What are chattels?

To put it simply, ‘chattels’ refer to personal property or movable assets that are not land or real estate. In legal terms, chattels are tangible items that can be physically moved and transferred from one person to another, such as goods, furniture, or possessions. They are different from real property, which includes fixed assets, like land or buildings. Chattels also consist of items like jewellery, vehicles, art pieces, or family heirlooms.

The Administration and Probate Act 1958 (Vic) defines “personal chattels” as including:

“carriages horses stable furniture and effects (not used for business purposes) motor cars and accessories (not used for business purposes) garden effects domestic animals plate plated articles linen china glass books pictures prints furniture jewellery articles of household or personal use or ornament musical and scientific instruments and apparatus wines liquors and consumable stores but does not include any chattels used at the death of the intestate for business purposes nor money or securities for money”.

The main feature of chattels is how easily they can be transported, along with their clear difference from real property. The above definition also distinguishes chattels from items used in the conduct of a business. When a person passes away, the chattels they owned become part of their estate and must then be distributed in accordance to the terms of their Will or, in cases of intestacy, in accordance with the laws of succession.

Why is it essential to know the relevance of chattels?

Chattels possess great significance when an estate is being distributed after death, as they can have a substantial effect on the deceased person’s family and loved ones. An individual may normally leave directions as to how certain items are to be distributed, often to safeguard personal belongings, sentimental items, family heirlooms, or the like.

In situations of intestacy, Victorian law gives directions for distributing chattels to guarantee that personal property is justly dispensed according to the family relationships. Usually, chattels are given to the surviving spouse or children. This approach is taken to make sure that the personal items of the deceased person are passed on to those that were closest to them, or those who were most likely meant to inherit the items if there were a Will.

Cases addressing chattels

Numerous courts have had to identify whether specific items would constitute chattels. In the case of Smith v Smith (2012), a dispute arose over a family heirloom which held significant sentimental value. The heirloom, a painting, was categorised as a chattel but such characterisation was contested by the heirs. The Court held that despite its value and significance to the family, the painting was a chattel due to its mobility. A chattel is a moveable item that is not fixed to the property.

Other items that are much larger and less mobile may be more challenging to distinguish. McCauley v McCauley (2007) addresses this issue. This case concerned a dispute over whether certain fixtures and improvements on a property, being a pool and decking, should be considered as chattels or part of the real property. The court held that these items were not considered as chattels due to their permanent attachment to the land. It was highlighted that an item that is permanently fixed to the land or a building revokes itself from being considered a chattel. The pool and decking in this case were intended to stay in place as part of the property and therefore were considered as real property.

Bequeathing chattels to beneficiaries

It is essential to note that a testator (Willmaker) possesses the choice to bequeath specific chattels in their Will, such as the examples mentioned previously. Alternatively, the testator has the option to refer to a non-binding list that is kept separate to their Will, outlining the distribution of the items. Granted that the list is not legally binding, it does supply direction and guidance to the executor to aid in ensuring that chattels are distributed in accordance with the testator’s intentions.

In many cases, clients would bequeath chattels to a group of beneficiaries, like their children, in order for them to divide between themselves. While this approach works well when the beneficiaries can easily come to an agreement on how to divide them, it is still best for the testator to provide some general guidance in order to lessen the chance of possible disputes down the line. We recommend that testators include a specific procedure as to how chattels are to be divided in the instance that beneficiaries cannot come to an agreement, such as ‘drawing straws’ to determine the order in which beneficiaries can select chattels.

Testators may also consider whether a beneficiary’s portion of the residuary estate should be modified according to the value of the chattels they have inherited. To give an example, if one beneficiary receives an item more valuable than the other, the testator might choose to reduce their share of the residual estate to ensure the distribution among all the beneficiaries avoids any unintended inequalities.

Conclusion

The classification of property as chattels is crucial for determining how items will be distributed after someone’s death. Courts look into the nature of the property and the circumstances in question. Various aspects would be considered by the Court such as the item’s use, value, and relationship to the real estate. By understanding the importance of chattels and addressing them appropriately, legal practitioners can prevent potential disputes between family members.

