Nicholas Damman and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs

[2010] AATA 508

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2010] AATA 508

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No  2008/2009

GENERAL  ADMINISTRATIVE  DIVISION		)
Re		Nicholas Damman

Applicant

And Secretary, Department of Families, Housing, Community Services and Indigenous Affairs

Respondent

DECISION

Tribunal Mr G L McDonald, Deputy President

Date8 July 2010

PlaceMelbourne

Decision The Tribunal sets aside the decision under review and remits this matter to the respondent to recalculate the amount of the Disability Support Pension payable to applicant for the period following 10 November 2006 on the basis that he is not an attributable stakeholder in the trust established by the Will of his late mother.

.....(sgd G L McDonald).....

Deputy President

CATCHWORDS

Disability Support Pension- Assets in excess of allowable limit- Whether an entitlement under a will is an asset- Asset if an attributable stakeholder- Criteria for determining if not an attributable stakeholder- Criteria satisfied here: testamentary disposition not an asset

Administrative Appeals Tribunal Act 1975 s 37
Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000 Clauses 6 to 13
Social Security Act 1991 ss 11(1), 11(2), 1207C(1)(e), 1207P, 1207P(1), 1207V(2), 1207V(2)(a), 1207V(2)(d), 1207V(2)(e), 1207X(2) and 1207X(5)

Elliott v Secretary, Department of Families, Housing, Community Services & Indigenous Affairs (2008) 249 ALR 182

REASONS FOR DECISION

8 July 2010 Mr G L McDonald, Deputy President

1.      The applicant is applying for review of the decision of a delegate of the respondent cancelling his receipt of a Disability Support Pension (DSP) from 9 November 2006 (the original decision).  The DSP, which is granted to qualifying recipients under the Social Security Act 1991 (Cth) (the Act) was cancelled, because it was determined that the applicant’s assets were in excess of the allowable limit.

2.      An internal reconsideration carried out on 6 December 2007 by an Authorised Review Officer resulted in the original decision being set aside.  However a further internal review affirmed the original decision.  An appeal was lodged with the Social Security Appeals Tribunal on 19 February 2008 against the latter decision.  The original decision was affirmed by the Social Security Appeals Tribunal on 9 April 2008.  From that decision an application for review was lodged with this Tribunal on 9 May 2008.

3.      At the hearing, the Tribunal had written and oral evidence presented.  Ms McMahon, of counsel, appeared for the applicant and Mr de Uray appeared for the respondent.  The respondent filed the ‘T Documents’ as required by s 37 of the Administrative Appeals Act 1975 (Cth).  The respondent did not call any oral evidence.  One of the applicant’s brothers gave testimony for the applicant and two exhibits were tendered on his behalf.

THE FACTS

4         The facts are not disputed and the Tribunal is satisfied that they are as follows:

(a)     the applicant was born on 7 November 1959.  As the result of injuries he received at the age of five years in a motor vehicle accident, he suffers from brain damage and epilepsy.  At the age of 16 years he developed bipolar disease.  Subsequently he has also developed a pathological gambling addiction.  However the applicant is able to live independently;

(b)     the applicant commenced receiving a DSP on 29 November 1984 and continued to receive it until it was cancelled on 9 November 2006.  Since 2008, when the level of assets allowable was increased before the DSP was cancelled, he has been in receipt of a part DSP;

(c)     the applicant’s mother died in November 2002.  She left a will dated 11 May 1999 (the Will) with two codicils dated respectively, 17 February 2000 (the first codicil) and 28 October 2002 (the second codicil).  The Tribunal has set out the relevant terms of the Will and the codicils later in these reasons;

(d)     one of the applicant’s three brothers, Mr M Damman, and Mr B Ely were appointed the trustees and executors of the Will.  On 19 October 2007, they were appointed by the Victorian Civil and Administrative Tribunal as joint administrators of the applicant in place of the State Trustee, who had been acting in the position of administrator prior to this change; and

(e)     Mr M Damman has provided, from his resources, money to cater for the needs of the applicant by way of unconditional gift.  No sum advanced by Mr M Damman is constituted as a loan against future income or capital of the trust money.  

