Speaker 1: Hello and welcome to today's episode of The Money Puzzle.
Speaker 1: I'm your host James Gerard, standing in one more time
Speaker 1: for James Kirby in the last of our special focus series.
Speaker 1: This week, we're going to dive into the area where
Speaker 1: finance and the law meet head on. So get ready
Speaker 1: for that because legal things can impact your financial life.
Speaker 1: So from a state planning to superinnuation, to wills and
Speaker 1: a state asset protection, the decisions that you make today
Speaker 1: could have a big implication for your fair nature wellbeing
Speaker 1: into the future. So in summary, we're going to unpack
Speaker 1: how the law influences your finances and to do that,
Speaker 1: today's test has a wealth of legal experience, back dating
Speaker 1: two nineteen eighty four, which coincidentally is the year that
Speaker 1: this year's AFL Grand Final performer Katie Perry was born.
Speaker 1: Peter Kernan is a lawyer with Aubrey Brown Lawyers on
Speaker 1: Sydney's Central Coast, and he is well known and well
Speaker 1: regarded in the area. He acts as an honorary solicitor
Speaker 1: for local sporting and community organizations, including the local Life
Speaker 1: Saving Club, and is a board member of the Central
Speaker 1: Coast Disability Options and not for profit that provides support
Speaker 1: services for young people living with a disability. Peter Cernin
Speaker 1: from Aubrey Brown Lawyers, Welcome to the Money Puzzle.
Speaker 2: Thank you, James, pleasure to be here.
Speaker 1: As is the case with every episode, what we discuss
Speaker 1: is general advice and not to be taken as personal advice,
Speaker 1: and listeners should seek professional advice before acting on anything
Speaker 1: they hear. On today's episode, we're going to break up
Speaker 1: our discussion into different areas, so let's start by talking
Speaker 1: about property related legal matters. So the first thing I
Speaker 1: want to ask you, Peter, is that I've heard recently
Speaker 1: in the media about people being scammed out of their
Speaker 1: property deposits. How does this happen and how can people
Speaker 1: protect themselves from.
Speaker 2: This, James, have been an increased number of these settlements scams,
Speaker 2: as they're called. Hackers interposed themselves into usually some sort
Speaker 2: of email chain between people who are instructing solicitor or
Speaker 2: conveyancer to act on a property transaction. Often they just
Speaker 2: change one little bit of an email or one little
Speaker 2: bit of a number to enable them to then get
Speaker 2: into the financial aspects of the transaction, so posing as
Speaker 2: a party that's involved in that transaction and then being
Speaker 2: able to divert funds not just deposits, but often settlement
Speaker 2: funds too for the completion of that transaction. The reason
Speaker 2: that there's been an increase in these is, of course
Speaker 2: the increase in property prices, so the amount of money
Speaker 2: involved that makes an attractive target to hackers is more.
Speaker 1: Things done electronically these days. So we have that systems
Speaker 1: at PEXA where I thought maybe using that type of
Speaker 1: system to be less chance of this type of fraudulent
Speaker 1: activity happening, but still seems to occur.
Speaker 2: Yeah, the electronic workspace known as PEXA is where all
Speaker 2: conveyancing matters in New South Wales in particular, but many
Speaker 2: other states are carried out the days, and yes, there
Speaker 2: are lots of checks and balances in that system, and
Speaker 2: there has only been a very few number of PEXA
Speaker 2: related transactions where that's happened. The main main cause of these,
Speaker 2: or the main source of these appears to be from
Speaker 2: hacking by the real estate agents before it gets to
Speaker 2: the PEXA system. Got it.
Speaker 1: So what would you suggest for people, say they're a
Speaker 1: first home buyer, or maybe they're downsize in and haven't
Speaker 1: bought a sold a property for forty years are we
Speaker 1: talking about physically taking checks to real estate agents and
Speaker 1: conveyances big bags of cash? How do we sidestep the scam?
Speaker 2: Is here all potential options, James, for some of them
Speaker 2: are bit unlikely. I guess that the check thing might
Speaker 2: be possible, or a bag of cash maybe less. So
Speaker 2: it's again about being vigilant. Like all scams, it is
Speaker 2: making sure that you know who you're talking to, making
Speaker 2: sure that every single number that you've been provided for
Speaker 2: to transfer money to is correct, and that's verbally. In
Speaker 2: legal practice, we insist on when we receive account numbers,
Speaker 2: we make sure that there is a verbal discussion with
Speaker 2: that client and just to confirm that number and then
Speaker 2: we can carry out that transaction. The risks arise basically
Speaker 2: when people are put under pressure. For example, if things
Speaker 2: have been going along okay, and then all of a
Speaker 2: sudden there's this rush to get to an exchange of contracts,
Speaker 2: for example, and then you get flustered and people just
Speaker 2: don't pay enough attention. So it really is about paying
Speaker 2: attention and making sure that you know who you're talking to.
Speaker 2: And if you have to go to someone's office to
Speaker 2: make sure, then that's certainly an option. For you.
