Tara (00:51):
Hi, it's Tara here, and thank you for tuning in to another episode of the Art of Estate Planning Podcast. In today's episode, I want to kick off a series that I have been working on behind the scenes.
(01:07):
So this series is all about case law, dealing with family trusts and testamentary trusts, and how much protection those trusts offer in family law proceedings. So I've been working on this for a few months now. I am delivering a presentation for the Family Law and Estate Planning Disrupting Tradition Conference by the Family Law Education Network in Sydney in March 2026. And I have had to, as a result of that presentation, deep dive through all of the cases which have considered testamentary trusts and family trusts in family court. I had actually prepared a big paper on this back in 2013, which I can't believe how long ago that actually is looking through the Cannon & Spry decision, which is the subject of today's episode and the cases following Cannon and Spry. And you know what? It is time to update that research. 13 years later, we have had a lot of cases coming through.
(02:18):
The relationship breakdowns keep rolling on in, and as a result, we keep getting family court judgments. Obviously, I think the big disclaimer around all of this is we only can learn from the cases that actually go to court. And there will be so many where family court trusts and testamentary trusts are being negotiated and those matters are settled and the outcome kept private and we don't know. So we can really only infer the principles from the cases which actually go to court. So as you'll see, we're dealing with some pretty high value families and sometimes controversial facts, but it's still helpful nonetheless. So I have put together a series of case notes for this presentation, but I've only got 40 minutes to do it justice. And what I was hoping to do, I hope you will indulge me, is actually spend more time in this podcast series, taking our time going through the cases because there's a lot to cover.
(03:29):
There's a fair bit of nuance around them, and it's really hard to do in 40 minutes. So for people who are interested in a deeper dive, this little podcast series is for you. So where I wanted to start today is almost where it first began the Kenan and Spry decision. So I'll put a link to the citation in the case notes, but if you have ever looked at anything to do with family law and trust protection, then you will have heard of Kenan and Spry. It is the preeminent decision. It is the high court decision, and so it is pretty much the best authority that we have on this issue, and nearly every single case refers back to it in some way. So it's a decision from 2008, which it's getting on, but it is important to start there because as I said, nearly all the other cases will refer back to it and cite it.
(04:35):
So let's get a good granting of what this case is about. A little bit of context as well. So this is a salacious factual scenario. There's been rumours published about it. The respondent in question is actually a high profile tax and trust law barrister. So it's kind of juicy. If you're interested, Dr. Spry publishes a preeminent text on principles of equitable remedies. The Ninth Edition is still available for purchase. So this is even more interesting because of the people involved, the arguments put forward, and obviously the stake that the respondent had in getting a successful outcome for him where it went all the way to the high court. So this decision was also just considered generally to be quite groundbreaking because it really tested the limits of the family court's powers under Section 79, their trust busting powers, and also the meaning of the phrase property of the parties to the marriage under Section 79.
(06:03):
So if you have a look at Section 79 of the Family Law Act 1975, the family courts do have quite broad powers to make orders altering the interests of the parties to the marriage in relation to the property of the parties to the marriage. So nearly all of these family law cases look at what is property, what does that mean? And does a interest in a family trust or a testamentary trust, basically all kinds of discretionary trusts, can that be deemed to be property of the parties? So the controversial thing here is generally a entitlement in a discretionary trust will always be a financial resource of the parties. Where these cases go to court and they're arguing over it is to make sure that the assets of the trust are not property of the party. So not divisible property that the court can make a order over and say, "Well, one party has to actually transfer the value of those assets or the actual assets of the trust to the other party," particularly if we're thinking of the scenario of an inheritance in a testamentary discretionary trust.
