount such as $10 to the Trustee. This amount is known as the ‘settled sum’. The Trust Fund is then added to over time.

WHAT DOES THE TRUSTEE DO?

The Trustee of a Trust is responsible for administering the Trust and managing its assets for the benefit of the Beneficiaries. The Trust can only operate through its Trustee (one or more people or a company)

There are many duties that affect how Trustees can fulfill their role. Many of them are set out in the Trust Deed but there are also legislative provisions that apply, such as those set out in the Trustee Act.
Some of the duties include keeping accurate records, acting in a prudent manner as regards decisions, not mixing Trust assets with the Trustee’s own assets (which is why a often a company is set up to be the Trustee and do nothing but be the Trustee) and not using trust assets for the trustee’s own benefit. This is often one of the reasons a special purpose trustee company is used.

WHAT IS AN APPOINTOR?

The Appointor is the person with the power under the Trust Deed to remove a Trustee and appoint a new Trustee. They, therefore, ultimately control the trust.

Usually, changing the Trustee can be effected at any time by the Appointor executing a deed to remove and appoint a Trustee. Often the Trust Deed allows for the change to be effected by a person’s Will.

It is common for the Appointor of a discretionary family trust to be a parent or sibling and is often 2 people (or in the alternative, there is a Primary or First Appointor and a Second or Alternate Appointor that can act if something prevents the First Appointor from acting).

WHO ARE THE BENEFICIARIES?

In the types of Trusts we are talking about in this article, the Beneficiaries are those that are ultimately entitled to the benefit of the Trust. For Family/Discretionary Trusts, the Beneficiaries are not stated specifically but rather, for asset protection reasons, they are expressed as a class of potential beneficiaries that the Trustee can choose from (but is not obliged to – the protection arises as there is no specific share they are entitled to – it is in the Trustee’s discretion).

Often, the class of potential beneficiaries is very wide and includes children, grandchildren, grandparents, siblings and other trusts and companies which those people may have an interest in.

In the case of a Unit Trust, the Beneficiaries are the unitholders -the unitholders are entitled to a defined/fixed share of the Trust’s assets and income.

For asset protection and income splitting/tax minimisation reasons, often the units in a Unit Trust are owned by a Discretionary Trust.

FURTHER INFORMATION

Trust law is an extremely complex area and it is important to ensure that you understand your rights and responsibilities in relation to any Trust you are involved with or may have an interest in.

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to trusts, structuring or any other commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

Weekend and public holiday penalty rates

There has been a lot of news coverage recently in relation to the  Fair Work Commissions decision which effectively cuts Sunday and public holiday penalty rates for workers in the retail, fast food, hospitality and pharmacy industries. We explain how and why this occurred below.

Section 156 of the Fair Work Act 2009 (Cth)provides that the Fair Work Commission must conduct a 4 yearly review of Modern Awards.

The Commission’s task in the Review is to decide whether a particular Modern Award achieves the Modern Awards’ objective. If it doesn’t, then it is to be varied such that it only includes terms that are ‘necessary to achieve the Modern Awards’ objective’ (s.138).

As part of the Review, various employer bodies made applications to vary the penalty rates provisions in a number of Modern Awards in the Hospitality and Retail sectors. These applications have been heard together.

On 23 February 2017, a Full Bench of the Commission made a determination in relation to weekend and public holiday penalty rates and some related matters, in Hospitality and Retail awards.

The Modern Awards which are dealt with in this decision are:

  • Fast Food Industry Award 2010 (Fast Food Award)
  • General Retail Industry Award 2010 (Retail Award)
  • Hospitality Industry (General) Award 2010 (Hospitality Award)
  • Pharmacy Industry Award 2010 (Pharmacy Award)
  • Registered and Licensed Clubs Award 2010 (Clubs Award)
  • Restaurant Industry Award 2010 (Restaurant Award

A summary of sum of the changes are set out below.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to any business or employment related issue, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

Fair Work Commission penalty rates

Fair Work Commission public holiday rates

Access the summary of the decision here

What is legal tender in Australia?

As you would expect, Australian banknotes are legal tender throughout Australia.

Similarly, a payment of coins is a legal tender in Australia however, there are restrictions, such as those in the Currency Act 1965, about how much can be paid in coins.