5         The Will together with the first codicil provided that, after payment of debts and funeral expenses, the residue be divided into four parts.  Clause 5 of the Will provided that each of the applicant’s three brothers was to receive a one quarter share.  In respect of the remaining quarter (the remaining quarter), the Clause directed that the income was to be distributed between the applicant’s three brothers, as the trustees in their absolute discretion determined, with the following stipulation:

…it would be my wish that needs of my son [the applicant] should be met in the first instance in all cases and any income not so paid or applied for his care benefit or general welfare shall then be paid or applied to such of my children [naming the three brothers of the applicant] then living as tenants in common in equal shares.

6         Clause 5(b)(i) and (ii) of the Will empowered the trustees, during the lifetime of the applicant, to raise out of the corpus of the remaining quarter, in cases when the income generated was insufficient, such sums as may be needed to provide for the needs of the applicant.  Without diminishing the generality of what may constitute needs, the clause nominated medical, dental, nursing, health care, education, music and lifestyle needs.  Upon the death of the applicant, provided he had no children, the remaining quarter was then was to be divided between the three brothers.  If the applicant had a child or children, then the remaining quarter was to bequeathed to that or those children upon the death of the applicant.  If all or any of the three brothers did not survive the applicant, then the share allocated in favour of that or those brothers was to be divided among their children. 

7         Clause 6(a) of the Will contained a general provision to apply the capital of the applicant’s benefit otherwise free of the terms of the trust.  Clause 6(b) requested that the trustees have regard to any wishes of the testator expressed in any memorandum deposited with her Will.  No such memorandum was left with the Will.  The first codicil is not further relevant to the disposition of this application.

8         The second codicil dated 28 October 2002 relevantly changed clause 5(a) of the Will by adding, to that part quoted in paragraph 5 of these reasons, that “...the welfare and interests of [the applicant] is the primary consideration of my trustees in considering how the income or capital of [the remaining quarter] is to be applied”.  Additionally, the second codicil provided the trustee with the authority to accrue income arising from the remaining quarter to form part of the capital of that quarter.  Other changes not relevant to this proceeding were also added.

9         The terms of the trust established by the Will and the codicils authorise expenditure from the remaining quarter for the applicant, but the expression of what in the Will is described as a “wish” is not binding on the trustees.  The second codicil directs the trustees to give primary consideration to the welfare and needs of the applicant when exercising their discretion whether to devote any of the income or capital from the remaining quarter to the applicant.  This does not remove the discretionary nature of the decision vested in the trustees to determine whether any, and if so how much, of the income or capital should be distributed to the applicant.

10       The total value of the applicant’s mother’s estate was approximately $1.6m.

The Issues

11       There are two issues to resolve here.  The first issue for the Tribunal to determine is whether an entitlement arising from the testamentary disposition of the estate of the applicant’s mother constitutes an “asset” for the purposes of the Act.  As his entitlement derives from a trust, its nature and whether or not he is an attributable stakeholder have to be considered to be able to resolve the first issue.  Secondly, if it is an asset, what is its value.

12       An asset is defined by s 11(1) of the Act as being property or money.  The value of a particular asset is defined as the value of a person’s interest in that asset[1].  Part 3.18 of the Act provides the methodology for the attribution to individuals of assets associated with private trusts.  For an asset or income arising from such a trust to be attributable to an individual, the trust must be a “designated private trust”[2].  According to s 1207P of the Act, a trust is a designated private trust, unless it falls into one of the four defined categories set out in s 1207P(1) of the Act.  The trust established under the Will does not fall into one of the designated categories.  Accordingly, the Tribunal is satisfied that it is a designated private trust.  

[1] S 11(2) of the Act.

[2] S 1207P of the Act.

13       A designated private trust is a “controlled private trust” if the individual passes one of two tests[3].  The relevant test in this case is the ’control test’, which is set out in s 1207V(2) of the Act, and provides, among other things, that an individual passes the control test if an associate of his is the trustee[4].  The applicant’s brother, Mr M Damman, is one of the two trustees, which means the applicant is an associate[5].  The fact that the other trustee (Mr Ely) is not related to the applicant does not influence the decision that the applicant passes the control test.  The circumstances of this case are distinguishable from those in Elliott v Secretary, Department of Families, Housing, Community Services & Indigenous Affairs[6], when, for purposes of considering s 1207V(2)(d) of the Act, the Federal Court found it necessary to ascertain whether the individual had a measurable interest in the trust.  This concept is relevant when the Tribunal comes to consider whether the applicant can reasonably be expected to exercise effective control of the trust, but it is not relevant for a determination under s 1207V (2)(e) of the Act.

