Editors --- "Assets: attribution of private trust assets; loan from trust for purchase of home" [2006] SocSecRpr 51; (2006) 8(4) Social Security Reporter, Article 8

• SPENCE and SECRETARY TO THE DEWR
• Background
• The issues
• Discussion
• Formal decision

---

Assets: attribution of private trust assets; loan from trust for purchase of home

SPENCE and SECRETARY TO THE DEWR

Decided: 3rd August 2006 by R. Hunt

Background

In 2002, Spence’s mother passed away, leaving her estate to Spence and her four siblings according to the terms of her will and a codicil. After providing for specific bequests, the will provided for the residue of the estate to be divided equally between the siblings, with each share being subject to a trust.

In Spence’s case, the will provided that her share be held on trust until a vesting date. The trustees of the Amanda Spence Trust were named as Spence and her sister Victoria.

The trust was designed to be a protective one and had the stated objective of providing security for Spence. Clause 11E of the will expressly provided that the trustees should favour Spence and not preserve the capital of the trust for Spence’s children.

In 2004, Spence decided to purchase a house. After obtaining legal and accounting advice, the trustees decided that it would be in Spence’s best interest if the money to purchase the house was lent to her by the trust, rather than the trust purchasing the property. In early June 2004, the Amanda Spence Trust lent $432,000 to Spence, by way of an interest free loan, to enable her to purchase the house. This loan was unsecured.

After making the loan to Spence, the trust held around $5000 in cash.

Spence purchased a house and was recorded as the registered owner of the property. She resided in the property as her principal home. Later, Spence used the property as mortgage security for a loan of $130,000 from a commercial lender.

Spence made a claim for parenting payment in October 2004, which was rejected on the basis that her assets exceeded the relevant asset test limit. This decision was affirmed on internal review and by the SSAT. Spence applied to the AAT for a review of the rejection decision.

The issues

This case concerned the attribution of trust assets under the provisions of the Social Security Act 1991 (the Act). In particular, the AAT was concerned with whether the unsecured loan of $432,000 made to Spence was an asset of the Amanda Spence Trust which was attributable to Spence as a controller of the trust.

An alternative argument on behalf of the applicant was that the applicant only held a ‘life interest’ in the property.

Discussion

The Tribunal found that the Amanda Spence Trust was a ‘controlled private trust’ under section1207X(2) of the Act, as it did not fall within any of the exemptions in section 1207P(1). Further, as Spence was a trustee of the trust, the Tribunal found that she passed the control test under section 1207V(2) of the Act.

As Spence was a controller of the trust for the purposes of the Act, the Tribunal was satisfied that 100% of the assets of the trust were attributable to her pursuant to section 1207X(2) of the Act.

The Tribunal relevantly found that:

- the property purchased by Spence, using monies loaned to her by the Amanda Spence Trust, was held in her own name as registered owner with an unfettered title;

- as the loan from the trust was a separate transaction to the purchase of the house, the loan was an assessable asset of the trust;

- it did not matter that Spence had used the loaned money to purchase an exempt asset for the purposes of the Act (her principal home), the loan existed and, under the legislation, was a separate, assessable asset from the house;

- as Spence was a controller of the trust, 100% of the trust’s assets, which included the unsecured, interest-free loan of $432,000, were attributable to her under the Act; and

- the value of the trust’s assets were such as to preclude Spence from receiving parenting payment.

The Tribunal found that, although Spence’s situation was unusual, the attribution provisions in the Act were operating as Parliament intended in this case.

The Tribunal rejected the alternative argument being advanced by the applicant that she only held a life interest in the property. The Tribunal observed that the purpose of a life interest is to provide for the temporary use and enjoyment of the capital of an estate, whilst preserving the capital for the ultimate benefit of the remaindermen. The Tribunal found, in this case, that whilst the loan remained unpaid, no capital was being preserved for the benefit of Spence’s children. Further, the Tribunal noted Clause 11D of the will, which provided that the trustees act in favour of Spence rather than preserve the capital for her children.

Formal decision

The Tribunal affirmed the decision under review.

[S.O.]