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At law, pets are considered a ‘chattel’, or an item of personal property. We know that pets are so much more than just an item, however. In this blog post, we set out your options for deciding what happens to your pets when you die.

Bequest in a Will

As a pet is a ‘chattel’ for the purposes of your Will, you can bequeath them to family or friends as you see fit. For beloved family pets, this could mean bequeathing your dog or cat to one of your children when you and your spouse have died.  You may also have a close friend or neighbour who is familiar with your pet and would be happy to take on their care if something happened to you. We recommend discussing such a bequest with the intended beneficiary first, to ensure they are willing to take on the responsibility. A beneficiary can always say no to a gift in a Will, and it is important to ensure that your pet is not left ‘high and dry’ in such circumstances.

A Trust for your pets?

You may have seen sensational headlines in the media, such as “Woman leaves $4.3 million fortune to her cats and dogs”. In Victoria, you cannot leave assets to an animal under your Will, as they are not a legal person who can inherit the property. You can, however, set up a Trust for the purposes of caring for your pets.

You would need to appoint a trusted person to be the Trustee of the Trust, such as a friend or relative. You may leave an amount on Trust for your pet based on your estimate of their expenses over their lifetime, such as food and vet bills. If you are intending to leave a large sum in Trust for your pet, it is important to think about who will receive any excess funds on their death. You may, for example, wish for any excess Trust funds to be donated to an animal charity.

If you have bequeathed your pet to a friend or relative, you may wish to consider making a bequest to such person elsewhere in your Will as a token of your appreciation. Such funds would not be directly for the use and benefit of your pet, but instead would be a gesture of thanks to the person who will care for them.

Memorandum of Wishes

We often recommend that clients make a Memorandum of Wishes to cover non-binding instructions or guidance which they wish to leave with their Will. This document can also include non-binding instructions as to the care of pets, for example:

• If my husband and I both die while our children are still under eighteen, we have appointed my sister as their Guardian. We would like our family cat Coco to stay with our children for emotional support.
• It is my wish that my dog Ringo is rehomed with a loving family. I would like my Executors to first ask if any of my children would like to take him, but if not, I would like him to go to a young family with a backyard.

Rehoming your pet

You may not have a suitable person in your life to help care for your pets on your death, but you still wish for them to be looked after. Several organisations offer programs where you can register your pet during your lifetime to be taken in by such organisation on your death.

One example is the RSPCA Home Ever After program. In this program, you register each of your pets with the RSPCA, including details of their medical conditions, likes and dislikes. You also make a direction in your Will that you give your pets to the RSPCA to rehome using the service. The RSPCA will then provide you with resources to ensure your Executors know what to do on your death. There is no cost for the service, but the RSPCA asks that you consider making a donation to the organisation in your Will as thanks.

Our furry friends (and feathered friends, and scaly friends) can be as much a part of our families as our human relatives. Even though they may be treated differently at law, you can still ensure that your Estate Plan provides the best possible future for your pets. Our team is on hand to update your Will, create a Memorandum of Wishes for you, or assist you in any way to give you peace of mind. Contact us today for a no-obligation discussion.

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Binding Financial Agreements (BFA)

A BFA is an agreement between spouses or partners that determines how their assets will be divided in the event of separation or divorce. While many clients are aware of the American ‘pre-nup’, a BFA can be entered into at any time – either before marriage (or before entering into a domestic partnership by cohabiting), during the course of the relationship, or after separation. A BFA ensures your assets are protected while you are still alive and is an important consideration where:

• You and your spouse have brought unequal assets to the relationship;
• You or your spouse has inherited, or will inherit, a significant asset or assets and wishes for such asset to ‘stay in the family’;
• One partner has a higher earning capacity than the other (e.g. due to differences in age or health, or because one partner has greater work experience or qualifications) and you want to ensure fairness in any spousal maintenance; and/or
• You intend to purchase substantial assets together and want to ensure that, if you separate, such assets are divided according to your contributions.

