How does the court treat family trusts?
In 1981 the High Court of Australia considered the treatment of trust in the case of Ascot Investments Pty Ltd v Harper.
- The Court said quite clearly that the broad definition of discretionary trusts does not mean automatically that the assets of the discretionary trusts will be considered as property and form part of the asset pool for distribution on the division of property between the parties to the relationship.
- The Court must consider the genuine interests of third parties who may have an entitlement as a potential beneficiary under the trust.
Subsequent case law has looked at the situation and determined that whether a trust is property will depend on the facts and circumstances of each particular case including the terms of the relevant trust deed.
Take the situation of a husband making decisions that means he can direct payments to be made to himself. Is this valid?
Questions to be answered in order to work this out:
- Is the trust controlled by the husband
- Does the husband have the sole power of appointment of the trustee
- Is the husband a beneficiary under the trust
Take for example the facts of the 2019 case of Ingles and Ingles and Ors where the husband and his sister held positions in a trust involving their roles as trustees and appointers and beneficiaries.
The evidence before the court demonstrated that:
- The husband and his sister complemented each other in the administration of the trust.
- They had been advised by their financial advisors to conduct their commercial activities and enterprises via the discretionary trust.
- They considered their separate interests to be equal.
- They had always drawn down on trust funds and received distributions equally.
What did this mean in terms of treatment of the property controlled by the trust?
- The Court determined that a quasi partnership existed between the husband and his sister in the administration of the assets of the trust.
- The property of the trust was in effect the property of the husband and his sister equally.
- One half of the property was “owned” by the husband and therefore included in the balance sheet between the husband and the wife in the family law division of assets.