Speaker 1: Yeah, it rings a bell and resonates when you say
Speaker 1: that your team will call people when they've received instructions
Speaker 1: to confirm before payments we have made and receive. We do
Speaker 1: a similar thing in financial planning world, and that actually
Speaker 1: was important. It's happened a couple of years ago. One
Speaker 1: of our clients sent through an email or what we
Speaker 1: thought was their email, saying, Hey, I've just found a property.
Speaker 1: I need ninety thousand dollars out of my self managed
Speaker 1: super fund bank account transferred over to my conveyances trust account.
Speaker 1: And we have an internal control where we call our
Speaker 1: clients before we make withdrawals on their accounts or process
Speaker 1: it for them. And the difference was that the email
Speaker 1: address was one letter off or one extra letter. And
Speaker 1: when we rang the client, he said, what are you
Speaker 1: talking about. I'm in hospital my wife's son. Well, she's
Speaker 1: about to have surgery. And what happened was that that
Speaker 1: the hackers had got into his computer, and this happened
Speaker 1: about six months earlier, and they're just monitoring. They're just
Speaker 1: sitting there and looking at his schedule, understanding where his
Speaker 1: finances were, and saw that his wife had surgery planned
Speaker 1: at a certain date, he'd be out of the office
Speaker 1: for a week, and they thought he's probably not going
Speaker 1: to be checking his emails. That's the right time to strike.
Speaker 1: So they realized I was the advisor that made contact
Speaker 1: with the bogus email account and the bogus trust account
Speaker 1: details to send money to. But luckily we picked it up.
Speaker 1: When we called the client, he freaked out. We sort
Speaker 1: of put a freeze on his bank account for the
Speaker 1: super fund, and then he changed his email addressed and
Speaker 1: had his computer investigated and found that there was some
Speaker 1: sort of a hacker who's managed to have to find
Speaker 1: their way in there. So you can't be too careful.
Speaker 1: There is scary yeah, indeed, Well let's move on to
Speaker 1: buying property off the plan, Peter, what are the risks
Speaker 1: of legal risks if a developer doesn't deliver the property
Speaker 1: as promised. I've never bought a plan off the property
Speaker 1: off the plan, I should say myself, so I'm not
Speaker 1: too sure what happens if, say, the developer is late,
Speaker 1: if they promised you three bedrooms but there's only two bedrooms,
Speaker 1: can you cancel the contract you deposit back? And as
Speaker 1: a secondary question, I've heard about this inn called a
Speaker 1: sunset clause, but I'm not really sure what it is.
Speaker 1: Could you explain that one as well.
Speaker 2: Yes, I'll start with a second bit, James, because the
Speaker 2: sunset clause is very important in that whole discussion. A
Speaker 2: sunset clause or a sunset date is a period in
Speaker 2: a contract, usually a couple of years out from for
Speaker 2: a new build, and the obligation on the developer is
Speaker 2: to complete and hand over a for example, a completed
Speaker 2: apartment in accordance with the contract by that date. There
Speaker 2: is to be position where if that didn't happen, the
Speaker 2: developer could say, well, we've failed to meet the sunset date.
Speaker 2: We're going to terminate the contract. You can have your
Speaker 2: deposit back, but then you can go and sell it
Speaker 2: to someone else for a lot more. And so that
Speaker 2: was happening. So in December twenty nineteen some reforms came
Speaker 2: out from the New South Wales government, including the requirement
Speaker 2: to include firstly a disclosure statement in the contract setting
Speaker 2: out all the dates and all the ability of developers
Speaker 2: to terminate contracts and how the process worked in a
Speaker 2: single maybe two pages, with development consents and all the
Speaker 2: numbers that people can check easily, so that meant that
Speaker 2: the developers are under a little bit more obligation to
Speaker 2: give as much information to a purchaser as possible. So
Speaker 2: at that point you enter a contract and if the
Speaker 2: developer is unable to complete by the sunset date, the
Speaker 2: developer now has to approach the Supreme Court before he's
Speaker 2: able to terminate that contract. So in other words, the
Speaker 2: purchaser is protected because the Supreme Court will only give
Speaker 2: those sort of orders if there are exceptional circumstances so
Speaker 2: that the developer has been completely unable to complete that
Speaker 2: development due to things entirely outside of his control. So
Speaker 2: that can be various things that I think COVID might
Speaker 2: have worked for a while, but there are just generally
Speaker 2: there's not many cases that get there and that the
Speaker 2: developers are able to do that.
Speaker 1: Got it so that they can't intentionally delay the build
Speaker 1: because the property market's gone up by twenty percent and
Speaker 1: they want to effectively resell that property off the plan.
Speaker 1: And you mentioned New South Wales. Is it the sunset
Speaker 1: calls just the New South Wales thing or is it
Speaker 1: around the country.
Speaker 2: There are sunset dates in varying forms, but my understanding is,
Speaker 2: for example, in Queensland, they don't have this obligation for
Speaker 2: disclosure in these types of contracts. But I also understand
Speaker 2: that he is coming up there that I couldn't be
Speaker 2: sure about Victoria or elsewhere, but I think there are
Speaker 2: various pieces of legislation that are not dissimilar to them
Speaker 2: in South Wales.
