The Self-Managed Super Fund Professionals’ Association of Australia (SPAA) has welcomed comments in the media this week by Cooper Panel chairman Jeremy Cooper about the high level of competency and financial expertise of SMSF trustees, but has questioned speculation about whether trustee quality could be eroded by future sector growth.

The final Cooper panel report, released by Jeremy Cooper in July called the $390 billion SMSF sector, the largest by assets in the $1.2 trillion super system, “well functioning and successful”. The SMSF sector is
home to 428,000 funds and 815,000 trustees with an average member balance of $480,000.

“We agree with Jeremy Cooper, chairman of the Cooper Panel, that the SMSF sector is successful due to the high level of competency and financial expertise of those who set them up and we intend to see that
standard increased through pushing for higher standards for advisers, while expanding educational opportunities for trustees,” said Sharyn Long, chairman of SPAA.

“SPAA is supportive of the Cooper Review’s recommendations for higher competencies for SMSF auditors and advisers and has advocated for this through our contribution to the Cooper Review process and the Future of Financial Advice (FoFA) reform process,” said Ms Long.

She said SPAA has witnessed growing numbers of advisers applying for and completing accreditation as either a SPAA Specialist Adviser or a SPAA Specialist Auditor.

On the SMSF trustee front, Ms Long said SPAA, in an industry first, had recently launched an SMSF trustee education curriculum guide to encourage education providers and industry practitioners to create and provide SMSF trustee training.

“We believe that as the numbers of funds and member balances grow, more and more trustees will seek to educate themselves about their responsibilities and obligations, many of them encouraged by their advisers,” Ms Long said.

Ms Long said SPAA would continue to work closely with regulator, the Australian Tax Office (ATO) on issues affecting the SMSF sector and with the APRA regulated fund sector on industry matters.

“SPAA supports comments made by Superannuation Minister Bill Shorten and company director and former Olympics luminary, Rod McGeoch, at the Association of Superannuation Funds of Australia conference this week, that fund sectors should work together to improve the industry and the outcomes for fund members,” Ms Long said.

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Review of Wills

Despite the best efforts of financial planners, around 40% of Australians do not have a valid will. Intestacy results from a failure to write a will, but also occurs if a will is not valid (perhaps because it has not been signed and witnessed according to the law, the testator did not have mental capacity to make a will or the will has been badly drafted) or if a valid will has been made but all the beneficiaries have died. Partial intestacy occurs when a valid will exists but it does not dispose of the whole of the estate.

A will is revoked by making another will, deliberately destroying the old one, or by marrying. A will may be open to challenge, and may be invalid, if it does not adequately take into account any change of marital status including de facto arrangements, an addition of children, the death of a child or significant changes in financial circumstances.

Dying intestate

When a person dies intestate, the law of the jurisdiction in which the person is domiciled at the date of their death will determine how the estate is administered and the assets distributed.

If  there are no surviving spouses or relatives, the assets of the estate may pass to the Government of the State or Territory.

The new laws applying in NSW from March 1 make the provisions listed below. Note that the term “de facto spouse” has been replaced with “domestic partner”. Domestic partners are included in the definition of “spouse”, and they may be of the same or opposite sex. Under this definition, it is clear that a person may have more than one spouse.

• To receive a benefit in an intestate estate in NSW a relative must survive the intestate by 30 days (this is a new rule: previously a relative only had to survive the intestate)

• If a person dies leaving a spouse or spouses the spouse or spouses inherit the whole intestate estate.  This applies whether or not there are any children from the spouse or spouses, but It does not apply if there are children from other relationships involved.
• If there are children from a relationship other than the spouse/s (perhaps from an ex-spouse), the estate is divided according to a formula between the spouse/s and the children. When this formula is applied, children from both the current spouse/s and from the other relationship(s) are included.It works like this. The spouse will receive (or multiple spouses will share between them) a legacy of $350,000 as adjusted by the Consumer Price Index in accordance with a formula set out in the intestacy laws. (Under the previous intestacy laws the legacy was only $200,000 and only one spouse or one de facto spouse was entitled.) The spouse(s) will also receive the intestate’s personal effects and one-half of the remainder of the intestate’s estate.All children, including those of the other relationship and of the spouse/s, share the remaining part of the estate.
• Where multiple spouses survive the intestate their entitlement is shared in accordance with a written agreement they make between themselves and submit to the administrator of the estate or in accordance with an order of the Supreme Court. If no agreement or court order exists, they share equally between them.
• The legislation has created a new right for a spouse to acquire any of the property that belonged to the deceased. It must be paid for, either from the spouse’s entitlement in the intestate estate or, if that is insufficient, from his/her own resources.  The property includes any real estate or personal estate such as a car, boat or shares. Previously the spouse or de facto partner could elect only to take the matrimonial home. Note that this provision does not apply where there are multiple spouses.
• If no spouse exists, but only issue, then the issue share the estate equally. Note that “issue” includes all generations of descendants: children, grandchildren, great grandchildren and so on.
• If the intestate dies with neither spouse nor issue then the distribution goes, in order, to parents, siblings (there is no longer a distinction between siblings of the whole and half blood), grandparents, aunts and uncles (there is no longer a distinction between whole and half blood) and, finally, first cousins.  Cousins were previously not entitled. Note that if one or more of the siblings has died then their share will pass to their issue.
  

