fbpx

Family Trusts In Family Law

FAMILY TRUSTS IN FAMILY LAW: HOW EFFECTIVE ARE THEY?

This line is a common misconception that we hear in family law all the time. While there certainly are some instances where assets owned by a family trust are shielded from being divided between parties to a family law property settlement, there are several factors that inform the Court whether the assets held by a family trust are to be excluded from being counted as assets of the relationship or not.

Best property settlement lawyer

Most importantly, the Court will look to:

  • What kind of Trust structure has been established?
  • Who can control the assets of the Trust?
  • Who are the beneficiaries of the Trust?

FAMILY TRUST STRUCTURE

Generally, in Australia family trusts are structured as “discretionary trusts”. Other types of Trusts include Family Lineage Trusts, Unit Trusts, and Testamentary Trusts.

The key characteristic of a discretionary trust is that the Trustee is empowered to decide whether any of the beneficiaries of the Trust receive distributions of any income generated by the Trust assets, or part of the assets held by the Trust, and when any distribution should occur.

In practice, this can mean that there is no certainty or guarantee regarding when a beneficiary will receive any income or assets of the Family Trust, or whether the beneficiaries will receive anything at all.

CONTROL OF THE TRUST

It is important to note that “control” has been defined by the Court to extend beyond merely who is named as Trustee. Examples of circumstances where the Court has determined that a person other than the person appointed as Trustee of the Trust include:

  • Where the Trust was created post separation and assets were transferred from one party of the relationship’s name to the Trust;
  • Where there is evidence that the Trustee has acted upon directions from a party of the relationship;
  • Where one party of the relationship acts as the “Appointor” to remove a Trustee from their position and appoint a new Trustee in their stead.

The above circumstances are referred to as “ostensible” control, meaning who appears to have control of the Trust.

If the Court determines that one party of the relationship in a property settlement proceeding does have control of the Trust, there have been instances where the entirety of the assets held by the Trustee have been included as assets of the relationship and orders made for distribution of those assets from the Trustee to either party.

BENEFICIARIES OF THE TRUST

Irrespective of whether the Court determines one party of the relationship are in control of a Family Trust or not, the Court will need to look at what benefit that party holds in the assets held by the Trustee.

A “beneficiary” is the person named in the Trust Deed that is entitled to receive either income or assets that are generated or owned by the Trustee. In some cases, where the beneficiaries are not named individually, but rather as a group or class of beneficiaries.

In circumstances where one party of a relationship is a beneficiary of a family trust but does not have control over the distribution of the assets, it is unlikely that any order will be made affecting the assets held by that Trust. This is because a beneficiary of a discretionary trust is not guaranteed to receive any income or assets from the Trust.

In some circumstances, where regular distributions have been made by the Trustee of a discretionary trust to beneficiaries over an extended period of time, the Court may be persuaded to count that distribution as a financial resource available to that party when considering what distribution of the parties’ assets should be made. This will entitle the other party to a percentage adjustment in their favour of the remaining assets of the parties, while the assets of the Trust will remain undisturbed.

Related Articles: What do I have to do before I can go to Court to resolve my financial matters? Property Settlements – for both married and de facto relationships, 4 Actionable Tips to Help You Through Your Divorce, The Difference Between A Will & Estate Planning

If you require any assistance or advice in relation to your property settlement matter involving family trusts, contact us on (07) 5591 2222 or by email at info@mcglegal.com.au to book a free initial consultation with one of our family law experts so that you can get the right advice on how that family trust will be treated.

Contact Us

About Us

We are an experienced law firm in Gold Coast providing you with the best legal advice in the areas of Family Law, Conveyancing, Personal Injury, Commercial Law, Estate Planning and Traffic Law. Get in touch with us for a free initial consultation