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We don't want, like if I'm thinking about me and I fast forward to 30 years and I've passed away and left an inheritance to one of my sons in a testamentary trust, and then my son goes through a relationship breakdown, I do not want the assets of my inheritance to have to be paid to my daughter-in-law or son-in-law to satisfy a Section 79 family law order. So I would accept that the assets in that trust is a financial resource for my son, but I don't want that asset actually leaving the bloodline and being paid out to that ex- spouse leaving our family unit. So that is what they also explored in the Cannon and Spry decision. And the outcome of the case actually sent ripples through the profession because it really demonstrated how expansive the family court's trustbusting powers are and got people questioning more about really how much protection do trusts offer.
(08:50):
So you might be getting the idea that Dr. Spry was not successful in protecting the assets of the trust, and that was very unsettling at the time. I was a baby lawyer, so there was a lot of CPD and cases and discussions around the outcome of this decision, and it did really sort of unsettle people about how much protection a trust offers. But there's also some pretty crazy facts which might have lent to the outcome. So that's why it's important to start with this decision, but then let's also have a look at the subsequent decisions and how trusts are treated there, and also the principles that we need to factor in. So let's start with the facts. So Dr. Spry is a now retired barrister, as I said. He, and I'll just say Dr. Spry is a respondent and his wife, Helen, was the applicant.
(09:54):
So they were married for 23 years. They had four adult daughters ranging from 28 years to 21 years at the date of the judgement , and they had a total asset pool of nearly $10 million. Of that asset pool, about $4.7 million was held in trust structure. So they really wanted to know, what are we doing with this $4.7 million? Dr. Spry was in control of that. So is that actually just a financial resource of the respondent or was it property of the parties to the marriage and the applicant was entitled to her share of that trust fund assets? There was also some deeds that were prepared and there was a question about should these be set aside. And also because of the changing of the trust arrangements, which trust arrangement do we actually consider? So let's dive into what went on. Okay. So the foundation of the trust, it was established as a discretionary trust in 1968.
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Dr. Spry was the settle law and the trustee, and he also had powers akin to what we would say were a pointer powers. The settle law had powers to vary the deed. Now, you might be looking at this and going, "Huh? How can he be the settle law and a beneficiary and a trustee?" Because that's not allowed as a revocable trust under the tax law. But this was set up in 1968. So I don't know this for certain, but my guess is this was before that rule came in. It was before capital gains tax, so they didn't actually have any consequences. There was also a bit of an odd arrangement because while the trust was set up in 1968, it was set up as an oral arrangement and only documented by deed in 1981 after the respondent and applicant had been married for three years.
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Now, it was accepted by the court that there definitely was a trust from 1968, and this seemed to be like a common practise to get around stamp duty on creation of the trust. So as you can see, Dr. Spry was pretty aggressive in how he managed the trust and tried to sort of navigate the various trust and stamp duty and tax rules. So he was really thinking about how he could optimise the utilisation of this trust. Now, the beneficiaries of the trust were the issue of Dr. Spry's father and their spouses and lineal descendants. So it was actually Dr. Spry's father who was the key beneficiary, and then the beneficiary classes sort of cascaded down with reference to him. The default beneficiaries were all of the male beneficiaries except the settle law. So Dr. Spryer himself, the respondent, was not a default beneficiary. So as you can see, I've got a note here who has always done some tricky shit with respect to this trust.
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So that kind of sets the context. Now, in 1983, so they'd only been married five years. The respondent excluded himself because he's the trustee, so he's got all the variation powers. Also as a settle law, he has that variation power. So he excluded himself as a beneficiary and nominated the applicant, his wife, as the successor trustee, and then his eldest daughter to be her backup if she couldn't act. So we've got a succession plan in place and he excluded himself as a beneficiary. Five years later in 1998, so at this point, there seemed to be some evidence that the relationship was getting a little bit rocky. They didn't actually separate till 2001, but the respondent, Dr. Spry, varied the deed to again, exclude himself, but also the applicant as capital beneficiary. So he was no longer a beneficiary at all. His wife, the applicant, was still an income beneficiary.
