Kennon V. Spry - The High Court And Discretionary Family Trusts

Discretionary family trusts are not uncommon. Whether created

for some tax benefit, or to avoid other imposts on transfer or

disposition, these trusts often play an important role in the asset

management of a family.

Generally speaking, the trustee holds the legal title of certain

property and has an absolute discretion to apply the income or

capital of that property to the beneficiaries of the trust.

Usually, trusts of these kinds are created and regulated by a

written trust deed, which specifies the names of the trustee(s),

the beneficiaries and the powers and obligations arising from the

trust. Importantly, a beneficiary has the right to ensure the

trustee properly administers the trust in accordance with the trust

deed.

In Kennon v. Spry [2008] HCA 56, the High Court

grappled with a number of questions involving these trusts for the

purpose of property settlement pursuant to section 79 of the

Family Law Act 1975:

Is the property of a wholly discretionary trust property

capable of being subject to an order pursuant to section 79?

By amending a trust deed to remove both the husband and the

wife as beneficiaries, did that have the effect of removing the

property of the trust from property capable of being subject to an

order pursuant to section 79?

By settling new trusts in favour of children, did this

constitute a "settlement" to be taken into account

pursuant to section 85A of the Family Law Act 1975.

Does a divorce automatically remove a spouse from a class of

trust beneficiaries which is defined as "person X and their

spouse etc."?

Whilst a general proposition may be...