Editors --- "Testamentary trust: whether attributable stakeholder" [2010] SocSecRpr 35; (2010) 12(3) Social Security Reporter, Article 1

• DAMMAN and SECRETARY TO THE DFHCSIA
• Background
• Issues
• Decision
• Formal decision

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Testamentary trust: whether attributable stakeholder

DAMMAN and SECRETARY TO THE DFHCSIA

(2010/508)

Decided: 8th July 2010 by G.L. McDonald

Background

Damman, who was 51 years of age, was injured in a motor vehicle accident at five years of age and received brain damage. As a result he suffered from epilepsy. He also developed bipolar disease at 16 years of age, and as an adult had developed a pathological gambling addiction. Damman was, at all material times, in receipt of disability support pension (DSP).

In 2002, Damman’s mother died. Her will provided that each of Damman’s three brothers were to receive one quarter share of her estate. In relation to the remaining quarter, the will established a trust and provided the trustees with the absolute discretion to distribute the income from the corpus between Damman’s three brothers, to accrue income to form part of the capital, and to raise out of the corpus of the remaining quarter, in cases when the income generated was insufficient, such sums as may be needed to provide for the needs of Damman. All four brothers were beneficiaries of the trust created by the will in relation to the remaining quarter of the mother’s estate.

The trust established by the will further provided that, upon the death of Damman, if he had no children, the remaining quarter was to be divided between the three brothers. If he had a child or children, the remaining quarter was bequeathed to that or those children. If one or any of Damman’s brothers pre-deceased Damman, their share was to be divided among their children.

The trust established under the will was, therefore, a discretionary trust with an open class of beneficiaries.

The total value of the mother’s estate was approximately $1.6m. The evidence before the Tribunal was that only a small proportion of the income from the trust had been distributed in Damman’s favour in the period since his mother had died. This is because of concerns that Damman would gamble the money.

Centrelink determined that the assets of the trust were to be attributable to Damman, pursuant to Part 3.18 of the

Social Security Act 1991 (the Act), the trust being a controlled private trust. When the assets of the trust were attributed to Damman, his assets exceeded the relevant threshold and his DSP payments were cancelled. Damman appealed this decision to the SSAT, who affirmed Centrelink’s decision. Damman then appealed to the AAT.

Issues

The issue for determination by the AAT was whether Damman was an attributable stakeholder of the trust established under his mother’s will, such that all or part of the assets of the trust were to be attributed to him under Part 3.18 of the Act.

Decision

The AAT found that the trust established by the will was a designated private trust pursuant to s.1207P(1) of the Act. The AAT further found that the trust was a ‘controlled private trust’, as Damman passed the control test because he was an associate of the trustee (pursuant to s.1207V(2)). In light of these findings, Damman was an ‘attributable stakeholder’ in relation to the trust, unless the Secretary determined otherwise (pursuant to the criteria in the Social Security (Attributable Stakeholders and Attribution Percentage) Principles 2000).

The AAT found that Damman, as a potential beneficiary of the discretionary trust, did not have any ‘effective control’ in relation to the trust (for the purposes of clause 7(2) of the Principles), as he had no right to enforce the trustees to make a distribution to him. Further, as the class of beneficiaries was open and the trust was not exhaustive, the AAT found that there was no way in which the beneficiaries’ share in the remaining quarter could be established, particularly given that the trustees could accumulate the income of the trust as capital.

The AAT further found that there was no intention by the trustees to make any distributions to Damman in the foreseeable future, and that Damman was presently receiving assistance from one of his brothers, by way of a gift. The AAT was satisfied (for the purposes of clause 11 of the Principles) that Damman did not receive or derive any benefit from the trust, as he could only receive a benefit if the trustees exercised their discretion in his favour.

In all the circumstances, the AAT was satisfied that Damman was not an attributable stakeholder of the trust, and therefore the assets of the trust could not be attributed to him under Part 3.18 of the Act.

Formal decision

The AAT set aside the decision and remitted the matter to the Secretary to recalculate Damman’s entitlement to DSP from 10 November 2006 on the basis that Damman was not an attributable stakeholder in relation to the trust.

[S.O.]