Relationship property agreements and trusts are poor bedfellows at the best of times. While trusts are a common feature of many couples’ asset and estate planning activities, assets owned by a trust are not relationship property. Although the Property (Relationships) Act 1976 (the Act) can have application to trusts, the provisions that allow parties to contract out of the Act only apply to the parties themselves.
Nonetheless it is common, and often very important, for relationship property agreements to refer to trust owned property or the disposition of property onto trust. Where this is the case the lawyer giving advice to either party must take care to ensure an appropriate level of advice. Firstly, to ensure the standard of advice given meets the requirements for the purposes of the Act, and secondly to protect the lawyer in the event that one or other party subsequently challenges the agreement.
A recent Court of Appeal decision highlights matters that need to be taken into account when advising a party where the pool of assets available to the parties includes assets owned by one or more trusts. Such matters including:
- the importance to clearly distinguish between relationship property assets and trust assets
- the need to analyse the party’s position both under the Act and under the proposed agreement
- the need to consider the effect of the agreement on third party creditors
- whether debts are owed by trustees or personally