You Have Decided to Separate… Now What?

With the increase in sophisticated financial plans and the heightened awareness of the benefits of asset protection strategies, what seems like a simple question actually requires careful consideration – what do you own?

This question is important when considering your estate planning objectives. Is it your vision for your children to take over the family business? Have you taken out life insurance to ensure that your spouse can pay the mortgage? Who will take control of your family trust after your death? When you own, or have an interest in, what are commonly referred to as ‘Non-Estate Assets’, additional planning is required.

An ‘Estate Asset’ is an asset owned personally in your name.  You may transfer ownership of Estate Assets in your Will to your preferred beneficiaries.  An Estate Asset includes any asset that you own solely in your personal name or (if with someone else) as a tenant in common.  Estate Assets can include real estate, personal belongings, shares, investments and/or cars.

If you do not own an asset in your personal capacity (i.e. in your name) then that asset is a ‘Non-Estate Asset’. Non-Estate Assets include:

  • assets owned with someone else as a joint tenant;
  • assets owned by a Trust;
  • superannuation or life insurance proceeds (subject to binding nominations and trustee discretion); and
  • assets owned by a company.

It is not possible to transfer ownership of a Non-Estate Asset by your Will as technically it is not yours to give away.  For example, company assets belong to all of the shareholders of a company, trust assets belong to all beneficiaries of that trust and superannuation does not automatically form part of your estate.

So, how do you deal with Non-Estate Assets and achieve your estate planning objectives? It is crucial to seek appropriate legal and financial advice with respect to succession of these entities and distribution of the relevant assets. Your lawyer and financial adviser will often work together with you in order to create a strategy to reach your goals and ensure that your legacy is passed on in accordance with your wishes.

PLEASE CONTACT

Contact us at bbv@bbvlegal.com.au if you wish to discuss this matter further.

My Will Is My Business – The Essential Connection

We are constantly reminded of the importance of having a Will. The reality is, no adult is too young to make a Will and we must all confront our reluctance to plan for our succession.  Whilst the majority of us want to ensure that we provide security to our loved ones and our own legacy, many people never get around to actually doing anything about it.

So, what happens if you never execute a Will? Well, there are risks…

The most obvious risk is the complete loss of control of the distribution of your estate. If you die intestate, your estate is distributed in accordance with State Government Legislation. This means that your wishes or intentions have no relevance – the laws of intestacy dictate who gets your estate. Not only do you not have a say in who receives your estate, but you also lose control of imposing terms and conditions, such as age restrictions for beneficiaries to control their inheritance, implementing testamentary or special disability trusts or considering a fair and reasonable distribution between beneficiaries.  This gap between what the law says and what you might have wanted for your beneficiaries may quite possibly result in disharmony between beneficiaries and hardship for your administrator, as they try to navigate through administering an intestate estate.

Without giving thought to your estate planning, you also do not have a chance to properly consider binding death benefit nominations for your superannuation, Enduring Powers of Attorney for your financial affairs or Enduring Powers of Guardianship for your health and lifestyle needs.

Beyond considering your personal estate is the need to consider any assets that your business entities may own.  There is a wide misunderstanding about who owns assets that form part of any business entity.   If you operate as a sole trader, your business assets are your personal assets and accordingly do form part of your estate. On the other hand, assets owned by (for example) a trust or company belong to those separate legal entities and not to you personally.

The question then is, how do you ensure that your loved ones benefit from your business assets? Those persons in control of your business entity decide how the assets are dealt with.  It is therefore important to pass control of these entities to the right people, so that your intended beneficiaries eventually do receive the benefit of those assets.  This entails giving careful consideration to such mechanisms as gifting shares in a company or giving units in a unit trust to your intended beneficiary, or appointing that beneficiary as the successive appointor of your family trust.  If you die intestate and do not take the opportunity to give thought to whom or how you will pass control of these entities, you may leave your business (and possibly your family’s source of income) floundering.

As a shareholder of a company with multiple shareholders, it is vital to remember that if one of your fellow shareholders passes away and the shareholders haven’t addressed a succession plan for the company, then you could end up being in business with whomever inherits the deceased’s shares.  This may be his or her spouse, children or even someone entirely different. This can lead to significant disharmony and in turn could also lead to the company suffering financial loss and other prejudice because of a lack of proper management.  By implementing a business succession agreement (and the right insurances if necessary) or a shareholders agreement, one is able to ensure that they know exactly who they will be doing business with in the future and ensure the positive ongoing operation of the company and its officers.

