Your client's trust has been distributing to the husband for years. Tax-effective. Consistent. Then the marriage ends.
The Family Court does not just look at the trust assets. In Woodcock (No 2) [2022] FedCFamC1F 173, Wilson J found on a preliminary issue that the beneficiary's right to compel real and genuine consideration from the trustee was “property” under s 79 of the Family Law Act 1975. Not a vested entitlement. Just the right to be considered.
Years of distribution resolutions created the pattern that made that right valuable.
The Tax Traps That Also Create Exposure
To stream capital gains and franked distributions, the trustee must create “specific entitlement” under Subdivisions 115-C and 207-B ITAA 1997. A generic resolution appointing “all trust income” does not do this. Without reference to each class of income, streaming fails.
A contingent resolution is worse. In Lewski v FCT [2017] FCAFC 145, a resolution conditional on the Commissioner disallowing a deduction created no present entitlement at all.
Fixed dollar resolutions without a balance provision are dangerous. If income increases on amended assessment, no beneficiary is presently entitled to the additional amount. Section 99A ITAA 1936 applies at the highest marginal rate.
Why Resolutions Matter Beyond Tax
Every distribution resolution creates a debt from the trustee to the beneficiary. Unpaid present entitlements are enforceable.
In family law, Kennon v Spry [2008] HCA 56 established that trust assets can be treated as matrimonial property. After Woodcock, even the bare right to compel real and genuine consideration (Owies v JJE Nominees [2022] VSCA 142) can be characterised as property and valued.
A consistent pattern of distributions to one spouse is exactly what a family court will examine. The resolution that saved tax may cost far more in property settlement.
The Practitioner Checklist
1. Read the deed before drafting. Does the income definition include capital gains? Is there a streaming power? Does the deed require writing by 30 June?
2. Draft class-specific resolutions - discounted and non-discounted capital gains, franked distributions, other income.
3. Include a balance provision for every fixed amount or percentage resolution.
4. Use Boolean drafting where the tax character of a receipt is uncertain. Never condition a distribution on a future Commissioner decision.
5. Think beyond tax. Who is receiving distributions and why? Could the pattern create exposure in family law, bankruptcy, or beneficiary disputes? A resolution driven only by tax may create problems no amendment can fix.
30 June is less than three months away. When did you last review your resolution template?
General information only. This note was written as at 3 April 2026 and the law may have changed since. It is not legal or tax advice, does not take account of your circumstances, and must not be relied upon as a substitute for advice on your own matter.