Trusts and asset protection for your business

A recent decision in the Family Court has highlighted the usefulness of the traditional discretionary trust as an effective tool for the protection of assets that might otherwise be exposed to claims against an individual.

 

In Moreton & Moreton [2012] FamCA 30 it was held that the husband’s alleged interests in a discretionary family trust and one of its corporate beneficiaries, commonly referred to as a “bucket company”, were not to be included in the matrimonial pool of assets for division. By way of background, the bucket company was 100% owned by the trust from which it received its distributions, and its sole director was the husband’s brother.

 

The trust had a broad range of potential beneficiaries including the husband, the wife and the bucket company. The trustee of the trust (who generally has executive authority to distribute the income and assets of the trust) was another company, which had ownership and directorship equally held between the husband and his brother. The appointors of the trust, who have the power to appoint and remove the trustee, were the husband and his brother jointly.

 

The wife unsuccessfully argued that the husband had control of the trust for these purposes, and it was decided in the alternative that the facts (including the history of activity of the trust) lent themselves to indicate a bona fide trust existed and there was no alter ego of the husband present. This was contrasted with the circumstances in Kennon v Spry [2008] HCA 56 where it was held the husband effectively controlled a trust in relation to which he was the appointor and trustee, and (curiously) a former beneficiary prior to his own removal as such.

 

The implications for asset protection from these cases are important. It is clear from the above that in the context of matrimonial property settlement, if an outsider to the relationship can be found to have equal influence or legal ability to control the assets of a discretionary trust as against either or both spouses acting on their own or together, then those assets are excluded from the matrimonial pool.

 

It should not be read into this that where a husband and wife are found to have equal control over the assets of a trust in their capacities as appointors or trustees, that this would exclude those assets from the matrimonial pool on the basis neither spouse has absolute control individually.

 

There may be similar implications from this case for the protection of assets against the claims of business suppliers or financiers on an individual associated with a trust as:

 

  • an appointor (singly or jointly);
  • an individual trustee (singly or jointly);
  • a shareholder of a company that is a trustee; and
  • a director of a company that is a trustee.

 

In considering the above for asset protection planning it would be advisable to also consider the intended operation of a trust, as the history it leaves behind may serve as a telling indicator of who really controls a trust and its assets. Care should also be taken when selecting an “outsider” to share control with when dealing with assets you wish to retain, as it may be just as likely as your spouse or a creditor that they turn hostile!

Mark Jeffreson

Partner

                       

A member of UHY International, a network of independent accounting and consulting firms.

Liability is limited by a scheme approved under Professional Standards Legislation.

 

25 Peel Street

ADELAIDE SA 5000

Telephone +61 8 8110 0999

Fax +61 8 8110 0900

www.uhyhn.com

 

About Mark Jeffreson

My career commenced as a graduate accountant in the field of audit, where I gained exposure to the manufacturing and superannuation industries as well as non-profits, real estate and the legal profession. Moving then into the field of taxation business services I have had involvement in all areas of taxation compliance including income tax, fringe benefits tax, goods and services tax, capital gains tax and other obligations for a variety of business and investment structures. I have provided high-level taxation, accounting and financial advice including business structuring, investment and operational financing options, succession planning, applications for private rulings, debt negotiation, salary packaging and accounting systems advice. A 12 month secondment to an accountancy practice in London added to my experience with reporting companies as well as foreign compliance regimes, the private equity market and large private enterprises in civil engineering and high-tech supply logistics. I have also developed skills in the specialist field of forensic accounting and litigation support, authoring expert reports in the valuation of businesses and other financial interests in matrimonial disputes as well as the calculation of economic losses from breaches of contract in commerce and personal injuries. In recent years I have consulted to councils and local government authorities in the areas of asset management, accounting policies, procedures and practices, prudential advice and internal audit support. My firm is also currently contracted to supply internal audit support services to Santos Limited, in respect of which I have delivered several reports and advice in relation to certain procurement activities of the company. I am currently the Taxation and Business Services Partner of UHY Haines Norton Adelaide, maintaining specialist services in taxation consultancy, litigation support, business valuation and financial management. Specialties Tax and business services Business valuation Forensic accounting and litigation support

Find Mark on and LinkedIn.

Speak Your Mind