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BUSINESS MIGRANT BEWARE: DO YOU REALLY HAVE OWNERSHIP IN THE “ELIGIBLE BUSINESS”

Blog & Articles

KELVIN TANG is the Principal Partner of TANG Legal.
His areas of practice include Investment Law, Commercial and Corporate Law, Property Law and Immigration Law. Relevant to this article, his expertise, knowledge and experience include representing property developers and new migrants with acquisition of property, structuring of investment vehicle, joint venture transaction, and advice on commercial transactions.

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Last week, we looked at cases involving “eligible business” for business visa purposes. This week, we will look at the requirement that the business migrant must have “substantial ownership interest” in the “eligible business”.

The general rule to meet this substantial ownership requirement is that if the business turnover is less than AUD$400,000, fifty-one percent (51%) is required. If more than AUD$400,000, thirty percent (30%) is required. If the business is a listed company, at least ten percent (10%) is required.   This is the simple part. The complicated part is where a business is owned by a trustee company of a trust. It is quite common in Australia that investments and businesses conducted through a trust vehicle. There have been past cases where migrants have failed the “substantial ownership” requirement due to legal technical difference between ownership interest and beneficial interest.

Section 134(1) of the Migration Act provides that “ownership interest” includes interest in the business as a shareholder in a company that carries on the business, a partner in a partnership that carries on the business, or a sole proprietor. This definition seems simple enough, but in reality, it is not as simple as it seems.

But what about a trust structure?   Trust has many forms – fixed or unit trust, discretionary trust, special purpose trust, bare trust and hybrid trust.   How do you know your “ownership” meets the migration requirements?

Let’s take for instance the business is carried on through a unit trust and the migrant owns units in the unit trust. I must emphasis that many property development projects are conducted using unit trust. As a unit holder, you may have certain legal entitlements. But does this satisfy the “substantial ownership” requirement? The answer is, NO! As a unit holder of a unit trust, you merely have a beneficial interest in the “eligible business”, NOT a legal ownership interest. The Court in the Zhonghua’s case (which we looked at last week) found that having beneficial interest as a beneficiary of a trust does not meet the “substantial ownership” requirement.

Now, let’s consider the flipside and say you own shares in the trustee company but the trust is a discretionary trust, or more commonly known as a family trust, where you do not have any fixed entitlements? In fact, under a discretionary trust, the beneficiary only has a “mere hope or expectancy” to receive benefits from the trust asset, there is not definite entitlement to distribution. In this instance, even if the migrant has shareholding in the trustee company, will the migrant still meet the “substantial ownership” test? A further question for business migrant to consider – although you may be a shareholder of a company, how do you know whether the company is actually a trustee company of a discretionary trust? This is problematic.

The migration regulations may appear straight forward, but in reality, it may not be as straight forward as it seems.
Please beware of legal technicalities!

REVISED INHERITANCE LAW

Blog & Articles

INHERITANCE LAW

Volume No. 1 – November 2015

SUCCESS RATE IN CONTESTING A WILL

By KELVIN TANG (Partner) & KIM SAMIOTIS (Senior Lawyer)

WILLS & ESTATES LAWYERS, A Division of TANG LEGAL

T: (08) 9328 1867 | E: [email protected]

IN THIS ISSUE:

High Success Rate of Contestation [Page 1]

Common Reasons for Contesting Deceased Estate [Page 2]

Significance of Findings [Page 2]

Who can contest a Will? [Page 3]

Actual Cases of Contested Wills [Page 3-4]

Time Limit [Page 5]

HIGH SUCCESS RATE OF CONTESTATION

74% of family provision claims by family (children or partners, including ex- partners) were successful.

See: Tilse, C., Wilson, J., White, B., Rosenman, L. & Feeney, R. (2015), “Having the Last Word? Will Making and Contestation in Australia”. The University of Queensland.

Many deceased estates are contested under family provision legislation.

Studies undertaken by the University of Queensland in 2015 found that:

86%of claims are brought by immediate family members: either children of the deceased (63%) or partners (including ex-partners) (23%) – This means that adult children are the most common claimants in applications for provision from an estate.

These applications are often driven by exclusion from a Will and/or significant disparity in distribution of assets between beneficiaries.

Applications for provision from a deceased estate have a high rate of success, whether obtained through a judgment from the Court or settled in mediation.

74% of family provision claims by family (children or partners, including ex-partners) were successful.

COMMON REASONS FOR CONTESTING A DECEASED ESTATE

‘Contesting a deceased estate’ refers to claims pursuant to the family provision legislation. 

The said studies also found that contestation is most commonly driven by: Inadequate provisions to meet the needs of a family member;

The type and quality of a relationship with the deceased where a family member felt a sense of entitlement to a greater distribution;

Exclusion from a Will and/or disparity in distribution of assets.

SIGNIFICANCE OF FINDINGS

The above findings are significant to:

The Will maker:

Judicial statistics show that 51% of estates that were contested were family provision claims. In light of these statistics, if you are making a Will, you need to give very careful and detailed considerations to the people who may have a claim against your estate and how you should distribute your assets. The more complex the family relationships, the higher the chance your Will may be contested or otherwise disputed between your family members upon your death.

