4.12.3.40 Protective Trusts

Date of effect

This topic has effect to controlled protective trusts from 1 January 2002.

Summary

This topic contains information on the following:

  • fixed protective trusts established before 9 May 2000,
  • discretionary protective trusts established before 9 May 2000,
  • protective trusts established after 9 May 2000, and
  • incidental benefits.

Explanation: A protective trust is a trust established for a person who is unable to manage his or her own affairs.

Fixed protective trusts established before 9 May 2000

If the trust is a fixed trust established before 9 May 2000, attribution should be determined according to an assessment of the assets or income, or both, of the trust under provisions outlined in the trust deed.

HOWEVER, if after 9 May 2000:

  • the trust is varied or altered under the trust deed, OR
  • additional funds are contributed to the trust, OR
  • there are changes to the beneficiaries entitled under the trust,

the delegate may 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.

Discretionary protective trusts established before 9 May 2000

If the trust is a discretionary trust established before 9 May 2000 and is administered for the exclusive benefit of a person (or persons) who are unable to manage their own financial affairs, attribution should be made to the primary beneficiary of the trust, i.e. to the person (or persons) unable to manage their own affairs.

Protective trusts established after 9 May 2000

If a trust is administered for the exclusive benefit of a person (or persons) who are unable to manage their own financial affairs, and the person who is the SOURCE of the majority of the assets or income, or both, of the trust (or an associate of that person) retains control of the trust, the assets or income, or both, of the trust would generally be attributed to that person (or members of a couple, whether of the same sex or a different sex) who is the source of the funds.

Example: A trust set up for a minor where the parents are the source of the funds and the parents retain full control of the assets and income of the trust.

Note: Protective trusts include bank accounts or other investments created by a parent for their children under 18 years of age.

In the absence of a source, where assets were transferred to a fixed or discretionary trust for the exclusive benefit of a person unable to manage their own financial affairs, the trust assets will generally be attributed to the primary beneficiary of the trust that is, to the person (or persons) unable to manage their own affairs.

Example: John is single and aged 35. He works at the local meatworks. Four years ago John's sibling Sally received severe brain injuries as a result of a motor vehicle accident. Sally received a large compensation settlement, which was placed in a trust.

John's widowed parent Alice, aged 70, looks after Sally. Because Sally is unable to manage her own financial affairs, Alice has official control over the money in the trust. Alice conscientiously administers the fund and all trust income is used for Sally's benefit.

Alice is concerned about the new social security private trusts and companies rules. She cannot afford to lose her pension, as it is her sole source of income. Alice visits her local Centrelink FIS officer. She is relieved to learn that she will not be attributed because the trust funds originated for, and are used for, Sally's benefit.

Alice is not getting any younger. She is also concerned that one day she will need to hand control of the trust to John. John's job is variable and he has spent periods of time on NSA. Alice is relieved to find out that if John has to take over the management of the trust he would still be able to get government help, if required, provided the trust funds continue to be used solely for Sally's benefit.

Incidental benefits

If a person gains an incidental benefit from managing the affairs of a person who is unable to handle their own affairs, no attribution of the assets and/or income of the trust will be made to that person.

Example: Private use of a vehicle that is used to transport the person who is unable to manage his or her own affairs would be classed as an incidental benefit.

Note: An incidental benefit does NOT include fees and wages paid to the stakeholder.

Act reference: SSAct section 1207P(4) Excluded trusts

Policy reference: SS Guide 4.12.3.70 Excluded Trusts

Last reviewed: 15 August 2016