Editors --- "Assets and income test: whether life testamentary trust a controlled private trust" [2007] SocSecRpr 3; (2007) 9(1) Social Security Reporter, Article 3

• SECRETARY TO THE DEWR and ELLIOTT
• Background
• The law
• The evidence
• Consideration
• Formal decision

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Assets and income test: whether life testamentary trust a controlled private trust

SECRETARY TO THE DEWR and ELLIOTT

Decided: 15th November 2006 by B. J. McCabe

Background

Elliott, the first respondent, and his wife, the second respondent, were in receipt of social security pensions. The Tribunal’s decision does not refer to the type of social security pensions they received. The Elliots were also beneficiaries of a testamentary trust established by the first respondent’s late father. The SSAT decided that the assets and income of this trust could not be attributed to the Elliots as the trust in question was not a controlled private trust within the meaning ofs.1207V of the Social Security Act 1991 (‘the Act’). The Secretary appealed this decision to the Tribunal.

The law

The question before the Tribunal was whether the assets of the trust should be attributed to the Elliot pursuant to Part 3.18 of the Act. According to Part 3.18, the income and assets of a trust are to be attributed to a person if the trust in question is a ‘controlled private trust’ according to s.1207V and the person is an ‘attributable stakeholder’ according to s.1207X.

These sections relevantly state:

Controlled private trusts

1207V(1) For the purposes of this Part, a trust is a controlled private trust in relation to an individual if the trust is a designated private trust and:

(a) the individual passes the control test set out in subsection (2); or

(b) the individual passes the source test set out in subsection (3).

Control test

1207V(2) For the purposes of this section, the individual passes the control test in relation to a trust if:

...

(d) the aggregate of:

(i) the beneficial interests in the corpus or income of the trust held by the individual (whether directly or indirectly); and

(ii) the beneficial interests in the corpus or income of the trust held by associates of the individual (whether directly or indirectly);

is 50% or more; or ...

Attributable stakeholder, asset attribution percentage and income attribution percentage

...

1207X(2) For the purposes of this Part, if:

(a) a trust is a controlled private trust in relation to an individual; and

(b) the trust is not a concessional primary production trust in relation to the individual (see section 1208U);

then:

(c) the individual is an attributable stakeholder of the trust unless the Secretary otherwise determines; and

(d) if the individual is an attributable stakeholder of the trust—the individual’s asset attribution percentage in relation to the trust is:

(i) 100%; or

(ii) if the Secretary determines a lower percentage in relation to the individual and the trust—that lower percentage; and

(e) if the individual is an attributable stakeholder of the trust—the individual’s income attribution percentage in relation to the trust is:

(i) 100%; or

(ii) if the Secretary determines a lower percentage in relation to the individual and the trust—that lower percentage.

The evidence

The will of the first respondent’s father created, amongst other things, a life discretionary trust. The Elliots and their teenage daughter were the only beneficiaries of this life discretionary trust.

The will authorised the trustees, who included friends of the testator, to apply the income and capital of the trust towards the Elliots’ maintenance. The trustees were not obliged to pay any amount to the Elliots in any given year. They were obliged to have regard to the beneficiaries’ interests, although exercised full discretion as to what was paid to the beneficiaries. The trustees generally made monthly payments to the Elliots as well as paying some of their bills. However, the evidence of the trustees was that the trustees did not habitually accede to the Elliots’ requests.

Consideration

The Tribunal considered the various requirements that need to be met, according to s.1207V, for a trust to be a ‘controlled private trust’. The Tribunal paid particular attention to whether the respondents passed the ‘control test’. The ‘source test’ that also applies to trusts was not relevant in this case, as the trust did not contain any assets transferred by the respondents themselves.

Section 1207V(2)(d) states that an individual will pass the control test if the aggregate of their ‘beneficial interests’ in the corpus of income of the trust is 50% or more. Section 1207V(2)(d)also instructs that the ‘beneficial interests’ of a person’s associates, which includes their family relatives under s.1207B, be taken into account.

The Tribunal decided that, while the individual respondents did not hold any beneficial interest in the income or corpus of the trust under the general law, the use of the word ‘aggregate’ in the legislation requires the decision-maker to recognise a kind of group right arising when the beneficiaries between them control the whole of the beneficial interest in the trust. Between them, the Elliots and their daughter accounted for the whole of the beneficial interest in the property. The Tribunal reasoned that the use of the ‘associate’ concept in the legislation required the group interest to be attributed to the Elliots, because they are related to the other group members. It therefore followed that the Elliots held in excess of 50% of the beneficial interest in the corpus of the trust assets. They thus satisfied the control test in section 1207V. By satisfying the control test under s.1207V, the respondents were then to be attributed with 100% of the assets and income of the trust under s.1207X.

Formal decision

The Tribunal decided to set aside the decision of the SSAT.

[D.A.]