Life interest in an asset or income 043-04110010

Did the customer pay a sum of money or transfer any assets to another person, in return for the right to accommodation for life or life interest in their home (principal place of residence)?

• Yes, see Granny flat provisions. Procedure ends here
• No, go to Step 2

Was a life interest established for the customer:

• in their home (principal place of residence), see Assessing a life interest in a home
• life interest in another income or assets, go to Step 3

Note: where a life interest is established for both their home (principal place of residence) and a life interest in other income or assets, the assessment of the home (principal place of residence) is to be completed before making a referral to a Complex Assessment Officer (CAO)

An assessment is required by a CAO, where a life interest has been:

• established in an income or asset, other than a home
• surrendered

Scan any documentation provided and make a referral or escalate to a CAO. See Identifying and making suitable referrals to the Complex Assessment Officer (CAO).

Note: the CAO will request any additional information and documents needed to complete the CAO assessment.

Procedure ends here.

Was the life interest set up after 7.30pm 9 May 2000 to avoid the trust and company rules?

• Yes, assess the market value of the entity under section 1209D of the Social Security Act 1991, Anti-avoidance for person trying to avoid the trust and company rules. See References > Legislation.
• No, go to Step 2

The private trust and company attribution rules do not apply.

Life interest created by a living person, go to Step 3

Life interest created as a result of a death, go to Step 5

If the life interest was set up by a customer or their partner, the asset value is the actuarial value. Any income is assessed against the person with the life interest.

Referral is required for an actuarial valuation. See Referrals for actuarial valuations.

Note: the difference between the market value of the asset at the time the life interest was created and the actuarial value will be assessed as a gift and must be recorded on the GIFT screen.

No asset value is assessed if the life interest is only in respect of the customer's home, or set up by a person other than the customer or their partner.

No gifting is assessed if the customer transferred their home in return for the right to accommodation for life and was the only asset transferred (see Granny flat provisions for more information).

Was the Life interest created by a living person after 7.30pm 9 May 2000?

• Yes, go to Step 4
• No, there is no asset value assessed if the remainder interest is:
• only in respect of the customer's home,
• it was set up by person other than the customer and partner

Go to Step 8

If the life interest was set up by a customer or their partner, after 7.30pm 9 May 2000:

• The private trust and company attribution rules do not apply
• If the life interest was set up by a customer or the customer’s partner, the asset value is the actuarial value and any income is assessed against the person with the life interest. Referral to a CAO is required for an actuarial valuation.
  Note: the difference between the market value of the asset at the time the life interest was created and the actuarial value will be assessed as a gift and must be recorded on the GIFT screen
• No asset value is assessed if the life interest is only in respect of the customer's home or set up by a person other than the customer or their partner
• No gifting is assessed if the customer transferred their home in return for the right to accommodation for life and was the only asset transferred (see Granny flat provisions for more information)
• The private trust and company attribution rules apply and the remainder interest is the actuarial value which will be attributed to the controller(s) if the remainder interest is within the trust
• There is no asset value assessed if the remainder interest is:
• only in respect of the customer's home or
• set up by a person other than the customer and partner

Go to Step 8

Was the Life interest created as a result of a death that occurred after 31 March 2001?

• Yes, go to Step 6
• No, The private trust and company attribution rules do not apply

If the life interest commenced on death of the customer's partner, then the actuarial asset value and the income is assessed against the person with the life interest. Referral to a CAO is required for an actuarial valuation.

No value is assessed if the life interest is only in respect of the customer's home or was set up on the death of a person other than the customer's partner.

Remainder interest

There is no value assessed if the remainder interest is:

• only in respect of the customer's home, or
• set up by a person other than the customer and partner

Go to Step 7

Life interest

• The private trust and company attribution rules do not apply
• If the life interest was set up by the death of the person's partner, the asset will be assessed at the actuarial value and the income is assessed against the person with the life interest. Referral to a CAO is required for an actuarial valuation
• No asset value is assessed if the life interest’s only asset is the customer's home
• No asset value is assessed of the life interest was set up by a third party

Remainder interest

• The private trust and company attribution rules apply and the remainder interest value will be attributed to the controller(s) if this remainder interest is within a trust
• The surviving partner will be assessed as the controller if they, or an under 18 year old child of the surviving partner are beneficiaries
• Remainder interest is assessed at the actuarial value. If the surviving partner is the controller then the value of the life and remainder interest cannot exceed 100% of the market value of the assets. Referral to a CAO is required for an actuarial valuation
• Nothing is assessed if the life interest is only in respect of the customer's home
• The remainder interest is not assessed to a remainderman if they are the controller of the trust as it is exempt from assessment for them, because the life interest was not created by them or their partner.
  Referral to a CAO is required for an assessment of the trust

Go to Step 7

Where a life interest is created on a person's death, a copy of the will must be obtained to determine the nature of the life interest.

It is possible for a will to grant a customer a right to use assets in a manner similar to a life interest, but for it not to be assessed as a life interest.

In these instances, the case must be referred to the Income and Assets Helpdesk and if necessary, a legal opinion from the Department of Social Services (DSS) will be sought.

Income from a life interest must be coded as life interest by typing 'LIF' in the Type: field on the Other Income (OIN) screen.

If there is actuarial value to assess, code the life interest as life interest by typing 'OTH' in the Type: field on the Other Assets (OAS) screen with a description of the life interest in the Description: field.
See Recording other income on the Other Income (OIN) screen.

• A discretionary trust which the customer controlled
• Another person, for example, a widow had a life interest where she was entitled to a fixed income out of the trust

There are a number of questions to consider, including:

1. What asset value is assessed to the controllers, for example, all the assets or all the assets less an actuarial value of the life interest?

2. Would gifting be assessed on the amount distributed to the controllers' income each year?

3. Would there be deprivation if the controllers used the assets of the trust to purchase an annuity in replacement of the life interest?

• The controllers are to be assessed as controlling the remainder interest (actual assets less the value of the life interest)
• There is no gifting for the controllers as they have a legal obligation to pay out the income amount every year
• If the trust were to purchase an annuity which paid the widow an amount equivalent to what would be received from the trust, then there is no gifting as consideration has been received, that is, the value of the annuity would be equal to what would have been paid out over time

See References for more information on Life Interests & Remainder Interests in trusts.