It is quite clear – estate planning goes hand in hand with good business planning!

PLEASE CONTACT

Contact us at bbv@bbvlegal.com.au if you wish to discuss this matter further.

5 Things Everyone in the Building Industry Should Know about the Property Securities Register

– Builder’s Choice Magazine

 The Personal Property Securities Register (PPSR) is a national online database  which electronically manages and stores information regarding security interests over any personal property apart from real estate. On the register, anentity granting a security interest is the ‘grantor’, the entity getting the security interest is the ‘secured party’ and secured personal property is known as ‘collateral’.

5 Things Everyone in the Building Industry Should Know about the Personal Property Securities Register

By:Craig Hollett (Director, Bowen Buchbinder Vilensky) and Darryl Koh (Solicitor, Bowen Buchbinder Vilensky)

Introduction

The Personal Property Securities Register (PPSR) is a national online database  which electronically manages and stores information regarding security interests over any personal property apart from real estate. On the register, anentity granting a security interest is the ‘grantor’, the entity getting the security interest is the ‘secured party’ and secured personal property is known as ‘collateral’.

1. What is a security interest?

This is an interest in personal property provided for by an arrangement which secures payment or performance of an obligation. Alwaysconsider if a security interest should be registered on the PPSR. It may not be worthwhile if the personal property is below a certain value, or cannot be easily identified, for example, if it does not contain a serial number.

2.What are typical registrable security interests?

These can arise from a variety of arrangements: contained in commercial agreements such as in building or construction contracts e.g.:

(a) a principal  entitled to take possession of a contractor’s equipment to complete any outstanding work and sell the equipment to recover any amounts owing to the principal by the contractor;

(b) the supply of equipment whereby title is retained until the equipment is paid up. This is called a ‘purchase money security interest’ (or PMSI);

(c) where there is a ‘PPS lease’ (also a form of PMSI) of equipment –  an arrangement whereby you have possession of certain equipment for a defined period of time but do not actually own the equipment, e.g. a contractor leasing equipment from a supplier.  For a PPS lease, the lease period must be more than one year or indefinite. If the equipment is an aircraft, motor vehicle or a watercraft, the time period is 90 days.

3. Why is it important to register security interests?

The consequences of not protecting one’s security interests can be dire. For instance, if you lease equipment to a contractor but fail to register your security interest, and the contractor grants its bank an interest over all its assets and later becomes insolvent, then the bank may be entitled to claim those assets without having to consider your interests over those assets.Where there are two or more security interests registered over the same collateral, priority is determined by the timing of the registration, subject to the special priorities for PMSIs.

4. The special priorities for PMSIs

If registered in time, a PMSI has super-priority and leapfrogs ahead of any other existing registrations on the same collateral e.g. if a contractor has already granted a security interest to a bank over all of its existing and future assets, the lessor will still maintain priority over those assets that are being leased out to the contractor even though the lessor may have registered its security interests at a later time than the bank.

5. By when must a security interest be registered?

Generally, where the grantor is a company, the security interest has to be registered within 20 business days after the agreement giving rise to the security interest came into force.

The table below summarises when PMSIs should be registered otherwise a secured party will not benefit from the PMSI super-priority(although the default priority rules will still apply).The term ‘inventory’ refers to personal property used in the ordinary course of business eg. stock stored for the purposes of future sale or supply. ‘Goods’ refers to any tangible personal property.

Type of collateral

​When PMSI must be registered

Collateral is inventory

​If goods – before the grantor obtains possession of the goods 

If not goods – before the security interest attaches to the inventory 

​Collateral is personal property, other than inventory

​If goods – within 15 business days after the grantor obtains possession of the goods 

If not goods – within 15 business days after the security interest attaches to the personal property 

 Conclusion

When buying equipment, it is prudent to first do a PPSR search to check if there are any secured interests over it. When leasing out equipment to someone else, protect your interests in that equipment by way of PPSR registration bearing in mind the time limits for registration.

As always, if you are in doubt with regards to any aspects of the PPSRor the protection of your interests, you should seek competent legal advice as soon as possible.

PLEASE CONTACT

Bowen Buchbinder Vilensky Lawyers: (08) 9325 9644 or bbvlegal.com.au