Sarmas, Lisa --- "The gendered nature of trusts law" [2018] PrecedentAULA 5; (2018) 144 Precedent 14

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THE GENDERED NATURE OF TRUSTS LAW

By Lisa Sarmas

Trusts come in all shapes and sizes, such as those used as large-scale investment vehicles in commerce and superannuation, family trusts used to minimise tax and to limit exposure to creditors and to provide for those who cannot provide for themselves, and trusts over the family home, to name a few.

Trusts, and the way they are regulated, have an impact on all of us, whether that impact is direct (for example, through our involvement in a trust), or indirect (for example, through reduced levels of public funding for welfare, education, health and so on as a consequence of the draining effect of tax minimisation schemes on the public purse). While trusts affect us all, they impact on us differently depending on where we are situated socially and economically in terms of gender, race, class, disability and so forth. This article focuses specifically on the way that trusts law is gendered, in terms of its specific impacts on women.^[1]

HISTORICALLY SPEAKING...

At a basic level, the trust is a way of separating ownership and control of property by vesting property in a trustee who has an obligation to deal with that property for the benefit of the trust’s beneficiaries. Historically, trusts were developed in the medieval period in England as a way of avoiding common law feudal taxes payable upon death and also as a means of bypassing the strict primogeniture inheritance rules favouring the oldest male son as heir. Property would be conveyed to ‘trustees’ who would hold it to the ‘use’ of the ‘settlor’ until his or her death and then to the ‘use’ of those intended to get the benefit of the property upon his or her death (the ‘beneficiaries’). As the common law acknowledged only the legal title (held by the trustees, who had not died), feudal dues normally payable on death were not payable and the inheritance rules would not be triggered. Meanwhile, the Court of Chancery would recognise the beneficial title of the ‘beneficiaries’.^[2]

By separating legal title from beneficial ownership, the device of the trust thus provided a means of ‘slipping under the radar’ of these common law rules, which were cognisant only of the legal title of the trustee, thereby leaving those with beneficial title largely out of their regulatory reach. In this way, the trust also operated historically as a means of giving married women from the propertied classes some control over property in the context of the English common law doctrine of ’coverture’, which lasted into the 19th century and under which a woman’s legal property rights were subsumed by her husband. Wealthy families would often bestow beneficial rather than legal title to property on their married daughters (via a ‘trust’), thereby ensuring that the relevant property would not pass to the husband under the common law coverture doctrine.^[3] By enabling women to effectively inherit property and to keep it from their husbands despite the common law rules to the contrary, the trust could be seen as perhaps having a certain protective function historically for women, at least for those in the propertied classes.^[4]

TRUSTS, TAX MINIMISATION AND THE DIMINUTION OF THE WELFARE STATE

The use of the trust, particularly the discretionary trust, as a device to minimise tax has continued into the modern era in Australia and elsewhere. In a discretionary trust, the trustee has a discretion as to how to distribute the income or capital of the trust among the beneficiaries of the trust. This means that no particular beneficiary has a vested interest in the trust property unless and until the trustee exercises a discretion to distribute in their favour. Such trusts are often controlled by the head of the family, through a variety of means including their control of a company appointed as trustee of the trust and/or their role as the ‘appointor’ of the trust, via which they can attain veto power over certain trustee decisions as well as the appointment or dismissal of trustees. In this way, the discretionary trust can combine flexibility with control.

While modern tax laws are cognisant of beneficial ownership, and tax is levied against beneficial ‘owners’ on income and capital, the potential to split income and assets among family members using the trust device provides an opportunity to minimise tax by taking advantage of each person’s tax-free threshold and lower marginal tax rates. In 2014-15, there were 823,448 trusts in Australia with assets of $3.1 trillion and revenue of $349.2 billion; 642,416 of those trusts were discretionary trusts used for tax minimisation.^[5] It is estimated that this is costing the public purse around $3.5 billion a year.^[6]

Whereas in medieval times the use of the trust to get around certain common law rules could prove potentially beneficial for women, in the modern context of the welfare state, where women make up the majority of social security recipients, the drain on the public purse occasioned by tax minimisation is not only clearly detrimental to them but also to others who are reliant on an ever-diminishing welfare state to meet their basic needs. Women constitute 56.2 per cent of all recipients of payments from the Department of Social Services and make up nearly 70 per cent of carer payment recipients, over 90 per cent of parenting payment recipients and nearly 55 per cent of age pension recipients.^[7] In recent times the Australian Labor Party has indicated that if it is elected to government, it will change the tax treatment of family discretionary trusts to ensure that they are not misused for tax minimisation.^[8] Governments, however, have a tendency to drag their feet on progressive tax reform, particularly in relation to the regulation of trusts – for example, in the late 1990s, Peter Costello, Treasurer in the Howard government, proposed some taxation reform for trusts, but this was withdrawn several years later due to opposition from within the ranks of his own party and from the trusts industry. Given this history, we should not hold our breath waiting for any significant change in the near future.

