Case Note: Inclusion of Trusts in Property Pool

Summary of Facts: assets were left to the husband in a will through the form of a family trust and also to his sister in a similar trust, when separating the wife sought that funds that were undistributed from the family trust be included in the property pool and that the funds in the sister's trust should form part of the property pool

Bernard & Bernard [2019] FamCA 421

While this case has some complicated structures including multiple trusts and business, the relevant points are that upon the death of the husband's father, he created two trusts (one for his daughter and one for his son) to hold his assets. Upon separation, the wife contended that there were funds that had been undistributed in the trust to her husband which should have been distributed to him and would then form part of the property pool. She also submitted that the assets in the other trust (the sister's trust) should form part of the property pool.

Firstly, the court considered the resolutions of the trust and determined that the trusts were entitled to withhold distribution of funds to the husband for future projects. It was determined that those funds did not form part of the property pool.

The court then considered the structure of the trusts. The trust of the husband and sister mirrored each other and regularly conducted business together through a company where they were partners. In the husband's trust, he is the trustee and appointer with several family members as beneficiaries. In the sister's trust, she is the trustee and appointer with several family members (including the husband) as beneficiaries. The wife claimed that they had control over each other's trusts and therefore both should form part of the property pool.

The court referred to the matter of Stephens & Stephens and quoted "control in not sufficient of itself. What is required is control over a person or entity who, by reasons of the powers contained in the trust deed, can obtain or affect the obtaining of a beneficial interest in the the property of the trust'. The court looked at the trust deeds and determined that the husband and sister had no power of each other's trusts through that. He looked at their actions and decided that they were acting as partners in a company and never dealt with each other's assets in the trust.

The court decided that the husband only had access to assets as a beneficiary of his sister's trust although she was in total control of the distribution. She has always acted in accordance with the trust deed and distributed funds to all beneficiaries. As to the trust where he was the trustee and appointer, he did not have control as he has never acted against the trust deed and as always distributed funds appropriately.

Take note: the making of trusts is an extremely complicated matter when it comes to their consideration under family law property settlement, the court looks at many factors, including the trust deed and the way persons have acted in the past, to decide whether they form part of the property pool.

This information does not constitute legal advice. You should consult with a lawyer to obtain independent legal advice relevant to your situation.

If you are considering setting up a trust to protect your assets or are involved in a separation involving trusts, it is crucial that you obtain comprehensive legal advice about your options and the law. We are experienced in dealing with complex property settlement matters.