By Andrew Steele - 13 Apr 2016
The Supreme Court, our highest court, just released an
important judgment regarding family trusts.
The case is Clayton v Clayton and involved typical
discretionary family trusts where the beneficiaries included the
settlor (Mr Clayton who put the assets in), his spouse, former
spouse (Mrs Clayton), children and grandchildren.
Mr Clayton was a successful businessman who wished to protect
his business assets by using the trusts, but he did not want to
give up control of those assets. So Mr Clayton retained the power
to add and remove trustees or beneficiaries and distribute the
capital and income as he wished, including to himself. This gave
him effective control over the trust assets.
The Supreme Court held that Mr Clayton's level of control
constituted relationship property for the purposes of the Property
(Relationships) Act, and the value of this 'property' equated to
the net value of the assets of the trust. Bear in mind, as a
discretionary beneficiary Mrs Clayton had no legal right to or
interest in the trust property and, going forward, was unlikely to
receive a distribution given the marital split. By reason of the
Judgment however, Mr Clayton becomes liable to 'pay' half the net
value of the trust assets by taking a lesser share of the
relationship property available for division between them.
Just as importantly, the Court held that Mrs Clayton was
entitled to half the trust property pursuant to the Family
Proceedings Act because the trust was a nuptial settlement. The
trust was 'nuptial' because its creation was connected and
proximate to the marriage. The trust was settled during the
marriage and provided for the family. So and notwithstanding that
Mrs Clayton apparently agreed to make no claim against the trust,
the Court held that objectively she did have a reasonable
expectation of provision from it in the sense that, had the
marriage continued, she and the family generally would have receive
continued provision from it. By ordering that she receive half the
trust assets, the Court satisfied that expectation.
Ironically, the case settled before the Judgment was released,
so the Court did not make the orders it would otherwise have made.
Nevertheless, the Judgment has major implications for the drafting
and administration of family trusts.
If you wish to know more and or check the legal soundness of
your trust planning, talk with one of our trust team experts.
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