Trust and company law issues for family lawyers

Trust and company law issues for family lawyers

 Chris Bevan

Barrister, Wentworth Chambers, Sydney and Chancery Chambers, melbourne

 What is a sham arrangement?

1.        A transaction involving a round-robin of cheques does not establish the transaction as a sham, even where no party has the funds to meet a cheque.

2.        The artificiality of the transaction does not give rise to its characterisation as a sham, so long as each document had the effect it purported to have, and none of the documents purported to do something different from what is agreed to.

3.        The complexity of the transaction does not in itself establish its character as a sham. The fact that a transaction is complex and elaborate rather than simple and straightforward does not affect its true nature, if in legal form it is readily identifiable and the parties intended it to be operative according to its tenor.

4.        A purported disposal of property, and the purported creation of a debt, may be a sham where donor and donee in the case of a gift (or lender and debtor in the case of a loan) do not intend to give effect to the transaction, if it is agreed that there will be no change in legal and beneficial ownership of the property.

5.        The fact that the transactions may have been intended to present a shield against creditors does not, absent the transactions being set aside under the relevant provisions of the Bankruptcy Act, characterise them as a sham. The transactions may be legally effective although intended to achieve an unacceptable purpose. A transaction is not a sham merely because it is carried out with a particular unlawful purpose or object.

Valuation problems with discretionary trusts

6.        Valuation problems are presented by the doctrinal nature of a discretionary trust, that is, their strong discretionary element. The two main problems are:

(1)      The difficulty in identifying a definite, indefeasible beneficial interest in trust property which is susceptible to reliable valuation. The problem has its genesis in the extraordinary width of the powers of the trustee of the standard discretionary trust in respect of income and capital of the trust. The vast majority of discretionary trusts give the trustee an absolute discretion, or an extraordinarily wide discretion which is immune from judicial review, to vary the class of beneficiaries and discretionary objects, to appoint income and capital, and disentitle beneficiaries and discretionary objects to income or capital of the trust;

(2)      Authorities concerning stamp duty liability imposed on instruments dealing not with discretionary trusts but with interests created under settlements of a traditional model [i.e. fixed trusts], where beneficiaries are ascertainable and their beneficial interests identified, and no power is conferred upon the trustee or any other party to vary classes of beneficiaries or the quantum of their interests, are of no assistance in valuing the interests of the beneficiaries of discretionary trusts.

7.        These are important issues for every trust lawyer and family lawyer for the reasons made self-evident by this summary of the principal paper.