Tag Archive: gifts

  1. Family Loans and Gifts – Using a Will to Equalise benefits.

    Comments Off on Family Loans and Gifts – Using a Will to Equalise benefits.

    Family Loans and Gifts – Using the Will to Equalise the Benefits

    Many parents of adult children often discover that although the children may have left the nest, the umbilical cord or supply lines sometimes remain firmly attached.

    Some families adopt great discipline in this area, ensuring that any advance made to assist one child is immediately equalised with an identical advance to the others whether they need it or not.  For the most part though, limited spare cash and the inevitable timing differences in the fortunes and misfortunes of the children mean that benefits are provided out to the children unequally in answer to individual need as it arises.  When it comes to making a Will therefore, there are a number of issues that surround this topic and all should be considered:

    • Was the money a loan or a gift? – The critical time for answer to this question is the time at which the money was advanced. If the money was given over with no agreed understanding that it was to be repaid then (by a concept called the presumption of advancement) the money is usually a gift and the recipient is entitled to retain it without consequence. For it to be a loan there must be an agreement that the money is to be repaid. Either way, it’s highly recommended that the agreement be recorded in writing at the time the money is handed over. If not then a retrospective agreement can be signed up at a later stage but with the money already in hand, the recipient of course may not feel motivated to sign.
    • What were the terms of the loan? – If there was an expectation that the loan  needed to be repaid by a certain time or that there was to be interest charged upon the outstanding amount of the debt from time to time then this needs to be expressly agreed between the two parties. If interest was to be paid, was the interest supposed to be compounding or simple and at what rate was the interest to be calculated? If there is no mutual agreement between the parties on these matters then the loan will usually be taken to be repayable on demand and interest free.
    • Guarding against allegations of forgiveness or set-off – a legally binding loan can still be extinguished if the parties subsequently agree to forgive it or for instance the borrower has made some other payment or provided some other benefit to the lender (for example paying the lender’s phone bill) which has been accepted in “set-off” against the debt. If there are benefits passing backwards and forwards between the two parties then it is essential that there be clear records to establish whether obligations for a payment have indeed been waved or set-off by something done in exchange.
    • What if the debt has been partially repaid? – As with everything else, clear records to show that the money that might have been paid from debtor to lender has been accepted in partial reduction of the debt is critical to determination of this issue.|
    • How can the loan be treated under the Will? – In the Will, it is important that the Will maker clearly sets out what the expectation is to be. The options are:
      • to, forgive the loan;
      • direct the executors to count the loan as an asset and gather it in
      • offset the entitlement against the debtors full estate entitlements; and/or eve sue the debtor to recoup the balance of the debt if the debt exceeds that beneficiary’s full entitlements under the estate once the loan has been counted in as a divisible asset. 
        • Are time delays between time of advance and the time of death relevant? – Yes. Under general principles of Contract Law, any “loan” advanced which is unspecified as to date for repayment is likely to be classified as a debt “repayable on demand”. By a combination of the 1956 High Court case of Young v Queensland Trustees and the Queensland Limitations of Actions Act, the creditor to any “On Demand” loan is barred from bringing any claim to the courts for enforcement of repayment of the loan any time after 6 years from when the money was advanced. This law however does not extinguish the debt and so conceivably it can still be counted as an asset under the will  and offset against the debtor/beneficiary entitlements however to avoid any problems it is highly recommended that the debtor should be made to sign a fresh acknowledgement to confirm that the debt is still repayable every 6 years.
        • Can executors be given the discretion to forgive the debt outright? – Yes. The Will can be drafted to give the executors this power but it is generally not recommended.
        • How are issues resolved between debtor and the executors if there is a dispute about how much is actually owed? – Just like any other litigation between people in disagreement, the matter has to go to the courts and is litigated as a normal civil dispute. There are obviously however difficulties with this since one party to the original loan agreement being the deceased is now no longer able to give evidence and consequently any deficiencies with the case can’t be rectified by that person giving evidence as to what actually might have occurred or was in their state of mind.

        Michael Zande is the Principal of Zande Law Solicitors, with 25 years experience in practice.  Michael and his team have had extensive experience in drafting of Wills and Administration of Deceased Estates.  Please feel free to review our firm and staff profiles at www.zandelaw.com.au

        The information in this article is merely a guide and is not a full explanation of the law.  This firm cannot take responsibility for any action readers take based on this information.  When making decisions that could affect your legal rights, please contact us for professional advice.

         

  2. Who keeps the engagement ring in a property settlement?

    Comments Off on Who keeps the engagement ring in a property settlement?

