December 5

Capacity to make decision

Concerns about capacity of a person to enter into legal transactions is not new, nor is the acceptance that capacity is issue-specific and that incapacity is not static and can change. The Law Institute of Victoria (LIV) will be launching its “ Revised Capacity Guidelines” as a guidance for lawyers to assess the client’s capacity to give proper instructions or to participate in a court or similar process. Below are some of the important points as recently published by the LIV president that will be argued and taken into account in addressing this important issue.

Currently, the law does not prescribe any fixed standard of sanity as requisite for the validity of all transactions. It requires, in relation to each particular matter or piece of business transacted, that each party shall have such soundness of mind as to be capable of understanding the general nature of what he is doing by his participation.

Taking an overview of the many different situations in which courts have been called on to consider questions of capacity – the validity and fairness of transactions, fitness to plead, testamentary capacity, litigation guardians, guardianship and administration statutes, and consent to medical treatment are examples – demonstrates the test of capacity is specific to the issues for which capacity is required. It is hardly surprising, given the complexity of human cognitive and intellectual function, that capacity is related to the nature and complexity of the transaction or decision or the ongoing continuum of transactions that are in issue.

Questions about capacity arise in many areas – much beyond, the elderly, the very young – in the making of powers of attorney or wills and in criminal cases.

Capacity is fluid and can fluctuate in a year, a week or even in the same day. Some welcome legislative guidance can be found in the Powers of Attorney Act 2014 (Vic), such as section 5 of that Act, which requires a person assessing capacity to do so at a time and in an environment most conducive to promoting a person’s capacity.

A person’s capacity may be affected by a number of factors, including: taking certain medications, mental illness, an intellectual disability or an age-related cognitive disability, such as Alzheimer’s, grief, depression, reversible medical conditions or hearing or visual impairments. However, one or more of these factors doesn’t mean that person lacks decision making capacity. Some people may be more capable of making decisions at different times of the day or with practicable and appropriate supports in place.

Clients may have capacity for some decisions, but not for others; capacity is always decision-specific.

November 8

Electronic Conveyancing

We are proud and very excited to confirm that Elizabeth Palumbo from Kelly and Chapman’s Property Department has now conducted the firm’s first electronic conveyancing settlement using the “PEXA” platform.

pexa PEXA represents a leap forward in conveyancing offering our business greater efficiency and our clients’ greater piece of mind that settlements will occur on a “real time basis” and without any unforeseen delays or issues immediately giving vendors access to their sale funds and purchaser’s being transferred onto Title immediately. The way forward in Victoria will be electronic conveyancing and soon, Paper Titles will be a thing of the past

Most certificates of title in Victoria are still in paper form. Land Victoria are in the process of facilitating a bulk conversion of approximately 1.6 million paper certificates of title into electronic form (eCT) meaning that many CTs in Victoria will now be eCTs. Feel free to contact our office with any questions you may have moving forward in this exciting venture.

October 19

Trustees of a Family Trust

The position of a Trustee is an important position. The Trustee’s duties are covered between legislation in each state, commonwealth legislation and case law. Trustees can be individuals, one or more than one and also companies.

Trustee’s Duties

Trustees of family trusts have many duties. Many of these have been formulated by Judges through case law over the ages. Broadly speaking, the Trustees:

  • Must act in good faith
  • Must act personally
  • Must act unanimously where multiple Trustees are involved
  • Must not be dictated to by others (ie beneficiaries)
  • Have a duty to consider how distributions should be made and to whom
  • Have a duty to avoid fettering of discretion.

The Trustee also has fiduciary duties which exist alongside the various statutory obligations imposed on Trustees.

Let’s have a look at some of these duties more closely .

Duty to act personally.

Duty to Act Unanimously

What happens when there is more than one Trustee – can one Trustee not consider a matter and leave it to the other Trustees to decide upon?

In essence where multiple Trustees are involved, any decision by them must be joint and unanimous.

Please note , a statutory exception exists for trustees of Self-Managed Superannuation Funds. Speak to our Trust Lawyers for more information

August 4

Family/Discretionary Trust – Corporate Trustee versus Individual Trustee

The last 3 decades have seen a substantial growth in the number of people in Australia establishing a family/discretionary trust. The benefits of such an arrangement have been largely touted by professionals around 2 areas – asset protection and tax benefits.

The issue of whether a corporate trustee is best suited as opposed to an individual trustee for a family/discretionary trust is relevant on the area of asset protection and succession planning.

Trustee Liable for Trust Debts

Under trust law, a Trustee is personally liable for trust debts.

To discharge the trust debts the Trustee normally has a right of indemnification against the trust assets. This right of indemnity is established from 3 sources:

  1. Equitable principle as set out by the Courts;
  2. An indemnity clause which is contained in most trust deeds; and
  3. State Statute law – the Trustees Act.

What Liabilities are Covered by the Trustee’s Right of Indemnity?

The cases generally state that the indemnity is limited to liabilities or expenses that have been properly incurred by the Trustee in the execution of the trust. If the Trustee’s action was unauthorised and exceeds his power, there is no right of indemnity.

What Happens if The Trust has Insufficient Assets to Cover the Trust Debts?

Individual Trustee – if there is a shortfall in the assets of the trust fund then the individual Trustee will be liable for the shortfall. This amount, if substantial to the individual Trustee’s personal asset pool, may result in the individual Trustee declaring bankruptcy or entering into a Part X arrangement. If this course of events took place, then this would defeat one of the potential benefits of establishing a discretionary trust in the first place.

Corporate Trustee – In this scenario the corporate Trustee will probably go into liquidation or administration. As the corporate Trustee usually has no or minimal assets, this may not be too detrimental to the parties who had established the trust in the first instance. Under corporation law the individual shareholders are not liable for the debts of the company. There are exceptions. One example is where the shareholders have signed a guarantee/indemnity in favour of a creditor.

The directors of the Trustee company will normally be immune from the debts of the Trustee company.

Can the Appointor of the Trust Sack the Trustee to Allow the Trustee to Avoid Personal Liability?

In short, the answer is no. Once the debt or cause of action is established then the Trustee is liable for the debt. Simply removing the Trustee does not extinguish his liability.

Other Problems Associated with an Individual Trustee – Asset Identification

Should the Trustee be in the unfortunate position of having assets seized by way of court order or by a person exercising rights under a security arrangement, then the situation may arise where there is a dispute as to which assets belong to the trust or the Trustee in his own right. This situation is more likely to occur where the Trustee is an individual as opposed to a company. Inadequate record keeping may simply record assets in the name of the Trustee without reference to the trust, leaving open the issue as to who owns the asset.

Succession Planning

Issues arise as to what happens to the trust should an individual Trustee die. The appointor of the family trust, under most trust deeds, should be able to appoint a new trustee to continue in that position. However, it is possible that the appointor and the individual Trustee are the same person – resulting in the trust being headless.

Under trust law the trust does not fail for want of a Trustee. The above circumstances can be avoided by careful estate planning and having the appropriate backup appointors in place in the trust deed or the appointor’s will.

With a corporate Trustee, the scenario will be easier to resolve as the company will continue to exist. The shareholders, if need be, can appoint a new director – should one director die. Again careful estate planning should be undertaken to contemplate this situation.

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