Family Fortunes: Estate Planning

7th March 2019 Family Law

Trusts play a major role in the protection of family wealth and estate planning. Sometimes the terms of a trust allow beneficiaries to call upon assets to fund a variety of different things such as a property to live in or to fund private education. In other cases, the focus of the trust will be very much upon preserving wealth for future generations, with the idea that the assets in trust would not be utilised for many years to come.

Things can become complicated when a couple divorces and there are family trusts involved. The party on whose side the wealth held in trust rests may argue that the trusts are not there to be touched. They personally have very limited resources and so cannot make a lump sum payment or transfer assets into the name of their ex. On the other side of the coin, there will be arguments about how monies have been advanced in the past and submissions made that although the beneficiary of the trust may not be personally wealthy, an order could be made against them which the trustees will allow them to fulfil. There is also a minority of cases when the trust has been set up in such a way as to allow the court to intervene directly and change the terms of the trust to allow a (soon to be) ex-spouse to benefit.

Trusts and divorce met head on in the recent case of Daga v Bangur. The wife was the daughter of one of India’s richest men but, so far as the court could see, had striven for independence and held down a reasonably well-paid job. The husband was in finance, earning very well and likely to earn even more as his career developed. Thanks to the divorce and related proceedings, far from owning any assets personally the parties actually owed money. However, the wife was one of the class of beneficiaries under trusts she had settled using assets of around £17.6m provided by her father.

The outcome was extreme. The husband was awarded nothing, despite having no assets in his name. The court accepted that the way the wife’s father had conducted himself to date supported his position that there would be no distributions from the trust in his lifetime, he being in his late fifties. The husband earned well and would continue to do so and could use his income to rent and (if he wished) save for a deposit.

In the family court, we can sometimes get caught assuming that no-one will go away completely empty-handed as the courts strive to achieve “fairness„. However, you occasionally get a case like this where the court reminds us that it is possible for an application for financial provision on divorce to be entirely without merit. This case will be welcome news for families in control of great wealth faced with the prospect of relatives experiencing family breakdown. That said, cases where an applicant ends up with no award whatsoever are very rare.

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Alice Daniel is a Solicitor located in Manchesterin our Family department

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