In recent years ‘Discretionary Family Trusts’ have become more popular with many people turning to them as a strategy to reduce tax and protect their assets. Consequently, it is not unusual for a party (or parties) to a marriage or relationship to be included within a class of beneficiaries of a Trust that is controlled by their parents.
When understanding how Discretionary Trusts function it is important to understand:
- That, beneficiaries are not generally referred to by name in the Deed. Rather, they are referred to by their relationship to the Trustees of the Trust;
- There is no guarantee nor should there be any expectation that as a beneficiary they will receive a trust distribution; and,
- The ultimate decision as to whether a beneficiary receives a trust distribution lies in the power of the Trustees of the Trust.
So, in the event that one might be in the process of negotiating a property settlement whereby one of the parties is a beneficiary of a Discretionary Family Trust; how far does the rule for “full and frank disclosure of all information relevant to the case” extend? Are you required to provide the trust deed and trust financials that you may not have possession and control of?
This dilemma was canvassed in the Full Court Case of Masoud  FamCAFC 24.
The Full Court explored the meaning of possession (including physical and legal possession) and control. It found that since the husband as a beneficiary did not have access to the financial documents of the Trust, that he did not had the requisite control of the trust deed. Therefore, there was no obligation on him to provide disclosure pertaining to the trust and he in turn was not in breach of the duty to disclose.
When interpreting the comments made by the Full Court, it would seem that even if a party is merely named as a beneficiary of a discretionary trust, that in the absence of any controlling interest (i.e. as a trustee) there is no obligation on them to produce documents pertaining to the trust notwithstanding a request for them by the other side.
The important thing to realise here is the complex nature of Discretionary Family Trusts. As such, when dealing with such circumstances, we strongly advise that individuals seek expert legal advice from someone equipped to navigate the law, legislations and apply these to your individual circumstances.