The testamentary trust as a vehicle to exclude inheritances from the matrimonial pool of assets

In the recent decision of Essex & Essex (No 2) [2007] FamCA 639 the Family Court held that the significant assets of two testamentary trusts ought to be excluded from the matrimonial pool of assets available for division between the separated couple, on the grounds that the beneficiary spouse had no control over the trusts.

In this case, the brother of the beneficiary spouse was the sole director and shareholder of the corporate trustee and also the appointor of the trusts. There was also no evidence to suggest that the beneficiary spouse exercised any control in reality over the operation of the trusts.

The Court found that the absence of the indicia of either formal or practical control distinguished the facts from the normal category of case, where a spouse holds all or most of the roles of power and in a day to day sense administers the discretionary or testamentary trust.

Some caution must be exercised when relying on this case (given that the brother’s evidence that his separated sibling had been included as a beneficiary in error only was accepted) but it does highlight that a well-crafted testamentary trust as part of a comprehensive estate plan and in conjunction with a family law Binding Financial Agreement, may be a valuable tool to quarantine inheritances.

If you have any queries regarding this issue or would like to discuss any other matters related to family law, please feel free to contact a member of our Family Law team on (07) 3231 2444.