The general rule is that a discretionary beneficiary does not beneficially own the assets of the trust. Even where a beneficiary controls the trustee—or is personally the trustee—that does not ordinarily make the trust assets their own beneficial property.
Two important cases test the limits of that principle.
In ASIC v Carey (No 6) [2006] FCA 814, French J suggested that where the trustee is effectively the alter ego of a beneficiary, the beneficiary may have at least a contingent interest approaching beneficial ownership. The case remains an important warning where a discretionary trust is relied upon for asset protection. However, it concerned receiver orders under the Corporations Act 2001 (Cth), not bankruptcy, and did not establish that control always equals beneficial ownership.
In Kennon v Spry [2008] HCA 56, the High Court brought trust property within a family-law property settlement. The result depended on Dr Spry’s extensive powers and control, Mrs Spry’s equitable rights and the particular operation of the Family Law Act 1975 (Cth). It was not a general creditors’ case.
Later decisions, including Swishette Pty Ltd v ACCC [2017] FCAFC 45 and Fordyce v Ryan [2016] QSC 307, support the orthodox position that control of a discretionary trust does not, by itself, amount to beneficial ownership of its assets.
The practical lesson is that extensive control can weaken the protective effect of a trust, but the outcome depends heavily on the trust deed, the controller’s powers and the statutory context.