Testamentary Trust Will for Asset Protection

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Can a Will be drafted to protect the beneficiaries from a claim being made against the inheritance as part of a divorce?

In a recent case of Singerson & Joans

[2014] FamCAFC 238, parties were living with each other for some 15 years, having had two children, prior to separating in 2009 and thereafter commencing proceedings to divide their matrimonial property.  When the matter first came before the Court, there was an inheritance from the Husband’s late father (which was received just prior to separation) in the sum of approximately $3mil, with the balance of matrimonial assets being some $4.4mil.

The trial judge ordered that the Wife receive a large proportion of the matrimonial assets, and a small portion of the inheritance; treating them as separate pools of assets. Both parties appealed this decision on the basis that they each viewed the Court’s discretion to have been incorrectly exercised by the trial judge.  On appeal to the Full Court of the Family Court, it was ordered that the wife receive more of the total property including the inheritance.

We question whether this would have occurred if the Husband’s father had set up a Testamentary Trust Will.

In the context of a significant inheritance such as this (being 40% of the total matrimonial pool of assets), the way that the Courts will exercise their discretion is not certain. Given the increase in blended families, the control of assets for blended families is becoming more significant to the outcomes of cases such as these.

One of the benefits to having a Testamentary Trust Will is that it can provide greater asset protection. A Testamentary Trust is a trust established under a Will.  The terms of the trust are contained in the Will, however it does not come into effect until after the death of the person making the Will.  More relevant to this case, Farrar Gesini Dunn drafts Testamentary Trust Wills that commonly provide for a beneficiary who has separated from their partner to be removed as the appointor of the trust (ie. the person has the power to appoint and remove the trustee of the trust and therefore, control the assets within the trust).  Just as the control and influence of assets forming part of the trust by certain individuals can be limited, so too can the individual’s interest in the assets.

Applying this to the matter before us, if the Husband’s father had have entered into a Testamentary Trust Will prior to his passing (being prior to the Husband’s separation), rather than making an ordinary Will, it may be less likely that the Husband’s estranged Wife would have had access to the inheritance.  At the time of separation, and provided that the Husband made the election to crystalise the Testamentary Trust, the Husband’s control of the trust assets would have been extinguished; thereby separating the trust assets from his personal assets which form part of the property pool to be divided at the time of the hearing.

It is arguable that under a Testamentary Trust, the inheritance should be dealt with by the courts as, at most, a financial resource rather than as an asset that forms part of the pool to be divided, thereby only indirectly affecting the outcome through an adjustment to future needs.

If you are thinking about whether or not a Testamentary Trust Will may assist you, or if you want to know more about inter-generational wealth transfers, please contact one of our specialist estate planning lawyers to discuss further, or for more information on Testamentary Trusts, please visit our website: https://www.fgd.com.au/what/what-weve-written/trusts/

familylaw_Courtney

Courtney Mullen is a lawyer specialising in Family Lawand Estate Planning at Farrar Gesini Dunn

By |2017-12-19T14:39:56+00:00July 12th, 2016|

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