Join Australia's most dynamic and respected property investment community

Legal Tip 137: Arguing a Trust on Bankruptcy

Discussion in 'Legal Issues' started by Terry_w, 11th Jun, 2016.

  1. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,043
    Location:
    Sydney
    Legal Tip: Arguing a Trust on Bankruptcy

    When a person goes bankrupt what they own legally may not be what they own beneficially.

    In a recent case, it was successfully argued that a trust relationship existed, where there was no formal trust set up, and this prevented a property falling into the hands of creditors.

    Background of the case
    Lebanese migrants, mum, and dad, purchased a house in Sydney.

    At a later date son needed to borrow some money but could not do so on his own so mum and dad took out a loan on their home and let the son use the money. The son made the payments on the loan – for a while.

    The son stopped paying and mum and dad could not keep up the payments so they fell behind. Eventually, the bank was going to take possession of the house as they could not refinance on their income and repayment history.

    It was suggested that the adult daughter would be able to get a loan and that the daughter could 'buy' the property from them. This suggestion seems to have come from a bank 'broker'.

    The daughter ended up buying the house from them. The title was transferred into her name and mum and dad and the family members continued paying the loan. All went well for a while until the daughter committed criminal fraud against an insurance company she worked for and was sued as well as charged with criminal offences.

    The daughter then suffered a court judgement as she owed the insurance company over $200,000. She went bankrupt as she could not pay the debt.

    Later when the creditors tried to take the house it was argued that the house actually belonged to the parents and the daughter were merely the trustee owner for them.

    The court agreed and ordered that the title to the property be transferred back to the parents and that this property be charged to the parents to the value of their payments plus interest.

    So the trustee in bankruptcy may have claimed back a small amount of the value of the property – the value less the parent’s contributions plus interest.

    Tamer v Official Trustee in Bankruptcy [2016] NSWSC 680
    Tamer v Official Trustee in Bankruptcy - NSW Caselaw

    Moral of the story - title doesn't always show beneficial ownership.
     
    Elives, York and Connor like this.
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,043
    Location:
    Sydney
    Another case
    Ambrose as Trustee of the Bankrupt Estate of Athanasas v Athanasas [2016] SASC 63
    http://www.courts.sa.gov.au/Judgments/Lists/Judgments/Attachments/2642/2016 SASC 63.pdf

    The bankrupt son owned 50% of a property together with the parents owning the other 50% (tenants in common).

    The parents argued that the son's share was owned by the trust on trust for them and that therefore the son's share should not pass to the trustee in bankruptcy.

    There was no written deed of trust so the express trust argument failed as trusts for land must be in writing. It was also argue that there was a resulting trust. This failed too

    Some of the matters considered to prove that there was no trust included the fact that when the son made a loan application to St G after the purchase he listed the land as his - jointly owned with the parents - see my tip on this
    Legal Tip 132: Trusts and Your Assets and Liabilities Statements
     
    York likes this.