In the absence of a BFA, a Court may award one partner a much larger share of the marital asset ‘pool’ and assets may need to be sold to fulfil the Court’s orders. For example, the Court may order that the parties sell the family home and divide the sale proceeds, when (prior to the separation) the parties had intended for their children to receive the house. In the case of a ‘blended family’ or subsequent relationship, the risk may be heightened; a widower may have received substantial assets from his late wife, whose intention was for their children to eventually receive the benefit, but without a BFA in place, such assets may be ‘lost’ should the widower separate from his new partner. A BFA is a key piece of your Succession Plan (what you hope to achieve during your lifetime) and a properly-drafted document is the only way to ensure your wishes are followed in the event of divorce or separation.

Will

While a BFA deals with the death of a relationship, a Will deals with assets on the death of a person. While you may trust your spouse implicitly, you may also be alive to the possibility that they may re-marry or re-partner after your death. If your spouse had received your assets absolutely on your death, they could then give ‘your’ assets to their new partner during their lifetime; bequeath them to their new partner in their Will; or ‘lose’ such assets in separation proceedings as described above. It is therefore crucial that you obtain proper legal advice in order to protect your assets for the benefit of your children in the event that your spouse survives you.

Some options which may be available to you to protect assets for your children include:

• Placing assets in a discretionary testamentary trust, created in your Will for the benefit of your children (potentially with your spouse having limited access to Trust capital);
• Creating a life interest in your residence for your spouse, so they can reside there for their lifetime, but on their death, the property reverts back to your children;
• Entering into mutual Wills so that your spouse cannot amend their Will after your death; and/or
• Making allowances for your children outside your Estate, for example through transferring assets to them during your lifetime or nominating them as recipients of your superannuation.

Any attempts to ‘ring-fence’ assets from your spouse must also be weighed up against your duty to make ‘fair and reasonable’ provision for them, hence the importance of proper advice. It is also important to remember that any BFA you may have entered into with your spouse is no longer binding when one partner has died unless divorce or separation proceedings had been commenced before death.

Our team specialises in Estate and Succession Planning, particularly for clients whose prerogative is asset protection. If you are looking to protect your assets for future generations, contact us today to arrange an initial discussion.

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Updating your will to address changes which have occurred whilst you are still alive ensures peace of mind for you and your loved ones when you are no longer here to resolve the resultant disputes or misunderstandings which might otherwise arise.

Domestic Partners

While the previous blog post covered marriage, separation or divorce, it is also important to note that you should update your Will if you enter into a domestic relationship. Unlike a legal marriage, the forming of a domestic relationship (or ‘de facto’ marriage) does not revoke a Will. This means that, if you had an existing Will before you met your partner, there is no ‘automatic’ provision for them in your Will by virtue of the forming of that new relationship.

If you do not update your Will, your partner would have to seek a distribution from your Estate to obtain any share. If your family is all ‘on the same page’, this could be done through a Deed of Family Arrangement, but in most cases we see, the domestic partner must make a claim for “further provision” from the Estate. This can lead to the estate incurring a large amount in legal expenses and considerable stress, particularly if the domestic partner and the Executors are in dispute as to the true nature of the relationship. It is unlikely that the deceased testator would have envisioned their partner having to ‘prove’ their relationship to the Court, but that is a realistic scenario where a person has failed to update their Will to provide for their partner. This can especially be the case if the family of the deceased partner resides interstate, or overseas, and has not witnessed first-hand the strength and the depth of the relationship.

Loans

It is common (and usually recommended) for our clients that, if they propose to contribute funds to the purchase of a home by one of their children, they document such contribution by way of a loan agreement and ensure that a regular, if only notional, repayment is made to ensure the enforceability of the loan agreement does not lapse.

The loan document is only one part of the equation, however; it is also important for the lender to consider what should happen to the loan when they die if it is still outstanding either in whole or in part. Some clients wish, for example, for the loan to be forgiven on their death, possibly with the outstanding loan amount to be taken into account (i.e. ‘balanced out’) on the distribution of their Estate. Others want the loan to remain ‘on foot’ as an asset of their Estate (particularly if there is a discretionary testamentary trust) so that the asset protection provided by the loan continues if the relationship of their child and their spouse/domestic partner were to break down.