[3] S 1207V of the Act.

[4] S 1207V (2)(a) of the Act.

[5] S 1207C (1)(e) of the Act.

[6] (2008) 249 ALR 182.

14       If a trust is a controlled private trust, then the individual is an attributable stakeholder, unless the Secretary otherwise determines[7].  If the individual is an “attributable stakeholder”, then he or she has a 100% asset attribution, unless the Secretary determines otherwise or, alternatively, determines a lower percentage.  To make either of these determinations, the Secretary is bound when exercising his or her discretion by the criteria set out in the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000 (the Principles)[8].   

[7] S 1207X (2) of the Act.

[8] S 1207X (5) of the Act.

15       In particular, the criteria for determining whether an individual is “not an attributable stakeholder” of a trust are set out in Part 2 of the Principles, specifically clauses 6 to 13 inclusive.  Clause 6 (2) of the Principles, specifies that,

[t]he Secretary must consider the relationship between the individual and the company or trust having regard to:

(a)  the reason why, but for a determination , the individual would be an attributable stakeholder; and

(b)  the circumstances mentioned in this Part.

Clause 6(3) of the Principles specifies that, “[i]n particular, the Secretary must consider whether the effect of one or more of the circumstances mentioned in this Part, in relation to the individual and the company or trust, provides a sufficient basis on which to determine that the individual is not an attributable stakeholder of the company or trust”.

16       Clause 7(2) addresses the issue of “the circumstances” mentioned in the preceding subclause as follows:

For subsection (1), relevant circumstances include the extent to which the relationship between the individual and the company or trust is affected by any of the following circumstances:

(a) circumstances arising from the legal structure of the company or trust;

(b) circumstances arising from the administrative arrangements of the company or trust;

(c) whether, having regard to the relationship between the individual and the company or trust, the individual can reasonably be expected to exercise effective control in relation to the company or trust.

The legal structure of the trust, in so far as the remaining quarter is concerned, is that the income is to be distributed among the applicant’s three brothers, subject to the wishes expressed by the testator.  While there is authorisation for some, or all, of the income (and/or the capital) of the remaining quarter to be distributed or applied for the applicant’s benefit, there is no certainty of there being any distribution in his favour.  From a legal viewpoint, the applicant has no right to enforce the trustees to comply with what the testator nominated as her “wish”.

17       There are no formal circumstances arising from the manner in which the trust is administered, which need to be considered.  The Tribunal accepts that the trust has not been administered in such a way that the applicant has been reliant on income or capital for his ongoing needs.  The Tribunal accepts that only a small proportion has been distributed from the trust in his favour in the period since his mother died in 2002.  

18       In this review, it is clear that the applicant, while he has some rights as a potential beneficiary, does not have “effective control” in relation to the trust.  Not any of the potential beneficiaries have a legal right to enforce the trustee to make a distribution to them.  The beneficiaries have an expectation, but they have no proprietorial right in the remaining quarter.  The trust contemplates that, in the event of the death of the applicant without issue, the remaining quarter be divided among the testator’s remaining three sons.  If any of those remaining sons predecease the applicant, then the portion to be distributed to that son is to be distributed to any of that son’s children.  It follows from this that the trust is not exhaustive, as the class of potential beneficiaries is left open.  Further, there is no way in which any beneficiaries’ share, including that of the applicant, in the remaining quarter can be established as the trustee may, as the result of the terms of the second codicil, accumulate the income. 

19       Clause 8 of the Principles requires consideration of whether the individual has made a contribution to the trust and, if so, the surrounding circumstances, including the value of that contribution.  This does not arise in this case, as the Tribunal is satisfied that there is no evidence which demonstrates that the applicant made a contribution to the trust.  As is evident from the wording in clause 6(3) of the Principles, in cases such as the present, when no contribution has been made by a potential recipient, the Secretary is not to regard this as a disentitling factor in considering whether a “sufficient basis“ exists to treat an individual as not being an “attributable stakeholder”.

