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Answer – 1
An association is a group of two or more people who come together to carry out a common purpose. These groups can be not-for-profit clubs, societies, or organizations. There are mainly two types of associations – incorporated and unincorporated. An association registered under any of the state Associations Acts is known as an incorporated association.
Like corporations, incorporated associations also become separate legal entities with members having limited liability. Hence, the members of such associations cannot be held personally liable for the liabilities or debts of the association (State Government of Victoria, 2022). In case of failure of payment of its obligations, an incorporated association can be wound up, but the members are not liable for such debts.
On the other hand, unincorporated associations cannot act themselves as they do not have their own identity, and so they have to work as per their members. If there is no specific rule of unincorporated association about the liabilities of the members, the latter are only responsible for the amount of subscription of their membership (Mccann 2019, p. 386). It implies that members of an unincorporated association can become personally liable for the contracts such an association enters into with outsiders.
Answer – 2
As per the available information, the association under consideration is an unincorporated association, and nothing specific has been mentioned as to the liability of members about payment of debts. In this case, the liability for the debts incurred by the company due to the stealing of cash by the treasurer is on the players of the basketball club but limited to the amount of subscription of their membership.
If the association under consideration had been an incorporated association, the players of the basketball club would not have been held personally liable for the debts created due to the stealing of funds by the treasurer. The reasons would be the separate legal entity of the club and the limited liability of the members/players.
Answer – 3
The advantages of the incorporated association are mentioned below:
- Power to accept bequests and gifts in wills;
- Power to borrow debt funds or loans;
- Power to own, sell, or purchase property in its name;
- Enjoyment of perpetual succession hence no dependency on the lives of its members;
- Entering into contracts in its name;
- Enjoyment of opening and operating a bank account using the corporate name;
- Power to sue and be sued in its name;
- Power to make an appearance in the court in case of legal suit;
- Power to decide about the investment and of the extra money;
- High chances of getting a government grant.
The disadvantages of the incorporated association are mentioned below:
- Increased expenses and compliances;
- Need for public liability insurance in case of breach.
Answer – 4
There are several business structures that are available in Australia, including companies, trusts, and partnerships.
A Company comes into existence through incorporation, and it has a separate legal entity. The registration under ASIC and compliance of the Corporation Act 2001 is mandatory for the company form of business structure. Companies can be formed as either proprietary or public; public companies are subject to heavy reporting requirements and several operating restrictions (Mccann 2019, pp. 105-106) and must have at least three directors, while private companies have lesser reporting requirements and fewer operating restrictions and can be incorporated with one director.
Trust is another form of business structure. It can be formed for a number of purposes, including holding land or some other property on behalf of the beneficiaries; tax purposes; and avoidance of creditors (Mccann 2019, p. 110).
The partnership is considered the simplest among all forms of business structures. Usually, it comes into existence when the like-minded people think that their business may get benefit from the skills, capital, or sharing of responsibilities of management by each other. This form of business structure is popular, especially in family businesses, wherein a partnership can be formed by an individual with his/her spouse and children for the reduction of tax burden (Mccann 2019, p. 99). The individuals carrying on some profession, such as law firms, medical clinics, accounting firms, software businesses, and others, find partnerships as the most suitable for their business.
Based on the above discussion, it is concluded that Allan Megon should choose company form of business structure for his software business. He can form a company with his 2 teenage sons and his spouse as well, which will help him in reducing the tax burden, providing financial security, and attracting more employees through stock options.
Answer – 5
A testamentary trust is one which is created by a Will. Usually, it is a discretionary trust wherein the trustee is entrusted with the power to decide to whom and to what extent the benefits are to be provided under the trust (Norman Waterhouse Lawyers, 2022). A properly constituted trust must have three certainties: certainty of intention, certainty of subject matter and certainty of object. The parties to trust must have the intention to form a trust; the subject matter of the trust must be clear; and the object underlying trust must be certain.