Speaker 1: One got it, And then back to the first question
Speaker 1: around what happens if the developer doesn't deliver the property
Speaker 1: that they promised. One that I've seen commonly is where
Speaker 1: there was a say, a cast space or two cast
Speaker 1: spaces on tidle and now side by side, but due
Speaker 1: to reconfiguration of the basement, they've had to turn them
Speaker 1: into tandem so head to toe car spots, which are
Speaker 1: less desirable. So where there's things like that, some may
Speaker 1: be minor, there might be one or two square meters difference,
Speaker 1: maybe smaller, some of more major. What happens in these
Speaker 1: type of situations at that point when settlement's.
Speaker 2: Ready, there is in the vast majority of contracts a
Speaker 2: clause that says if the variation to the property, for
Speaker 2: example in floor space, is more than five percent, then
Speaker 2: they could resind. Now that's one issue, So if you
Speaker 2: again had a bedroom that was a certain size and
Speaker 2: it comes down by ten percent in size just that bedroom,
Speaker 2: then the overall place obviously comes down by that too.
Speaker 2: But the point is that you could resind that because
Speaker 2: it's not the size of the bedroom that you contracted
Speaker 2: by it, it does become more difficult when there the
Speaker 2: issues aren't just size wise, So the cases all revolve
Speaker 2: around whether you would have seated with that purchase. If that,
Speaker 2: for example, and you're using your example that it was
Speaker 2: a tandem instead of a side by side and you
Speaker 2: said we were there is if you can show the
Speaker 2: court that there is no way in the world that
Speaker 2: you would have purchased an apartment with a tandem car
Speaker 2: space and have reasons for that, whether it be mobility
Speaker 2: or the like, then the court will assist you in
Speaker 2: getting out of that contract or at the very least
Speaker 2: getting compensation. And it will all come down to what
Speaker 2: negotiations happen with the outset, would either developer or the agent.
Speaker 2: And again if there is a for example, you wanted
Speaker 2: the car space next to the lift and you were
Speaker 2: assured of that and it doesn't happen, then again another
Speaker 2: mobility question I guess is that would be a real
Speaker 2: issue for you, and therefore you don't want that apartment.
Speaker 2: So it's a matter of degree as to how much
Speaker 2: the contract contracted apartment, for example, differs from that which
Speaker 2: you thought you were going to get, and hues come
Speaker 2: into it that you the glossy brochures give a view
Speaker 2: that goes all a long way up over the other buildings,
Speaker 2: to the coast or whatever, and all of a sudden,
Speaker 2: the ultimate viewers of that you are at all.
Speaker 1: Right then when it gets to the point of choosing
Speaker 1: the ownership structure, so barely in mind, our listeners are
Speaker 1: all around the country, and some of them are all
Speaker 1: around the world. A lots of Aussie expats listen to this.
Speaker 1: There's options in your South Wales that I know of,
Speaker 1: But if they're different interstate, maybe you might want to
Speaker 1: just highlight that they may be different interstate around tenants
Speaker 1: in common versus joint tenancy ownership of property. So my
Speaker 1: understanding is that joint tenancy there's no identifiable percentage split.
Speaker 1: It's just joined wholly together. If one person dies, the
Speaker 1: surviving person takes that property one hundred percent. But tenants
Speaker 1: in common there's a percentage ownership, So it could be
Speaker 1: fifty to fifty could be thirty three, thirty three, thirty fourth,
Speaker 1: there's three people or whatever you determine that split to be.
Speaker 1: So I was curious around what's the default structure, is
Speaker 1: this a national thing? And any commentsal guidance you have
Speaker 1: around this.
Speaker 2: Well, I think you've almost answered your own question. Jatly,
Speaker 2: joint tenancy operates under the law of survivorship. Yes, the
Speaker 2: survivor will take and there will be a notice of death.
Speaker 2: For example, if a deceased joint tenant is there, then
Speaker 2: the surviving joint tenant will be able to transfer that
Speaker 2: property to themselves without stamp duty because that law of
Speaker 2: survivorship overrides any duty transaction. If, however, it's tenants in common,
Speaker 2: you're correct. They can be in any number of percentage shares.
Speaker 2: The front page of the new South Wales Standard Contract
Speaker 2: the Sale of Land has a capitalized box at the
Speaker 2: bottom which says joint tenancy. But you have a choice
Speaker 2: to tick a second box to have a tenants in
Speaker 2: common and then a further option to say what percentage shares.
Speaker 2: That that tendency in common is to be there quite
Speaker 2: often and you'd be well aware of this through the
Speaker 2: finance world is that there is often a requirement, often
Speaker 2: a request to have a one percent ownership of a
Speaker 2: party with a ninety nine percent to the other as
Speaker 2: tenants in common. And that's often just for asset protection purposes,
Speaker 2: so you can, but you can choose any number of
Speaker 2: percentages that you need to reflect the arrangement between the parties.
Speaker 2: Got it.
Speaker 1: So joint tendency is the default unless you elect otherwise
Speaker 1: for tenants in common. And is this to your knowledge?
Speaker 1: I know that you're more an expert in yourself Wales.
