Discretionary Trusts – What You Need To Know
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Fundamental to any family law property settlement is identifying and valuing the asset pool between the parties.
What if assets such as a family business are held in a discretionary trust? This is what you need to know.
What is a discretionary trust?
Discretionary trusts are legal structures commonly used by family businesses to enable profits to be distributed to beneficiaries to reduce tax payable on that income.
Key features include:
- A trust deed which will set out amongst other things the name of the trustee, the beneficiaries and the appointor.
- The appointor controlling the trust in having the power to appoint and remove the trustee.
- The property of the trust not being owned by one or both of the parties to the marriage or relationship but owned by the trust itself, being a separate entity.
Are discretionary trust assets property of your marriage or relationship?
The key issue is who controls the trust.
Step 1 is to look at the trust deed. It will set out details such as:
- Who is the trustee.
- Who are the beneficiaries.
- Who is the appointor (the person who has power to appoint and remove the trustee).
- The powers of the trustee and appointor.
- Particulars in relation to distribution of trust income and capital and power to vary the trust deed.
Step 2 is to look at how the trust has operated in examining the financial statements, tax returns and beneficiary distribution resolutions.
On completion of Steps 1 & 2 it should be possible to identify who has effective control of the trust which is generally always the appointor of the trust who has power to remove the trustee at any time and appoint a new one. If you or your ex-spouse or partner has that power of appointment, the court may:
- (a) Treat the property of the trust as property of your marriage or relationship and make orders for the division of it and all non-trust property between both of you.
- (b) Alternatively make a finding that the property owned by the trust is a financial resource of the party who controls the trust and not include the property in the asset pool. Rather, it would divide the non-trust property, taking account of the fact that one of the parties has a financial resource being the property of the trust. The upshot is the party who controls the trust in retaining the trust property as a financial resource would generally get less of the non-trust property than they would otherwise get if the trust property did not exist.
What can I do if I believe control of the trust with someone other than my ex-spouse or partner is a sham?
There are cases where ex-spouses or partners have deliberately ceded control of a trust to a third party such as a close friend, parent or sibling whilst in effect maintaining control of the trust.
The court has power to deprive that third party of the right to control the trust if its satisfied the trust:
- Is in reality the alter ego of your ex-spouse or partner.
- Is controlled by a third party who is merely a puppet of your ex-spouse or partner who has de facto control.
Get family law discretionary trust advice now
Our family law lawyers can help you by:
- Providing advice on getting a prompt, fair, cost-effective property settlement without going to court.
- Assisting to properly assess your legal position regarding any discretionary trust.
- Represent you in any property settlement court proceedings.
Galbally & O’Bryan are family law lawyers with substantial experience in family law property settlement cases.
Partner Andrew O’Bryan and Senior Associate Carl Wilson are expert family lawyers and can offer free phone/ first consultation advice.
We have offices at Melbourne, Dandenong and Pakenham.
How to contact our family law lawyers
Andrew O'Bryan
Galbally & O'Bryan Lawyers
259 William Street
MELBOURNE VIC 3000
T (03) 9200 2533 I M 0400 469 704
E aobryan@galballyobryan.com.au
Carl Wilson
Galbally & O'Bryan Lawyers
259 William Street
MELBOURNE VIC 3000
T (03) 9200 2533
E cwilson@galballyobryan.com.au
Our offices
Melbourne Office
259 William Street
MELBOURNE VIC 3000
T (03) 9200 2533
E enquiries@galballyobryan.com.au
Dandenong Office
Shop 9/147-151 Foster Street
DANDENONG VIC 3175
T (03) 9769 2510
E dandenong@galballyobryan.com.au
Pakenham Office
Shop 1, 15 John Street
PAKENHAM VIC 3810
T (03) 5941 7990
E pakenham@galballyobryan.com.au