    When asked for advice from a young women set to break off an engagement about any obligation to return the engagement ring, Hollywood socialite Zsa Zsa Gabor once famously said “of course you should return the ring darling – but make sure you keep za stone!

    Questions about inclusion or exclusion of jewellery in the asset division exercise at the end of a relationship, do not come up that often, but when they do it tends to create a lot of heat!  If the jewellery is included, the holder will have to pay the giver a proportion of the item’s value to keep it.  If excluded,  the money originally spent on the item by the giver is lost.

    The law for separating married couples is different to those who break off the relationship at the engagement stage.

    The Federal Family Court resolves disputes for married couples.  Cases over the last 20 years on the subject have been inconsistent, but generally can be grouped into three broad categories.

    Big ticket items only – under this approach, the Courts have only dealt with assets of “significant” value such as real estate, businesses, share portfolios and the like.  In each judgement the Courts have ignored the smaller “chattel” items such as furniture, motor vehicles and jewellery determining that the person in possession of these items should simply keep it as their own property with no cash payment required.

    All in – in these cases the Courts have applied a literal interpretation of the Family Law Act which says that if the item is capable of being sold or traded for value, then it is a divisible asset and should be counted.

    Gift -v- Investment – here the Courts have ruled that without clear evidence that the item was purchased by the parties with the intention of being retained as an investment for ultimate resale, the item should be classified as a gift and consequently excluded from the asset division exercise.

    Which approach is correct?  Technically, the “all in” approach is probably the most correct, but the most recent decisions on the subject have favoured the “gift -v- investment” approach.

    Couples who never get past the engagement, must take their disputes for jewellery to the State Courts.  Thus far, there appears to have been no reported decision from any Court on the subject however, if it did come up, it is likely the Courts would apply a legal principle called the “presumption of advancement” which is a close relative of the “gift -v- investment” approach referred to above and effectively applies the same test.

    The information in this article is merely a guide and is not a full explanation of the law. This firm cannot take responsibility for any action readers take based on this information.  When making decisions that could affect your legal rights, please contact us for professional advice.

  3. Wills and the rules of construction – Gifts of Property

    Comments Off on Wills and the rules of construction – Gifts of Property

    As is often the case with poorly drafted wills, the Court is left to make an order as to the intention of the testator in circumstances where the testator is no longer able to give evidence. As a result, the Court has over the years developed various rules that are used in the construction of wills to assist testators and those drafting wills to ensure that the testator’s intention is reflected in the terms of the will. These rules of construction are complex and are generally subject to a contrary intention appearing in the will.

    A fundamental rule in the construction of wills is that, in relation to the property of the deceased, the will speaks from date of the testator’s death and not from the actual date of the will.

    For example, a testator may gift “my car to my daughter Rebecca”. At the time of executing the will the testator owned a Toyota Corolla. However, a few years later the testator sold the Corolla and purchased a BMW and later passed away. In this example, Rebecca will receive the BMW, even though the deceased did not own the BMW at the time of executing the will.

    Conversely, a testator may gift “my Toyota Corolla to my daughter Rebecca”. If the Corolla is later sold by the testator and the testator did not own a Toyota Corolla when he or she passed away, the gift to Rebecca will fail. This is the case even if the testator sells the Corolla and leaves the sale proceeds in a bank account. The sale proceeds in the bank will fall into the residue of the estate and will not pass to Rebecca.

    It is possible to avoid this rule of construction, by ensuring the will is carefully worded to clearly illustrate the testator’s intention. However, if the wording used in the will is ambiguous, it may be necessary for the executors to apply to the Supreme Court for guidance in the interpretation of the will. This is an expensive and lengthy exercise, which can be avoided by executing a carefully drafted will.

    Another situation that should be considered when drafting a will is the devise of property subject to a mortgage or charge. For example, if at the date of the deceased’s death their house is subject to a mortgage, the beneficiary that is to take the house will also be liable for the mortgage attached. This rule also applies to personal property, such that the beneficiary who is to take an item of property which is subject to a legal or equitable charge, will also be liable for the charge so attached. Once again, this rule is subject to a contrary intention appearing in the will.

    A review of the will should be conducted every few years, or when a person’s circumstances change, to ensure that gifts intended to pass to a particular beneficiary will in fact pass to that beneficiary. Further, if it is intended that a gift will pass free of the mortgage or charge, this will need to be specially set out in the will.

    The information in this article is merely a guide and is not a full explanation of the law. This firm cannot take responsibility for any action readers take based on this information. When making decisions that could affect your legal rights, please contact us for professional advice.