For beneficiaries or shareholders with minority interests, Centrelink will look at the trust’s history of income distributions, or the company’s history of dividend payments, to ascertain a payment pattern. If Mum and Dad are objects of a trust that has been in existence for a long time and have never received an income distribution (and are not deemed to be controllers of the trust or to have been an initial or subsequent source of transferred capital), then Centrelink has, in the past, been shown to disregard the holding, pending surrender of the holding.
In the case of a trusteeship or a directorship that has precluded eligibility for the age pension, the trustee or director can relinquish control; that is, resign as the appointor and/or trustee of a trust or, for a company, relinquish all formal roles, directorships and shareholdings. They are, of course, considered to have gifted all the assets held by the trust or company and the deprivation rules will therefore apply where the market value of the amount forgone/gifted, is assessed as an asset for five years and deemed for income.
According to Centrelink, it will accept a genuine resignation has occurred where, in respect of the private trust or company, both the controller and his/her partner:
• relinquish all formal roles and control;
• relinquish all beneficial interests; and
• make a written declaration that they will not exert any control over, or benefit in any way from, the trust or company.
Excluded trusts
For the purposes of the Centrelink/DVA means test provisions, and in particular the attribution of assets or income of a private trust to an individual, the Social Security (Means Test Treatment of Private Trusts – Excluded Trusts) (DEEWR) Declaration 2008 specifies classes of trusts that are “excluded trusts” for these attribution purposes, including:
• pre-May 10, 2000 community and fixed trusts;
• trusts where the sole or dominant purpose of a trust is to receive, manage and distribute property transferred to it by a government body for a community purpose; and
• trusts that hold, manage, or dispose of indigenous-held land for a community purpose or where the sole or dominant purpose of a trust is to receive, manage and distribute income generated from the use of indigenous-held land for a community purpose.
It is also important to note that certain “court-ordered trusts” and, particularly, special disability trusts, have different treatments again imposed by Centrelink and the DVA. But these issues are beyond the scope of this paper.
There are three important aspects of dealing with private trusts and companies to bear in mind:
1. Make sure your clients fully disclose all beneficial interests and any trusteeships or directorships they might have.
2. Know the attribution and deprivation rules and how they will impact on your clients’ chances of qualifying for Centrelink/DVA support before you implement any strategies to maximise their pension amount.
3. An initial Centrelink assessment should not be taken as the be-all-and-end-all – there are avenues for appeal.
And get some good technical advice!
NOTES:
1. Centrelink, Private trusts and private companies, FS022.0905, p1, <http://www.centrelink.gov.au/internet/internet.nsf/filestores/fis022_0905/$file/fis022_0905en.pdf>, accessed 23 July 2010.
2. Australian Government, Guide to Social Security Law, Version 1.166, Section 4.12.7.10 Income Attribution, updated 1 July 2010, <http://www.fahcsia.gov.au/guides_acts/ssg/ssguide-4/ssguide-4.12/ssguide-4.12.7/ssguide-4.12.7.10.html>, accessed 28 July 2010.
Craig Meldrum is national manager, technical services, Australian Unity Personal Financial Services.
