Broadly the background was as follows:
- Dr Inglis established a trust in 1982 (Trust) with himself, his four children from his first marriage, his one child from his second marriage and his second wife Helen Margaret Inglis (Helen) as potential beneficiaries;
- A company named ‘Inglis Research Pty Ltd’ acted as the trustee;
- The main asset class of the Trust was a listed share portfolio that for many years was generally carried in the accounts of the Trust at cost;
- Many years after the establishment of the Trust, and a change in the method of preparing the trust accounts, ‘income’, although unrealised, from the increase in value of shares was distributed to various beneficiaries creating (in relation to Dr Inglis) a credit loan account of more than $1 million;
- Under Dr Inglis’ estate plan his personal wealth was gifted under his will to Helen, while control of the Trust and its assets was given to the children of his first marriage.
The Court held that while the accounting approach was perhaps imprudent, it was permissible under the trust deed and there was nothing under the accounting standards that prevented the arrangements.
In this regard it was noted that the trustee had the specific right under the trust deed to re-categorise income and capital and distribute unrealised income in its discretion.
This meant that there had been no breach of trust by the trustee and the debt owing by the Trust to the estate was enforceable and effectively an at call loan, repayable on demand to Helen.
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** For the trainspotters, the title of today's post is riffed from the Stone Roses song ‘Fools Gold’.
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