The transfer that changed everything: McLennan v McLennan’s stark warning

A recent New South Wales Court of Appeal decision highlights the risk that once you have transferred control of assets by way of discretionary trusts, those decisions may effectively be irreversible. In McLennan v McLennan,^[1] the Court of Appeal confirms that Courts will not lightly intervene to set aside voluntary transactions even where they subsequently disadvantage one party, affirming trustees’ power under discretionary trusts to distribute wealth as they see fit.

Background

• The appellant Malcolm John McLennan (John), a pharmacist, was married to the late Susan Karen Jeannine McLennan (Karen), a nurse. John and Karen have two children, Ruskin and Susannah.
• Over the course of their marriage, John and Karen accumulated substantial assets, including:
  • a marital home valued at $3 million in 2019;
  • three trusts:
    • two of which are discretionary for the benefit of the McLennan family, of which the trustee is a company incorporated under the instructions of, and originally controlled by, John and Karen.
    • a self-managed superannuation fund (estimated to be $7 to $7.5 million in 2019); and
    • a property in Japan (valued at $3 million in 2019).
  • The companies, for the purposes of the publication, will be referred to as Convulon and Lakshmi and their respective trust under which they are trustee will be referred to as Convulon Trust and Lakshmi Trust (estimated to be totalling $10 million in 2019):
    • Convulon owns a commercial property as trustee under the Convulon Trust; and
    • Lakshmi owns another commercial property as trustee under the Lakshmi Trust;
  • The events leading to the dispute are summarised as follows:
    • In 2005, Susannah was the director of Convulon and Lakshmi, the position which she held until 2008 and 2009 respectively.
    • In 2010, Ruskin replaced Susannah and also became McLennan Holdings Pty Limited’s director, an entity owned by one of the trust.
    • In 2014, John and Karen resigned as directors of Convulon and Lakshmi, transferring their shares to Ruskin as part of their new mirroring Wills (2014 Wills). This course of events happened based on Ruskin’s request made in 2011 for advice from Mr Walker (an accountant who had long acted for John and Karen) and Mr Adams (a solicitor recommended by Mr Walker). The advice was sought with the primary purposes of restructuring John and Karen’s affairs so that Ruskin held control of the two companies and the assets were put as far from Susannah’s reach as possible due to her alcohol problems. At the time the request for advice was made, Ruskin was living and working at a resort in Japan where he owned a share of a real estate business, subsequently selling that interest to return to Australia to manage family affairs and assets.
    • Under the 2014 Wills, Ruskin is the trustee. John and Karen left the whole of their estate to one another. Ruskin was to take their interests in the Marital house, subject to John and Karen’s life interests. Susannah received a bequest of $300,000.
    • In 2019, Ruskin emailed Mr Adams the letters of intent for Karen and John, stating to the effect that Susannah had mental health issues and long-term alcohol issues and therefore the trust must be managed solely by Ruskin (Deed of Appointment).

Issues

• Against that background, John sought to set aside:
  • the Deed of Appointment under which Ruskin is nominated as the appointor of the Lakshmi Trust; and
  • the transfer of the Marital house to Ruskin,
    • on the basis that he entered them due to Ruskin’s unconscionable conduct.

The primary Judge’s rulings

• At trial,^[2] Parker J found that there was no unconscionability on Ruskin’s part. Of particular relevance, his Honour relied on:
• Improvident transaction
  • His Honour concluded that the transactions were not improvident. First, the Deed of Appointment was executed for a legitimate estate‑planning purpose, namely, to prevent Susannah from dissipating the trust’s assets. Secondly, the transfer of the marital house could not be characterised as a gift, as it was accompanied by Ruskin’s simultaneous execution of a Deed of Life Tenancy in favour of John and Karen, preserving their right to occupy the property.

Vulnerability

• His Honour found that John was not vulnerable in the relevant equitable sense. John retained full decision‑making capacity and had obtained professional advice that was independent of Ruskin’s influence, notwithstanding that John and Karen relied on Ruskin for day‑to‑day banking and financial matters. Further, Parker J held that Ruskin was not required to expressly warn John that the Deed of Appointment was irrevocable; its irreversible effect was an obvious and inherent feature of such an instrument.

Exploitation

• Finally, Parker J rejected the allegation that Ruskin exploited John. To establish this element, John would have needed to prove that his solicitor, Mr Adams, failed to provide full and frank advice – a matter of legal adequacy that Ruskin could not reasonably be expected to know or assess. In the absence of such proof, the allegation of exploitation could not succeed.
  • Appeal.
• On appeal, John advanced a case built on two alleged special disadvantages:
  • his close personal relationship with Ruskin and corresponding reliance on him for the management of his financial affairs; and
  • his mistaken belief that entering into the two impugned transactions was necessary to protect his estate from any potential claim by Susannah.

The Court of Appeal’s decision

• The Court of Appeal rejected these arguments. In dismissing the appeal and finding that Ruskin had not engaged in unconscionable conduct, Ball JA (with Leeming and Payne JJA agreeing) identified several decisive considerations:
  • Ruskin’s return from Japan. He had come back specifically to assist John and Karen during a period of need.
  • Eight years of assistance. By 2019, Ruskin had been supporting his parents in their financial and business affairs for nearly a decade.
  • Absence of persuasion. There was no evidence that Ruskin pressured or induced his parents to enter into any of the transactions now challenged.
  • No cognitive impairment. John’s cognitive functioning had not declined in a way that would have prevented him from acting rationally or in accordance with his own intentions.
  • Sophistication of the parties. Both John and Karen were financially experienced and must have appreciated the legal and practical consequences of the arrangements they executed.
  • Capacity to assess the transactions. John was capable of evaluating the merits of the transactions even without legal advice, and his complaint of inadequate advice could not be sustained.
  • Equitable principle on finality. Equity has long held that a transaction free from fraud will not be set aside merely because later events render it disadvantageous to one party.

Lavan comment

• Individuals should exercise caution before transferring control of assets, particularly within family structures, as loss of control may be permanent and later regret of relationship breakdown will not justify setting aside the transaction.
• If you require assistance with understanding or structuring asset transfers via discretionary trusts, estate planning arrangements or assessing risks associated with relinquishing control of assets, please do not hesitate to contact Iain Freeman or Kerri Meyers.

Disclaimer

The information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.

Footnotes

^[1] [2026] NSWCA 102.

^[2] See McLennan v McLennan [2025] NSWSC 1603.