Breaking into a trust, also commonly referred to as ‘busting open a trust’ can be done in many ways. This is contrary to the conventional view that property held in a trust type structure is ‘protected’. From a family law property settlement perspective, there is a general consensus that assets of a trust cannot be the subject of division between separating spouses for the purpose of a property settlement at the end of their relationship. From a Bankruptcy viewpoint, a similar thinking exists, where trust assets do not form part of the individual bankrupt’s estate.

As a valuable asset protection vehicle, it is fundamental that the terms of the trust deed are well considered to suit your personal and commercial circumstances. It is important, amongst other things, that your trust deed does not create unconstrained powers over the assets of the trust, otherwise the trust structure may be deemed ineffective in protecting assets from claims by former partners and other creditors.

Correct trust management and administration, as well as the importance of having a well drafted trust deed has become increasingly important in the context of relationship disputes due to the expansive powers of the Family Court under the Family Law Act, which now enable the Courts to:

  • Consider trust property to be an asset of the relationship
  • Look beyond the ‘veil of incorporation’ or ‘bust the trust’ where it is found that the trust is the ‘alter ego’ of one of the parties
  • Set aside transaction
  • Alter the ownership rights of third parties
  • Declare a trust to be a ‘sham’

One-size-fits-all trust deeds do not sufficiently achieve the desired asset protection you may require from your trust. It is important to have a well-considered trust deed tailored to suit your specific needs to avoid the trust being deemed a ‘sham’ or your ‘alter ego’, and therefore able to be scrutinised. We work closely with our clients to understand their legal and commercial objectives, and strategically prepare trust structures aimed at achieving these objectives.

Our expert trust lawyers assist clients understand the common pitfalls in trust structures, in particular discretionary trusts (also known as family trusts), and equip clients with the knowledge and expertise to correctly manage the administration and operation of the trust entity. Understanding the issues which may arise, and having a well drafted trust deed may prevent you from being in a situation where the conventional asset protection offered by trust structures is deemed ineffective.

Talk to one of our expert lawyers today.