A rather worrying trend is Centrelink attacking people that are unaware that they are mentioned in a Family Trust. For example, the high risk son often makes Mum the Appointor or a Default beneficiary – for asset protection. Mum has never seen a cent of the Family Trust but the ATO is happy to let Centrelink know of the ‘crime’ of non-disclosure by Mum. No ‘pattern of distribution’ but Mum is caught none the less.
Family trusts are flexible. Centrelink’s specific assessment rules do not cope. They are far too broad-reaching. If you had any involvement with a trust as an appointor, trustee or beneficiary, you are assessed as owning the trust assets. Plus you are deemed to earn the corresponding income. This is under the attribution rules.
Sadly, little old grandmas, who were destined to get none of the assets out of their children and grandchildren’s trusts were still caught up in this. Centrelink is harsh and unsympathetic.
We had one disabled nephew (who did not even know he was a potential beneficiary) attacked by the heavy-handed Centrelink.
Sadly, even family trusts with no assets in them attract the enmity of Centrelink.
Before the end of the financial year you can:
- update the Family Trust Deed to remove and replace trustees and appointors
- wind up old Family Trust Deeds
- wind up old Unit Trusts.
Changing beneficiaries in a Family Trust
It is unusual to remove beneficiaries in a Family Trust. It may trigger resettlement. Adding a beneficiary of a Family Trust is highly like to trigger resettlement.
Resettlement triggers stamp duty and Capital Gains Tax
The risk of a variation of trust or change in beneficiaries triggering resettlement is reduced thanks to the Commissioner of Taxation v Clark and the subsequent release of Taxation Determination TD 2012/21.
The High Court decision in FCT v Commercial Nominees of Australia Ltd
21 should have clarified the position but it concerned changes to the trust deed for a superannuation fund and the Commissioner of Taxation initially refused to accept that the principles outlined in Commercial Nominees applied to other trusts. The ATO was very naughty to do this.
In Commercial Nominees the High Court:
- acknowledged there were differences between a normal trust fund and a superannuation fund
- but pointed out that the fundamental question was one of ‘continuity’ (i.e. did the original fund continue in existence despite the changes)
- considered that, notwithstanding the quite dramatic changes that were made to the trust deed and the structure of the superannuation fund, the original fund ‘did not come to an end’ but that continued as the same entity
Trust deed amendments – life after Clark’s case 6 of 15
The ATO issued revised a ‘Statement of Principles’, in 2001 (following the decision in Commercial Nominees) which outlined the circumstances in which the ATO would treat changes to an existing trust as triggering resettlement. This Statement of Principles refused to accept that the principles in Commercial Nominees would apply to general trusts and indicated that some relatively minor changes might trigger a resettlement in some circumstances (e.g. an amendment to the definition of trust
income in some cases).
In Clark, the Federal Court (both at first instance23 and on appeal) indicated that the principles set out in Commercial Nominees are not confined to superannuation funds and are equally applicable to other trusts.
Importantly, all members of the Full Court followed the approach of the High Court in Commercial Nominees.
Dowsett J cited the following passage from the High Court decision in Commercial Nominees as summarising the correct approach in determining whether there is a resettlement:
‘The three main indicia of continuity for the purposes of Pt IX are the constitution of the trusts under which the fund (if a trust fund) operated, the trust property, and membership. Changes in one or more of those matters must be such as to terminate the existence of the eligible entity, or to produce the result that it does not derive the income in question, to destroy the necessary continuity.’
Edmonds and Gordon JJ cited the same passage.
Why is the Australian government interested in intergenerational wealth transfers?
The Australian Department of Human Services monitors intergenerational wealth transfers. This is because it administers the age pension based on income and assets. To get a full or part age pension in Australia (and a range of other social security benefits) from Centrelink, you must pass both income and assets tests. This is called ‘means testing’.
If your income and asset levels fall within specific thresholds you pass these tests.
Building Legal Consolidated documents
We are the only Australian law firm providing legal documents online. Be careful of websites that ‘look like’ law firms but merely re-sell a law firm’s template.
I am an Adjunct Professor lecturing both the Estate Planning and Superannuation units at a number of universities. I have done so since 1999.
I have 7 degrees, 4 of them are in law including my doctorate. My research was on Estate Planning and succession planning. Estate Planning is my passion, especially given the opportunity to reduce the four defacto death duties: income tax, Capital Gains Tax, transfer duty and the 32% death tax on your superannuation.
I author both of Australia’s leading Estate Planning books: CCH Australian Estate Planning and Thompson Reuters Australian Financial Planning Handbook.
You can build your Estate Planning documents online:
Start building the Estate Planning documents, read the hints, watch the training videos. If you need a hand answering any of the questions please ring me or any of my lawyers.
The 3-Generation Testamentary Trusts include:
- 3-Generation Testamentary Trust Will – reduces CGT, income tax & stamp duty
- Superannuation Testamentary Trust – reduces the 17% or 32% tax on Super going to adult children
- Bankruptcy Trusts – if a beneficiary is bankrupt
- Divorce Protection Trust – if a child separates, stops the Family Court from getting your money
- Maintenance Trust – where beneficiaries under 18 years of age or unstable
The Estate Planning bundle includes 1. 3-Generation Testamentary Trust Wills 2. Power of Attorneys and 3. Medical POAs.
ADDITIONAL ESTATE PLANNING DOCUMENTS:
After you have built the bundle, you may also wish to consider:
1. Contractual Wills Agreements – for 2nd marriages
Plus when you have a Family Trust:
Plus when you have a Self-Managed Superannuation Fund
There are two training courses (which are currently free) you can complete online:
Again, if you need a hand answering any of the online questions, just telephone me or any of my lawyers.