Australian Treasury’s proposed extended significant global entity definition may include trusts

On 20 July 2018, the Australian Treasury released Exposure Draft legislation to extend the definition of a significant global entity (SGE). As a result, the extended definition of an SGE may include members of large private groups headed by unlisted companies, trusts (including discretionary trusts), partnerships or other investment vehicles. This will have wide ranging implications for affected large private groups which were previously outside the scope of some anti-avoidance provisions, increased administrative penalties and the requirement to lodge general purpose financial statements.

The change is proposed to apply for income years starting on or after 1 July 2018.

Please click here to read our article which discusses the proposed changes to the definition and the potential impact for trusts, as well as on reporting and public disclosure.

Andrew White
Andrew White
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Cameron Blackwood
Cameron Blackwood
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International bank fined by Jersey court for “intermeddling” in assets of an estate

In a recent case in the Royal Courts of Jersey, a bank was fined for not obtaining the necessary authorisation before transferring the assets of a deceased client to a foreign court. This case serves as a useful reminder of the potential traps for institutions when dealing with estates, in particular when dealing with assets in a number of jurisdictions.

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Filed under Estates disputes, Private wealth and trusts, Wills

ENGLISH HIGH COURT FINDS TRUSTEES WHO RESISTED A CLAIM FOR THEIR REMOVAL NOT ENTITLED TO COSTS FROM THE ESTATE

In Griffin v Higgs & Ors [2018] EWHC 2498 (Ch), the London High Court  heard an appeal against a costs order which prevented the removed executors of a trust from being entitled to an indemnity from the estate in respect of their costs for the Part 8 Claim to remove them. The High Court dismissed most of the appeal and held that the executors were not entitled to an indemnity for the majority of the costs that they were liable for. We discuss the case further below. Continue reading

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Filed under Costs, Estates disputes, London

TAXING PRIVATE TRUSTS IN AUSTRALIA – A MOVING TARGET

The Australian revenue authorities have been very active recently issuing judgments, making pronouncements and intensifying enforcement activity, all directed to the way the tax system operates in relation to income made from, and gains arising on transactions with, assets that are held on trust.

Please click here for some highlights of the effects of some of the more important developments affecting private trusts.

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Circular trust resolutions – family trusts to be taxed at 47% by Australian Government

Following on from the Australian Government’s announcement in the 2018-19 Budget, an Exposure Draft entitled Treasury Laws Amendment (Measures for a Later Sitting) Bill 2018 has been released which proposes to impose trustee beneficiary non-disclosure tax (currently, 47%) on the untaxed part of a circular trust distribution to which the trustee of a family trust becomes presently entitled.

Please see below to read more on the impact of the Exposure Draft on family groups.

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NEW ZEALAND SOLICITOR/EXECUTOR CAUSES MISTAKE WHICH LEADS TO COURT PROCEEDINGS – IS HE LIABLE FOR THE COSTS?

In Crawford v Phillips [2018] NZCA 351, the New Zealand Court of Appeal decided that, notwithstanding one of the executors of an estate may have made a mistake which led to the litigation, all costs should be paid from the estate, not that executor personally.  This case is of interest to practitioners outside New Zealand because it applies old English law principles which will likely apply in most common law jurisdictions.

Background

Messrs Crawford and Wells were the executors of the estate of Mr Phillips.  There was a dispute between them and Mrs Phillips (the widow) as to the meaning of portions of Mr Phillip’s will.  The result of this dispute was an application to the Court to decide whether certain provisions of the Will were invalid.  The Court decided that those provisions were invalid.  This meant there was a partial intestacy in relation to the Will.  Messrs Crawford and Wells unsuccessfully appealed this decision.  Mr Wells was Mr Phillips’ solicitor and had drafted the Will. Therefore, Mrs Phillips alleged that he was at least partly responsible for the proceedings (because had he drafted the Will correctly, the proceedings would have been unnecessary).

Following the appeal, the parties were unable to reach an agreement as to costs, so the Court had to decide.

Messrs Crawford and Wells asked the Court to award them their “fair and reasonable” indemnity (i.e. full solicitor-own client) costs and disbursements from the estate, despite the fact the appeal had failed and that Mr Wells might have made a mistake which led to the proceedings. They also submitted that Mrs Phillips’ costs should also be paid from the estate.

Mrs Phillips, who was worried about costs depleting the estate, said that Messrs Crawford and Wells should personally pay their own costs, plus her costs on the “usual” scale basis.  This would mean the estate would not pay any of the costs.