Speaker 1: But across the country, do they have a similar system.
Speaker 2: Yeah, they do because it's based on common law, that
Speaker 2: law of survivorship, so yes they do. The how it
Speaker 2: comes out in a contract might be slightly different, but
Speaker 2: the basic, the fundamental law behind it will be national.
Speaker 2: And I guess the tenants in common aspect is often
Speaker 2: for parties who are joining together to invest, for example,
Speaker 2: And there are other aspects of it in a state
Speaker 2: planning that can be useful. But but you're correct that
Speaker 2: New South Wales is a largely joint tendency to fault
Speaker 2: in contracts, but it's available in all other jurisdictions.
Speaker 1: Okay, Now, let's roll our sleeves up. We've got a
Speaker 1: theoretical property dispute around boundaries. So say we'll call him John.
Speaker 1: John wants to build a fence, but his neighbor Steve
Speaker 1: doesn't want to share in the cost so or doesn't
Speaker 1: want to help with the conveyance in. So how can
Speaker 1: John build this retaining wall that's in the risk of
Speaker 1: collapse in And what happens if there's one person on
Speaker 1: the higher side or the lower side. Does that make
Speaker 1: a difference, And just boundaries in general, because that can
Speaker 1: cause a lot of contention between neighbors.
Speaker 2: Yeah, the distinction you need to draw is between a
Speaker 2: boundary fense and a retaining wall. So in New South
Speaker 2: Wales again, and there are I'm aware of similar pieces
Speaker 2: of legislation in other states, so I'm sure that the
Speaker 2: law is basically the same with different legislation though. But
Speaker 2: in New South Wales the Dividing Fences Act deals with
Speaker 2: various definitions, and a dividing fence is basically a fence,
Speaker 2: whether it's made of color, bond, piling fence, whatever, just
Speaker 2: to divide two pieces of land. It can be exactly
Speaker 2: on the boundary or close enough, so it defines a
Speaker 2: distinction between the two different lots. A retaining wall is
Speaker 2: excluded from the definition of dividing fence unless it is
Speaker 2: supporting a fence. So in your example of higher and lower,
Speaker 2: if it's only supporting an embankment or a garden of
Speaker 2: a terrace or a pool or whatever, and it doesn't
Speaker 2: support an actual fence, so for example, it hasn't got
Speaker 2: fence posts secured into it, then it isn't covered under
Speaker 2: the Act and you'd have to deal with that. You're
Speaker 2: with the Dividing Fences Act. If you do have a
Speaker 2: need to make a dividing fence between you and your neighbor,
Speaker 2: then the idea is to go and get a quote
Speaker 2: and preferably too, and present those to your neighbor and
Speaker 2: have the discussion about what you want to put up.
Speaker 2: Then if that's agreed, then each party would contribute half
Speaker 2: the cost and off you go. The key to this
Speaker 2: type of discussion is not to just go out and
Speaker 2: do the fence and expect the neighbor to pay half
Speaker 2: when you've finished, because the Act won't give you any
Speaker 2: protection there. You'll be left with the whole cost. So
Speaker 2: if the neighbor, however, is difficult and just says I
Speaker 2: don't want a fence. Then the person who does want
Speaker 2: the fence needs to go to a local court local
Speaker 2: land board to get orders that the neighbor agreed to
Speaker 2: construct a dividing fence. Now a lot of disputes arise
Speaker 2: around what sort of dividing fence is going to be
Speaker 2: put there. So one party wants a five foot pailing,
Speaker 2: the otherland wants a fancy lapped and captain this, that
Speaker 2: and the other, or a color bond. Then there can
Speaker 2: be dispute about that. The Act says it's got to
Speaker 2: be a standard fence for the area, so that if
Speaker 2: you live in a subdivision that's got ninety percent paling fence,
Speaker 2: then you're not going to get much support from a court.
Speaker 2: If you want to put an eight foot color bond fence,
Speaker 2: it will be a general discussion about what is standard
Speaker 2: for the area, and you get to a point where
Speaker 2: you have to prove that by photos and the like
Speaker 2: to prove, and then a court has to decide whether
Speaker 2: they think that is or is a standard. Rural properties
Speaker 2: have another issue surrounding what is required on a dividing
Speaker 2: fence and what the use of the land is, so
Speaker 2: you know, do you need something that keeps cattle in
Speaker 2: do you not? Is it a full on post and
Speaker 2: rail which is very expensive, or is it just barb
Speaker 2: wire and a couple of star pickets. So there are
Speaker 2: all discussions that you need to have with your neighbor
Speaker 2: otherwise you can up in court.
Speaker 1: Lovely, very clear. I thank you, Peter. Now, before we
Speaker 1: move on and have a look at retirement and estate
Speaker 1: plan in, let's take a short break. Hello, and welcome
Speaker 1: back to the Money Puzzle. I'm James Gerard right, a
Speaker 1: contributor to the Wealth section of The Australian and also
Speaker 1: financial advisor with Financial Advisor dot com dot Au. And
Speaker 1: this week on the show I have Peter Kernan from
Speaker 1: Aubrey Brown Lawyers. Now, Peter, everyone tells us it's bad
Speaker 1: to die without a will, but is it really that bad?
