Tara (00:51):
Hello. I'm so excited you've joined me again. This episode is continuing our series about the family law asset protection of family and discretionary trusts.
(01:04):
So we started this series with episode 75 and also have a look at episodes 79 and 80 for the cases that we've discussed already. So in this episode, we are just going to keep building on some of those cases since the Kennon and Spry decision. We're getting reasonably recent now, so I'm recording this in 2026. So the decisions we're looking at today, the first one, Barrett and Winnie, is from 2022. Then we're going up to Frederick and Brissett in 2024, but we're going to wind back a little bit. I want to start looking at some of our bigger family group cases where there's multiple trusts and bigger structures. So we're going to wind back to 2018 to look at Mansfield and Mansfield. But let's wrap up our sort of smaller family groups. The first one, Barrett and Winnie. So this is a 15-year relationship. In this case, the respondent wife had set up a trust for herself and her adult children from a prior relationship.
(02:15):
So this had about a million dollars in this trust. She established it during her relationship with her current spouse. And the controllers of this trust, there was a corporate trustee of which the respondent and her son from a prior relationship were both the directors and shareholders, and that son was also the appointor. So they had the usual sort of discretionary trust. It was really focused around the respondent and her children and their lineal descendants, but it did include spouses as potential beneficiaries. So that therefore included the appellant as a discretionary beneficiary. As we discussed, control was shared with her son. The respondent herself was actually the appointor for around the first 10 years of the trust, but she then resigned and substituted her adult son as the appointor instead. And interestingly, most of the assets were contributed by the respondent, but her two children from her prior relationship had also started making contributions to the trust as well.
(03:27):
So in the trial, it was held that the respondent never had control of the trust. She had always been one of two or more directors of the trustee. Her influence over the control of the trust waned over time as her adult children increased their involvement in the control and management of the trust. I think interestingly, the trust never operated or was treated as the alter ego of the respondent. There really seemed to be a story that the trust was established to benefit that entire family, or at least of the respondent and her lineal descendants. So that's what the trial judge upheld. And as you're probably guessing, the assets of the trust were not property of her and the relationship. It was just a financial resource, and that was upheld on appeal. I think paragraph 137 of the judgement is interesting that says the primary judge found that while the first respondent had benefited from the trust, together with the other family members who are beneficiaries, this was obviously always in contemplation of the formation of the trust itself.
(04:47):
In other words, the primary judge found that as a matter of fact, the trust had never operated as or been treated as the alter ego of the respondent. So I think that goes to the purpose. We're really seeing weight being given to the purpose of the trust, the source of the trust assets, obviously control being shared, who the beneficiaries are, all of that collectively leading to a conclusion that the assets are not enough to justify property of the parties. It is interesting just to sort of note these comments in the cases about the right of the due administration of the beneficiary of the trust, because I keep alluding to it and we'll get there soon. I think the next episode of the podcast about the Woodcock and Warcock decision, of which this is a really vital part. So in this decision as well, they look at the right of the beneficiary.
(05:50):
So they say at 154, "We accept that the right of a beneficiary of a discretionary trust can, depending upon the particular facts of the case, be an interest that falls within the definition of property in the act." However, the acceptance of that proposition is not determinative of the outcome. This is because of the difficulties associated with attempting to place a value on such an interest. And in the present case, there was no evidence presented to the primary judge as to what the value of such a right to due consideration and due administration would be. In the absence of evidence of any such value of the interest held by the respondent, the primary judge appropriately, in our view, excluded the trust property from the property pool, but did have regard to the trust assets as being a significant financial resource available to the first respondents. So again, I think this is a really positive decision from a family law protection point of view, looking at the cases where we just don't have one person being in control.
(07:01):
So starting with Morton & Morton, where there's with the two brothers, where as joint controllers, neither one of them had control. Again, Coley and Denae, neither of those siblings had sole control. So you can't, just because they have 50% control, you can't bring in 50% of the assets of the property pool. And again, here in this decision, Barrett and Winnie, where our respondent set up a trust during her relationship, but was never the sole controller, so they can't be the control test or Liam was just not ever satisfied. The next decision I want to talk about is Frederick and Brissett. So this is a 2024 decision. In terms of the facts, there is a family trust established by the respondent wife's father before their relationship from 1985. And at the time of the decision, the respondent's brother was the appointor and the respondent and the respondent's brother were both directors and shareholders.
