Parents considering lifetime transfers of control via discretionary trusts should understand that such steps are extremely difficult to reverse. The RMB Lawyers Wills & Estates & Disputed Wills Division explains.
Parents may wish to transfer control of their assets to their children while still alive to protect the family wealth from a potential family provision claim by a child they intend to exclude.
A recent decision of the NSW Court of Appeal reinforces just how effective these structures can be at protecting assets.
In McLennan by his tutor Kennedy v McLennan [2026] NSWCA 102, retired pharmacist John McLennan and his late wife Karen took deliberate steps to shield substantial family assets from a potential claim by their estranged daughter, Susannah.
They established two discretionary trusts, appointed their son Ruskin as the controlling Appointer, and gifted him the shares in the companies that owned the trusts — including the family home at MacMasters Beach.
The couple retained a right to continue living in the home. A 2018 note from their financial planner stated the goal was “to ensure Ruskin assumes control of most assets, with the view of limiting access to funds by Susannah.”
After his wife’s death in 2022, and a reconciliation with Susannah, Mr McLennan sought to unwind the key transactions. Acting through a tutor due to his age and reduced capacity, he challenged his son’s appointment as Appointer of the family trust; and the transfer of the MacMasters Beach property.
He argued the arrangements were the product of unconscionable conduct. Among other things, he claimed the steps taken were vastly disproportionate to the risk posed by his daughter’s potential claim, and that he had not received proper “evaluative” advice about the dangers of relinquishing control.
The NSW Court of Appeal dismissed the challenge. Key findings included:
- No special disadvantage: Mr McLennan understood the legal nature and effect of the transactions at the time.
- Solicitors’ obligations: Lawyers are not required to give “evaluative” advice on whether a transaction is a good idea. The critical question is whether the client had the opportunity to obtain appropriate advice and was capable of understanding the legal consequences and weighing the merits.
- Irrevocability of gifts: A gift freely made cannot later be undone simply because family relationships change or the donor regrets losing control.
The law will intervene where someone under a special disadvantage is unconscientiously taken advantage of. However, it will not unwind a transaction merely because, with hindsight, the strategy proved financially disadvantageous or family circumstances evolved.
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