Speaker 1: What happens if we do die without a will in Australia?
Speaker 1: How are your assets divided and who decides?
Speaker 2: Well, if you'll excuse the pun, James, it's not fatal
Speaker 2: to your estate planning, but it is certainly going to
Speaker 2: make life a lot more complicated in more cases than
Speaker 2: not to have a will will allow you to determine
Speaker 2: where your estate goes. If you don't have a will,
Speaker 2: there is a risk that it doesn't go to where
Speaker 2: you want, so the term is intestate. If you die
Speaker 2: without a will, you die and testate, then that brings
Speaker 2: in a pieces of legislation, being the Succession Act in
Speaker 2: New South Wales and they're very similar provisions in other jurisdictions,
Speaker 2: so that there is a statutory order. So if you
Speaker 2: pass away and your only living relatives are your parents,
Speaker 2: then they would share equally. Then it goes down to
Speaker 2: so it goes to spouse, children and then parents and
Speaker 2: then write down in New South Wales to a first cousin.
Speaker 2: But the issues arise it's largely surrounding spouses and children
Speaker 2: and determining who is a spouse and who is a child.
Speaker 2: So simple example of a bad result from not having
Speaker 2: a will is if, for example, a child died in
Speaker 2: a work accident and received a payout from an insurance
Speaker 2: company and didn't have a will and there were and
Speaker 2: didn't have any children, then it would go to the
Speaker 2: parents of that child. Now, if those parents are both
Speaker 2: living together and have been forever, then that's great, But
Speaker 2: if one parent hasn't been on the scene for ten
Speaker 2: years and hasn't spoken to that child, for example, for
Speaker 2: ten years, then it's certainly not ideal because that parent
Speaker 2: would share in half that insurance pay out without without
Speaker 2: any real knowledge of the child or any involvement in
Speaker 2: that child's life. That's just one pretty simple example. Then
Speaker 2: the other issues arise is, well, if you are a spouse,
Speaker 2: then you can still be a spouse even though you've separated.
Speaker 2: So you might have been separated from your partner for
Speaker 2: ten years just haven't got around to divorcing, then you're
Speaker 2: still a spouse. You can be in another relationship completely.
Speaker 2: If you pass away, then your ex spouse, for example,
Speaker 2: can share in your estate. If you don't have a will,
Speaker 2: then there's the other spouse related discussion is around to
Speaker 2: facto partners and proving that they are or are not
Speaker 2: a de facto partner. And once you've been together as
Speaker 2: a de facto partner for living together as man and
Speaker 2: wife for say two years, and or there's a child
Speaker 2: involved or child from that relationship, then it's likely that
Speaker 2: there is a de facto relationship. However, there are lots
Speaker 2: of cases where this hasn't been so clear where there's
Speaker 2: been periods of cohabitation, periods of breaks in cohabitation, and
Speaker 2: just generally more than one person potentially suggesting their de
Speaker 2: factos with the deceased. Then you have the children problem
Speaker 2: is determining who is a child, and there are often
Speaker 2: arguments about that and or children that may potentially come
Speaker 2: out of the woodwork where that to the other party
Speaker 2: doesn't know about this child, and so that's another risk
Speaker 2: and the having a valid will will do it's best
Speaker 2: to make sure that your estate goes to where you
Speaker 2: want it to go.
Speaker 1: Sounds like that's the case. And something I can add
Speaker 1: is that my first job was a traineeship with the
Speaker 1: public Trustee about twenty years ago, maybe a little bit
Speaker 1: longer than that ago, and my observation I was in
Speaker 1: the finance and accounting area, but my observation in the
Speaker 1: estate's administration team was that it's quite a lengthy process.
Speaker 1: It wasn't something that's happened in a month or two.
Speaker 1: It could go into years in some cases to wind
Speaker 1: up a states if there was no wills, trying to
Speaker 1: locate that the family members and make decisions and wind
Speaker 1: up assets, and of course there's costs as well, and
Speaker 1: they may not be accurate today because my reference point
Speaker 1: is twenty years ago, but it was a few percent
Speaker 1: of the state at that time that the government would
Speaker 1: take as their administration fees to look after the assets
Speaker 1: and distribute as per the legislation if there's no will
Speaker 1: in place. So moving on to writing the will or
Speaker 1: updating a will, any tips on who you should appoint
Speaker 1: as an executor. Should it be your spouse, parents, brothers, sisters,
Speaker 1: your accountant, what do you think they're Yeah.
Speaker 2: The executive is from someone who's close to the family.
Speaker 2: So the obvious and the usual case in a husband
Speaker 2: wife arrangement or the facto partner arrangement is that each
Speaker 2: party would appoint the other as their executor. So that's
Speaker 2: fairly simple. That's not again, it's not essential to have
Speaker 2: a valid will. You can, even with a partner, appoint
Speaker 2: another executor, for example, an accountant or a lawyer, because
Speaker 2: the spouse has a little aptitude in financial matters and
Speaker 2: the party making the world decides that won't be very
Speaker 2: easy on that other spouse. And sometimes there can be
Speaker 2: the language barriers as well. It might be better to
Speaker 2: have someone who is a little bit more across financial
Speaker 2: matters in the relevant country. The other aspect with executors
Speaker 2: is how many your point and in the case of
Speaker 2: the husband wife arrangement, we have appointed one, you have
Speaker 2: to appoint a substitute. For example, both of you pass
Speaker 2: and pass away in an accident, so you would normally
Speaker 2: then appoint, for example, one or two of your children.
