Trusts 043-04020000

A Module PT should be issued in the following circumstances where the customer indicates they:

• are trustees, guardians or appointers of a private trust
• have received a distribution from a private trust
• gift money to a private trust
• have a loan to a private trust
• have a beneficial interest in a private trust
• are potential beneficiaries of a private trust
• have a debt owing to a private trust, and there is no link to the Trusts and Company System (TAC) via the Links Summary (LS) screen

Request the customer provides any documents they believe relevant to their claim that a trust exists. The customer should be asked if they are able to provide documents such as the following (this list is not exhaustive):

• Statements/affidavits/statutory declarations from customer(s) and alleged beneficiary(ies) as to when the alleged transfer of beneficial interest took place, why the transfer occurred, the way in which the parties reached the common intention to transfer the interest in the property, and why a legal transfer of the property did not take place
• Copies of any contracts entered into, and declarations made, by the customer and/or the alleged beneficiary at the time of, or subsequent to, the transfer of the beneficial interest in the property
• Copies of any correspondence between the parties demonstrating an intention to create a trust
• Copies of all Certificates of Title in relation to the property in which the beneficial interest has been transferred
• Copies of any contracts of sale and/or transfer of land documents
• Copies of any caveats placed on the subject property by the alleged beneficiary to register their interest
• Copies of all land rates notices in relation to the property in which the beneficial interest has been transferred
• Letters from bank managers, solicitors, accountants, stating if they were aware of a change in the beneficial ownership of the property, and when and how they became aware of the beneficiaries alleged interest in the property
• Copies of any lease agreements for, or in respect of, the property
• Details of any mortgage/loan secured against the property and copies of the mortgage/loan agreement(s)
• Details of any improvements and/or other outlay on the property by the alleged beneficiary(ies) and evidence of that expenditure, for example, receipts, bank statements, cheque stubs, cancelled cheques
• Some expenses may be paid for by the alleged beneficiary, however the receipts will still be in the name of the legal owner of the property, for example, land/water rates. Cheque stubs and/or copies of cancelled cheques may show that the expenses were actually paid for by the alleged beneficiary
• Details of how the alleged beneficiary financed any improvements to the property and copies of any loan agreements or bank books/statements as evidence
• Copies of both the customer's and alleged beneficiary's wills prior to the transfer of the beneficial interest, and any codicils to those wills or any new wills since the transfer of the beneficial interest
• Copies of the customer's and alleged beneficiaries' personal tax returns for the financial year immediately prior to the transfer of the beneficial interest, and all personal tax returns since the transfer of the beneficial interest

Bank accounts and investments which are held in trust are covered by the assessment of private trusts from 1 January 2002.

The delegation for the attribution decision rests with the Complex Assessment Officer (CAO).

Attribution of control is based on the ordinary attribution principles of private trusts. Where a customer is the legal controller and original source of the funds then 100% attribution will be to them.

Deeming does not apply, so do not code on Savings Summary (SVS), Securities and Investments (SIS) or Managed Investment (MIS) - assess actual income and asset value.

Single investments are coded on the Other Income Summary (OINS) and the Other Asset Summary (OASS) screens of the controller. Do not code as an annual (ANN) figure, as the system will automatically zero the amount after 12 months. Code as another frequency. For example, convert to a monthly figure and code as 1MT.

The investment should be coded with the following description:

'As Trustee For [name of person(s)]' (for example, As Trustee For Jonny Smith)

For a series of investments assessed as belonging to a trustee, coding is on the Trust and Company (TAC) system.

Updates to balances and income of investments held in trust already coded on OAS and OIN screens can be actioned by Service Officers.

Investments in trust are actioned as follows:

• If the customer is advising of changes to a bank account already on the OINS and OASS screens, update the:
• current balance of the account on the OASS screen
• actual (not deemed) interest earned on the OINS screen. This is calculated by multiplying the current balance of the bank account by the current interest rate payable on this account. Note: the income needs to be updated with the income frequency assessed and recorded as a monthly figure
• a CAO referral is not required
• If the customer is advising of changes to a managed investment or shares already on the OINS and OASS screens, update the:
• current market value of the managed investments or shares on the OASS screen
• income generated by the investment in the last 12 months on the OINS screen
• a CAO referral is not required
• If the customer is advising for the first time of an account/investment held in trust, request the account statements and request the customer to complete the proforma 'Asset(s) held in trust for another person'; see Resources>forms. When documents are received and scanned for processing, refer to a Complex Assessment Officer (CAO), as only a CAO has the delegation to make an initial decision of who the account belongs to
• If the customer is advising of changes to accounts treated as a trust, for example, coded on the TAC system, refer to CAO

To refer to the CAO:

• in Process Direct select > Referral > Referral Type: Complex Assessment Officer (CAO)
• in Customer First run the CAO Referral guided procedure
• see Identifying and making suitable referrals to the Complex Assessment Officer (CAO)

Constructive trusts arise by an operation of law and are imposed to prevent a person from succeeding in making an unconscionable assertion of ownership over property.