Coins are not legal tender if they exceed:
  • 20c where 1c and/or 2c coins are offered (these coins have been withdrawn from circulation, but are still legal tender);
  • $5 if any combination of 5c, 10c, 20c and/or 50c coins are offered; and
  • 10 times the face value of the coin if $1 or $2 coins are offered.

For example, if someone wants to pay a merchant with 5c coins, they can only pay up to $5 worth of 5c coins and any more than that will not be considered legal tender.

The above is of course subject to any agreement between parties – a provider of goods or services is at liberty to set the commercial terms upon which payment will take place before an agreement for the supply of the goods or services is entered into.

For example, vending machines may not accept small denomination coins or payment may be agreed to be made in foreign currency such as USD.

If you would like any more information in relation to any commercial law or contractual issue, please contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au

Source: Reserve Bank of Australia 

Trust & Superannuation Deed Amendments

Do you or any of your clients have a family/discretionary trust, unit trust or self-managed superannuation fund and want to change the deed?

Often the change is to remove and replace a trustee with a new one. In other situations, it may be changing a class of potential beneficiaries, dealing with the power of appointment, bringing forward the termination date or changing the trustee’s rights and/or obligations.

Care needs to be taken not to vest the trust or to cause a resettlement, which can give rise to unintended consequences, including:

  • CGT and
  • stamp duty.

There is no real “one size fits all” solution. Deeds can vary greatly as to the process and requirements.

McKillop Legal can assist in reviewing the relevant Deed/Rules and drafting an appropriate document to give effect to the required change.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to trusts, estate planning, business succession or any other commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

What does an enduring guardian do?

An enduring guardian is a person appointed to make decisions about your health and lifestyle for periods in which you are incapable of making such decisions for yourself (for example if you have dementia, are in a coma, are unconscious following a car accident or suffer from some other mental incapacity.)

Appointing an Enduring Guardian is an important step in implementing a proper estate plan (others include having a Will and appointing a Power of Attorney).

HOW DO YOU APPOINT AN ENDURING GUARDIAN?

You can choose who can make decisions on your behalf regarding your medical and dental treatment and decide where you live if you are not capable of doing this for yourself. These are known as “functions”. The easiest way to do this is to appoint an enduring guardian.

The appointment of an enduring guardian takes effect only if and when you become unable to make personal or lifestyle decisions for yourself, such as where you are in a coma, are unconscious or suffer from mental incapacity like dementia.

WHO CAN BE APPOINTED?

An enduring guardian must be at least 18 years of age but cannot be a person who, at the time of the appointment, provides you with medical treatment, accommodation, support or care to you as a professional.

The appointed enduring guardian should be someone that you trust absolutely as they have significant powers. Although an enduring guardian must act in accordance with the provisions of the Guardianship Act 1987 (NSW), you should be satisfied that the person you appoint will act in your best interests.

You can appoint more than one person to act as your enduring guardian – either jointly (together) or separately. You can also appoint alternative enduring guardians in case something happens to your first nominated enduring guardian. For example, people often appoint their spouse and have their children as their joint alternate enduring guardians.

WHAT DECISIONS CAN AN ENDURING GUARDIAN MAKE?

You can give your enduring guardian the discretion to make all decisions for you when you are not able to make them for yourself or alternatively, you can limit your enduring guardian’s functions such as to consenting to certain procedures, limiting their discretion as to the type of nursing home or care facility you want to reside in or requiring specialist consultation or consultation with relatives regarding decisions about your care and treatment.

You cannot give your enduring guardian a function or direction which would require an unlawful act, such as assisted euthanasia. You can provide specific directions regarding turning off life support, ‘do not resuscitate’ orders, assisted ventilation, artificial nutrition and hydration etc.

ENDING ENDURING GUARDIANSHIP

An enduring guardian’s appointment comes to an end when you die or if you revoke the appointment however, you can only revoke it provided you still have mental capacity.

The New South Wales Civil & Administrative Tribunal can review or revoke a person’s appointment as an enduring guardian and can make a guardianship order appointing a new guardian or appointing a representative of the NSW Trustee & Guardian if it is considered that your guardian not making appropriate decisions on your behalf.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to estate planning, business succession or any commercial law issues, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

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