For decades, intergenerational or ‘bloodline’ discretionary trusts have been marketed to families as a reliable way to quarantine wealth from a spouse’s property claim. Establish the trust a generation or two back, confine it to lineal descendants, exclude the in-marrying spouse, and – so the pitch went – the assets sit safely outside any property settlement. The Full Court’s 2026 decision in Caldwell & Caldwell [2026] FedCFamC1A 81 has significantly narrowed that protection.
The message is stark: substance now prevails over form, and a spouse who controls a trust and can benefit from it may find it treated as property under s 79 of the Family Law Act 1975 (Cth).
Background – the first-instance decision
At first instance, Caldwell & Caldwell [2025] FedCFamC1F 506 was widely read as a strong endorsement of the protective trust structure. The decision was understood to recognise that a properly constituted intergenerational trust could withstand a claim that it formed part of the property pool. Early commentary treated the case as a reassuring authority – a signal that careful succession planning, deed confinement to bloodline beneficiaries and the exclusion of the non-family spouse would keep family wealth beyond the reach of s 79. That reading must now be approached with considerable caution.
The Full Court’s reframing
On appeal, the majority recast the analysis. Its central move was to insist that two questions be kept firmly separate: first, is the trust – or the relevant bundle of rights and powers associated with it – property of a party; and secondly, if so, what adjustment (if any) should be made in respect of that property.
The primary judge, the majority held, had conflated the threshold property question with the later, discretionary question of whether it was appropriate to make orders affecting the trust structure.
Properly framed, the threshold inquiry is narrow and practical: does the spouse have effective control of the trust and the ability to benefit personally from it? Considerations about fairness, the origin of the assets and the family’s wider purpose belong to the second stage, not the first.
Control and capacity to benefit are now dominant
The consequence is that control and capacity to benefit have become the dominant considerations when determining whether Trust assets are to be treated as the assets of a party, and the Court looks beyond formal legal ownership to who holds practical and legal control.
In Caldwell, the husband held voting control through the trustee companies and had the ability to remove his sons as co-appointors. Critically, the fact that he had not exercised those powers – and said he did not intend to – was not determinative. As the majority put it, the relevant question was whether the power could be used, not whether it had been used.
The majority also rejected the argument that using those powers for the husband’s own benefit would necessarily breach the proper purpose rule, because the deed itself permitted personal benefit.
Bloodline purpose is not irrelevant – but no longer determinative
This treatment does not, however, render the ‘bloodline’ character of a trust irrelevant. Rather, Caldwell changes the stage at which those features are considered.
Settlement by a parent or grandparent, deed confinement to lineal descendants, exclusion of the non-family spouse as a beneficiary, the absence of any history of distributions to the spouse, fiduciary constraints and the existence of substantial non-trust assets generally do not, of themselves, prevent characterisation as property where the spouse has effective control and can benefit. Instead, these matters now operate mainly at the discretionary or adjustment stage – informing the assessment of contributions, whether a two-pool approach is appropriate, whether orders should be made directly against trust assets, and the weight to be given to intergenerational wealth.
It is worth emphasising that identifying a trust as property does not mean the assets will automatically be divided, nor that the non-family spouse receives a direct share of them.
Where the decision sits in the authorities
Caldwell sits comfortably within the line of authority descending from Kennon v Spry, in which the High Court recognised that the rights and powers associated with a discretionary trust may amount to property where a party has sufficient control and the capacity to benefit. The significance of Caldwell is that it applies that control analysis to multi-generational family wealth – even where the trust assets were not generated by the parties to the marriage, and despite an asserted bloodline purpose. That extension is particularly significant for farming families, family businesses and intergenerational wealth structures, where assets are frequently held in long-standing trusts controlled by a single family member.
The dissent
The decision was not unanimous. Strum J dissented, taking the view that control and capacity to benefit were not necessarily sufficient in themselves, and that the totality of the circumstances remained important. His Honour pointed to the origin of the assets, the absence of any distributions, the broader family purpose, and the fact that the wife’s case required the husband to take further affirmative steps to ‘seize’ control. The dissent preserves a set of arguments that remain available where control is genuinely shared, where independent trustees or appointors exist, where self-benefit is constrained by the deed, or where the spouse would need to take affirmative steps to alter the structure. For now, however, it is the majority reasoning that stands as the presently significant statement of principle.
Three possible characterisations
After Caldwell, a bloodline trust may fall into one of three categories:
- Property of a party – more likely where there is effective control and personal benefit: sole appointor status, control of a corporate trustee, power to appoint or remove trustees, and beneficiary status.
- A financial resource – where the party cannot compel a distribution but has a realistic prospect of benefit.
- Excluded – where there is no effective control, no realistic capacity to benefit, and the trust is independently administered for a wider class of beneficiaries.
Again – identifying a trust as property does not mean the assets of the trust will automatically be divided, nor that the non-family spouse receives a direct share of them. The origins of the wealth, the interests of other beneficiaries and the history of distributions remain highly relevant to a determination as to what claim, if any, a spouse has on the assets of a Trust.
Four key takeaways for advisors:
1. Control on paper is control that counts
If your client can appoint and remove trustees, control the corporate trustee, and procure distributions or capital appointments to themselves under the trust deed, there is a real risk the trust assets will be treated as property – even if those powers have never been exercised.
2. Handshakes won’t hold
Side agreements, private family understandings and declarations that the powers have never been used will not defeat a finding of effective control where the trust deed and corporate documents confer that control. What the documents permit matters more than what the family intends.
3. Timing is no shield
It makes no difference when or how control was acquired. Control inherited after separation can still render the trust property.
4. Generations of wealth, one party’s control
Assets accumulated across multiple generations can still be characterised as one party’s property where that party holds sufficient structural control over the trust – bloodline origins alone will not keep them out of the pool.
Conclusion
Caldwell narrows but does not abolish the relevance of bloodline trusts. The Family Court will prioritise substance over form: origin, purpose and history remain relevant, but principally at the adjustment stage rather than the threshold. A spouse who can control a trust and benefit from it exposes that trust to being treated as property in a property settlement. Families relying on intergenerational structures to protect wealth should review those structures now, with control – not merely label – firmly in mind.
For more information or for assistance in relation to a family law dispute, contact our experienced family law team today for a confidential discussion on (03) 9481 2000 or info@tauruslawyers.com.au.
General information only
This article is general commentary and is not legal advice. It does not take account of your particular circumstances, and you should obtain specific advice before acting on any matter discussed here.