(08:12):
So in terms of distributions from that trust, all of the capital of the trust was distributed to a corporate beneficiary, which was controlled by the respondent's brother. The respondent's brother was a director in 2007, and the respondent herself was a director with her brother and parents from 2015 to 2021. So a few months before separation, she stepped down as a director. In 2021, again, obviously the separation was on the table. She transferred her shares in the corporate trustee to her brother. In 2023, she became excluded as a beneficiary of the trust, but when you look at the distributions from the trust from 2016 to 2019, she had received significant sums, sort of around three to 400,000 every year. So the decision in this is that there was not enough evidence to show that the assets of that trust was property of the relationship for the respondent.
(09:17):
This is the same judge who decided Woodcock and Woodcock, number two. So I keep alluding to that case and we will get there, but just bearing that in mind, the judgement is kind of hard to read. Maybe I'm not used to reading family law decisions all day every day. From what my take on this is that the applicant just did not bring enough evidence. They did not set out their case clearly enough following those principles from Kennon and Spry. And I think the lesson from this is it's not fake and plea that if it looks like the assets and should be included in the property pool that they will be, you really do have to make a case. So this is actually one of the benefits that I espouse all the time for testamentary trusts. The onus of proof shifts. If there had been an inheritance that, in this case, a respondent had just received directly, that it's just going to be part of the property pool.
(10:25):
No argument, really hard for her to ring fence and separate it. But because we're talking about assets in a trust, the starting point is that the inheritance is protected. It's excluded from the property pool, and the spouse is the one who has to build the case, bring the evidence, and make the arguments that there is enough of these factors to justify it being property of the party so that owners of proof shifts. So already you have a fighting chance and you're on the front fort if the assets are in a trust compared to receiving the assets directly outside of a trust. And I think probably the main takeaway from Frederick and Brisette is that the husband just did not build the case and make the arguments enough to be able to show. I mean, we also had on our scale of things, our respondent was not really in control ever.
(11:27):
She was never the sole controller, really was with the brother. The purpose, this trust was set up in the 80s by the father. They worked together 21 years, but this was all done before that relationship. The source of assets was from the father and the family. Yes, she had benefited significantly, but there just wasn't enough on the control side, the purpose and the source of assets to get that over the line. And there just wasn't enough evidence to show that. 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.
(12:28):
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. So let's go now to Mansold and Mansfield where the first of our cases where we've got a large family group. So in this case, the respondent's father had significant wealth in about two companies and three family trusts, and the respondent himself only had about a $1 million property pool. So the stakes are pretty high for their spouse trying to access what's in some of that family wealth.
(13:30):
So the respondent's father, he's in his seventies by this time, he is the one who established and operated all of these entities. The respondent and the respondent's sister were obviously beneficiaries of those trusts and actually directors of some of the companies and minority shareholders. So they had about a 12th interest in each of the companies. The respondent's father was the appointer of all of the trusts for most of the duration of the operation, but he did resign due to ill health and appointed the respondent's sister as a successor appointor. Now, the evidence at the time that was given is that this was not really intended as a transfer of control mechanism or a wealth transfer mechanism. It was just that he really wasn't well enough, but it wasn't part of handing over that trust to the sister. The respondent had never, ever received a distribution or loan from any of the trusts, but there was evidence that under the father's future estate planning arrangements, so he's still alive, just waning health, the intention is that the respondent and the respondent's sister would benefit equally.
