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Assets of a discretionary trust | A case study

Assets Of A Discretionary Trust | A Case Study

In 2011 there was the case of Harris v Harris. The trial Judge found that the net value of the parties’ assets was $4,269,180. This included the net assets of a discretionary trust valued at $1,500,000, which the trial Judge decided should be regarded as the property of the Husband.

The Husband appealed to the Full Court. One of his grounds of appeal was that the assets of the Trust should not be regarded as his property and therefore should not be included in the parties’ assets.

The background facts
  • Both the Husband and the Wife were employed in a personal service accessories business or related businesses which were operated through the Trust.
  • The Trust had been established by the Husband’s father in 1978.
  • At the time of trial, the Husband’s mother was the Appointor.
  • The Husband was one of the beneficiaries of the Trust.
  • The Trust had a corporate Trustee. The directors of and shareholders in the Trustee were:
    • the Husband’s mother;
    • the Husband’s son from a previous marriage; and
    • a friend of the Husband.
  • The Husband was the manager of the business conducted on behalf of the Trust.
  • There was a history of distributions by the Trust to:
    • the Husband;
    • the Wife;
    • the Husband’s mother;
    • other family members; and
    • a company which was the ‘alter ego’ of the Husband.
The Full Court allowed the appeal

Based on the evidence, they were of the view that the assets of the Trust should not be treated as the assets of the Husband. The following factors were important in coming to this conclusion:

  • the Husband was not the Appointor;
  • the Husband did not hold any position in the Trustee; and
  • there was no evidence to support a finding that the Husband’s mother was the “puppet” of the Husband.

The Full Court was of the view that the Trust was a very significant financial resource for the Husband. They remitted the case for rehearing and the case settled.

If you would like further advice on discretionary trusts and property settlements, please contact us online or call (02) 4929 3995.

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