How the Family Court views discretionary trusts

In the net value of the property assessed by the trial judge, the discretionary trust which value was agreed at $1, 500, 000.00 was included in the division of the properties of the parties. The net value of $ 4, 269, 180. 00 was divided by the trial judge into 45:55 in favour of the wife.

Aggrieved by the decision of the trial judge, the husband appealed to the Full Family Court. In arguing his case, he presented that his father established the Harris Family Trust in 1978 and his father was the first appointer. And when his father died, his mother succeeded his father as appointer and remained as such up to the present.

He alleged that the beneficiaries of the trust are his parents, himself and his siblings and the “lineal issue” of his father. And the following persons are the directors and shareholders of the trustee company: his mother, his son in the previous marriage and his friend named MB. Given the following circumstances, he has no control of the Trust, and it was not his property.

His wife alleged that the husband has indirect control over the Trust through his mother who acted as “puppet” for his interest.

The Full Family Court, in resolving the issue of whether the discretionary trust is the property of the husband, discussed the case of Kennon vs Spry. It was held in this case, that for the assets of the discretionary trust to be treated as the property of the beneficiary, there must be direct or indirect control of the trust by the beneficiary.

It was ruled that the trust’s assets should be treated as the Husband’s property because he exercised indirect control over it. The assets of the trust were held to form part of the property pool to be divided between the parties.

The Full Court in reviewing the Harris case affirmed the principle of law that a beneficiary of a discretionary trust who does not have direct or indirect control of the same has a right to due consideration and administration of the same.

However, if the beneficiary has no entitlement and may never have an entitlement to the capital or income of the trust, then it is difficult to value and assessed those rights.

In deciding the case of Harris vs Harris, the Full Court overturned the decision of the trial judge. The Trust is not to be considered an asset to the husband and should not be included in the property pool to be divided between the parties.

ASK A QUESTION - IT'S FREE