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Discuss About The Trusts Asset Protection Strategy In Family Disputes.

Trust Law

A trust is referred to as a relationship in which one party holds property for the benefit of another party (or parties). The owner creates a trust for the ‘beneficiaries’ who may be eligible to benefit from the ‘trust’ or property. This particular fiduciary relationship is prevalent among three parties, namely, the settler or trustor, a trustee and the beneficiary. This study focuses on the challenges that has recently arisen in terms of this particular law. There have been many instances where the laws on discretionary beneficiaries have been challenged in cases such as, the ASIC v Carey [No6] or Kennon v Spry (2008). Each of the challenges highlights the results relating to statutory powers and their implementation in respect to discretionary trusts. This study will discuss the extent to which it may be argued that an individual in possession of functional control over a conventional family discretionary trust, may be said to have an equitable interest in the trust asset, besides exercising statutory powers, as pointed out in the ASIC v Carey [No 6] by Justice French of the High Court of Australia.

The case ASIC v Carey [No 6], popularly known as the Richstar case focuses on the powers of the Courts to disassemble the structures of the discretionary trusts within Australia. In this case, the Australian Federal Court had contemplated whether to appoint a receiver over a property under the trustee of a discretionary trust, as a trail of the Corporations Act2001. The power has been unveiled and disassembled by the High Court that is further used as an alternative for the statuary powers. This particular section, s.1323 under the Corporations Act 2001 points out that the Court is liable to appoint a receiver for the property under the trustee or a ‘relevant person’. Pursuant to this case, a discretionary trust beneficiary relates to the ‘relevant person’ responsible to fulfill these purposes as mentioned under s.1323 of the Act.

In addition, Justice Frenchfromthe High Court of Australianhad contemplated the amount of judiciary powers or the extent of control that the beneficiary has over adiscretionary trust. Generally, it is not observed in similar cases that the beneficiary oversees the selection of the powersfor the trustee. Once this transpire, which had been found to hold true inRichstar case, the interest in the beneficiary is established to be of a proprietary nature.

In Richstar, it was found that the beneficiary had held certain amount of power in terms of exerting control over the power of its trustee. The influence of the beneficiary would be exercised over the power of the trustee to select who would receive benefits from the discretionary trust. It has been formerly discussed by Justice French that the ‘degree of control’ a beneficiary exerts on the trustee is to be considered when forming a fair ruling. However, it was noted that the beneficiary in this case had demonstrated a level of control and influence over the discretionary trust, which primarily indicates the beneficiary’s nature of interest to be of proprietary in nature towards the trust and for its trustee.

Conclusion

This notionof the study challenges the predominant laws and regulations relevant to ASIC v Carey [No 6], namely the ‘Trust Law’s of Australia’ that deals primarily with the Corporations Act 2001 (Cth). Section 1323 of theAct points out that a Court is liable to freeze the provisions or assets or any property and financial products in a particular ongoing or dormant case. For instance, inRichstarcase, the court gave its final decision so as to freeze all the assets under legal custody. Similarly, family law case onKennon v Spry (2008)highlights the impact of the beneficiary on the level of control they may ascertain with the trust. This status quoimplies an alter-ego of beneficiary.


Trust Law has been implied in different cases to resolve the issues which arose within the context. A brief analysis of its application has been elaborated in the following points:

  1. ASIC v Carey (“Richstar”):

In accordance to the Federal Court, Richstarhas the ability to appoint a receiver applicable to the property which has been constructed by the trustee. The property which has been held in the Court has been enforced by adiscretionary trust under the Corporation Act 2001 (Cth). Under s. 1323 of the Act, a Court has an ability to appoint a receiver over the property relevant to an individual. Thus, it can be evident that the aim is directly related to been implied as a beneficiary discretionary in regard to the trust issue generated for a particular person. In addition, pursuant to Richstarcase, it can be resolved that trust laws have been well executed with an aim to resolve issues related with sharing of discretionary beneficiary.

Australian trust law’s states that the trustee monitors and manages the property in order to provide benefits to other individuals as conducted in the trust agreement. The case further identifies the very fact of trust law to be adapted in providing the beneficiary to be responsible individuals within the agreement. The agreement also marks trustees to stay limited under the legal interests of the case property and needs to abide the legal guidelines.

