THE MAGIC OF TRUSTS — COURT MAKES FUNDS INVISIBLE TO CREDITORS

  1. If the daughter is eventually bankrupted, a bankruptcy trustee might consider whether it can attack the protective nature of the trust on the basis that it is a transfer to defeat creditors (s121 Bankruptcy Act 1996), either in its entirety ($850,000) or at least as regards the original $25,000 and jewellery left to the daughter under the Will if the same was subsumed into the Court’s protective orders. A bankruptcy trustee may, however, have some significant hurdles to overcome, including whether the daughter can be said to have “transferred property” at all in circumstances where the right to the funds didn’t exist prior to the Court’s order, and where the Court might have refused to make any provision order at all if the funds were likely to be depleted by creditors without any substantial benefit to the daughter.
  2. This decision might encourage insolvent claimants to make claims under the Family Provision Act, without fear that their claims would (as was previously the case) be unsuccessful simply because of their financial position.
  3. This decision might also impact upon any third parties who provide services to claimants on the basis that they will be paid out of the proceeds of such a claim, or creditors who defer taking action against a claimant on that basis. There would seem to be a real possibility that successful litigation may result in the insolvent claimant still being left with no funds to pay for those services, and there is no guarantee that the trustee of any newly created trust will distribute funds to the claimant to pay the same.
  4. The decision also highlights the benefit of using a testamentary trust when a potential beneficiary under a Will gets into financial difficulties. Wills should for that reason, and many others, be regularly reviewed.

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Aiden Dallas

Aiden Dallas

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As a freelance copywriter I love the flexibility of working anywhere across the globe and all the opportunities that come with it.