Christmas. ‘Tis the season to be jolly and a time for peace, goodwill and family. Right? Hopefully, but not always.
It seems that Christmas, despite all its good intentions, also has the uncanny ability to unearth latent family disputes that have laid dormant for years but crack open like a bon-bon before anyone even has time to strike up a chorus of “Ding Dong Merrily on High”.
We all know the scenario. Jane is hosting the whole family for lunch again, while Sue hasn’t lifted a finger. Santa gave Freddy a brand new watch, while Jim got a pair of inferior cotton socks. It doesn’t take long before niggles of resentment can morph into mammoth family disputes. When those disputes spill over into questions of business, inheritance, personal wealth, and the all-important family trust, they can become very bitter disputes indeed.
The Family Trust
Family trusts are a common feature of a family business structure. Trusts provide an effective way of managing family income, assets and distributions. The rules that govern how the trust is managed, including beneficiary entitlements, are usually set out in a legal document called a “trust deed”. A trust deed is often drawn up by a lawyer (or, alarmingly, downloaded for a small fee from the internet) at the very beginning of the life of the trust, signed by family members with all due solemnity and caution… and then promptly forgotten or left to provide nourishment to silverfish at the bottom of a hard-to-reach filing cabinet.
Over the years, the family business grows, assets accumulate and, perhaps beneath the surface, so do those simmering irritations and family rivalries. Then, one day Freddy asks for one too many slices of Christmas pudding and seemingly out of nowhere, a family battle erupts. All of a sudden, the terms of that long forgotten trust deed become extremely important and there is a scurry for that elusive filing cabinet in which the deed resides.
The Rinehart Family Dispute
One very prominent example of this form of dispute is playing out under the watchful eye of the nation’s media. Gina Rinehart’s family is in turmoil and at the heart of the dispute is the trust deed for the Hope Margaret Hancock Trust which had been established by Ms Rinehart’s father back in 1988. So far the dispute has seen the family before the New South Wales Supreme Court and Court of Appeal on numerous occasions, spawned a tangle of complicated legal arguments and generated a firestorm of media attention… and the trial hasn’t even begun.
The Scaffidi Family Dispute
But it isn’t only the high-profile families that get embroiled in disputes over the family trust. Another recent example came before the High Court in the decision of Montevento Holdings Pty Ltd v Scaffidi. This case involved a dispute between two brothers over the management of a family trust that had been established some thirty-five years earlier by their father. As a Justice of the Supreme Court of WA stated, the dispute was driven onwards by “a degree of dissension, even animosity, between [the brothers] which is, unfortunately, not uncommon in some families”. After over three years of arguing before three different courts and presumably hundreds of thousands of dollars spent on legal fees, it seems a peaceful and harmonious resolution was not found but was taken all the way up to Australia’s highest court.
The sad reality of these disputes is that they are often bitterly fought, long-running, emotionally draining and result in seemingly irreparable damage to family relationships. There are no winners.
Restoring Trust in the Family Trust
The good news is that with some careful business structuring, considered legal advice and thoughtful planning in the early stages of the family trust, the majority of these disputes could be avoided. Most family trusts have a very long life and therefore need to have a trust deed that accommodates a variety of future circumstances and events. It should also take your specific family needs and circumstances into account.
So, before you embark on this year’s festivities, perhaps consider whether your Christmas wish list should include some well-managed discussions, planning and advice involving the family trust and the proper structuring of your family’s affairs.
For further information, please contact the author.
This article is posted in Adelaide, South Australia by Tri-meridian Corporate & Commercial Law and is intended to be used as a guide only. It is not, and is not intended to be, advice on any specific matter. We do not accept responsibility for any acts or omissions resulting from reliance upon the content of this article. Before acting on the basis of any material in this article, we recommend that you consult your professional adviser.