“Or nominee” clauses in contracts

It is not uncommon for a prospective purchaser of a property to ask that the purchaser be shown as e.g.., John Brown or nominee. This is not uncommon in real estate auction situations. There are problems that can flow from such wording and these problems can affect the rights of both the purchaser and the vendor.

It has been held in a recent Victorian case that similar wording creates a situation where the nominated purchaser will have no contractual rights against the vendor in respect of issues arising under the Contract. Similarly the vendor will have no rights against the end nominated purchaser. Further, the vendor’s rights against the purchaser named on the original Contract can be clouded because of the nomination provision.

In New South Wales, a nomination by one purchaser in favour of another purchaser will normally attract additional stamp duty, i.e., stamp duty is paid in full both by the purchaser named on the Contract, and by the purchaser who is nominated and eventually purchases the property.

In order to avoid the impact of double stamp duty, the purchaser when entering into a Contract should ensure that the correct name is shown on the Contract. If there is the likelihood that another person or company will be the ultimate purchaser, the Contract should contain a properly drafted novation clause which will ensure that the rights and obligations of the respective parties under the Contract will be maintained. Double stamp duty will still be incurred but at least the contractual rights and obligations of the respective parties will be clear.

In certain circumstances, stamp duty paid by the original purchaser may be refunded but the rules are complex.

Novation clauses and the associated stamp duty issues are complex. The advice of a competent lawyer should always be sought.

Tax losses and CGT

Most taxpayers would be aware that capital losses can be offset against subsequent capital gains when calculating CGT liability.

However an important point to be aware of is that capital losses of an individual taxpayer are lost on that taxpayer’s death.

The effect of this is that the taxpayer’s estate, when it sells an investment property and makes a capital gain will not be entitled to offset the taxpayer’s previous capital losses.

People giving advice in relation to estate planning need to be conscious of this at all times. Where a taxpayer has significant tax losses, achieving the best tax effective result will be for the taxpayer to sell the income producing property while he or she is still alive, and reduce the capital gains tax by using up the available capital losses.

Entitlements to see a Will

The Succession Act now makes it clear that persons within specific categories are entitled to inspect or be given a copy of a deceased person’s Will. No longer is it left to the discretion of the executor or the estate solicitor as to who sees the Will.

If you fall within one of the categories listed below, then you are entitled to inspect or receive a copy of the last Will of a deceased person and earlier Wills where they are available. This is done at the expense of the person seeking to see or have a copy of the Will, so the estate solicitor is entitled to charge you a reasonable fee for attending to your request.

A solicitor or other person holding the Will cannot refuse your request. A solicitor doing so would likely face disciplinary action.
The categories are :-

  • any person named or referred to in the Will whether as a beneficiary or not;
  • any person named or referred to in an earlier Will as a beneficiary;
  • the surviving spouse, defacto partner (including same sex) or children of the deceased;
  • a parent or guardian of the deceased;
  • any person who would be entitled to a share in the estate if the deceased had not left a Will and including a parent or guardian of any minor who would have been entitled to a share had the deceased not left a Will;
  • any person who may have a lawful claim against the estate of the deceased, including creditors;
  • any person managing the affairs of the deceased under the NSW Trustee & Guardian Act 2009;
  • any attorney under an enduring power of attorney made by the deceased.

Wills and testamentary capacity

Many court cases relating to Wills centre around the capacity of the deceased person. A person is said to lack testamentary capacity if they do not understand or comprehend what they are doing. In those circumstances that person is incapable of making or changing a Will.

An experienced solicitor, when confronted with a situation where there is doubt about a client’s testamentary capacity, will normally interview the client alone and go through a series of question designed to determine whether or not the person does have sufficient understanding to make or change a Will. Some times the advice of a medical practitioner will be sought to further add to the evidence of the person’s testamentary capacity.

The same procedure is normally adopted where the person wants to make a power of attorney or to appoint an enduring guardian.

In the case of Wills, the Supreme Court does have power to authorise the making of a Will by a person who lacks testamentary capacity. If a Court order is made, the Will is signed by the Registrar of the Court. This is a very complex procedure and rarely used.

If there is any doubt about whether a person lacks the testamentary capacity to make or change a Will, it is wise to seek competent legal advice. By doing so, protracted and expensive litigation after the person dies can sometimes be avoided.

Guarantees and deceased estates

It is not uncommon for parents to guarantee loans for children. Unfortunately doing so can have very serious consequences where a person dies and the liability under the guarantee has not been discharged.

If a husband and wife both have given the guarantee, then the survivor will remain liable. However the estate of the deceased guarantor will also be liable under the guarantee.
A liability of this nature is known as a “contingent liability”. In other words, the guarantor does not have to pay what is guaranteed unless and until there is a breach of the loan by the borrower. If that happens then the liability under the guarantee is crystallised and the liability must be paid by the guarantor.

The estate of the deceased person remains potentially liable under the guarantee until such time as the estate is released from that potential liability, or the loan is repaid. It is often not easy to obtain a release of a guarantee and this means that there can be extensive delays in finalising a deceased person’s estate.

When making Wills decisions have to be made in relation to any guarantees that are in place. Sometimes these can be difficult decisions, e.g., how does the person want the guarantee dealt with in their Will, bearing in mind that the actual liability and will only arise at some time in the future if and when there is a default under the loan.
The existence of guarantees are yet another reason why it is important, when making a Will, to obtain sound legal advice.