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FAMILY TRUST LIABILITIES: Key Issues

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  • May 24, 2016
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One of the key problems before the Family Court is the value to be ascribed to assets and liabilities.

Valuation of debts owed to family trusts can be problematic and often contentious.

Trust debts are often generated by accountants and issues often arise about the value of such debts and whether the debts are genuine.

The Principles to be applied in determining the existence of an alleged debt or loan owed to a family trust are:

  1. That the issue to be determined is whether or not it is likely that the debt is repayable or likely to be enforced by the family trust.
  2. That the issue is a factual matter requiring determination on the relevant evidence.

Relevant evidence or factors would include:

  1. What has been the family trust’s historical approach to the debt – is there any acknowledgement of debt, any security, any arrangement for repayment?
  2. Evidence from the family trust and its controllers (i.e. trustee or controlling parties). If there is no evidence that the debt will be enforced (and when and how) that is a point against the enforceability of the debt.
  3. How the debt came into existence – has any money actually changed hands? What was the purpose of the debt and/or what benefits were gained?

Finally, a court may disregard a liability wholly or partially if, because of the circumstances surrounding the incurring of the liability, it ought to in justice and equity be wholly or partially disregarded.

See Esposito & Coster [2012] Fam CAFC 118

 

For more information or if you have any concerns in relation to family trusts, contact Mark de Kerloy at mdekerloy@mdk.com.au

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