Judgment

In New Zealand, the usual rule is that the “loser” pays the “winner’s” costs on a scale basis.  This scale means the winner usually still has to pay a portion of his/her own costs.  However, the Court has an overriding discretion as to who should pay whose costs and on what basis.

In addition, in both England and New Zealand, there are special costs principles when there is a contest concerning a will. The costs may be paid out of the estate if:

  1. The testator caused the litigation, e.g. because of a mistake or ambiguity in the will; or
  2. Someone is justified in challenging the will because of the circumstances in which it was executed, e.g. there are questions about the testator’s capacity, whether he was subject to undue influence or fraud, etc.

In this case, the proceedings arose because some of the provisions of the Will were uncertain (and in fact ultimately found to be void).  Therefore, it could be said that Mr Phillips had caused the litigation.  However, Mrs Phillips said that because Mr Wells was Mr Phillip’s solicitor and had drafted the will, it was his negligence which had resulted in the proceedings.  Thus, she said, the “usual” rule should apply

Unfortunately for Mrs Phillips, the Court distinguished between Mr Wells as an executor of the Will and Mr Wells as the solicitor who drafted the Will. The Court found that any claims made in relation to the drafting of the Will would involve Mr Wells in his capacity as Mr Phillips’ solicitor. In this litigation, the Court said that if it took into account the alleged negligence of Mr Wells and refused to order costs for the executors, Mr Crawford would be unfairly prejudiced and personally liable for costs even though he had no role in drafting the Will.

The Court found the executors were acting in a manner consistent with their position as executors and were seeking to uphold what they perceived were Mr Phillips’ wishes.

On that basis, the Court held that the fair and reasonable actual costs of both sides should be paid from the estate assets.

Comment

This case demonstrates that the court will use its discretion to order costs from the estate, not the parties personally when:

  1. One of a number of executors may have been negligent or made mistakes in other capacities; and/or
  2. The executors have acted consistently with their positions as executors, even if they lose the litigation in question.
Richard Norridge
Richard Norridge
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Joanna Caen
Joanna Caen
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Filed under Estates disputes, New Zealand

FATCA: First-ever conviction signals increased enforcement risk

The former CEO of Saint Vincent-based Loyal Bank pleaded guilty and was convicted on 11 September of conspiring to defraud the United States by failing to comply with the Foreign Account Tax Compliance Act (“FATCA“). This is the first conviction obtained by the US Department of Justice (DOJ) since FATCA came into effect in 2014 and was the result of a sting operation. The FBI worked with the US Internal Revenue Service (IRS), the US Securities and Exchange Commission, the City of London Police, the UK Financial Conduct Authority and the Hungarian National Bureau of Investigation. The offender’s sentencing date is yet to be scheduled and he is facing a maximum of five years in prison.

This conviction, on the heels of a US governmental report critical of the IRS’s limited use of FATCA, could mark a more active enforcement environment going forward. Under FATCA, certain foreign financial institutions (“FFI“) must report US citizens’ account information to the IRS and the US has intergovernmental agreements with other jurisdictions to facilitate this. The DOJ has indicated that financial institutions in Hong Kong and Singapore are on the US authorities’ priority list in terms of FATCA enforcement. As such, both US citizens and financial institutions in the region should remain cognisant of FATCA’s requirements and ensure compliance.
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NEW ZEALAND COURT OF APPEAL PROVIDES GUIDANCE FOR THE TEST OF RECTIFICATION OF A VOLUNTARY SETTLEMENT AND FINDS THE USE OF THE “BACKDOOR” METHOD TO BE AN ABUSE OF PROCESS

In the two cases set out below, the New Zealand Court of Appeal considered the circumstances in which there may be rectification of a deed entered into as part of a voluntary settlement and considered where reliance on one legal argument in order to get another issue before the court may amount to an abuse of process. These cases are of general application to other jurisdictions, therefore should be borne in mind when dealing with similar issues. Continue reading

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Australian tax law bites trust law on franking credits

The High Court of Australia has restored sanity in a long running saga in which a trustee purported to separate franking credits from the underlying dividends in allocations to beneficiaries. The Court held (as the parties now accepted) that this was not possible and that a contrary decision of the Supreme Court of Queensland in its trusts jurisdiction to which the Commissioner of Taxation was not party did not bind the Commissioner. To find out more, please read below.

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Filed under Australia, Tax

English High Court finds son entitled to family farm based upon proprietary estoppel

In Thompson v Thompson [2018] EWHC 1338, the High Court in London ruled in favour of a son who sought a declaration based on proprietary estoppel that would entitle him to inherit the family farm upon the death of his mother. We discuss this case further below. Continue reading

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Filed under Estates disputes, London, Wills