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.

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 .

September 17

Dependants and Death Benefits

An elderly self-managed superannuation fund (SMSF) trustee was convinced that his adult son, who is not financially dependent on him, would receive all his superannuation savings upon his death totally tax-free. The trustee thought that because his adult son is classified as a “dependant” under the superannuation law, he would receive the benefit tax-free.

He was wrong!

Namely, as his son is not a “death benefit dependant” under the income tax law, he will not receive the taxable component of his father’s superannuation savings tax-free. The way the superannuation and income tax laws interact can be confusing. SMSF members who don’t understand the law could end up leaving their loved ones with a big tax bill. The superannuation law states who can be paid a death benefit upon the death of an SMSF member, while the income tax law states how the death benefit will be taxed, based on who receives it, and whether the benefit is paid as a lump sum or an income stream (i.e. pension). It is important to note the two laws also differ on the definition of a “dependant”.

Under the superannuation law, a “dependant” is a spouse by marriage or a de facto partner (including same-sex partners), and a child of any age. It also includes anyone who had an interdependent relationship with the deceased. An interdependent relationship is where two people (whether related or not) have a close personal relationship and live together and provide financial or domestic support and personal care. The superannuation law also states that a death benefit pension can only be paid to the deceased member’s dependant and in the case of a child it can only be to a child who is less than 18 years of age, or is aged 18 to 24 and was financially dependent on the deceased before their death. A child of any age with a disability is also eligible.

Under the income tax law, a dependant in relation to a death benefit is referred to as a “death benefit dependant”. A death benefit dependant can be the deceased’s spouse by marriage or a de facto partner (including same-sex partners), a child under the age of 18, or a person who is financially dependent on the deceased person before they died. It also includes a person with whom the deceased person had an interdependent relationship with just before their death. Unlike the superannuation law, the definition also includes a former spouse.

A person classified as a dependant under the superannuation law can receive an SMSF member’s death benefit in accordance with the deceased’s SMSF trust deed and/or as per the deceased’s binding death benefit nomination. People who do not meet the definition of a dependant (for example: siblings, grandchildren, parents, friends) under the SISA can only receive the deceased’s superannuation via the deceased’s estate (in accordance with the deceased’s will) through the deceased’s legal personal representative.

To view more information about our Wills and Estates service please click here

April 29

Important developments in the law of Family Provision

Significant amendments to the provisions regarding persons eligible to make Family Provisions claims commenced on 1 January 2015. It applies to the estates of all persons dying on and from 1 January 2015. The categories of possible claimants are wider than in the previous regime but it also excludes a number of claimants previously included.

Eligibility is limited to the spouse and children of the deceased and to the other limited categories. Those other categories include grandchildren, registered caring partners and members of the deceased’s household. For certain categories of claimant, considerations