What is a trust?
A trust is an entity in which certain people are entrusted to hold assets for the benefit of certain people or entities. Various assets can be held on trust, including money, property and businesses. The main parties involved in a trust include:
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The Settlor: This party is responsible for establishing the trust fund. They usually have no interest in the trust and their sole responsibility is to establish the trust fund. The settler usually does not have any other form of control of the trust.
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The Trustee: This party possesses the legal title to the property and has a fiduciary (complete trust) obligation to use their position to the benefit of the beneficiary. The trustee may be an individual or a company.
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The Appointor: This party holds the position of control over the trust. The Appointor is able to control who holds the position of trustee of the trust, and can make changes at anytime.
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The Beneficiary: The beneficiary is an object of the trust. He/she is the party who is entitled to the assets held on trust, and generally possess rights including: the right to possession of the trust property; the right to compel performance of the trustee; and the right to extinguish the trust.
How are trusts considered in property settlement proceedings?
In order for the contents of a trust to be available for claim in a property settlement, either one or both of the parties must have interest in the trust. The level of involvement, control and influence of a party to a trust determines its interest.
Generally, if a party to a property settlement is a trustee or beneficiary to the trust, the contents of the trust will be counted as property of the party and can be considered in a property settlement. If neither party is a trustee or beneficiary to a trust, then generally, the property is inaccessible buy the other party.
A discretionary trust (one in which the trustee has the discretion to decide which beneficiaries are entitled to what property), is not a separate legal entity to the spouses, and so is able to be included in the asset pool of a property settlement. The main reason for this is if (for example) the husband is the trustee of a discretionary trust, he has the power to appoint himself as a beneficiary.
What if the trust was established prior to the breakdown of a marriage?
Section 106B of the Family Law Act 1975 (Cth) states that:
In proceedings under this Act, the court may set aside or restrain the making of an instrument or disposition by or on behalf of, or by direction or in the interest of, a party, which is made or proposed to be made to defeat an existing or anticipated order in those proceedings or which, irrespective of intention, is likely to defeat any such order.
With regards to this section, a disposition includes a trust. This section indicates that if a trust is established to manage property in anticipation of a divorce or any other event which may threaten the assets of an individual or company, the court can overrule the trust and the assets of the trust will be available for the other party to claim as assets in the asset pool.
Also, any changes to the structure of the trust may be reversed. For example, in the case of Kennon v Spry, the husband had all his property in trust and held himself and his wife as capital beneficiaries. A couple of years later, he removed the titles of beneficiary held by his wife and himself and transferred the assets into a separate trust for his children, however, he remained as trustee. Upon the breakdown of the marriage, the wife was entitled to the assets within the trust as the original dispositions were set aside. She was initially a capital beneficiary and she relied on section 106B. Also, the husband owed a fiduciary duty as trustee to his wife. He was in the position to determine when power would be exercised as, at any point during the marriage, he could have appointed the entire trust to his wife.
How can Prime Lawyers help you?
At Prime Lawyers we have specialist Family lawyers with extensive experience in representing clients who require a family law property settlement, especially in matters involving trusts. Our lawyers will assist you to understand any rights owed to you in relation to a trust, and ensure that the best possible outcome is achieved for you.