220.127.116.11 Testamentary Trusts
Date of effect
This topic has effect to controlled testamentary trusts from 1 January 2002.
This topic contains information on the following:
- fixed testamentary trusts activated on or before 31 March 2001,
- discretionary testamentary trusts activated on or before 31 March 2001, and
- testamentary trusts activated after 31 March 2001.
Fixed testamentary trusts activated on or before 31 March 2001
The assets (1.1.A.290) and income generated by fixed trusts, including fixed testamentary trusts, are fully assessed against the trust beneficiaries in the fixed proportions laid down by the trust deed. The practice of assessing the asset value based on the fixed entitlements of the beneficiaries and the income on actual distributions to beneficiaries will continue only for fixed testamentary trusts established before 31 March 2001.
HOWEVER, if after 31 March 2001:
- the trust is varied or altered in accordance with the trust deed, OR
- additional funds are contributed to the trust, OR
- there are changes to the beneficiaries entitled under the trust,
the delegate should determine attribution among the attributable stakeholders of the trust as if the trust had been established after that date if, in the circumstances, the delegate considers it appropriate to do so.
Example: Janet (66) is the beneficiary of Robert's (her late partner's) will. Robert owned the principal home and $600,000 worth of other assets, and passed away on 20 February 2001. In Robert's will Janet was granted the principal home and $100,000 worth of other assets. Robert's will also specified that their 5 children each receive roughly $100,000 worth of assets. However the trust deed provides that the trust can be altered with the unanimous agreement of Janet and the 5 children (who are all trustees of the trust). Janet and her children agree to increase Janet's share of the trust property to $200,000 with them each taking a smaller share (and knowing that they will receive the balance of what they are transferring to Janet on her death). The change to the will takes place on 22 June 2001 and means that the eligibility of Janet and her children to Centrelink payments must be reconsidered as these changes have been made after 31 March 2001. The reassessment of Janet's entitlement results in a 100% attribution of income and assets to Janet.
Act reference: SSAct section 8(1)-'income'
Discretionary testamentary trust activated on or before 31 March 2001
If a discretionary testamentary trust is activated by the death of the testator on or before 31 March 2001, the trust assets and income would generally be attributed, via the basic attribution rules, to the formal controller.
HOWEVER, if the trust is being administered for the benefit of the surviving partner and the surviving partner is exercising informal control, attribution will be to the surviving partner.
Testamentary trusts activated after 31 March 2001
If a testamentary trust is activated by the death of the testator after 31 March 2001, the surviving partner will be attributed with the assets and income of the trust if:
- the surviving partner has control of the trust (irrespective of whether the surviving partner is a beneficiary), OR
- an associate of the surviving partner has control of the trust, and the surviving partner is a potential beneficiary.
Explanation: If the surviving partner directly controls the trust, they can simply appoint themselves as a beneficiary or alternatively exert their powers to obtain benefit informally.
If an associate has control and the surviving partner is a potential beneficiary, a reasonable assessment of the situation is that the surviving partner will enjoy the benefits of the trust.
If the surviving partner (or an associate of the surviving partner) does not control the trust, attribution may be made, via the basic attribution rules, to the person/s or members of a couple (1.1.M.120), whether of the same sex or a different sex, who have control of the trust.
Testamentary trusts with a commercial trustee
Some testamentary trusts will be established with a commercial trustee as the controller of the trust. In these cases the terms of the will need to be examined carefully to determine who the testator intended to benefit under the terms of the will. Where the surviving partner is not a beneficiary of such a trust, attribution should be made to those who are specifically nominated as beneficiaries of the trust. Generally such trusts are established to benefit specifically named individuals, with the direction in the will that the needs of a particular beneficiary or beneficiaries be considered. It is NOT possible to attribute to a corporate trustee. In these types of cases it should be considered that the corporate trustee is administering the trust on behalf of the beneficiaries of the trust. Attribution will be made to those beneficiaries on whose behalf the trust is being administered.
Act reference: SSAct section 1207P Designated private trusts, section 1207V Controlled private trusts