20       Clause 9 of the Principles requires consideration of whether the individual has received a benefit in the past from the trust and, if so, the value and frequency of its provision.  The evidence of Mr M Damman, which the Tribunal accepts, leaves it satisfied that only about $7,000 from interest earned by the remaining quarter of the trust has been distributed to the applicant.  The payments were made, as repayments to Mr M Damman, on an infrequent basis in the period following the cancellation of the applicant’s DSP[9].

[9] Exhibit A1.

21       Clause 10 of the Principles addresses whether it is reasonably foreseeable that the applicant may receive the payment of a future benefit from the trust.  It provides as follows:

10Future benefit from distributions by company or trust

(1)The Secretary must consider whether it is reasonably foreseeable that the individual may receive a benefit from a future distribution by the company or trust.

(2)If subsection (1) applies, the Secretary must also consider the likely value of the benefit.

(3)For this section, the Secretary must have regard to:

(a)     …

(b)     documents, if any establishing the terms of the trust.

(4)For this section, a distribution includes distributions:

(a)     …

(b)     in the case of a distribution by a trust – of the corpus or income, or both, of the trust.

Mr M Damman is continuing to provide, by way of gift, any additional resources which the applicant may need.  He said that he anticipated continuing to fulfil this role.  While it is impossible to foresee all of the circumstances which may arise in the future, the Tribunal is satisfied, from the evidence of Mr M Damman, that there is no present intention by the trustees to make any distributions to the applicant in the foreseeable future. 

22       Aside from the absence of any immediate needs of the applicant to maintain his current lifestyle, the trustees would no doubt be concerned that, if any distribution was made to the applicant, he may gamble it.  To make a distribution knowing, or strongly suspecting, that the money distributed would be gambled would reflect a failure by the trustees to properly consider the interests of the other potential beneficiaries.  It is also clear from the terms of the Will, that the testator wanted to make provision from her estate for the proper accommodation and “welfare and interests” of the applicant should the need arise.  While terms such as “welfare” are of broad ambit, they must be seen in context.  The testator specified money from her estate to support the applicant in areas where she perceived he may need support.  It is not difficult to conclude, and the Tribunal concludes, that supporting an addictive gambling habit was not one of the areas where the testator anticipated the allocated money being expended.  Bearing these matters in mind, the Tribunal considers that it unlikely that the trustees will be making a future distribution in favour of the applicant.

23       In accordance with clause 11 of the Principles, the applicant does not receive or derive any benefit from the trust.  The only benefit which he may receive is if the trustees decide to make a distribution in his favour.  That depends on the exercise of their discretion.  Without a discretion being exercised in his favour, the applicant receives no benefit. 

24       The applicant does not receive any other benefit from another source which would result in him being considered an attributable stakeholder pursuant to clause 12 of the Principles.

25       There is one other circumstance, of minor importance, which ought to be mentioned as a “circumstance” under clause 13 of the Principles.  That is, that the trustees invested money from the remaining quarter into a Colonial First State Wholesale Income Option.  Colonial First State notified the trustees in a letter dated 2 December 2008, that there was a freeze introduced on withdrawing funds from the investment beyond a maximum of 10% of the sum invested[10].  The trustees are, therefore, limited, until the freeze is further relaxed, from withdrawing amounts from the trust.

[10] Exhibit A2.

26       Taking all of the above matters into account, particularly, that the applicant has no effective control over the distribution of the income or capital from the remaining quarter which constitutes the trust, the Tribunal is satisfied that the discretion should be exercised to determine that the applicant is “not an attributable stakeholder” in the trust.  His entitlement under the Will is not an asset for the purposes of the Act, and, consequently, there is no need for the Tribunal to consider the other issue of its value.

27       The decision under review is set aside.  This matter is remitted to the respondent to recalculate the amount of the DSP payable to applicant for the period following 10 November 2006 on the basis that he is not an attributable stakeholder in the trust established by the Will of his late mother.

I certify that the 27 preceding paragraphs are a true copy of the reasons for the decision herein of
Mr G L McDonald, Deputy President

Signed:         .........(sgd D De Andrade)...........................
  Personal Assistant               D. De Andrade

Date of Hearing  26 February 2010
Date of Decision  8 July 2010
Counsel for the Applicant         Ms A McMahon
Solicitor for the Applicant          Burke & Associates Lawyers
Solicitor for the Respondent     Mr T de Uray, departmental advocate