If no such instruction is made in the Will, the default position is to ‘call in’ the loan as an asset of the Estate, which may not be appropriate where a child has relied upon that loan to purchase their property. It is therefore vital that clients revisit their Wills when making a significant loan available to a beneficiary and update them if necessary.

On the other hand, we also see situations where a parent has ostensibly ‘lent’ money to a child without a current and enforceable loan agreement behind it. The ‘loan’ is therefore effectively a gift to the child with the result being that, If the child then predeceases their parent (an unfortunate, but not unheard of, scenario), the ‘loan’ amount is considered an asset of the deceased’s child’s Estate unless the presumption that it is a gift can be otherwise rebutted. This may lead to unwanted consequences, where such amount ends up in the hands of the deceased’s spouse or partner, with no ability to recall the amount should such widow or widower subsequently remarry.

While the most effective means of asset protection is a properly drawn and duly executed loan agreement, there are still ways to ‘ring-fence’ such an amount ‘after the fact’. For example, if a child has received an amount from their parents which was intended to stay in the family, the child can update their own Will to bequeath an equivalent amount back to their parents (or to siblings, if the parents predecease them). This prevents the dissipation of assets in the event of the child’s untimely death.

Disability

Our previous post discussed revisiting your Will due to the ill health of an Executor. An additional consideration is the health of beneficiaries. If a beneficiary has become disabled since you last made a Will, or the nature of their disability has changed, it may be prudent to update your Will in order to most effectively provide for them. Some beneficiaries who are in receipt of a Disability Support Pension (DSP) and who meet other criteria set by the Department of Services are eligible to receive their inheritance in a Special Disability Trust (SDT).

The SDT is a form of Trust created to house funds for a person with a disability which can be used to support them in their care and accommodation needs. Importantly, assets in the SDT up to a certain amount (currently $724,750) are not taken into account in the means test for the DSP and thus do not affect the beneficiary’s pension entitlements. Due to the strict requirements to establish an SDT in a Will, it is important that you receive proper legal advice in order to set up such a structure.

Though we all may like to believe that we can store our Wills away in a drawer and not touch them for decades, the reality is that our circumstances are constantly changing. If your current Will does not adequately address some of the above scenarios (or indeed any change in circumstances since its execution), it is most likely time for a review.

Please contact us today to organise a no-obligation consultation to discuss an update to your Will.

The post When to Update your Will (Part 2) appeared first on Tony Kelly Lawyer & Estate Planner.

Myth: if we both die, our children’s godparents will look after them

Fact: while many people believe that being chosen as a godparent means they are ‘automatically’ the carer for that child in an emergency, the role of godparent has only spiritual and emotional significance. It is not a legally-recognised position.

If parents die without having appointed a Guardian for their children in their Wills, the children’s godparents are just some of potentially many people who have an interest in the children’s welfare and upbringing. The godparents would have to apply to the Family Court to be validly appointed as Guardians, and the Court may not agree that they are the best people to care for the child. The Court may instead favour a blood relative, such as the children’s aunt, uncle or grandparents.

We understand that godparents can play a large role in the lives of children and often feel part of the family. Children may have a closer relationship to a godparent than they do to an aunt or uncle, particularly when blood relatives are located overseas or interstate. If you believe your children’s godparents would be the best people to care for them on your death, it is important that you document such appointment in your Will.

Myth: if we both die, our family members can sort out guardianship between themselves

Fact: without a valid appointment of Guardian in your Wills, your family members will still need to apply to the Family Court for an order to act as Guardian. Even if your family is not in dispute, and can decide between themselves who is the best person to care for the child, that person (e.g. the child’s aunt) will still need to make such an application. Your family members would therefore incur considerable time, expense and stress going through the Family Court system.

It is much simpler to choose someone who you would trust and appoint them in your Will. It is also important to remember that you can change your Will if and when it is necessary. For example, if you appoint your sister and her husband as Guardians for your children, but your sister then moves overseas, you can amend that provision of your Will with a simple Codicil to appoint a new Guardian. You would not need to sign an entirely new Will. You can also include a provision in your Will appointing a substitute Guardian, if the person(s) you initially chose are unable or unwilling to act. Just one clause in your Will can save your family a world of stress on your deaths, in what would already be an emotional time.

