Where there is a Will, there is a Way

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Many people conduct their business and financial affairs through Companies, Partnerships or Trust entities. On death or a marriage breakdown, the issue of legal ownership becomes highly relevant.

In calculating a Family Law property settlement, it is important to work out the assets available to be divided up between the parties. It is at this stage one must consider what goes into the pool and what does not fall within the pool.

Judge Warnick in BP v KS made it clear that while one can notionally bring the assets in a Discretionary Trust into account where the spouse controls the Trust, that does not, of itself, make the assets legally an asset of the parties.

In the case of the administration of an Estate following the death of a person, the issue of notional assets will not even be countenanced at any stage. The Trustee and Executor of an Estate can only distribute to beneficiaries what is legally an asset of the Deceased, not what, in Family Law terms, could have been seen as a notional asset. It is, therefore, essential in drafting Wills that the individual understands what they legally own and understands that it is only those assets that can be distributed pursuant to their wishes under their Will. Assets that may in effect be under their control but are owned by a Company or held in a Trust structure cannot be distributed via a Will.

Assets owned by a Company

The shares (not the actual asset) in a Company can be transferred to a proposed beneficiary under a Will. In the corporate situation, the Constitution is the document which governs the Company and the terms of this document need to be considered carefully. It may be that you would want to be the proposed beneficiary able to control the affairs of the Company. They should, therefore, not only be the majority shareholder or sole shareholder but the Director of the Company and Chairman of the Board.

Assets owned by a Trust

In the Trust environment it is also important to have the beneficiary become the Trustee, or Director and shareholder of the Corporate Trustee, and the Appointor. The Appointor is the person who can control who is the Trustee of a Trust. It would also be important to check whether the proposed beneficiary fell within the definition of beneficiary under the terms of the Trust Deed – the document which governs the affairs of the Trust.

Case study

In the case of Public Trustee v Smith, the Deceased, Dr Ward, had left to a proposed beneficiary, Ms Smith, the right to reside in a house for 15 years if she cared for her cats, “Georgie” and “Melba”. Unfortunately, Dr Ward did not own the property the subject of the gift. It was owned by a Trust. The gift, therefore, failed and Ms Smith received nothing.

Conclusion

In considering how to dispose of your assets via your Will, it is essential that you obtain appropriate legal advice and have appropriate searches undertaken to establish the legal ownership of assets so that your Will is drafted appropriately.

For more information

BP v KS [2002] FamCA 1454

Public Trustee v Smith [2008] NSWSC 397

WARNING

This article reflected the state of the law at the time of publication. But the law is a living creation which is constantly changing and adapting. These articles should be treated as an information resource only and not as a substitute for specific legal advice in respect to your particular problems and circumstances.

Liability limited by a scheme approved under professional standards legislation.

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