SUPERIOR ADVICE AND ASSISTANCE FOR LEGAL CLIENTS IN MELBOURNE
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Behan Legal advises and assists on these important issues. For an appointment, call 03 9646 0344
IS YOUR FAMILY TRUST SAFE?
The Federal Court case of Richstar Enterprises v Carey confirms our established views and practice of not using beneficiaries as the appointors of trusts. The Federal Court decided that a beneficiary who has the power to control or appoint a trustee has an interest in the property of the trust. This finding has serious consequences for anyone seeking to protect assets or their interest in a trust.
The general rule has been that a beneficiary of a discretionary trust does not have an equitable interest in the trust income or property of the trust. This is because a beneficiary of a discretionary trust holds a mere “expectancy” which is not sufficient to constitute property.
The Federal Court was able to distinguish this case from the general rule because the beneficiary effectively controlled the trustee, so that there is something, which is akin to a proprietary interest in the beneficiary. The arrangements, which gave rise to the exception to the general rule, are:
‘the class of discretionary trusts in which, because the trustee is effectively the alter ego of the relevant beneficiary or otherwise subject to his or its effective control, the beneficiary has at least a contingent interest within the meaning of that term as used in the definition of ‘property’ in Section 9 Corporations Act 2001.’
‘The beneficiary who effectively controls the trustee’s power of selection because he is the trustee or one of them and/or has the power to appoint a new trustee has something approaching...ownership of the trust property.’
Clients who have adopted our practice of not using beneficiaries as appointors need do nothing.
However, for those who are appointors in their trusts, they must seriously consider revising the trust and who should be the appointor. The use of independent appointors is a necessary course of action.