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Industry Insights for Accountants: Discretionary Trusts and Financial Planning

Family discretionary trusts are a useful tool in both asset protection and tax optimisation. They protect family business from creditors and provide for an instrument for income splitting. However, when it comes to family law property settlements discretionary trusts themselves are not enough to protect family assets but the way such a trust is set up will prove to be the key to protecting assets.


Control of Family Discretionary Trusts

In family law property settlements, the first step is to identify the property of the parties. This does not only include property in the parties’ personal names but also business, companies and trusts that they are connected to. With companies, the connection is easier to find as shareholding and directorship is simple to prove.


However, with family discretionary trusts, finding the connection may be a more complex process which involves an exercise of finding whether one or both of the parties can be seen to be in control of the trust. Control can be established by looking into the guardianship, trusteeship or list of beneficiaries of the trust. As a simple rule, the more beneficiaries a family trust has and the more of trust income is distributed to all beneficiaries the harder it is to prove that a party is in control of a trust. More often than not, finding whether or not a party to a property settlement is in control of the family discretionary trust can be achieved by looking through the trust documentation, the trust deed, deed variations and through company searches.


In some cases, however, the Family Court may look in to the reality of the situation if it believes that the trust documentation does not reflect reality. In these rear cases, the Court will look into any other evidence that may prove or disprove whether a party is in actual control of the family discretionary trust. Where discretionary trust are executed in the correct way, they can also protect family assets through a separation and divorce but care should be taken when instructions to change or vary trust deeds are received from a client who has recently separated or who is currently going through property settlement proceedings.

For more information on how accountants and financial advisers are involved in Family Law matters, visit our other blog posts on the topic:


· Asset Valuation in Family Law Property Settlements

· Family Law Disclosure Requirements

· Working together through a Family Law Property Settlement

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P: (07) 3059 6001    E: admin@hopelegal.com.au    A: Level 22, 69 Ann Street, Brisbane, QLD. 4000

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