Home What is a Family Trust? Reasons for Family Trusts How a Trust works and other FAQs Trust Set Up and Personal Wishes Price List Welcome Book and the Next Step Who are we? Contact Us Our Newsletter Order Now
Sign up to our newsletter


Age related State benefits and Income and Asset testing - Depriving of income



Once a Family Trust has been formed and your income-earning Assets are transferred into that Family Trust, any income and asset testing cannot affect you in later years. It is important though that you are aware of the requirements as they apply, and are known, that will influence your eligibility to succeed in your applications. Most of  that information is available on websites and through information material of the relevant Departments.Instead I will refer to a matter of concern for Settlors who are Beneficiaries in their Family Trusts.

Income and Asset testing

An aspect of  the Income and Asset testing procedures for State Benefits is that it takes into account any income (or fictional income) from a Family Trust of an Applicant. It is a requirement to list all income which is earned by an Applicant for a subsidy. This is done to ensure that Applicants are really in need of the subsidy they apply for. In other words, Applicants should not have any income means available to them, which could lead to the conclusion that they are not in need of that subsidy.

It is not the place here to express my political opinion on this development. Instead I wish to ensure that you take all steps to succeed in your application. This should be considered at time of formation of the Trust. Any income which you receive in your name, and which you record as having been received in your tax return will be taken into account. That seems clear enough. It does not stop there however. Also investigated will be the income that you earn from loans owing to you. This concerns all Trustees !

 Any Debts owing to you from the Trust are such relevant loans that earn an income. It is this added income from the Trust which is also taken into account. Trust Documents for those loans which do not allow for interest to be charged on those loans are rejected outright, and you will be classified as having deprived yourself of income as Settlor and Applicant for the subsidy. You will therefore fail outright in your subsidy application.  The Trustee must see to that, at time of formation of the Trust, and for every sale of an Asset to the Trust after that. If it has not been done it must be remedied immediately by updating your Loan Agreement during the Review.

 We refer to this clause in loans to Trusts as the " Marshall" clause. The requirement of the ability to charge interest is quite artificial though, as it is never acted on in most Trusts. Most Trustees do not charge their Settlors, who are the residents of a house which has been placed into their Trust, interest on the corresponding debt. Other even more ridiculous examples are medals - or glassware- collections and vintage cars or boats. Those Assets cannot and will never earn an income. Applicants must show that other income-earning Assets of the Trust are not able to provide that income to the Settlor as the Creditor for the loan. That is how other assets of the Trust Fund can be drawn into the application procedure for a subsidy. That is why it is so important to start with the gifting procedure as soon as you transfer assets into your Trust and for all your assets. If it can be shown that you have placed your Assets into your Trust for the right reasons, you cannot be accused of " depriving yourself of assets ".

In the above have shown that there are many legitimate grounds for placing Assets in Trusts. Sometimes it is the only way to preserve them and to safeguard them. That is not deprivation of Assets.  Trustees have the ability to decide whether the income from such Assets should be made available to  applicants for their care. An independent trustee will play a vital role to determine whether such income distributions should take place. He or she should not be swayed by public opinion, the views of State Servants or even the claims by Beneficiaries, when the original Directions to the Trustees have been quite clear. The above shows that this is an area of great uncertainty as to its outcome for all parties. There are new developments all the time, especially as Governments change and new ones impose new rules and regulations. Above all it shows the importance of getting the right documents in place and also to have the ability to make changes to those documents as relevant rules change over the years of running a Family Trust.

You will have wasted thousands of dollars on trust formation if you do not review all trust matters at least once yearly. Refer to my review procedure set out below for details. Also read what I have set out about this issue in the paragraphs on " Incapacity of Dependents.  It is fair to say that your Family Trust  will come under attack sometime during its running time of 80 years. That has been the case since Trusts were first conceived in the Middle Age of Europe many centuries ago.  Not many legal  entities have withstood the test of time so well as the Trust ( Or the " Use " as it was originally called ). Trust experts must remain vigilant however. When misconceptions about the use of Trusts, and the Powers of Trustees circulate, then those experts should make information available to correct such wrong ideas.

 At Sanctuary TrustLaw we will ensure:

a. That your Family Trust meets all the known requirements to enable you or your family to access State subsidies which are available to everyone else and when you qualify.

b. That all our trust documents are of the highest caliber, and our systems comply with those used by  leading trust firms in this country.

c. That a Forgiveness of Debt procedure is set up and maintained, which looks beyond the requirements for Gifting as allowed by law. Our involvement, at the yearly Review of all trust matters  ensures, that we can also take into account any Capital distributions from your Trust as Debt Repayments. This can accelerate lowering of the Debt owing to you. This in turn will make it easier to apply for any subsidies at a later stage.



Contact us to discuss your family trust requirements.
Click here >