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He then changed his successor trustee to be his eldest two daughters instead of the applicant, and also varied the deed so that he had to consent to all income and capital distributions once he stopped being a trustee. Another variation in 2002, so January 2002. So this was two months after their separation. He set up four identical trusts, one for each of his daughters, which collectively are referred to in the judgement as the children's trusts. And he actually distributed a quarter of the initial trust, the ICF Spry Trust, capital and income, to those four trusts. So these assets in 2008 at the time of the judgement ended up being worth about $4.7 million. So the original trust, the ICF Spry Trust was left with no assets, and instead those assets were held in four separate identical trusts, one sort of earmarked for each of his daughters called the Children's Trust.
(15:40):
He remained the sole trustee of the ICF Spry Trust and also put himself as the sole trustee of each of the children's trust. His wife was the backup trustee, and then his eldest daughter, once she turned 32. He also gave the appointal powers to himself and his eldest daughter, and excluded himself as a beneficiary of those trusts. In May 2002, so like five months later, he added Mr. Edwin Kennon as joint trustee of the children's trust. So I don't actually know the relationship there. So he was no longer the joint trustee, and then he changed it so that the eldest daughter would become the replacement trustee at age 25, not 32. So she was like early 20s at that point. So the issues, as I mentioned, which trusts are we talking about here? Which trust are we ruling over? Is it the children's trust or the original ICF spry trust?
(16:51):
Those deck chairs have really been rearranged. The waters have been muddied. It's kind of hard to work out what we're even talking about. Should those actions in 1998 and 2002, in terms of varying the beneficiaries and distributing the assets to the children's trusts be set aside under section 106B of the Family Law Act. And ultimately, all of this is to determine, is the $4.7 million property pool held in the children's trust, formally held in the ICF Spry Trust, property of the parties to the marriage under Section 79 of the Family Law Act. So let's have a look at what the outcome was. To spoil the ending, they held that we unwind the deeds of variation and the creation of the children's trusts, so those transactions are set aside or deemed to have never happened, and analysis as to the control of the ICF Spry Trust is what needs to be done.
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And looking at those circumstances and the facts, the assets in the ICF Spry Trust was property of the party. So that's what the majority of the high court held. So Dr. Spry lost his desired outcome and he was ordered to pay several million dollars to the applicant from the assets of the trust. And it got very messy. I don't think that those funds were even there anymore, so we had to find a way to fund it. And I also, before we, I guess, dive into exactly what the high court said, there's rumours published on the internet under the Justinian website that Dr. Spry's oldest daughter deposed in an affidavit at a dinner that he had basically cashed out the assets in the children's trusts and that he would offer the applicant $400,000. And if she didn't accept it, then the assets, the cash would disappear.
(19:01):
I think she sort of rumoured that he would even just burn it. So yeah, that his threat to burn the cash is hardly consistent with a person who is cognizant of the duties and obligations of a trustee. So some pretty outrageous circumstances. He also wrote letters after the judgement . I think he might've written some to the court while the judgement was going on, but there's certainly letters that he wrote to particular judges of the court after the judgement criticising their decision that have been circulated and published on the internet, basically just saying how bad it is. He also in the foreword to the principles of equity remedies. I haven't read it. I don't have that text, but it said that he also criticises the court there as well. So there's just some crazy facts going on as well that we should probably just keep in the back of our mind.
(20:07):
Not that I'm saying that that means the court would've not reached this conclusion, but overall, it's a pretty unusual set of parties and facts. It's Tara jumping in real quick to let you know that this episode is brought to you by our online course, Testamentary Trust: The Essential Guide for Australian Lawyers. Deepen your understanding of testamentary trust with our 10-hour online course. Whether you're starting out, switching specialties or refining your skills, this self-paced course will enhance your confidence and expertise when working with testamentary trusts. It's literally everything that I know about testamentary trusts. We start with the core principles of trust so that you have a solid foundation. Then we add in practical will drafting tips and explanations, step you through popular TT strategies for common client demographics, and we wrap it all up with tips for client communication and marketing. Kick that lingering imposter syndrome to the curb, or if you're an old hand at testamentary trust already, let us train your team so that they too can become testamentary trust pros with our online course, testamentary trusts, the essential guide.
