Protective and statutory trusts for persons unable to handle their own affairs 043-04110050

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 the income and capital of the trust are 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 person 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 understand a contract because of an intellectual disability, 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.

Documentation will need to be provided to confirm a person is not competent to handle their own financial affairs and can include a:

• birth certificate for a person who is under 18 years
• guardianship order
• report from a 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 person 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.

There are a number of concessions available for those customers who manage the financial affairs of people who are not competent to handle their own financial affairs.

• The attribution of income and assets from discretionary protective trusts will generally be to the controller, most likely the appointor or trustee. However, a concession applies for these trusts established before 7:30 pm on 9 May 2000. Where a controller can show that the trust has been, and continues to be, administered for the exclusive benefit of a person who is unable to handle his or her own financial affairs, attribution will be to the person who is not competent to handle their own financial affairs.
• The income and assets from fixed protective trusts established before 7:30 pm on 9 May 2000 will be assessed in accordance with the individual's fixed rights as set out in the deed. However, a Complex Assessment Officer (CAO) 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 CAO considers it appropriate to do so, and if, after 9 May 2000:
• the trust is varied or altered under the trust deed, or
• additional contributions (income, assets or services) have been provided to the trust, or
• there are changes to the beneficiaries entitlement under the trust

If the source of the income and/or assets of the trust (or associates of the source) retains control or an interest, the trust income and assets will be attributed to the source. For 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 income and assets of the trust.

Attribution will transfer to the person not competent to handle their own financial affairs:

• upon the death of the source, provided the trust is being administered for the exclusive benefit of the person who is not competent
• if the source resigns all control and interest in the trust and can show that the trust assets are being used for the sole benefit of the person who is not competent

Note: if the source dies or resigns all control and the new controller does not administer the trust for the exclusive benefit of the person who is not competent to handle his or her own financial affairs, the trust assets will generally be attributed to the new controller.

A customer who manages the affairs of another person under power of attorney arrangements will not be affected by that person's income and/or assets because of the power of attorney.

The Public Trustee in each state can act both as power of attorney and as trustee. When a customer's financial affairs are administered by the relevant Public Trustee, each case would need to be determined based on individual circumstances. If the customer's personal income tax return (ITR) includes the income as a distribution from a trust (not as interest), this would indicate that the funds may be administered as a trust.

Generally if a customer's financial affairs are administered under a Financial Management Order (Guardianship Act 1987) and the investment interest is listed on the personal ITR and not lumped together as a trust distribution, then the customer is not involved in a private trust and no Module PT - Private Trust (Mod PT) is required.

Some Public Trustees offer funds for the general public to invest in, while others only administer statutory trusts. The Resources page contains a link to the FINS Bulletin, which includes information about the Public Trustee for each of the states and territories.

Assessments before 18 May 2005

Prior to 18 May 2005, court ordered statutory trusts were generally excluded from being considered as designated private trusts.

Assessments from 18 May 2005

The disallowable instrument in relation to designated private trusts was amended on 18 May 2005.

From that day all court ordered statutory trusts are to be assessed under the attribution provisions of private trusts and companies by a CAO.

The customer's share of the net assets and net income of the trust are assessed as theirs.

Statutory trusts are assessed and coded on the trust and company screens.
These must be referred to a CAO to make attribution decisions and must not be assessed by Service Officers.

Statutory trusts are generally administered by a State Public Trustee or similar. Not all trusts administered by a public trustee are statutory trusts. Public Trustees also administer other private trusts on a commercial 'fee for service' basis. These other private trusts are subject to the new trust and company rules in force after 1 January 2002.

The income assessable from a statutory trust is calculated by multiplying the balance of money held by the most recent rate of return. In some cases, gross taxable income is provided by the administrator of the funds. For example, the Senior Master’s Office in Victoria. If the trust has not been in place for a full financial year, the income must be annualised. This income is recorded on TRID. Statutory trust funds are not subject to deeming nor are actual distributions received from statutory trusts assessable. For assets purposes, the balance of the money held is an assessable asset and is recorded on the appropriate screen in the trust record.

Note: the value held in the statutory trusts is not assessed as an asset of the customer if there is a clause stating that the payment of assets is contingent on a certain event occurring.
For example, a clause states that the payment of assets is contingent on the customer reaching a certain age.

One-off payments made from the capital funds held by the statutory (court-ordered) trust are not taken into account as income, but are assessed as an asset. The amount that is assessed as the assets held by the trust must be reduced by the amount of the payment. For example, distributions to enable modifications to be made to the customer's home to assist with their disability.

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 may be made to that person. For 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.