(14:43):
So our applicant is really trying to actually get half of the future inheritance, which I think is really fascinating. So let's have a look what was held. To spoil the ending, the assets of those trusts were not held to be property of the respondent. It was really clear that control rested with the respondent's father. The respondent himself had no control and really lack of import into anything to do with the trusts or the father's business affairs. This was held to be crucial. And there was just like no evidence to show that the trusts were the alter ego of the respondent and it was actually really clear that the respondent's father was his own man and fully in control. So looking at the judgement , if we sort of jump to paragraph 150 is a good starting point, at least to look at the reasons. So in my view, it is incumbent on the court to look at the overall circumstances surrounding Mr. Mansfield Senior and the other party's concerned to determine whether the wife had some entitlement to alter proprietary interests as a consequence of her marriage to the respondent.
(15:57):
The evidence available to me indicates the purpose of Mr. Mansfield Senior wished to advance by creating the various corporate entities and related trusts was to consolidate and hold his wealth, accrued as a consequence of his efforts and directed as he saw fit, particularly after his death. The court acknowledged that they are both, like the respondent and the respondent's spouse are both beneficiaries of the trust, but they never received anything in their favour. So I like paragraph 156. I think this summarises it nicely. In my view, this lack of control on the husband's part and indeed his lack of input into anything to do with his father's business affairs is crucial. He cannot be described as being anything analogous to an owner of any of the property concerned. He was not his father's guardian. Mr. Mansell Sr. Did not owe his son any form of fiduciary duty as a consequence of some joint business interest.
(16:58):
Like any other of the designated classes of beneficiary, the respondent could ask his father for a distribution, which Mr. Manseld Senior was required to consider and then grant or refuse as he saw fit. Such a right to due administration constitutes an equitable chosen action, but does not, in my view, create a proprietary interest of the husband in any assets held by the trust concerned. Rather, in my view, the evidence clearly indicates that Mr. Mansfield Senior wished to benefit both his children equally after his death and ensure there was no discord between them because that both would perceive they had been treated the same. They go on to say, "We've got no evidence. The trusts are the alter ego of the respondents." It's very much that the father is his own man who was determined to control what he had until his death. Again, they distinguish the facts here from those in Kenon and Spry.
(17:55):
At paragraph 166, they just further elaborate that there's been no fiduciary duty owed to the husband by his father, no distributions made to the respondent. And further, none of the property in the trust was acquired by or through the efforts of either of the parties to the relationship. It is solely attributable to the respondent's father, and he has unequivocally indicated his intention to retain that until his death or terminal illness. So what about the fact that there is a will or a succession plan in place where the respondent is likely unless it's changed to perceive 50% of everything? They address this at paragraph 170. So no doubt both the husband and the respondent's sister have an expectation that in due course, with the death of their father, they will assume ownership and control of the assets of each of the trusts concerned. However, in my view, such an expectation does not conform with the concept of property for Section 79 purposes.
(19:00):
Such an expectation may entitle the husband to ensure that the various trusts of which he is a beneficiary are properly administered, but do not, in my view, accord with proprietary rights per se, given the circumstances of the case. The husband has no capacity to control the operation of either of the companies. He's never been the trustee and at best only a minority shareholder or one of two directors. They also go on to say there's no evidence that there is a sham or puppet arrangement in relation to the entities. So yeah, really there's just very few factors in favour of the applicant being successful in arguing this. It's really just the fact that the respondent and the applicant are potential beneficiaries, but really quite clear that it is not property of the parties, which I think is really reassuring and just helpful to note from a succession planning perspective.
(19:55):
We can't look forward to expectations while entitlements are contingent, either as discretionary beneficiaries with no control or as part of a future expectation under the estate plan, it's really not enough to be property of the parties. So again, I think the outcome in these three cases is really reassuring. And as you might've picked up, we keep going back to those core requirements and themes from Kenon and Spry. So looking at control, the purpose of the assets of the trust and establishing the trust, the source of the trust assets, the range of beneficiaries, the history of income and capital distributions, and whether there's been an intention to mislead third parties, a sham or a puppet. All of these decisions have examined these factors and given weight to them when coming to the conclusion. I hope these cases have again been interesting and helpful. Next, we're going to look at some more high net wealth groups with multiple trusts and a lot of high value and look at whether the outcomes have changed and how the facts have been considered in those cases in upcoming episodes.
(21:12):
So I look forward to seeing you then. Thanks for tuning in.