  Dangers of Intestacy

The NSW Trustee and Guardian (a NSW Government body which includes what was formerly known as the Public Trustee) has further information on its web-site on these changes at http://www.tag.nsw.gov.au/Intestacy/default.aspx. That site also includes the following real life examples of how things can go wrong when a valid will is not in place.

• A man died without a will. It could not be established that his birth was ever registered and therefore next of kin could not be established. His estate worth $180,000 passed to the Government.
• A reclusive woman decided to write her own will. The only relative with whom she had contact was a niece. However, after writing her own will, she asked the niece’s husband to sign the will as her witness. On her death she left an estate worth $400,000, but unfortunately the niece was not able to inherit the estate due to the fact her husband had signed the will as a witness. The will fell into intestacy as a spouse of a beneficiary should not be a witness. The estate was distributed to entitled next of kin.
• A woman decided to write her own will and one of the terms was “I want my house sold and the money from the sale placed into my investments”. On her death, it was noticed the woman had 2 investments, one which passed to her husband and the other which passed to her infant son. The issue was who was entitled to the proceeds of the sale of the house?
• A woman drafted her own will and she used a number of terms such as “balance”, “remainder” and “residue”. The whole will was confused and conflicting. Action was taken in court to rectify the terms of the will and the cost was $13,000, and took 2 years to complete. The value of the estate was $78,000.
• An eighteen year old man had been living with his girlfriend for only 6 months when he died without a will. The court decided that his girlfriend was his legal de facto spouse, and she received his entire, substantial estate. The man’s parent’s received nothing.
• A will provided for the income from a very expensive property to be paid to a person during her lifetime and after her death the property was to go to “Crown Street Women’s Hospital”. By the time the lady died that hospital had closed down and a lot of legal costs were spent in an application to the Court to decide which Charities were to receive the property. This could have been avoided by a carefully drafted will.
• John Thomas was a wealthy and educated man. He left a will in Australia to cover his Australian assets and a will in England to cover his U.K. assets. Unfortunately his Hong Kong assets were not covered by either will and were administered according to the Laws of Intestacy of Hong Kong.
• Jim had looked after his uncle Wayne for many years and had been assured that he was included in the will. When Wayne died Jim, searched the house for a will but to no avail. He checked all the local solicitors, banks and anyone else who might have dealings with his uncle. There was no evidence of a will anywhere or anything to suggest Wayne ever made a will. Under the Laws of Intestacy, Jim shared his uncle’s estate with several other nieces and nephews who barely knew their uncle and never attended to any of his needs.
• A 21 year old girl with no will was killed in a motor vehicle accident during the course of her employment. There was $200,000 accident cover. The estate passed to mother and father equally on intestacy but the father had deserted family weeks before she was born. He had had no contact since but was entitled to $100,000.
• A ‘family’ consisting of 3 step children fought for 3 years over the division of old ‘antique’ furniture which was valued at $6,000. Legal costs incurred by the children amounted to $55,000.
• Husband filled in a ‘do-it –yourself’ will form – intending to leave the whole estate to his wife. He inserted his wife’s name in the section of the form appointing her the executrix but forgot to insert her name in the section for nominating a beneficiary – in effect, he left the whole estate to nobody.

While this article is mainly concerned with the new laws in NSW, the broad principles, dangers, expense and inconvenience of intestacy apply equally in other States and countries. The job of drawing up a will falls to legal advisers, but a good planner will include questions about changes that may affect the currency of a will at every review, and will do everything possible to motivate clients to keep their wills, powers of attorney and beneficiary nominations current.

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The change has brought de facto couples under the Commonwealth Family Law Act which has applied to married couples since 1975. Before this change, each State had separate and quite different laws covering property and maintenance matters for de facto couples, such as the Property (Relationships) Act 1984 in NSW. Where disputes needing the attention of a court involved both parenting and property issues, de facto couples often had to commence proceedings in two different jurisdictions; a Federal Court to deal with parenting and a State Court to deal with property and maintenance.  Now the Family Law Court deals with both issues for de facto as well as for married couples under the same Family Law Act.

To whom does the Family Law Act now apply?

The Family Law Act now applies both to couples who are married and to those in a de facto relationship. Note that same-sex relationships are included within the definition of ‘de facto couple’ in federal laws and that all de facto couples now have the same rights and obligations as married couples regarding maintenance and the distribution of property. Other legal changes throughout 2008 and 2009 put same sex couples in the same position as opposite sex de facto couples regarding taxation, superannuation, social security and aged care.

The term “de facto” is not closely defined. To meet the definition, couples must not be married to each other nor related by family, and must have lived together on a genuine domestic basis. What amounts to a genuine domestic basis will be decided by a court’s assessment of all the circumstances, but an application for a “de facto property settlement” under the new Family Law Act provisions can be made if any one or more of the following conditions apply.

