Trust assets and the Family Court

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  • 1. Trust assets and the Family Court How has the dust settled after Kennon v Spry Matthew Burgess Partner 18 March 2013
  • 2. Overview ■ Basis of protection ■ Kennon v Spry ■ Family Law Act ■ Cases since Spry ■ Practical implications #22466521 2
  • 3. Specific themes ■ Assets v Resources ■ Resources v The vibe ■ Intergenerational issues ■ Structuring and estate planning #22466521 3
  • 4. Presentation ■ Paper references □ Protecting the Family Assets (Trusts and Divorce) by Arlene MacDonald (2010) □ Trust – A Brave New World (Trust and Asset Protection Best Practice) by Ken Schurgott (2011) ■ Fantastic related sources ■ Practically focused ■ Interactive #22466521 4
  • 5. Background ■ Trusts mean change ■ Matrix ■ Tax, Duty, Bankruptcy, Succession, Equity, Partnership ■ Family v Spouse #22466521 5
  • 6. #22466521 6
  • 7. Basis of protection ■ Structuring 101 ■ Richstar ■ McPhail v Doulton ■ DIY #22466521 7
  • 8. Example #22466521 8
  • 9. Kennon v Spry ■ Facts are important ■ Perceptions also key ■ Initial reactions ■ Pragmatic view ■ Post Script #22466521 9
  • 10. #22466521 10
  • 11. Kennon v Spry timeline Established trust 1968 Married 1978 Removed Dr Spry as beneficiary 1983 Removed Mrs Spry as beneficiary Separated 1998 2001 Split trust 2002 #22466521 11
  • 12. Kennon v Spry ■ The trust property was the property of the parties to the marriage ■ The order of the family court to ‘do all things’ included making a trust distribution ■ Only extension of law is the definition of ‘property’ ■ Family Law Act supports argument that ‘property includes assets that a party to the marriage may be ultimately entitled to’ #22466521 12
  • 13. Family Law Act 1975 ■ Section 79 is key ■ Resource v Property ■ ‘Notional’ pool ■ Setting aside transactions ■ Sham ■ Altering third party ownership #22466521 13
  • 14. #22466521 14
  • 15. Cases since Spry Four themes: ■ Control ■ Purpose ■ Source of assets ■ Testamentary Trusts #22466521 15
  • 16. Example #22466521 16
  • 17. Control – Beeson & Spence    Beeson & Spence is an example of an unsuccessful attempt to quarantine a discretionary trust from a property division After separation, the wife made changes renouncing her power of appointment and removing the husband and wife as eligible beneficiaries The Court set aside these transactions #22466521 17
  • 18. #22466521 18
  • 19. Beeson & Spence ■ By its plain terms, the trust was not established for the sole benefit of the children but for the benefit of the family ■ An unsigned memorandum of wishes prepared around the time of the separation and provided the primary role of the trust was to benefit the parties children was irrelevant ■ The only available finding is that the trust was never created to benefit the children alone but created to benefit the described beneficiaries which initially included the husband and the wife as parents of the specified beneficiaries ■ The assets of the trust were included in the property available for division between the parties #22466521 19
  • 20. Control – Morton v Morton    The trustee company, J Pty Ltd had two ordinary shares, one owned by each of the brothers The brothers were both the directors of the corporate trustee The brothers jointly were the appointors of the Trust #22466521 20
  • 21. #22466521 21
  • 22. Morton v Morton ■ The court held there was a bona fide trust arrangement ■ Insufficient evidence to convince the judge there was sufficient control over the trust assets to follow Spry ■ Interest in the trust treated as a financial resource only ■ Neither brother had control #22466521 22
  • 23. Purpose – Harris v Harris ■ Husband’s mother was the appointor ■ Shareholders of the corporate trustee, X Pty Ltd, were the H’s mother, H’s son and H’s friend ■ Assets of a family trust not included in the matrimonial property ■ H did not control trust ■ Indirect control = puppet situation ■ Was H’s mother his alter ego? ■ Evidence must be provided to support a puppet scenario ■ Shifted focus from history of trust distributions #22466521 23
  • 24. #22466521 24
  • 25. Purpose – Keach & Keach and Ors ■ The husband’s interest in a discretionary trust was not to be included in the asset pool ■ Facts □ H’s father set up 4 trusts – one for each of his children □ F wanted to protect the assets of the trust from any matrimonial breakdown □ H and W lived in a house owned by the trust for many years #22466521 25
  • 26. Keach & Keach and Ors ■ No sham □ High threshold for ‘sham’ □ F’s intention was clear □ F ‘controlled’ the trust □ H had no ownership nor control ■ Court could not include property of a third party unless there was a sham #22466521 26
  • 27. Purpose – Webster v Webster ■ Court was prepared to treat the wife's interest in a discretionary trust (which she controlled) as a financial resource and not the property of the wife, due to the intent to set up the trust for the benefit of the children of the marriage ■ The wife's father set up a discretionary trust ■ Under father’s estate plan, the capital of the trust was to be distributed between the wife on her attaining 40 years and any of her children in such proportions as the trustees then thought fit #22466521 27
  • 28. #22466521 28
  • 29. Source – Pittman v Pittman ■ A discretionary trust with significant property valued in excess of $250 million ■ Established in 1977 ■ The trust deed was amended fixing the entitlements of the nominated beneficiaries (including the husband) to a 25% share each ■ Assets of trust found to be property of the husband #22466521 29
  • 30. TDTs – Ward v Ward ■ Will made post separation ■ TDT set up ■ Husband not a trustee ■ Purpose admitted ■ Not an asset, even though assumed assets would pass to husband #22466521 30
  • 31. #22466521 31
  • 32. TDTs- Lovine v Connor ■ History of TDT and distributions ■ Included as an asset, although wife made no contribution ■ Overall contribution of total pool 75% in husband’s favour ■ That was held insufficient for husband on appeal #22466521 32
  • 33. Practical Implications ■ Structuring still important ■ Early, often ■ Solo approach risky ■ Only constant = change #22466521 33
  • 34. #22466521 34
  • 35. Example #22466521 35
  • 36. Contact Presenter: Matthew Burgess Position: Partner Direct line: 0403 209 977 Email: mburgess@mccullough.com.au Website: www.matthewburgess.com.au #22466521 36