At the time of making your Will, you need to consider ways to reduce the risk of contestation by addressing underlying family dynamics and issues and obtaining strategic legal advice if you plan to exclude someone from your Will.

The Executor or Administrator: A personal representative who has obtained a grant of Probate or Letters of Administration (i.e. the executor or the administrator) will undoubtedly find themselves spending considerable time dealing with family provision proceedings where an applicant has contested the Estate. This may necessitate engaging lawyers to defend the contestation, and obtaining detailed evidence, including expert evidence where necessary, to defend against the claim. This can detract the executor or administrator’s attention from getting on with other tasks in administering the estate, such as collecting and realising assets.

A family member who can be a potential claimant:

There is a high success rate for family members who apply for family provisions from a deceased estate, insofar as they receive greater or some provision from an estate either by way of judgment or settlement. Notwithstanding the existence of a Will or the provisions of the Administration Act 1903 (WA), in the case where someone has died without a Will, the Court has the discretion to award or increase provision to an applicant.

WHO CAN CONTEST A WILL?

Pursuant to Section 7(1) (a) of the Family Provision Act 1972 (“Act”), the following are “eligible persons” who may apply to the Court for a family provision order in respect of the estate of a deceased person in WA:

Former spouse or spouse, including a former or current de- facto partner, of the deceased (former spouse/de facto must be entitled to or receiving maintenance at the time of death);

Child of the deceased living as at the date of death or born within 10 months of the deceased’s death;

A stepchild of the deceased (in limited circumstances);

A grandchild of the deceased (in limited circumstances);

A parent of the deceased.

ACTUAL CASES OF CONTESTED WILLS

Contested by Spouse

Waddingham v Burke (as executor of the Will of Waddingham)

[2015] WASC 65

Facts:

The deceased was married to the applicant spouse who claimed that inadequate provisions had been provided for her proper maintenance in the deceased’s Will. The Spouse was 69 years old, had no income, and argued that the Will did not provide adequate provisions for her support or/and maintenance in life.

Claim by Spouse:

The Spouse applied for orders to vary the Will for greater provisions and to prevent the immediate sale of land.

Court Findings:

The Supreme Court of Western Australia held that the Will did not adequately provide for the Spouse and ordered the parties to the proceedings to confer in an attempt to reach an agreement on the details of the proposed sale of property

Contested by Former Spouse

(same sex de facto relationship) Nelligan v Crouch

[2007] NSWSC 840

Facts:

The applicant had been in a same sex de facto relationship with the deceased for 30 years but they had been separated for a number of years prior to the deceased’s death as a result of the demands of both personal and family illness. The applicant had not been provided for in the Will. The deceased had, instead, left his entire estate to the Royal Flying Doctor Service.

Claim by Former Spouse:

The applicant claimed that he shared a domestic relationship with the deceased and should be provided for under the Will.

Court Findings:

The Court awarded the applicant $100,000 from the estate that was valued at $180,000 after costs.

Contested by Adult Child

Mead v Lemon

[2015] WASC 71

Facts:

The applicant, the adult daughter of a billionaire, brought proceedings seeking greater provision from her father’s estate. The Will established a trust for the adult daughter which provided, amongst other terms, that the capital of the trust was not to exceed $3 million. Stringent conditions were imposed on the daughter’s access to the trust fund, including her religion, and she was unable to receive distributions before the age of 30. The total value of the deceased’s estate was estimated at more than $1 billion.

Claim by the Adult Child:

The issue was whether the Will of the deceased provided adequately for the applicant, taking into account a number of factors including the size of the estate and the conditions imposed by the trust established for the adult daughter.

Court Findings:

The court exercised its discretion under section 6(1) of the Act, taking into consideration factors such as the size of the estate, the needs of the plaintiff and the interests of other people entitled to shares in the deceased’s estate. The daughter successfully obtained orders from the Court and she was awarded a cash payment of $25 million. This decision is being appealed by the respondents; the deceased’s other adult children.

Contested by Grandchild

Devenish v Devenish

[2011] WASC 129

Facts:

The applicant, the adult grandchild of the deceased, was not provided for in the Will of his deceased grandmother.

Claim by Grandchild:

Whether there should be provision made for the proper maintenance, support, education and advancement in life of the applicant grandchild, and if so, what would be adequate provision?

Court Findings:

The Court granted the plaintiff 20% from the deceased’s estate, the net value of which was valued at $1,290,000 at the date of death.

 

TIME LIMIT

Claims made under the Family Provision Act 1972 must be made within 6 months of the personal representative becoming entitled to administer the estate, or in other words, within 6 months from the grant of Probate or Letters of Administration.

See section 7(2) (a) of the Family

Provision Act 1972.

Whilst the Court can make orders tracing and recovering estate assets which have been distributed, there is always a risk that the estate may be dissipated. If you want to make a claim for provision from an estate, you should act without delay.

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