Constructive trusts arise where equity 'constructs' a trust against the legal owner in favour of another person.

The most common type of constructive trust is a common intention constructive trust. Common intention constructive trusts are created to enforce a promise or a gift. This is generally a promise by one party to give another party a gift of property.

A common intention constructive trust may be created by common intention where, although the title holder is not bound by contract to transfer property to another person, the title holder and that other person have a common intention that the other person should have an interest in the property if they act in certain ways and the person does so act.

The control test and source test (where applicable) are to be applied to constructive trusts. This is irrespective of when the constructive trust was created.

Included in the attribution principles are the following factors:

• legal control
• source of the funds to purchase the asset
• past, present and future distributions
• past, present and likely future benefit from the asset
• any other relevant circumstances relating to the trust

Common intention would be necessary for a common intention constructive trust.

For a common intention constructive trust to exist, the customer must be able to demonstrate the following elements:

• There must have been a common intention between the legal owner of the property and the beneficiary, regarding the beneficiary's beneficial ownership of the property
• This common intention is to be inferred as a matter of fact from the words or conduct of the parties
• The beneficiary must be able to show that they have acted to their detriment on the basis of the common intention as to the beneficial ownership of the property
• It must be a fraud on the beneficiary for the legal owner to assert that the beneficiary did not have the beneficial interest in the property

Contributions taken into account can be both financial and non-financial including support, homemaking and family care. Refer to the ruling of Baumgartner v Baumgartner (1987) 164 CLR 137 for full details.

Some examples of where a constructive trust may exist:

• A customer (the parent) has a large block of land and has built their own house. Their child has also built their own house and supplied all the funds for its construction. In such a case the legal ownership is with the parent but a constructive trust exists. Although the parent 'legally' owns the home as it is situated on the parent's property, the home is 'beneficially' owned by the child as the child has made all the contributions. The child is considered the beneficial owner of their house and the parent will not be assessed as owning this asset
• There is a restoration to a particular person of the contributions they have made to a failed joint endeavour, where contributions have been made in circumstances in which it was not intended that the other party should benefit
• An Age Pension customer has an adult child who intends to purchase and live in a home property. They wish to borrow funds from a financial institution but they require the Age Pensioner to become a guarantor of the mortgage loan the adult child takes out. As part of the guarantor arrangements the financial institution requires the name of the Age Pensioner to be placed on the real estate title and/or the mortgage documents. However it is the adult child who makes all the repayments on the mortgage and occupies the home and pays all the normal household bills whilst the Age Pensioner remains in their own home. In such a case it can usually be accepted that a constructive trust is present in favour of the adult child and the Age Pensioner has no beneficial interest in the property or borrowings to finance the property
• Property disputes between partners where members of a couple have acted together in the purchase of a matrimonial home placed in the name of one of them and their relationship subsequently breaks down. A constructive trust may be imposed by the Supreme Court of a state in favour of the other party over a portion of the property
• Where one person has transferred ownership to another person in a transaction which is voidable on the ground of duress or fraud
• Where two people make mutual wills leaving everything to each other and make a pact not to change them, the beneficiaries under the new will of either of them will hold as constructive trustees for the beneficiaries under the revoked will
• Purchase of property -The vendor of the land holds as constructive trustee for the purchaser between the date of contract and the date of transfer on settlement. (This is the reason conveyancers always advise purchasers to take out their own insurance immediately on signing of a sale note)
• Foreclosure where a mortgagee sells the mortgaged property upon the mortgagor's default. After deducting from the proceeds of the sale the expenses of the sale and the amount (including principle, interest and costs) needed to satisfy their claim, they are deemed to hold the balance on trust for the mortgagor

See the Resources page which contains a task card to help determine if a constructive trust exists.

In a discretionary trust, the beneficiaries receive income and/or capital from the trust solely at the discretion of the trustee. Private trusts that are discretionary trusts are assessed as designated private trusts unless specifically excluded.

An Express Trust, also called a 'declared trust' or 'direct trust', is established with a written trust deed.

Both public trusts and private trusts can be express trusts. An express trust is one created by the express and the intentional declaration of the settlor or creator of the trust. This declaration of intention is usually in the form of an instrument such as a deed.

An express trust can be created in many ways.