• The de facto relationship lasted for at least two years in total.
• A child has been produced by the de facto couple.
• A partner has made a substantial contribution to the property or finances of the other.
• The relationship was registered under a State or Territory law.
• The partners resided for at least one-third of the relationship in a state to which the new laws apply (currently all Australian states and territories except South Australia and Western Australia).

If there is a dispute about whether two people were in a de facto relationship, the Court will consider matters such as:

• the length of the relationship  (a minimum of two years is usually required);

• the living arrangements, including whose name is on a lease, who pays the rent and so on;
• whether a sexual relationship exists;
• the degree of financial interdependence;
• whether property was jointly acquired, used and owned;
• whether the couple had or cared for children together;
• how the relationship was presented in public and
• the degree of mutual commitment to a shared life.

The sex of the partners is not relevant. The new laws explicitly apply equally to de facto couples of the same or opposite sexes. A de facto relationship can also exist even if one of the partners is legally married to another person at the time, so the “mistress” (or the male equivalent) may now have rights that did not exist prior to 1 March 2009 and which may impact on the property rights of a married spouse who is not having an affair. This aspect has not yet been fully tested in court.

Who can apply for a property settlement?

The new laws apply to de facto relationships that broke down on or after 1 March 2009, but earlier breakdowns can be considered if each partner agrees in writing to have the new laws apply.  Application must be made to the Family Court in relation to property and maintenance issues within two years of your relationship ending. Applications in relation to children can be made at any time.

How will property be divided?

Before the changes, the outcomes in property settlements often differed widely between de facto and married couples. For example, in NSW only the relative contributions (financial and non-financial) to the assets and liabilities of the relationship were taken into account when deciding on the post-split division. Crucially, the Family Court now also takes into account future needs, so that matters such as the provision of an adequate standard of housing post separation and low future earning capacity will be factored in. The member of the couple who is financially stronger is usually less favourably treated under the changed rules, and often more than 50% of the net asset pool is now awarded to the weaker party.

Consequently, the Family Court will consider these factors.

• The net value of current assets, including houses, investments, boats, caravans and superannuation.
• What each partner owned before the relationship and the contribution each person has made to the upkeep and improvement of any assets brought into the relationship.
• The direct financial contributions (eg wages, or payments for properties or improvements to properties), indirect financial contributions (eg gifts, inheritances or payment of household expenses) and non-financial contributions (eg do-it-yourself renovations, caring for children or domestic tasks) made by each person over the course of the relationship.
• Each person’s future needs, including considerations such as who will have the care of any children, relative earning capacities, and the financial resources available.

Once the court has decided on the split of the assets, it may make orders about how implementation will occur, such as:

• that assets such as the family home will be sold and the proceeds will be divided in a particular manner;
• that title to various assets will be transferred;
• that regular maintenance payments will be made; or
• that superannuation funds will be divided in specified proportions.

Will formal agreements between partners be effective?

The new laws do provide for de facto couples to make “binding financial agreements” about the way they will manage their assets together. This can be done before moving in together, during the relationship or after separation. Legal advice should be sought, because neither party can unilaterally change their mind at a later date and ask for a larger share of the assets. Also, certain formal requirements must be met if the agreement is to be binding, and it is usually a good idea to register agreements with the Family Courts in the form of Consent Orders.

Financial planners who have clients in same or opposite sex de facto relationships who they refer to solicitors for wills, powers of attorney and the like, should put binding financial agreements on the agenda for consideration.

Do the new laws provide recognition of parenthood for same-sex couples?

Many children born to or adopted by same-sex couples will be recognised by the law as children of both parents. This will include:

• children conceived through assisted or artificial methods to lesbian couples;
• children adopted by one or both members of a same-sex couple, as long as both consent; and
• children born under surrogacy arrangements recognised under a state or territory scheme. (NSW does not have such a scheme).

This recognition of legal parenthood applies to child support and parenting matters including decisions such as where the children will live, who they will spend time with, and who will make long-term decisions regarding education, religion and the like.

The Family Court has always heard matters in relation to children no matter what the relationship status was between the parents. Before the amendments same-sex parents could obtain parenting orders if they could demonstrate they were a person concerned with the care, welfare or development of the child but they can now apply to the Court for parenting orders in their own right as a parent. Court decisions continue to be made by considering what parenting arrangements would be in the best interest of the child.

Recognition of same-sex parents in some other matters, such as consent for medical treatment, fall under state laws.

Can the court make orders concerning maintenance and child support?

Either member of a separated de facto couple can make an application for the other party to pay maintenance to them for their financial support. The court will consider the relative financial position of each of the partners, and will make an order for maintenance if:

• applicants cannot adequately support themselves financially due to poor health, having the care of a child of the relationship or similar reasons beyond their control; and
• the  former partner of the applicant has the ability to provide financial support.

If a maintenance order is made, it will usually be for a fixed and limited period of time.

From 1 July 2009 child support laws have also applied to same-sex-parents, regardless of whether the children were adopted or born through assisted conception.

If a person’s name appears on the child’s birth certificate, or a court has made a finding, or a statutory declaration of parenthood has been signed, then it is likely that parenthood will have been established with attendant child support obligations. A parent can ask the Family Court for a declaration that child support is payable by their former partner.

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