Trusts and Family Law – What is a Trust - When can the assets for Trust be divided?

25/07/2019

It is not uncommon in family proceedings that the Court (either Family Court o the Federal Circuit Court of Australia) is required to consider and make a decision (based on the law) in elation to Trust.  There are different types of Trusts though the most common will likely be a Discretionary Trust. 

The Trust is established by a Trust Deed.   The Trust Deed identifies the type of Trust, the Trustee and the beneficiaries (or class of person who may be beneficiaries). The Trust is used to distribute income and hold assets amongst members of a family who will be named as beneficiaries of the Trust.  The Trust has its own legal identity.

Who Owns the Trust and its Property?

The Trustee of the Trust holds the Property of the Trust.  In the case of a Discretionary Trust the Trustee and Appointer of the Trustee are given rights pursuant to the Deed creating the Trust.  Being a beneficiary of a Trust does not mean that the beneficiary of the Trust owns the property that is registered in the name of the Trust.  The beneficiary of a Discretionary Trust is not entitled to call for the transfer of trust property to his/herself.

The Trust is a separate legal entity and the property of the Trust is separate to the property of parties to the marriage.

The fact that the Trust owns a property and the property is not owned by the parties does not absolutely limit the ability of the Court to deal with property owned by a Trust. 

The question that the Court will ask is whether the Trust or the assets of the Trust come under the definition of property for the purposes of Section 79 of the Family Law Act

Who is in Control of the Trust?

The Trust Deed will set out details which will indicate who controls the Trust.

The Settlor is the person who provided the original Settlement Sum when the Trust was established.

The Appointor is the person or company who has the power to appoint or remove the Trustee(s) and can therefore ultimately control the Trustee. 

The Trustee is the person or company who operates the Trust and at whose discretion payments are made by the Trust. 

The Beneficiaries or classes of beneficiaries are the people or other entities such as companies) that can receive money or assets from the Trust.  The Trustee is usually the person who makes the decisions as to allocation of income or capital from the trust to a beneficiary.

Control of the Trust

The most important position in a Trust is that of the Appointor.  The Appointor has the power to appoint and remove Trustees.  The Trustee administers the Trust and the Trustee decides at his/her discretion which of the beneficiaries, if any, are to receive benefits from the Trust for instance payment of moneys.

It is therefore often the case that the Appointor will be a party to the marriage (or a company controlled by a party to a marriage).  However by reason of the fact that he or she is the Appointor that party has the capacity to keep property in the Trust and attempt to hold it from the jurisdiction of the Court. 

Can the Court Deal with Trust Property?

The Court does have power to go behind the Trust but problems arise where the Appointor might be a third party and not a party to the Family Court proceedings.  This would be the case even if the Appointor has some relationship with one of the parties to the marriage. 

The Court can decide to treat the Trust structure as ineffectual to prevent the Court from making orders relating to the Trust, or trust assets for example, where one of the parties to the marriage is for all intents and purposes really in control of the Trust.  If the Family Court finds that one of the parties is in effective control of the Trust, then the Court can use its powers to make orders so as to effectively treat the property of the Trust as property of the marriage. 

Even if the Court does not decide to regard the Trust as ineffectual and does not distribute Trust property (to the parties) it can still treat the property of the Trust as a financial resource of one of the parties which can affect the division of property held outside the Trust between the parties to the marriage. 

If you involved in Family Court proceedings involving Trust property, please contact Richard Watson Senior Family Law Solicitor or Shereen Da Gloria his Personal Assistant to discuss your concerns and seek the appropriate advice.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 9221 6011.

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