The recent decision in Morton v Morton (Morton) illuminates the importance of thorough planning when incorporating a family trust as part of your asset protection and tax minimisation strategies.
The central issue in Morton was whether or not the assets of a discretionary trust, of which Mr Morton was a beneficiary, should be included in the pool of financial resources subject to division in the divorce.
Mr Morton was one of a number of beneficiaries of a discretionary trust. The other beneficiaries of the trust included Mr Morton’s brother and relatives. Mr Morton was the director of a company owned by the trust, and he and his brother each held a 50% share. Mrs Morton sought to ‘point’ to her ex husband as having control of the trust itself. If Mr Morton were found to have control of the trust, the assets of the trust would form part of his asset pool to be divided under the property settlement.
Control of the trust was a decisive factor in Morton. Mr Morton and his brother acted in an almost identical capacity in their dealings with the trust. One of the major arguments for Mr Morton was that neither he nor his brother had control of the trustee company, and their rights were the same – neither brother had a better right than the other. The Court recognised that Mr Morton and his brother were joint appointers*, and as such had the power to remove and appoint a trustee, but again there was no element of individual or ultimate control. There had been intermingling of funds of the brothers which went further to establish a lack of any individual control of the trust.
LESSONS FROM MORTON
The court found there was insufficient evidence to show that Mr Morton had the ‘control’ necessary to treat the trust assets as his, which meant that those assets were not subject to the divorce proceedings. The joint activity between the brothers was an essential element in the court’s reasoning.
When structuring a trust, the following steps may aid in establishing an absence of ‘control’:
- appointing multiple directors of any trustee company;
- appointing more than one appointor; and
- requiring appointors to act jointly.
Without the joint actions of Mr Morton and his brother, and the intermingling of their interests, the outcome of this case may well have been different.
* An appointor or principal usually has power to remove and appoint a trustee, and where this is controlled by one person, then they normally have ultimate control of the trust
By Domenic Festa (Accredited Tax Specialist and Chartered Tax Adviser)
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NOTE: This article is for general information only and should not be relied upon without first seeking advice from one of our specialist solicitors.