Safeguarding family wealth for future generations: The importance of trust structures in succession planning

The recent decision in Caldwell & Caldwell [2025] FedCFamC1F 506 (Caldwell) offers valuable guidance for families who want to safeguard their wealth for future generations.  

If you have a family business, significant investments, or are considering how best to structure your estate, this case provides a useful lesson on how well-structured discretionary family trusts can help protect your wealth, even in the event of divorce.

What happened in Caldwell?

Caldwell involved an application under section 79 of the Family Law Act 1975 (Cth) between Ms Caldwell ("the wife") and Mr Caldwell ("the husband"), who were married for approximately 30 years before separating in early 2022 and divorcing in 2023.

The husband worked in the Caldwell family business for most of his adult life. The business was established in the early 1900s by the husband’s great grandfather and had been passed down through four generations. At the time of the Family Law proceedings, the business was then being operated through a structure of various discretionary trusts and companies (which were owned by those discretionary trusts).

The trusts were established by the husband’s late father, Mr K, to benefit direct lineal descendants of Mr K and to facilitate the intergenerational management of the Caldwell family business.
  
After Mr K’s death, the husband, together with two of his sons, became the appointors/principals of the trusts. However, the husband had the ability under the terms of the trusts to remove his sons as appointors/principals.

The wife sought to have the Court treat the discretionary trusts, and/or their assets, as property of the parties to the marriage, or either of them, within the meaning of section 79 of the Family Law Act, which would allow the Court to make a property settlement order in respect of the trusts or the trusts’ assets (i.e. make the trusts’ assets part of the matrimonial property pool available for division between the couple). 

To support her position, the wife argued that:

1. No additional factor other than control and power to benefit is required for trust assets to be property for the purposes of section 79. In this case, the wife argued that not only is the husband a beneficiary of the discretionary trusts, but the husband’s role as one of the appointors for each of the trusts, together with his ability to remove the other appointors and exercise shareholder voting control of the trustee, gave him sufficient control so that he could benefit himself from the trusts; and

2. Matters such as the origin of the trusts’ assets, the purpose of the trusts, any interests claimed by other beneficiaries, and any moral obligations or other constraints on the exercise of powers do not preclude the trusts and/or their assets being treated as the husband’s property for the purposes of section 79.

Decision of the Court

The Court held that despite the husband’s control and ability to benefit himself from the trusts, the trusts and the trust assets were not matrimonial property that could be dealt with under section 79 of the Family Law Act. 
 
In reaching this decision, the Court acknowledged that control of a trust and the power to benefit from trust distributions are gate openers for trust assets to be included as property under section 79, but they are not the only relevant factors to be considered by the Court. 

In particular, the Court also considered the following factors as relevant in this case:

• Terms of the trust: The terms of the trust deeds clearly provided that the trusts were established for the exclusive benefit of direct lineal descendants of Mr K (the husband’s father) and no person who is not a direct lineal descendent of Mr K should be permitted by the Trustee to be a beneficiary or to receive any benefit. The exclusion from benefitting from the trusts also extended to any companies in which all directors and shareholders were not direct lineal descendants of Mr K.

• Origins of the trust assets: The origin of the trusts’ assets did not reflect contributions made by the husband and/or the wife. The Caldwell family had conducted a business over four generations established initially in the early 1900s. The assets held by the trusts were a reflection of the efforts of the direct lineal descendants of the founder of the business and, in particular, the husband’s father.

• Benefits to date from the trust: The husband had not received any distributions from the trusts either during the marriage or since separation.

• Purpose of the trust: The purpose of the trusts was to facilitate the intergenerational management of the family business for the benefit of future generations of the lineal descendants of Mr K. It is only in the pursuit of that purpose that the powers residing in the husband could be validly exercised. If the husband exercised his powers for the purpose of benefiting the wife (either directly or indirectly), then this would be in direct conflict with the unambiguous provisions in the trust deeds prohibiting a benefit to anyone other than the direct lineal descendants of Mr K and he would be in breach of the proper purpose rule.

• Sham/alter ego: There is no evidence that the husband’s father was acting as the puppet or alter ego of the husband. The trusts were not a sham or the alter ego of the husband.

• No intention to exercise control: There was no evidence to indicate that the husband intended to exercise sole control of the trusts by removing his sons as appointors of the trusts or directors of the trustee companies.

• Consideration for contribution: The husband had been well remunerated for his work in the family business, and the husband and wife had accumulated significant wealth outside the trusts.

The Court confirmed that the trusts were a financial resource, which should be taken into account when evaluating future needs, however, they were not classified as ‘property’ available for division between the couple.

Key takeaways

Control of a discretionary family trust, either actual or effective control, is a key consideration of the Court in determining whether trust assets will be included as part of the matrimonial property pool available for division between a couple. 

However, Caldwell highlights that the ability to control a discretionary family trust does not automatically equate to the trust assets being the property of the controller. The case reinforces that the source, purpose, and structure of trusts are crucial in determining their status in family law property settlements.

A trust alone doesn't ensure your assets are protected. To truly secure inheritances and reduce risks from possible future relationship issues, it is essential to use well-designed succession planning strategies. 

Otherwise, families might not have the protection they expect from their trust arrangements.

Authors: Stephanie Flegg & Jonathon Maroun