TRUSTS AS A SHIELD AGAINST FAMILY PROPERTY SETTLEMENTS

Not only does the modern discretionary trust detrimentally impact on women through draining the public purse of much-needed funds, but it can also work against women at an intra-family level by providing a means by which to shield assets from the reach of family law property settlements.^[9] Where the financially stronger party in the relationship (usually a male partner) has arranged their assets to be held under a discretionary trust, there is potential to deprive the financially weaker party of access to what is often the vast majority of the parties’ wealth. As assets held in a discretionary trust are not, strictly speaking, ‘property’ beneficially vested in anyone (at least not until the trustee exercises their power to distribute to beneficiaries at their discretion), prima facie they are not relevant ‘property’ capable of forming part of the ‘property pool’ from which property can be allocated between the parties on separation.

The question of whether a particular trust will be effective in achieving this result will depend on the specific terms of the trust and the surrounding circumstances.^[10] In a welcome sign, the High Court has signalled that it might be willing to look beyond the form of conventional trust principles in this context by ‘piercing the veil’ of the trust and analysing where actual power and control over the property is located.^[11] In Kennon v Spry,^[12] Dr Spry failed in his attempt to shield assets held in a discretionary trust from a family property settlement with his former partner, despite the fact that (based on conventional discretionary trust principles) neither he nor his former partner had any vested beneficial property interest in those assets.

TRUSTS, DEBT AND THE FAMILY HOME

Another area of trusts law that significantly affects women is that of resulting and constructive trusts over the family home. Such trusts are based on a range of principles including ‘unconscionability’,^[13] ‘common intention’^[14] and rebuttable presumptions and inferences as to intended beneficial ownership proportions.^[15] These trusts determine beneficial ownership of the home as between family members, regardless of legal title. As the Family Law Act 1975 (Cth) now covers most property disputes between separating couples (by providing for allocation of property based on a guided statutory discretion),^[16] these trusts are relevant these days predominantly in the context where a third party, such as a creditor of one of the family, claims an interest in the home through that family member. The bankruptcy of a spouse or de facto partner can result in the loss of the family home to creditors, as they have a claim on the bankrupt’s share of the home.^[17] The precise nature of the trust principles involved in working out that share are therefore of crucial importance for women’s housing security.

The application of resulting and constructive trust principles in the family home context is a complex and diverse area of trusts law, but it is accurate to generalise that these doctrines are deeply gendered in the sense that they often fail to deliver just outcomes for women.^[18] Their focus on the ‘contributions’ of the parties (especially their financial contributions),^[19] and even the more recent notion of an ‘equal ownership’ starting point for the matrimonial home,^[20] does not account sufficiently for the structural inequality experienced by women. Men, on average, still earn $26,000 p.a. more than women, with pay disparities in every industry and occupation. Women still do the vast majority of childcaring and homemaking, which impacts on their paid employment prospects, their superannuation and their general income and wealth.^[21] This structural inequality places women at a distinct disadvantage, whether in terms of meeting the relevant doctrinal requirements and/or in dealing with the economic and other consequences of losing a share of their home to their partner’s creditors. Unfortunately, these trust doctrines do not (at least at this stage in their evolution) take into account the material needs of the parties when determining their respective beneficial shares in property, even when that property is the family home.

CONCLUSION

Trusts law, like all areas of law, and indeed all other social institutions, is saturated by a range of intersecting power relations,^[22] including that of gender. This article has provided just a small sample of the ways in which trusts law is gendered.

Lisa Sarmas is a Senior Lecturer and Director, JD Program at Melbourne Law School. PHONE [phone] EMAIL [e-mail].

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^[1] To say that the trust is ‘gendered’ can mean a number of different but related things. At one level, it can refer to the fact that the trust, as a concept, has a gender – that is, that it is male or female in its form. At another level, to say that the trust is gendered is to suggest that the trust has gendered effects – that is, that it materially impacts on men and women differently. The present article focuses on the latter. For an analysis of the former, see L Sarmas, ‘The Gendered Trust’ (Paper presented at the symposium on ‘Power, Property and the Law of Trusts Revisited: Roger Cotterrell’s Contribution to Critical Trusts Scholarship Revisited’, University of Kent, 25-26 October 2017), arguing that the form of trusts law is influenced by the gender binary.

^[2] See, eg, J Garton, G Moffat, G Bean and R Probert, Moffat’s Trusts Law, 5th ed, Cambridge University Press, Cambridge, 2015, 34-44.

^[3] See, eg P Loughlin, 'The Historical Role of the Equitable Jurisdiction' in P Parkinson (ed) The Principles of Equity (Law Book Company, Sydney, 1996), 10-11.