• It may be created by a transfer of trust property to another third party to be held on the terms of the trust. The transfer can be made by the Settlor (Creator) of the trust in writing, or may be made by will
• A customer may declare themselves a trustee of their own property for the benefit of a third person
• It can occur if the owner of a property that is in possession of a third party, directs that third party to hold the property in trust for another
• Private trusts created by the express and intentional declaration of the individual, usually in the form of a deed or will, are referred to as express trusts. Most of the private trusts assessed by Complex Assessment Officers (CAOs) are of this type

A fixed trust is one where the interests of the beneficiaries in the capital and income are fixed.

From 1 January 2002, if the interests of the beneficiaries are fixed with respect to income but not fixed with respect to capital, or vice versa, the trust is called a 'hybrid trust' and is assessed in a similar manner to a discretionary trust.

Private trusts that are hybrid or fixed trusts are assessed as designated private trusts unless specifically excluded.

Implied trusts arise where there is no express declaration of intention to create a trust, but from the circumstances of some transaction between two or more parties the court draws an inference or presumes that the intention was to create a trust. Implied trusts are sometimes called 'presumptive trusts'.

An example of an implied trust is where a purchaser of property arranges for the ownership (legal title) to be in the name of a third party. The third party in this situation will be presumed to be a trustee of the property for the purchaser.

A protective trust is a trust administered for the exclusive benefit of a person who is not competent to handle their own financial affairs. That is, all income and capital of the trust is used for the sole benefit of the person who is not competent to handle their own financial affairs and for whom the trust was set up.

A customer may not be competent to handle their own financial affairs because they are under 18 years of age (a minor) and therefore unable to sign contracts, or are unable to make a decision for themselves because they are in a coma or because of the stage their degenerative disease has reached.

A bank account held on behalf of a minor is the most common example of a protective trust.

If a customer claims that a trust is a protective trust, the customer should be asked to provide any documents available to confirm this. These documents may include a birth certificate for a customer under the age of 18 years, a guardianship order, a report from the treating doctor or psychiatrist of the person who is not competent. There may be circumstances where a social worker report is recommended.

For example, a customer may be competent to handle their own financial affairs but have a severe physical disability which makes it necessary for another person to act on their behalf.

A resulting trust is imposed on the owner of an asset in the circumstances where it appears to the court that the transaction in which it becomes transferred to them must have involved an intention on the part of the transferor that the transferee should account to them for the beneficial ownership of the property.

An example of a resulting trust: Sandy directs Oliver to acquire the property on trust for Harry until Harry attains the age of 25 years but with no desire for Oliver to acquire the beneficial ownership. If Harry should die before attaining the age of 25 years, it would be Oliver's responsibility to re-convey the legal estate to Sandy or if Sandy has died, to Sandy's estate.

A secret trust may exist where the testator intends to create, but for some reason or another chooses to suppress on the face of the will. They may have communicated their intention to the legatee before making the will, or at some time between the making of the will, and their death, or the intention may be revealed by a letter left for the legatee's perusal after their death.

A trustee may choose not to advise the beneficiaries of the existence of a trust. For example, an amount may be held by a grandparent in a bank account for the benefit of grandchildren until those grandchildren reach maturity. The money in the account may be used for the benefit of those grandchildren, such as the payment of education expenses, without their knowledge.

Different rules apply to an approved Special Disability Trust (SDT). The income generated by an SDT is exempt from the Income Test. The SDT's assets are exempt from the Assets Test as long as the combined asset value does not exceed the concessional asset limit.

Gifts to a SDT may be exempt from the deprivation provisions if the contributor is an immediate family member, of Age Pension age and the SDT concessional gifting cap is not exhausted.

See Special Disability Trust (SDT) Beneficiary Assessment Process, Special Disability Trust (SDT) - initial contact and Gifting concessions to a Special Disability Trust (SDT).

Statutory trusts, including those that are court ordered, are treated as designated private trusts.

For the assessment of the income and assets of customers involved in court ordered statutory trusts, see 4.12.1 of the Guide to Social Security Law. See the References page which contains links to Policy.

A testamentary trust is a non-statutory trust. It can be a discretionary trust or a fixed trust, and is assessed as a designated trust unless specifically excluded.

Testamentary trusts are set up through a will and activated by the death of the testator. A will is the document which describes how the customer wishes their property to be distributed after their death. The maker of the will is called a testator.

A will does not operate until the testator's death, and, as it is merely a declaration made during the testator's lifetime, it can freely be revoked or altered by the testator.

The customer who is named in the will as having the responsibility of dealing with the property of the estate in accordance with the wishes of the testator is called the executor. In effect the will becomes the trust deed, and it appoints a trustee, beneficiaries, and defines the terms of the trust as nominated by the testator.

See Testamentary trusts.