(21:22):
So let's look at the decision. So Chief Justice French sort of led the charge with the main reasons. So a few of the paragraphs that I suggest having look at, paragraph 60, particularly where they say the application of section 79 as a matter of construction to the trust assets was said to be supported by a number of considerations. Among these was the true character of the trust as a vehicle for Dr. And Mrs. Spry and their children. So this is sort of reinforcing the court's power to look beyond the actual paperwork relating to the trust, to the true underlying character and nature of how that trust is utilised for the parties to the marriage. Another paragraph is 65. So Chief Justice French says, "Where property is held under such a trust by a party to a marriage and the property has been acquired by or through the efforts of that party or his or her spouse, whether before or during the marriage, it does not, in my opinion, necessarily lose its character as property of the parties to the marriage because the party has declared a trust of which he or she is a trustee.
(22:45):
And can, under the terms of that trust, give the property away to the other family or extended family members at his or her discretion." And I think this is a very accepted principle now, 18 years later that where there are assets held on a trust between the parties that they themselves created and control, that we just look through the trust arrangement to it actually being their property that they utilise and manage for themselves and their immediate family. So Chief Justice French goes on at paragraph 66. "For so long as Dr. Spry retained the legal title to the trust fund, coupled with the power to appoint the whole of the fund to his wife and her equitable right, it remained, in my opinion, property of the parties to the marriage for the purposes of the power confirmed on the family court by Section 79. The assets would have been unarguably property of the marriage absent subjection to the trust.
(23:54):
"So here they're saying Dr. Spry as retaining the legal title is the controller of the trust. And as the sole controller, he had their power to appoint, so that means the power to make all of the distributions to his wife and their children. So because he was the controller and he had in fact made distributions to his family and they used it as their funds, it's clearly assets of the relationship, property of the parties to the relationship, an exercise of the power under Section 79 requiring the application of the assets of the trust in whole or in part in favour of the applicant would prior to that 1998 instrument have been consistent with the proper exercise of Dr. Spry's powers as trustee and would have involved no breach by him of his duty to the other beneficiaries. In relation to the other beneficiaries and the children's trusts, Chief Justice French also says it's long been accepted that the family court has power to make an order which will indirectly affect the position of the third party.
(25:08):
So they relied on that to basically unwind those actions for giving their capital to the children's trust. Paragraph 70 of the judgement is also helpful, I think, by Chief Justice French. The characterization of the assets of the trust, coupled with Dr. Spry's power to appoint them to his wife and her equitable right to due consideration as property of the parties to the marriage is supported by particular factors. It is supported by his legal title to the assets, the origins of the greater part as property acquired during the marriage, the absence of any equitable interest in them in any other party, the absence of any obligation on his part to apply all or any of the assets to any beneficiary and the contingent character of the interests of those that might be entitled to take upon a default distribution at the distribution date. And then they talk about him not being a beneficiary himself and that Chief Justice French says," Well, the conclusion I've reached is independent of any question whether Dr. Spry could have reinstated himself at any time as a beneficiary of the trust.
(26:25):
"So that has actually become quite important because when you look at the decisions following Kennan and Spry, which we will cover in this series, basically nearly all of the decisions consider about six factors and they want to look at how the trusts measure up with respect to these six factors and balancing all of those considerations, determining whether the trust is enough to be property of the parties to the marriage. So control is one of them. The purpose of the trust, the source of assets, whether the parties to the marriage are beneficiaries and whether they have received distributions, and then also have we got a sham arrangement or something other than what is on paper? Have we got controllers who are actually puppets of others, for instance? So you'll see the emphasis on those factors as we go through the other cases, but I think the origins of that really come from these paragraphs from Chief Justice French's decision.