Speaker 2: So that's all fine, and that makes sense because they're
Speaker 2: likely to be the beneficiaries. It becomes another discussion if
Speaker 2: there are no children and who you might choose to
Speaker 2: be the executor in those cases. Your example of an
Speaker 2: accountant is clearly one. A lawyer quite often does that role,
Speaker 2: but it's often best to have someone who is close
Speaker 2: to the family, for example siblings, and this is particularly
Speaker 2: so if there are a minor children involved, so that
Speaker 2: the bit of a knowledge of family dynamics for the
Speaker 2: executor will help them get the money where you want
Speaker 2: it to go. So it's an important role and something
Speaker 2: that people need to think seriously about because it can
Speaker 2: mean that there are different outcomes. Despite the fact that
Speaker 2: the will says where it's got to go, where your
Speaker 2: estate's got to go, how it gets there would be
Speaker 2: determined by the attitude of the executive.
Speaker 1: Let's move on to blended families. They're becoming more common
Speaker 1: in Australia. It's a complex area. I'll try and describe
Speaker 1: this as simply as possible, But let's just say there's
Speaker 1: a couple, husband and wife, that they're married, they have children,
Speaker 1: they divorce, the husband moves on, he finds a new partner.
Speaker 1: This new partner she has children as well. They get married,
Speaker 1: so they have step children from each former marriage, and
Speaker 1: then they decide to have a child themselves. So there's
Speaker 1: children from the husband's first marriage, he has step children,
Speaker 1: and he has a child from the second marriage. Now
Speaker 1: it's difficult for him to set his will because he
Speaker 1: may want to provide something for his child from the
Speaker 1: first marriage, but the wife from the second marriage may
Speaker 1: have different views on that and may want more of
Speaker 1: the line's share of the wealth to go to their
Speaker 1: joint child. And there's the risk that if he predeceases
Speaker 1: her the second wife, that the second wife could change
Speaker 1: her will and cut out the child from his first
Speaker 1: marriage and maybe give money to her daughter, which is
Speaker 1: not biologically his. So I guess, in a long way
Speaker 1: of saying, is that if he passes away, his intention
Speaker 1: of where he wanted his money to go could change.
Speaker 1: If it's the case of well, I'll leave you everything
Speaker 1: i e. My spouse, and then when you pass away,
Speaker 1: you distribute it as per what we've mutually agreed. But
Speaker 1: that mutual agreement could change after someone passes away. So
Speaker 1: how do we protect against this?
Speaker 2: Yeah, they're like trust in the relationship is of course
Speaker 2: very very important. You can just trust your partner to
Speaker 2: do the right thing. Now, a lot of people don't
Speaker 2: have any issue with that when you ask the question,
Speaker 2: but a lot of people, of course do. And as
Speaker 2: you say, a second spouse, Mike might feel threatened by
Speaker 2: a child from a previous relationship. There are various ways
Speaker 2: to do it. You can, for example, if you have
Speaker 2: a principal place of residence, you can have that in
Speaker 2: the previously discussed tenants in common, so that fifty percent
Speaker 2: of the property would go for exams would go pursue
Speaker 2: it to your will to whoever you leave it to. So,
Speaker 2: for example, a husband might leave his half the house
Speaker 2: to children from his first marriage, and that would enable
Speaker 2: the wife to do the same. In that case, the
Speaker 2: primary concern should be for the wife to still have
Speaker 2: accommodation and be able to live in that home. So
Speaker 2: you can leave a life estate in that home to
Speaker 2: the wife so that or the husband so that they
Speaker 2: can live there until they no longer are able or
Speaker 2: willing to, and then the estate can be passed on
Speaker 2: that basis. So that's one possibility. You've referred to the
Speaker 2: changing of the intention of parties after one party dies,
Speaker 2: and that's common in that the relationship survived because of
Speaker 2: the influence, for example, the father of a children from
Speaker 2: a previous relationship, But as soon as the father is
Speaker 2: not there, then the wife sort of feels less threatened,
Speaker 2: perhaps able to then perhaps change to what you really
Speaker 2: always wanted the whole way along was to get rid
Speaker 2: of the children from the first marriage. You can do
Speaker 2: what's called mutual wills, where you are making a contract
Speaker 2: not to change your will after the party passes away.
