losing benefits due to trusts ?

[Patosan]

I have a question about family trusts and government benefits, based on something I've indirectly heard.

My sis back in Oz recently attended a seminar about estate planning for loved ones who have needed government financial help and would like to not lose any benefits as a result of windfalls, inheritances or whatever. The presenter claims that virtually all family members could lose their goverment benefit entitlements if one of the family has set up a trust with family as beneficieries. The example he gave was his own, his grandmother asked if she could lose her entitlements due to him having a family trust, he quickly responded "no" since the trust wasn't set up for her and she was not mentioned as a beneficiary. Later upon pondering over the question he realised that indeed though unlikely she technically could lose her benefits. He didn't tell her so, since it would certainly cause her stress and the chances of her being linked to his trust and action taken were small.

The thrust of the seminar was that trusts, presumably the discretionary type, are no longer good for providing for those of one's family who are dependant on the government. Sis told me he claimed that it didn't matter whether the dependant person was not mentioned in the deed or as a trustee.
i.e. trustee, beneficiary or not they're vulnerable.

Is this correct ?
It could have far reaching consequences if so ?
Can anyone shed light on this topic, which must be relevant to some of us ?

 

[GreatPig]

I don't know, but I can't see how simply being a beneficiary of a discretionary trust could affect benefits.

As a beneficiary, there's no entitlement to income - the person may not even know they're a beneficiary - so I would think that benefits could only be affected if they actually received distributions.

Just my thoughts though, as I really have no idea of the legalities.

GP

 

[alwayscurious]

Students / Ausstudy / Family Trust

Means Tests discover these trusts - but don't know how much assistance is given, so assume the worst case, and give you the least benefits.

when my wife and I were first married, we applied for ausstudy as we were both students.

Her parents had to sign a stat dec saying that although she was listed as a beneficiary, she would NOT receive financial assistance from the trust while we were recieving Ausstudy.

Then and only then would they allow her to receive Ausstudy.

 

[GreatPig]

Her parents had to sign a stat dec saying that although she was listed as a beneficiary, she would NOT receive financial assistance from the trust while we were recieving Ausstudy.

Sheesh... that's one of the stupidest things I've heard

So the government is trying to save taxpayers' money by saying as long as you promise not to spend your own money supporting her, we'll let the taxpayer support her for you? Yep, that'll work...

And probably a complete waste of effort. If she wanted extra money from the trust, she could just borrow it from her parents on the understanding that after she no longer needed Ausstudy, she'd get an equivalent distribution from the trust to repay them.

GP

 

[redwing]

?

I don't know, but I can't see how simply being a beneficiary of a discretionary trust could affect benefits.

As a beneficiary, there's no entitlement to income - the person may not even know they're a beneficiary - so I would think that benefits could only be affected if they actually received distributions.

Just my thoughts though, as I really have no idea of the legalities.

GP

I thought the same as GP?

In some cases you dont even have to list the beneficiaries of the trust..it could be any family members..

REDWING

 

[Patosan]

Her parents had to sign a stat dec saying that although she was listed as a beneficiary, she would NOT receive financial assistance from the trust while we were recieving Ausstudy.

The major point of my question is that the person is infact NOT listed as a beneficiary ... yet could lose benefits.
Don't ask me how anyone would connect a person to a trust if they weren't written into it somehow.
This is however the point a certain solicitor is using in his arguement that trusts are no longer the way to arrange affairs for those loved ones without losing benefits.

I guess if a loved one was to be actually getting funds from a trust someone could ask who was supplying the money. In which case tracking down the trust would be an easy matter. That however is a question of how best to distribute or provide. That is not like the example he uses of his grandmother technically at risk due to him having a trust for his children ... her great-grandchildren. ... geez she must be getting on in years !

Any solicitors or trust experts care to comment ?
... not on her age

 

[GreatPig]

Hmmm... this just reminded me of something I read in my trust deed (a Chris Batten one).

A section titled "Exclusion of Certain Persons" with three clauses worded so as to specifically exclude from any possible trust entitlement "any person who is at the time a recipient of a means-tested Centrelink and/or Veterans' Affairs income support payment and their associate".

So perhaps this is the way around that, by having any people on means-tested benefits specifically excluded in the trust deed.

GP

 

[Terry_w]

This is correct, one family member setting up a trust could affect the social security benefits of other family members

see s1207 onwards of the Social Security Act
www.austlii.edu.au/au/legis/cth/consol_act/ssa1991186

 

[Scott No Mates]

WTF? If it is a discretionary trust, it is not certain that any or every person listed as a beneficiary will receive a distribution. Won't that only take effect at the time the person on benefits actually receives a distribution not upon formation of the trust?

 

[Terry_w]

WTF? If it is a discretionary trust, it is not certain that any or every person listed as a beneficiary will receive a distribution. Won't that only take effect at the time the person on benefits actually receives a distribution not upon formation of the trust?

I don't make the laws, only point them out.

This is a very complex area of law and those on social security don't really want to pay for this advice so it is not well known by lawyers or others.

There are 2 tests:
1. Control test
2. Source test (not bbq or tomato)

If a person controls a trust the assets and income of the trust may be considered their personal assets for SS purposes. Control is broadly defined to include trustee and appointor roles and voting powers. Interestingly relatives of persons who control (spouse, parents, children) can be deemed to be controllers too.

Source test involves where the assets of the trust/company originated eg gifting to a trust many years prior.

All of this is designed to try to prevent people passing properties to a trust and then getting a pension.

Also make sure your trust deed allows a beneficiary to renounce their interest as this may be the solution to them to be able to keep receiving the pension. If there is not clause in a disretionary trust deed like this then it may not be possible without a resettlement.

 

[Scott No Mates]

Thanks Terry

 

[SUNNYBILL]

In my previous profession I had to deal with people who wanted to claim social security payments and who had a trust. My advice would be if you have a trust that has traded or owns any income producing assets then be prepared to not claim any social security from the government.

 

[Terry_w]

It might even be wise to exclude any potential beneficiaries who are receiving a social security benefit.

 

[Scott No Mates]

It might even be wise to exclude any potential beneficiaries who are receiving a social security benefit.

Doesn't this go against all previous advice that when establishing a trust you should cast the net so wide that it should cover anyone that you could perceive might benefit from the trust?

So now you just limit it to immediate family who have no other assets and though aren't listed as beneficiaries in a trust believe that you will re-gift and redistribute distributions from the trust to them in order to ensure that they don't loses their benefits had they remained included in a trust?

 

[Terry_w]

Doesn't this go against all previous advice that when establishing a trust you should cast the net so wide that it should cover anyone that you could perceive might benefit from the trust?

So now you just limit it to immediate family who have no other assets and though aren't listed as beneficiaries in a trust believe that you will re-gift and redistribute distributions from the trust to them in order to ensure that they don't loses their benefits had they remained included in a trust?

It all depends on the circumstances. I would discuss with the client before setting up.