Sladen Snippet - Strategies for Estate Planning and Asset Protection Following New High Court Decision

In Fischer & Ors v Nemeske Pty Ltd & Ors ([2016] HCA 11; [2014] NSWSC 203), the High Court yesterday upheld the decisions of the Supreme Court of New South Wales and Court of Appeal.

The High Court’s decision confirmed that the resolution of a trustee of a discretionary trust to distribute an amount equal to the value of shares owned by the trustee to a beneficiary (Nemes) created a debt payable upon demand enforceable against the trustee by Nemes’ executor upon Nemes’ death.

The decision has legitimised a strategy for enlarging the estate of a testator who has insufficient personal wealth to make gifts under their will but control of significant trust assets.

In such circumstances, it may be desirable to create a debt in the trust in favour of the testator as beneficiary. Upon death the debt may be called up by the testator’s executors.  

Such a strategy would enable the testator to access some trust assets to pay personal gifts (or provide for a minor child) whilst vesting control of the remaining trust assets in others (say, adult children).

There are many circumstances where use of such a strategy may be recommended.  For example:

  • trust distributions to a minor from a testamentary trust are taxed at marginal rates whereas those from an inter vivos or family trust are not; 
  • the family trust may operate a business in which only one of the testator’s children is engaged and it is desired to give control of the trust to the child engaged in the business whilst also providing for the other children.

For further information or asset protection advice, please contact:

Amanda Morton 
Special Counsel
Sladen Legal
+61 3 9611 0113|  +61 421 000 195

Daniel Smedley
Principal | Accredited Specialist in Tax Law
Sladen Legal
M +61 411 319 327 | T +61 3 9611 0105