In the present case, Adam is the trustee of Amy's testamentary trust, and so he can decide which of Amy's grandchildren loved him the most for the purpose of distributing half of the two-thirds of Amy’s antique collection. Hence, Adam can fulfil the terms of Amy's trust.
Answer – 6
As per Australian trust law, a Trustee can be held personally liable for all debts, expenses, and liabilities of the trust. This is due to the fact that a trust is not a separate legal entity, and so it cannot act upon itself, it has to act as per the Trustee (Bigg 2022). Accordingly, all debts, liabilities and expenses incurred by a Trustee while acting as Trustee are personal to that Trustee. As per the provisions of the Trust Act, a Trustee is personally liable for the debts, but he has the indemnity right on the trust assets and so he can use the same for the repayment of debts and liabilities of the trust.
Hence, it can be concluded that Adele will be personally responsible for the payment of outstanding debt of the trust, but he can use the trust assets later for the same by using his indemnity right over the trust assets.
Answer – 7
As per the description provided in the question, it is a ‘discretionary trust’. In such trusts, the trustee has the power of discretion to choose among the beneficiaries and the amount of benefits to be provided to the chosen beneficiaries (Mccann 2019, p. 111). A family trust is an example of such type of trust.
Answer – 8
The description in the question signifies that the information pertains to a 'fixed trust'. Fixed trust is the opposite of 'discretionary trust'; in such trust, the trustee has to follow the instruction of the trustor (Wex Definitions Team 2022) as outlined in the trust deed and cannot decide anything himself. Also, as per the name, the benefits to be provided to the beneficiaries are fixed and provided at fixed intervals as per the trust deed.
Answer – 9
The description in the question depicts that it is a 'unit trust'. Under such trusts, the division of the trust property is made in the form of shares known as units, and the same are to be subscribed by the beneficiaries as the shareholders do in the case of companies (The Quinn Group 2019). Also, the beneficiaries are provided the capital and income of the trust in proportion to the units issued to them.
Answer – 10
The term 'dual ownership' in relation to a trust is defined as the ownership of trust assets by both the trustee and the beneficiaries (Godwin 2021). As the trust does not have its own identity so the trustee gets the legal ownership of the trust property, and at the same time, property has to be distributed to the beneficiaries as they have an equitable ownership of such property.
Answer – 11
Express trusts are usually divided into public express trusts (also called as charitable trusts) and private express trusts. Express trusts are further categorized into discretionary trusts and fixed trusts; executed trusts and executory trusts; bare trusts and special trusts; constituted trusts and incompletely constituted trusts.
The trustee does not have any discretion in case of fixed trust as the interest of each beneficiary is already mentioned in the trust deed while the discretionary the trusts are just opposite of fixed trust as the trustee has the discretion to provide benefits to the beneficiaries.
A testamentary trust is a creator by the will of the testator, and the same becomes effective at the time of his death. The trust created during the lifetime of the grantor is known as a living trust. A revocable trust refers to a living trust which can be terminated anytime by the settlor, while an irrevocable trust is fixed and permanent, and so the terms of such trust cannot be modified.
Answer – 12
As per the given circumstances, ‘Revocable Living Trust’ would be the most beneficial type of express trust for Jennifer’s situation. By this trust, she can allocate appropriate funds in the name of her teenage children, and the same can be helpful for the latter's education and other purposes. Since revocable living trust provides flexibility in modifying the terms of trust, hence Jennifer is free to make variations in the trust fund and the purposes for which such fund is to be used.
Answer – 13
Based on the information provided, three children and husband of Jennifer are the beneficiaries and through the operation of law, a trust can have more than one trustee and a trustee may be one of the several beneficiaries. Hence, trustee of Jennifer’s trust may be anyone out of her husband and three children. The Trustee’s duties (Douglas Cheveralls, 2023) are outlined below:
- Being honest and being unbiased among the beneficiaries;
- Acting in the best interest of the beneficiaries;
- Preservation of the property of the trust;
- Avoidance of using the trust property for making personal profits;
- Providing updated and accurate information to the beneficiaries;
- Acting in person or not acting through a third person.
