Equityprotect
Equityprotect - ASSET PROTECTION ALERT, If You Have a Family Trust,
”High Court of Australia decision in Kennon –v- Spry sends shockwaves through the Family Trust Community.”
Most people in Australia will have heard that the Family Court is often the most powerful court in the land when it comes to going behind documents and transactions. The recent case of Kennon –v- Spry is another eye opener in this respect.
Now before you say, I have a stable marriage so I don’t need to worry about this matter, or maybe you aren’t even currently married, please note that the Family Court is still a court. This means that its’ reasoning on matters of law can, and do get considered, in general law jurisdictions, Especially when they have been upheld by the High Court of Australia. Which means, please take a moment out of your life to read this article because it may very well be very important to your financial affairs.
Without boring you to tears with legal discussion, the case of Kennon –v- Spry dealt with whether assets held in a discretionary family trust were under the “control” of the trustee, and if so could they be classed as “property” for the purposes of the matrimonial property settlement. Dr. Spry was the trustee of the trust and also retained a power of variation of the trust.
Over a number of years he removed himself from being a beneficiary on two occasions, (as well as his wife on the latter occasion- which was a time of matrimonial difficulty), and then he later directed as trustee, that all capital and income of the trust be transferred equally to separate trusts for the benefit of the children. Whilst this last event sounds very noble the wife didn’t like the idea and applied to the Family Court for property settlement and maintenance.
The High Court correctly accepted that Dr. Spry had excluded himself as a beneficiary under the trust, but, because of three things the High Court held that the trust assets were “property of the marriage.”
Firstly, Dr. Spry held the legal title to the assets as trustee. Secondly, Dr. Spry had the ability if he chose to do so to appoint the whole fund to the wife by virtue of his ability to be able to vary the trust. Thirdly, the wife had an equitable right to be considered [equity is like the conscience of the law.].
What lawyer’s have been keeping a wary eye out for is the widening of the view from the Richstar case where his honour French CJ, in the Federal Court said,
“. . .a beneficiary who effectively controls a trustee of a discretionary trust
may have what approaches a general power and a proprietary interest in
the income and [assets] of the trust.”
The result being that the court will just overturn the trust saying it is effectively your alter ego. This may entail a huge tax back audit and the re-assessment of your financial affairs. OUCH!
Now whilst the lawyers are analyzing the correctness or otherwise of the application of the law in Kennon –v- Spry, and how it will or will not expand out into the tax law world the moral to the story for anyone who has a discretionary family trust is very clear and very simple. . . .
• Carefully consider who is the trustee of your discretionary family trust/s? It may be very wise to have more than one trustee, and to have as one of the trustees a party who is a non-family trusted advisor to monitor the objectives of the trust;
• Carefully consider who is the appointor/principal and has the right to vary the trust? Again it may be very wise to have more than one appointor/principal, and to have as one of the appointors/principals a party who is a non-family trusted advisor to monitor the objectives of the trust;
• If your documents don’t comply then make an appointment to see your trusted advisor to get them altered. . . . or even better see me. My contact details are below.
And please remember the Equityprotect Prophylactic Paradigm. . . . ,
“Prevention IS better than cure in the real world, AND PREVENTION IS OFTEN VERY MUCH CHEAPER”.
Shane Ellis is a Senior Consulting Lawyer and the owner of Equityprotect Australia, a Legal Group providing you with the best and most affordable Business & Asset Protection Structures so that if the unexpected should happen, the legacy you have worked so hard to build for your family will be protected.
shane@shane-ellis.com
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