Speaker 2: They are not recommended in common in recent times if
Speaker 2: it's been a while since have been recommended really because
Speaker 2: things change too much and it does stop a spouse remarrying,
Speaker 2: for example, if that's and you might not want to
Speaker 2: do that and want to put that pressure and or
Speaker 2: restriction on a spouse. Then also it has the potential
Speaker 2: is that the spouse just dissipates the estate anyway, because
Speaker 2: it doesn't the will doesn't change, but what the will
Speaker 2: deals with changes a lot because they can just move
Speaker 2: the assets out of the estate without fear or favor,
Speaker 2: and then that doesn't really have any effect. So the
Speaker 2: only other way, the only other way, but another way
Speaker 2: is that the use of a testamentary trust in a
Speaker 2: will where you specify that the spouse is to have
Speaker 2: the benefit of the estate and it's managed by another
Speaker 2: independent trustee. You can manage it the estate for the
Speaker 2: spouse's benefit and then ensuring that the capital of the
Speaker 2: estate is at least preserved to a degree so that
Speaker 2: the children can be nominated as the default beneficiaries after
Speaker 2: the white passes away.
Speaker 1: Thank you, Peter. Very clear from sounds that it's not
Speaker 1: a case of right your own will if you have
Speaker 1: a blended family. Really seeks like it's worthwhile getting proper
Speaker 1: legal advice on that one. So before we go any further,
Speaker 1: let's take another short break. Hello and welcome back to
Speaker 1: the Money Puzzle. I'm James Gerard, writer contributor to the
Speaker 1: Wealth section of the Australian and also Financial advisor with
Speaker 1: financial advisor dot Com today you and on this week's show,
Speaker 1: I have Peter Kernan from Aubrey Brown Lawyers. Now, before
Speaker 1: we get in to the subject of general taxation, general
Speaker 1: law matters, well, I just want to say that to
Speaker 1: all our listeners that this is general advice and not
Speaker 1: personal advice, so please seek out a qualified advisor before
Speaker 1: making any decisions. The first one we cover is on
Speaker 1: family and friends buying investments together. This could be Peter
Speaker 1: maybe starting a business or buying an investment property together.
Speaker 1: They're pulling their resources together to try and start or
Speaker 1: buy something good or bad idea.
Speaker 2: In your experience, it's always a good idea at the start, James.
Speaker 2: It's these things always start from great ideas and quite
Speaker 2: often you know, everything works well and the parties are
Speaker 2: successful and it works really well for everyone's mutual benefit.
Speaker 2: But there are of course plenty that don't work very well.
Speaker 2: The critical thing in these is always documenting what the
Speaker 2: agreement is between you. A simple example would be that
Speaker 2: two people want to get together and buy a house
Speaker 2: which they intend to do a renovation and sell for
Speaker 2: profit and then move on to actually to do more.
Speaker 2: The issues there become what happens if one party has
Speaker 2: something before them that needs meets, they need the money
Speaker 2: back out. How do you get the money out? And
Speaker 2: the agreements can deal with that. The main thing, though,
Speaker 2: is to document how it's to work until you get
Speaker 2: to that point. So for example, if one party is
Speaker 2: going to contribute maybe their expertise in architectural terms, and
Speaker 2: another one he's a plumber and he's going to contribute
Speaker 2: his labor, all that sort of stuff is as long
Speaker 2: as it's documented, then you can at least have a
Speaker 2: starting point if there any dispute arises as to what
Speaker 2: the agreement really was. You can also have a co
Speaker 2: owners agreement, so for example, people buy a house to
Speaker 2: a pre existing house, they're just going to rent it
Speaker 2: and hang on to it and hopefully settle it a
Speaker 2: profit in the future. You've got to set out who
Speaker 2: pays the rates, who maintains it, the insurance, what happens
Speaker 2: if something needs fixing. And then again the critical one
Speaker 2: is what happens if someone wants to leave the arrangement.
Speaker 2: And that's always where the problems arise, because if someone
Speaker 2: wants their money out of the arrangement and the other
Speaker 2: one doesn't want to, then there's a stalemate, so that
Speaker 2: because you can't sell the property without everyone agreeing. So
Speaker 2: either it's mediation, which you should always have mediation clauses
Speaker 2: in agreements of this nature, or you have to head
Speaker 2: to court to have an arrangement approved and or finalized
Speaker 2: by the court so that one party can get out.
Speaker 2: You know, you can of course get someone else in
Speaker 2: to take over the share of the other party, but
Speaker 2: it's often the case that that's when the disputes arise.
Speaker 2: Same in business, if you go to start a company,
Speaker 2: to run a business, then you should have a shareholder's
Speaker 2: agreement or a partnership agreement, depending upon the structure, which
Speaker 2: documents who does what and how money gets spent, and
Speaker 2: again what happens if someone wants to leave, how do
Speaker 2: they leave, how do their shares get sold, how do
Speaker 2: they get valued? All of those clauses should.
Speaker 1: Be in there absolutely and you get the nail on
Speaker 1: the head with regards to it. All looks good in
Speaker 1: the beginning but sometimes ends in flames and disaster. What
Speaker 1: I suggest to people, not legally informally, is that they
Speaker 1: think about, even though they go into this with best intentions,
Speaker 1: all of the bad, the worst scenarios that could happen,
Speaker 1: and pre plan if this was to occur, how do
Speaker 1: we deal with it? So as much as you can
Speaker 1: think about from the beginning. If these circumstances occur, somebody
Speaker 1: loses interest, they don't have financial capacity anymore, all those
Speaker 1: type of things, how will we deal with about to
Speaker 1: deal with it, so there's an agreement before you go
Speaker 1: into it, so that if these things do happen, that
Speaker 1: it's less likely that it gets messy. Now, next one,
Speaker 1: let's just say that you're a director. You're asked to
Speaker 1: become a director of a business, so you're an employee,
Speaker 1: but you've been promoted and something bad happens at the business.