Answer – 14
Usually access to super as an income stream or lump sum is available to individuals who have reached the preservation age of 65 or are between 55-64 and retired. If an individual falls between the age of 55-64 and is still working, he can get access to super only as an income stream. If an individual is under age 55, he can access his super only in some circumstances (Cancer Council NSW 2021) that are listed below:
- Money is required for medical treatment or transportation costs related to medical treatment of self or dependent;
- Money is required to foreclose the home loan;
- Money is required for making changes to the home due to the disability of self;
- Money is required for the payment of palliative care, burial, cremation, or funeral costs;
- The individual is diagnosed with a terminal illness and has two years or less to live;
- The individual has become permanently disabled;
- The individual is unable to meet living expenses.
In the given case, Tommy is 47 years old and working and is diagnosed with terminal illness and has only six months to live. Hence, he is able to have access to his superannuation.
Answer – 15
A defined benefit fund is a type of plan that was offered to the employees by the bodies of local government or other government authorities before 1994.
The advantages of being a member of defined benefit funds (First Financial 2023) include –
- Guarantee of fixed income for life by the employer based on salary, years of service, and age;
- Investment risk is borne by the employer; and
- No need to worry about the investment of retirement funds.
The disadvantages of being a member of defined benefit funds (First Financial 2023) include –
- Inflexibility of the defined benefit fund;
- No option of exercising control over the retirement funds;
- No option to choose where to invest retirement funds.
Defined benefit funds are becoming increasingly uncommon due to the transferring of risk to the employer from the employee (Field 2021).
Answer – 16
The improvements offered by MySuper on previous default superannuation products are (Mccann 2019, p. 468) listed below:
- It is only made of accumulations;
- Corporate, industry or retail funds can offer MySuper;
- Lower fees and lesser restrictions are associated with MySuper;
- It has simple features allowing the member to choose appropriate services and easy comparison of funds based on cost, performance of investment, and level of coverage of insurance.
Answer – 17
The advantages of SMSF (Hernandez 2020) are listed below:
- The members have full control over the retirement fund, which means the members can invest their money wherever they want;
- SMSF allows faster decision-making;
- SMSF involves lower operating costs.
The disadvantaged of SMSF (Hernandez 2020) are:
- SMSF are more time-consuming;
- They involve financial and legal risks;
- The members of SMSF cannot access the compensation schemes of the government;
- The access of members of SMSF to bodies for the resolution of disputes is also limited.
Answer – 18
The record-keeping obligations of SMSF (STS Accounting Group 2022) include –
- Notifying the changes to funds within 28 days to the ATO;
- Keeping separate and accurate accounting records for all the members;
- Keeping track of the contribution received;
- Keeping track of all the transactions pertaining to investment;
- Keeping record of accounts, statements, SMSF annual returns, payment summaries and rollover statements for five years;
- Keeping a range of trustee documents and forms for 10 years and such documents include - minutes of trustee meetings; records of any changes to fund trustees; trustee declarations and consent; and copies of all member reports.
The reporting requirements of SMSF (Phillips 2022) include –
- Filing of audited annual return;
- Filing of reports on caps of transfer balance;
- Filing of reports on variations in the status of the funds;
- Filing of business activity statements for GST and PAYG withholding and PAYG instalments.
Answer – 19
As per Morrison (2023), the SMSFs have become popular in the recent years due to the following reasons:
- Greater control provided by SMSFs over the savings of superannuation of the individuals;
- The lower cost associated with the establishment of SMSFs;
- Benefits of taxation provided by SMSFs like concessional contributions, exemptions from income tax, exemptions from capital gains tax, and tax offsets for contributions; and
- Pooling of multi-member funds and superannuation balances.
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