Myth: our teenage children can take care of themselves

Fact: no matter how independent your children are, they still need an adult to act as their legal Guardian until they attain the age of 18 years. Even if your oldest child has attained that milestone, it doesn’t mean they can automatically be the legal guardian of their sibling(s). While a teenage child’s preferences may be taken into account by the Family Court, it would again be up to the Court to appoint a suitable adult to so act. You do have options, however, if you wish for your children to stay in the family home and continue at the same school (particularly to minimise disruption during VCE). We can assist you in tailoring a Guardian appointment clause that gives your Guardian the necessary powers to perform their role but also requires them to give due regard to your wishes.

It is vital that parents of minor children have Wills appointing a suitable Guardian for them in the event of a tragedy where both parents pass away. While considering such a situation and choosing a Guardian can be difficult and emotional, the process of preparing a Will does not have to be. We can assist you with drafting comprehensive guardianship clauses and support you to make the best decisions for your family. Contact us today for a no-obligation discussion and ensure your children are set up for the future.

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Stages of taxation

After the death of the Deceased, the State Revenue Office (SRO) allows a three-year period for the Estate to be administered. During this phase (the ‘concessionary period’), when the Executors of the Estate are ‘calling in’ the assets of the Deceased and placing relevant assets in the DTT, the normal land tax regime applies to the Deceased Estate. This means that the Deceased’s Principal Place of Residence (PPR) is exempt from land tax, as it would be for a living person, and any additional properties are taxed at the ordinary land tax rate.

Once the three year period has expired (or once the administration of the Estate has been completed and the Trust has ‘kicked in’), the Trustee of the DTT is deemed as the ‘owner’ of the land for land tax purposes. Additional properties therefore attract land tax, which is calculated at a surcharge rate. Such land tax will be a Trust expense to be paid each financial year by the Trustee with pre-distribution funds and not an expense to be borne by beneficiaries. Please note that some exceptions may apply for property acquired by a DTT pre-2006; however, these will not apply to clients who are making their Wills now.

Can I avoid paying a surcharge on Trust properties?

For land acquired by a DTT from 2006 onwards, the only way to avoid attracting the surcharge rate of land tax is if a beneficiary is using a Trust property as their PPR. The Trustee needs to make a nomination of that beneficiary to the State Revenue Office for that year and as a consequence the beneficiary will not pay any land tax on the PPR. The Trustee will still pay land tax on that property but at ordinary rates. A PPR may be an attractive option for Trustees to reduce the tax burden on the Trust, but the decision to nominate a PPR beneficiary will also depend on other factors, including:

• The beneficiary must be genuinely occupying the property as their PPR. This may reduce a stream of income for the DTT which the renting out of the property would otherwise generate. Accordingly the Trustee must consider whether the land tax benefit of the PPR beneficiary nomination outweighs the benefit of using the property as a Trust investment.
• If there are multiple beneficiaries of a Trust, allowing one beneficiary to occupy a Trust property as a PPR may confer a disproportionate benefit to them over other beneficiaries.
• If a Trust property is nominated as a beneficiary’s PPR, and that beneficiary subsequently becomes embroiled in family law proceedings, such property may be taken into account as a ‘financial resource’ of the beneficiary. Whilst the Family Court cannot ‘reach into’ the Trust to transfer that property to a former spouse as part of the property settlement, the Court may decide to grant fewer assets to the beneficiary in occupation of the property as they would have that PPR to ‘fall back on’.

A complete exemption to land tax only applies for specific types of Trust, such as a life interest in a PPR, and not to a DTT broadly.

Ultimately, the benefits of a DTT are ample and it will be an effective structure for many clients. Land tax is but one factor to take into consideration when determining the best structure for your Will. If you are considering a Will with a DTT, or you don’t know where to start with your Estate Planning, contact our team today to arrange a no-obligation appointment. Our experienced solicitors can guide you through the Estate Planning process including advising you on taxation issues.

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