You’d be surprised at the number of people who are all excited about getting to age pension age (65) and head down to Centrelink and do all the paperwork, only to be told they will get a smaller pension, or no pension at all, because they are the trustee, appointor or beneficiary of a designated family trust or a director or shareholder of a designated private company.
For whatever reason you have a family trust or private company, in assessing your application for the age pension (or the disability support pension, newstart allowance or other entitlements), the Department of Human Services (DHS) and the Department of Veterans’ Affairs (DVA) will potentially ‘ping’ you for the assets and income of that trust or company which may reduce or negate your eligibility for the pension or allowance you are applying for.
What are the Attribution Rules?
The rules now allow DHS and DVA to assess interests in family trusts, testamentary trusts and private companies under both the Income and Assets Tests. The attribution rules have come into play to reduce or deny the prospect of Centrelink support for many people. Money tucked away in family trusts and private companies, even where it is for the benefit of children, or for asset protection purposes, has been caught in the ‘attribution’ net.
How does DHS/DVA assess my family trust/company?
Without diving into the technical detail, there are many ways of being associated with a private trust or company. You might be a beneficiary, or a trustee, or an appointor, or the original donor. You might have loaned funds to a family trust or company. You might be a shareholder or director or both.
There are two distinct tests that apply jointly to determine the inclusion of assets and income from a private company or trust. These are:
- a Source Test; and
- a Control Test (Associate Rule).
Simply speaking, the Source Test relates to the source of funds introduced to a trust or private company, and the Control Test relates to who is in control of the trust or private company – for instance, directors of the company or corporate trustee, individual trustees, appointors and beneficiaries/shareholders.
Some people might say, “Well, the money we invested in the trust is for the children, so we should be able to get the age pension. They are still too young to make good decisions so we control it for them.” In this example, mum and dad are both the source of the original funds and they continue to control the funds (generally as trustees). Under the two tests, they are caught. Some people put their children in as trustees but remain as appointors of the trust (which, while not providing legal control of the assets, in the eyes of the DHS/DVA, still provides control because the appointor can remove the trustee).
It's important to get professional advice if you think this applies to you, contact us today!
This information is general information only. You should consider the appropriateness of this information with regards to your objectives, financial situation and needs.
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