^[4] Note, however, that Eileen Spring has found that while under the primogeniture rules, women would inherit around 25 per cent of estates (eg, due to there being no male heir), the widespread use of the ‘trust’ to get around these rules resulted in women getting an average of 8 per cent of estates. Spring attributes this to male landowners using the trust to make gendered choices against the interests of female heirs: see E Spring, 'The Heiress-at-Law: English Real Property Law from A New Point of View' Law and History Review, 8, 1990, 273.

^[5] J Massola, ‘Trust buster: Bill Shorten promises $17.2 billion tax crackdown’ The Sydney Morning Herald (online), 30 July 2017, <http://www.smh.com.au/federal-politics/political-news/trust-buster-bill-shorten-promises-172-billion-tax-crackdown-20170729-gxlf3s.html> .

^[6] D Richardson, ‘Trusts and Tax Avoidance’ (Discussion Paper, The Australia Institute, July 2017).

^[7]See P Whiteford, Tax and Transfer Policy Institute Social Security and Welfare Spending in Australia: Assessing Long-term Trends (TTPI Policy Brief 1/2017, Australian National University, July 2017) 8-9 <https://taxpolicy.crawford.anu.edu.au/sites/default/files/publication/taxstudies_crawford_anu_edu_au/2017-07/combined_pdf_whiteford_trends_in_soc_sec_spending_2017.pdf>.

^[8] See, eg, A Horn, ‘Bill Shorten pledges to impose 30pc tax rate on family trust distributions’, ABC News (online), 30 July 2017, <http://www.abc.net.au/news/2017-07-30/bill-shorten-reveals-plan-to-crack-down-on-family-trusts/8757628> .

^[9] See ss79 and 90SM of the Family Law Act 1975 (Cth).

^[10] See, eg, Kennon v Spry [2008] HCA 56; (2008) 238 CLR 366.

^[11] Ibid.

^[12] Ibid.

^[13] See, eg, Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137.

^[14] See, eg, Parsons v McBain [2001] FCA 376; (2001) 109 FCR 120.

^[15] Specifically, the presumption of resulting trust and advancement (Calverley v Green [1984] HCA 81; (1984) 155 CLR 242) and the inference of joint ownership of the matrimonial home (Trustees of the Property of Cummins (A Bankrupt) v Cummins (2006) 227 CLR 278).

^[16] Sections 79 and 90SM of the Family Law Act 1975 (Cth) now cover most property disputes between separating couples by providing for allocation of property based on a guided statutory discretion. It should be noted, however, that in Stanford v Stanford [2012] HCA 52; (2012) 247 CLR 108, the High Court of Australia stated that family courts exercising this jurisdiction should first consider the existing legal and equitable interests of the parties in deciding whether to alter interests in accordance with s79 or s90SM. This means that courts exercising family law jurisdiction may still need to consider any interests of the parties created via trust principles. See also s 79(11) of the Family Law Act 1975 (Cth), which provides that courts exercising family law jurisdiction must join the trustee in bankruptcy to property proceedings if one of the parties to the relationship is or becomes bankrupt.

^[17] For a detailed discussion of the interaction of trusts and family law principles in the bankruptcy context see L Sarmas and B Fehlberg, ‘Bankruptcy and the Family Home: The impact of Recent Developments’, Melbourne University Law Review, 40(1), 2016, 288. For an outline of the notion of ‘sexually transmitted debt’, see S Elsworth, ‘Women blame sexually transmitted debt for their financial woes’, The Herald Sun (online), 4 November 2017, <http://www.heraldsun.com.au/business/women-blame-sexually-transmitted-debt-for-their-financial-woes/news-story/97b36b3e859c421d987140b587543e08> .

^[18] For a detailed analysis of the specifics of these doctrines, as well as their gendered effects, see L Sarmas, ‘Trusts, Third Parties and the Family Home: Six Years Since Cummins and Confusion Still Rules’, Melbourne University Law Review, 36, 2012, 216.

^[19] As in the resulting trust and the ‘unconscionability’ and ‘common intention’ constructive trust.

^[20] As in the principle in Trustees of the Property of Cummins (A Bankrupt) v Cummins (2006) 227 CLR 278.

^[21] See Australian Government, Australia’s gender equality scorecard: Key findings from the Workplace Gender Equality Agency’s 2016-17 reporting data (November 2017) <https://www.wgea.gov.au/sites/default/files/2016-17-gender-equality-scorecard.pdf>, 1; and Australian Government, Unpaid care work and the labour market, insight paper, Workplace Gender Equality Agency: <https://www.wgea.gov.au/sites/default/files/australian-unpaid-care-work-and-the-labour-market.pdf>.

^[22] For an outline of the ways in which power relations (including gender) intersect, see J Chen (2017) Intersectionality Matters: A guide to engaging immigrant and refugee communities in Australia. Multicultural Centre for Women’s Health. Melbourne.