Tuesday, October 4, 2016

A Practical Analysis of Harris

A previous post has looked at various aspects of the leading family law and trust case of Harris – see - Read the deed - another reminder re invalid distributions

As set out in earlier posts, and with thanks to the Television Education Network, today’s post considers some related practical issues in relation to this case and trust splitting in a ‘vidcast’ at the following link - https://vimeo.com/154687783/

As usual, an edited transcript of the presentation for those that cannot (or choose not) to view it is below –

Harris is an example of the interplay between using a bespoke constitution, but not doing a trust splitting exercise.

In this situation, under an estate planning arrangement, the dad was the original shareholder and director of the corporate trustee. He died and under his estate plan, he gave shares in the company to the adviser, he gave shares to the husband (his son) and then mum (the wife) retained her shares in the trustee company.

These shareholders also acted as the board of the trustee company.

Inside that family trust was a family business that had been running for many years. The husband was, on all the evidence, important to that business and had a really key role. At no stage did the family attempt to split the trust though.

The husband had siblings, it was clearly still the ‘family’s trust’ and there were still all of the normal rules and obligations you'd expect. The husband had not otherwise been given any significant control. Thus, on his argument, the trust was not an asset of his in the family court scenario.

The wife said the opposite. The wife said even though the family hadn't gone through a trust splitting exercise in a formal sense, there were significant assets that were the husband’s, and therefore, they're things she was entitled to 50% of.

The court held that family law cases will turn on the facts.

Here, they were satisfied that the husband has no control.

There was no de facto splitting.

The terms of the corporate trustee constitution meant that the trustee directors must act jointly and in concert.

There was no evidence to allow the court to assume that the mum was somehow under the manipulation or control or acting as the mere puppet of the husband.

This meant the court essentially ignored the trust.

The reality however is that if the family had gone down the trust splitting path, you can almost guarantee that the earlier family law case of Pittman (email me if you would like a copy of that decision) would have been followed. In that case the court held that assets of a family trust, being a business, were exposed to a family law settlement.