(27:37):
It's interesting because in my mind we use the phrase alter ego of the party to the marriage, and I would've said black and blue that this alter ego concept was enunciated in the Kennan and Spry decision, but it's actually not present. They don't use that phrase. And it's actually something that the industry and the profession and then sequently some of the decisions have used, but it really, I think, has been an industry term that has been coined to sort of encompass the principles from the Kenan and Spry judgement , which I think it's a really simple way of explaining how the assets in the trust, despite being a separate legal entity, can come within the ambit of the Section 79 powers of the family court. But I did just want to mention that because I sort of think over the years since I've written the other paper in 2013, the origin of that phrase has sort of been muddied in my mind.
(28:44):
So in case that's for you, I thought I just wanted to clear that up. So let's just have a look at a few more points from the decision. I think there's a really nice summary paragraph at paragraph 81 by Chief Justice French, which I'll read out to you. So the assets of the trust, coupled with Dr. Spry's power to appoint them to his wife and her right to due consideration were until the 1998 instrument, the property of the parties to the marriage for the purposes of Section 79. The fact that Dr. Spry removed himself as a beneficiary by the 1983 deed does not affect that conclusion. Because the 1998 instrument effectively disposed of Mrs. Spry's equitable right to be considered in the application of the trust fund, and having regard to the trial judge's conclusions about the purpose of the instrument, the order setting it aside was an appropriate exercise of the family court's power under section 106B.
(29:45):
Mrs. Spry's equitable right could then be considered as part of the property of the parties to the marriage. The setting aside of the 2002 dispositions to the children's trust was also appropriate. The ancillary order that Dr. Spry pay his wife the sum of $2 million was appropriate for the reasons stated by Gummo and Hayne in their joint judgement . I also want to note that there's some commentary about the right of a beneficiary and the value of their right to due consideration and administration. So at paragraph 77, Chief Justice French says, "The beneficiary of a non-exhaustive discretionary trust who does not control the trustee directly or indirectly has a right to due consideration and to due administration of the trust. But it is difficult to value those rights when the beneficiary has no present entitlement and may never have any entitlement to any part of the income or capital of the trust." The reason I just highlighted that paragraph 77 is because of a more later case, Woodcock number two.
(30:58):
And it's a quite controversial case which we will cover in this series where they actually followed this direction from Kenan and Spry and are trying to get the interest as a non-exhaustive discretionary beneficiary valued. And so Woodcock, number two, has also been hailed as potentially changing up the flow of things with respect to how much protection family and discretionary and testamentary trusts can offer, but it's unsettled, it's up in the air, they're sort of stuck at not being able to actually get a valuation. So just pointing that out, we will go into that case in a lot of detail, but just sort of this is one aspect of Kennan and Spry, which is sort of becoming more relevant in the recent years. So in terms of the paragraphs worth reading out, I'm not actually going to go through any others from the other judges who were in agreement.
(31:59):
So we've got Justice Keefel, she was in agreement, Government Hayne were in agreement with Chief Justice French, and they all had slightly sort of variations of the reasons, but I think Chief Justice French, the principles from his judgement have been the ones that have really been applied more strictly in the following decisions. It is worth having a read of the case. That said, hopefully I've given you a really good foundation today and I'm not going to dive into any more cases today. I just really wanted to start with Kennan and Spry so that you have a good understanding of the high court authority that we're dealing with. And then what we're going to dive into in subsequent episodes of this series is how those subsequent cases have really springboarded off those principles. And you'll see a very consistent application of those key considerations of control of the trust, the purpose of creating the trust and the management of it, the source of the trust assets, who the beneficiaries are, who's received the distributions, and have we got any sham or puppet arrangements as well.
(33:15):
Thank you for listening. I hope that was helpful. I would love to hear your feedback on whether the case note format is interesting and relevant or if you sort of prefer more practical topics. Nevertheless, we will continue with the family law case series because I think it is really important and it comes up all the time for practitioners and it will give you a deep knowledge of how to guide your clients.
(33:40):
And at the very end, we will wrap it up with the practical takeaways and the learnings from all of the cases. But for now, thank you so much for listening and I'll see you next week.
