Are trusts still useful post Spry?

As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of ‘Are trusts still useful post Spry?’ at the following link - https://www.youtube.com/watch?v=IjcRGemWHyk

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

Certainly, immediately following Spry, for an extended period, the usefulness of trusts was under the spotlight and there was significant nervousness about how robust they actually were going to be.

The reality has been that this conclusion has been tempered by the combination of firstly the fact that Spry is a bit of an outlier decision and actually driven a lot by factual scenario, which is a relatively strange set of circumstances, and the fact that there have been so many cases since Spry that have respected the integrity of trusts.

Therefore, it is generally accepted that all forms of trusts, particularly testamentary trusts, will remain the vehicle of choice in estate planning context at least for the foreseeable future.

Lessons from decisions since Spry

As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of ‘Lessons from decisions since Spry’ at the following link - https://youtu.be/IWsmKqpgwbs

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

Immediately following Spry, the feeling of many observers was that there would never be any outcome in a family law matter other than to say that the assets of trusts were entirely exposed. 

What actually happened, however, is that despite the decision in Spry and a number of subsequent decisions have reinforced this, that trusts potentially remain a very robust asset protection vehicle.

Having said that, it is also clearly the case that the court will not be in any way restricted in terms of what they can and cannot do with the assets of a trust, if they have a legitimate reason to believe that there are grounds for doing so. 

Some examples might be if:

• the trust is actually the ‘alter ego’ of one of the parties to the relationship;
• it can be seen that the assets of the trust have really been created because of the joint effort of the relationship; and
• the assets of the trust have traditionally always been used for the benefit of not just the two spouses, but also wider family members.

In each of those types of scenarios, the court will rely on, if not Spry itself, certainly principles adjacent to Spry, to look beyond the trust structure and deal with the underlying assets of the structure.

Impact of the Spry decision on trusts

As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of ‘Impact of the Spry decision on trusts’ at the following link - https://youtu.be/mFkCvyZaqZs

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

There is no doubt that immediately following Spry, basically everyone was assuming that the position moving forward would be that no matter how you set up a trust, and no matter if it was a family trust or a testamentary trust, it would never provide any level of asset protection at all. 

However, the reality in relation to Spry is that a lot of the reasons for it having such a radical impact in that particular scenario were really driven by the factual circumstances of the case.

For example, there were allegations, though not proven, neither were they disproven, regarding mismanagement of trust assets, deliberate threats to actually destroy trust property, and deliberate attempts to mislead the judges through the various stages of the court process. 

If you look at Spry in the context of these allegations, in terms of the wider factual scenario, and some of the subsequent cases, it's probably fair to say that you can distinguish a lot of the general trust structuring planning is in this area, away from the decision of Spry itself.

Until next week.

Further comments on assets protected by a family trust on marriage breakdown

Further to last week’s post, some feedback was received about other aspects of the decision mentioned (Keach & Keach).

To provide some more context to the main conclusion of the case mentioned last week, it is worth noting that:

1. The relevant trust was established by the father of the divorcing husband.

2. The father had all practical control over the trust as well as legal control.

3. While the main asset of the trust (being a home that the husband and wife were living in) was allegedly used by the husband 'as if it were his own', this did not change the legal ownership position.

4. In order for an arrangement to be a sham (and therefore, for example, for the trust’s ownership to be ignored), it must be shown that all relevant parties had the common intention to mislead others.

5. Even if the husband was conducting himself as if he were the owner, unless it could have been shown that the husband’s father intended the arrangement to be a sham, then there was no access to the assets of the trust.

6. Here the evidence was in fact the opposite – i.e. the husband’s father deliberately structured the arrangements to ensure that he retained control and direction of the trust. On this basis, the assets of the trust could not be considered as assets of the marriage.

Until next week.

Family law case excludes assets owned by a family trust

As mentioned in last week’s post, a family law case from earlier this year involving a family trust has received an amount of attention given the decision seems somewhat at odds with the High Court’s decision in Spry.

The more recent case (named Keach & Keach and Ors [2011] FamCA 192 – (if you would like a copy of the case please email me) focused on a family trust that the father of the divorcing husband had established.

The father admitted that among other things, one reason for setting up the trust was to keep the assets as far away from the reach of the family court as possible.

The divorcing wife argued that the assets of the trust should be available to her on a property settlement as her former husband effectively treated them as his own.

The court held that the assets should be ignored on the property settlement. Essentially, it was held the only time that the legal documents and arrangements could be ignored was where they were a sham or a 'mere puppet'. In all other instances, the family court cannot ignore the interests of third parties in the property, nor the existence of conditions or covenants that limit the rights of the party who owns it.

Until next week.

Spry - one year on

Undoubtedly, the highest profile family law case (at least involving trusts from 2010) was the Spry case.

While the actual scenario was somewhat unique and obviously the decision became one of the highest profiled decisions issued by the High Court in this space in recent years, the actual implications of the case may not in fact be as far reaching as first thought.

In particular, what many advisers in this area are seeing is that a number of the aspects of the decision can be explained by the particularly aggressive and arguably misleading approach that the husband took in relation to attempting to remove assets from the pool that could be distributed to his former wife.

Unless something else comes up during the week, next post I will summarise a recent family law decision that further confirms that the Spry decision may not be as concerning as many commentators first thought.

Until next week.