  1. Family Court in Kennon v Spry:

This observesthe trustee has every right to conduct a legal entitlement of a property. Hence, it has the ability to conduct an absolute discretion beneficiary in order to gain income in terms of the trust. Pursuant to this case, the High Court has induced numerousqueries which involves the purpose of the trustee relevant to the property settlement. One major question which arose is whether the property can be considered as a wholly discretionary beneficiary property under section 79 of the Family Law Act 1975 (Cth).


It can be stated that by complying to the legal policies and laws governed by these trust law’s,- an individual can successfully proceed in claiming the rights. On the contrary, it needs to be stated that under Australian Trust Law, individuals are liable to work as per the rights of administration trust.

  • Morice v Bishop of Durham (1804) 32 ER 656:

In this case, the execution of a discretionary beneficiary will take control by the Courts where it has been stated that it will assist in administering the issues. Hence,maladministration of a situation is reformed with the assistance of trust laws. The principle related to beneficiaryisto monitor fixed trusts which are obliged to differentiate and distribute the classes in accordance to its beneficiaries. Another major aspect which has been implied by this case is on discretionary trusts. Discretionary trusts can be described as a selection of beneficiaries in which the trustees are able to distribute the obliged beneficiaries to the relevant individual.Trust laws which are induced in this case have applied an obligation through which the distributor will perform the function to provide discretion for selecting the beneficiaries. Therefore, the statutory power which has been implemented by trust laws will test the matter to conduct criterion to the case.

  1. McPhail v Doulton [1971] AC 424:

In this case, the arbitrator developed a trust which states that discretionary beneficiary is obliged to use the net income for providing benefits to Matthew Hall & Co staff and their respective relatives. The issue that has been evident from the particular case has been based on the deed, which Bertram and Baden has executed on the non-charitable trust where Mathew Hall and its Dependents have been benefitted for the purpose of the same.   Moreover, the case as per the Court of Appeal rules highlights the Clause 9 that further states the word ‘shall’ to get combined with a power of selection being created as a trust for distributing the income among the liable partners. Therefore, it needs to be stated that the validity of the trust has been violated because of the object and the condition of the deed, which was insufficiently certain.  Therefore, it has been evident from here that he beneficiaries have an un equitable interest on the trust property.

Conclusion

From the above held discussion, it can be concluded that the need to abide laws stays effective to resolve ambiguities in terms of trusts. Moreover, the discussion also sheds light on the very fact of different approaches and issues that rise in regards of trust within individuals and business. On that note cases in terms of Richstar Enterprises v Carey,  Morice v Bishop of Durham and McPhail v Doulton have been analysed and further evaluated as per their issues of trust. Each of the cases have been analyzed in regards to the Court appeal and the decisions taken by the Court as whole.  In concluding the project it needs to be stated that the issues of un-equitable interest and power of the discretionary beneficiaries of the trust have been evident  Moreover in this context it needs to be stated family law act 1975 has also proved to be important in resolving the problems.

References

AO, D.B., 2014. Heterodox is the new orthodox--discretionary trusts and family law: a general law comparison. Trusts & Trustees, 20(7), p.654.

Bruce, S., 2017. Discretionary testamentary trusts: Adapted from CPD paper presented at the Law Society's Law Summer School 2017. Brief, 44(4), p.32.

Cassidy, J., 2006. Concise corporations law. Federation Press.

Cross, E., 2015. The Validity of Trusts: Is the Beneficiary Principle Still a Relevant Requirement. Exeter Student L. Rev., 1, p.28.

Dal Pont, G.E., 2013. I Want Information: Beneficiaries' Basic Right or Court Controlled Discretion. U. Tas. L. Rev., 32, p.52.

Davenport QC, K. and Thompson, S., 2016. Piercing the trust structure at a relationship’s end: interesting developments in trust law from the New Zealand Supreme Court. Trusts & Trustees, 22(8), pp.864-873.

Mason, A., 2014. Discretionary trusts and their infirmities. Trusts & Trustees, 20(10), pp.1039-1054.

Palmer, J. and Rickett, C.E., 2017. The Revolution and Legacy of the Discretionary Trust.

Palmer, J. and Rickett, C.E., 2017. The Revolution and Legacy of the Discretionary Trust.

White, R.W., 2010, May. Trusts–an Australian perspective. In Higher Courts Seminar, New Zealand Institute of Judicial Studies (pp. 21-24).

Wilson, C., 2014. Discretionary Trusts as an Asset Protection Strategy in Family Disputes: Their Uses and Limitations.

Wilson, C., 2014. Discretionary Trusts as an Asset Protection Strategy in Family Disputes: Their Uses and Limitations.

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[Accessed 26 February 2024].

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