Speaker 1: So say that the other director has a gambling problem
Speaker 1: and they're spending all the money out of the company
Speaker 1: bank account, but they've been saying they've been paying the
Speaker 1: tax bill. What happens in that case? Are you personally
Speaker 1: liable for this? If the company's been traded in insolvents?
Speaker 1: I guess I'm asking a broader question of although it
Speaker 1: sounds great to be promoted as a director of a business,
Speaker 1: there may be some legal liability or obligations attached to
Speaker 1: that people should think about as well. So could you
Speaker 1: talk us through that at a high level, Peter, Yeah.
Speaker 2: Sure, it's the concept of insolvency you've mentioned that has
Speaker 2: a training. Insolvently means you are unable to pay your
Speaker 2: debts as and when they fooled you. Now, once that happens,
Speaker 2: it's an issue to the directors because they can be
Speaker 2: personally liable for the debts of the company. In that case.
Speaker 2: The example of the gambling director is not uncommon, and
Speaker 2: the risk for the other director is that they'll be
Speaker 2: left holding the bag for one hundred percent of the
Speaker 2: debts of the company. If, for example, the gambling director's
Speaker 2: been the one who has been running their business day
Speaker 2: to day and the other director's been just turning up
Speaker 2: to board meetings, for example, once a month, and hasn't
Speaker 2: really had his finger on the pulse, then then that
Speaker 2: is very liable to be a case of well, you
Speaker 2: didn't know, but you should have known, and then he
Speaker 2: can be held to be personally liable for one hundred
Speaker 2: percent of the debts. For example, if the gambling director
Speaker 2: goes bankrupt or leaves the jurisdiction, then absolutely you can
Speaker 2: be personally liable. The idea if a company is to
Speaker 2: protect directors from from personal liability. But in the case
Speaker 2: of insolvent trading, for example, if a company goes into
Speaker 2: liquidation it's been trading insolvent solvently, then the liquidator is
Speaker 2: going to look very carefully at the directors to determine
Speaker 2: what assets they have and whether they should be pursued
Speaker 2: for insolvent trading to therefore make more money available to creditors.
Speaker 2: So it's something that liquidators look at very closely.
Speaker 1: So for someone who hasn't been a director before but
Speaker 1: has been asked to become one as part of a promotion,
Speaker 1: should they seek legal advice? Is there anything that they
Speaker 1: should do to be prudent and cautious around this if
Speaker 1: they have also a little experience of being a company
Speaker 1: director previously.
Speaker 2: Yeah, I would always recommend that they have a serious
Speaker 2: review of the company's past performance whatever there might be
Speaker 2: publicly available. But if it's a smaller entity, then you
Speaker 2: would certainly be going to the company accountant, and I
Speaker 2: would be putting your own account in touch with the
Speaker 2: company accountant so that they can ask all the pertinent questions.
Speaker 2: Once they've had a look at the passed financials, profit loss,
Speaker 2: the balance sheet, all of those things would need to
Speaker 2: be looked at, and then you make a decision based
Speaker 2: on that advice. Then going forward, you just have to
Speaker 2: have your finger on the pulse. You have to be
Speaker 2: paying attention. You can't let you're not going to get
Speaker 2: away with an excuse. Well he was doing that because
Speaker 2: he was a managing director. I didn't know good advice,
Speaker 2: all right, Beata.
Speaker 1: Well that's a wrap for today. Thank you so much
Speaker 1: for joining us. That was really interesting. We brought to
Speaker 1: the surface a lot of legal issues at intersect with
Speaker 1: finances and our listeners may have been aware of, but
Speaker 1: now they've got a lot more color around it thanks
Speaker 1: to your comments. So Peter Kernan from Aubury Brown Lawyers,
Speaker 1: thank you so much for joining us today on The
Speaker 1: Money Puzzle.
Speaker 2: James, thank you for having me lean a pleasure, my pleasure.
Speaker 1: Indeed, now to our listeners, thank you for tuning in
Speaker 1: too today's episode of The Money Puzzle. Next week we'll
Speaker 1: return to regular programming. James Kirby, We'll be back from holidays,
Speaker 1: no doubt, full of energy and ready to tackle the
Speaker 1: hot topics of the week and sink his teeth into
Speaker 1: all of the great questions that have accumulated since he's
Speaker 1: been away. And speaking of that, don't forget to send
Speaker 1: us what do you think? Send us your questions and
Speaker 1: comments by tweeting us using the hashtag the Money Puzzle
Speaker 1: or one word, or email us on the Money Puzzle
Speaker 1: at the Australian dot com dot au. Until next time,
Speaker 1: I'm James Gerard. Talk to you soon.