Nicholls and Secretary, Department of Social Services (Social services second review)

[2015] AATA 1030

Nicholls and Secretary, Department of Social Services (Social services second review) [2015] AATA 1030 (22 December 2015)

Division

GENERAL DIVISION

File Number(s)

2015/2700

2015/4063
2015/4066
2015/4067

2015/4075

Re

John Nicholls

David Nicholls
Marlene Doust

Hedley Doust

APPLICANTS

And

Secretary, Department of Social Services

RESPONDENT

DECISION

Tribunal	Senior Member McCabe
Date	22 December 2015
Date of written reasons	08 January 2016
Place	Brisbane

The decisions under review are affirmed.

................................[Sgd]........................................

Senior Member McCabe

Catchwords
SOCIAL SECURITY – benefits and entitlements – means test – beneficiaries of testamentary trust – whether trust is designated private trust – whether excluded trust – trust not designated private trust nor excluded trust – no special circumstances – discretion not exercised – decisions under review affirmed

Legislation

Social Security Act 1991 (Cth) ss 1207P, 1237AAD

Succession Act 1981 (Qld) ss 33E, 45

Secondary Material

Social Security (Means Test Treatment of Private Trusts – Excluded Trusts) (DEEWR) Declaration 2008

REASONS FOR DECISION

Senior Member McCabe

08 January 2016

1. A person who claims a range of benefits payable under the Social Security Act 1991 (Cth) is required to satisfy a means test that takes into account the person’s income and the value of the person’s assets. The outcome of the test will determine the rate of benefit that is payable; it may be that the assets or income exceed the point where any benefit is payable at all.

2. Where the claimant holds assets or earns income in his or her own name, the application of the test is easy enough. But the analysis becomes more complicated where assets are held or income is earned by private companies or where there are trust arrangements. At general law, assets held by a company are the property of the company. They are not owned by shareholders or directors. As beneficiary of a trust they may have an equitable interest in the assets of the trust or they may have rights against the trustee – but they do not own the property at general law. Without more, assets held and income earned under those arrangements would not be attributable to the person claiming benefits.

3. That is where Part 3.18 of the Social Security Act 1991 comes in. Part 3.18 includes a series of provisions that attribute the value of assets held in private company and subject to trusts to individuals for the purposes of the means tests in some circumstances. One of those provisions, s 1207P, catches designated private trusts. The value of assets held in a designated private trust will generally be attributed to the beneficiaries of the trust. A trust will be a designated private trust unless it satisfies the criteria in s 1207P(1), or is an excluded trust that is within a class of trusts subject to a declaration by the Minister in a legislative instrument: s 1207P(4). If the trust is an excluded trust pursuant to a declaration, the value of the assets and any income will not be attributed to a beneficiary. That has implications for their entitlements.

4. The Minister has issued a number of declarations pursuant to s 1207P(4). I will refer to the Social Security (Means Test Treatment of Private Trusts – Excluded Trusts) (DEEWR) Declaration 2008 (the Declaration) in particular. Clause 6(1) of the Declaration says:

   Each trust that is a fixed trust created before the reference time is an excluded trust for the purposes of section 1207P of the Act.

5. The Declaration notes the reference time is “7.30 pm, standard time in the Australian Capital Territory, on 9 May 2000”. The applicants say it is unclear why the Minister decided to make this exemption, but it ultimately does not matter. The Minister had the power to make exceptions to s 1207P and there is no reason to doubt the power was validly exercised. We are only concerned with the purpose and effect of the Declaration, not its ultimate motivation.

6. The applicants in these proceedings are beneficiaries of a testamentary trust established by the late Cecil David Nicholls, their father, pursuant to his will dated 24 July 1998. (A copy of the will is included in exhibit 1.3 at p 192.) Mr C.D. Nicholls died in June 2009. The applicants say the testamentary trust is a fixed trust – and they are surely right about that. But they say the trust was created in the sense intended by the Declaration when the will was executed on 24 July 1998. In those circumstances, they say, the fixed trust was created prior to the reference date and must therefore be regarded as an excluded trust for the purpose of s 1207P. If they are right about that, they are entitled to be paid benefits without taking into account the value of assets and income held through the trust.

7. The applicants say the will was valid from the day on which it was executed. If the will was valid, they say, the trust was created on that date and it should therefore be regarded as an excluded trust within the meaning of the Declaration.

8. A careful reading of the will makes it clear that the trust is not created until the death of the testator – and only if the testator’s wife had predeceased him. The will provides at clause 2 that the entirety of his estate was bequeathed to his wife. There is no suggestion that the bequest to her would occur prior to the testator’s death: a will ordinarily operates post mortem. Clause 3 creates an alternative set of arrangements that would only take effect if the testator’s wife predeceased him. That set of arrangements contemplated the establishment of a trust which would hold the estate for the benefit of the testator’s family members. That trust was to be a fixed trust.

9. The testator’s wife did predecease him, but not until after 2000. The testator did not make any subsequent wills or effect any variations. It was open to him to do that, of course: he could change his will or dispose of the property at any point prior to his death because it was still his property right up until the point he gave someone else an interest in it.

10. The will does not ordinarily become effective until the testator’s death. That much is clear (in Queensland, at least) from s 33E(1) of the Succession Act 1981 (Qld) (the 1981 Act) which provides:

    A will takes effect, in relation to the property disposed of by the will, as if it had been executed immediately before the testator's death.

11. His or her property passes into the hands of his executors or the public trustee at that point pursuant to s 45 of the 1981 Act. The will does not create the trust or any interests for the beneficiaries until that point. (I say ‘ordinarily’ because a person might include within a testamentary document a declaration of trust that does take effect prior to the testator’s death – but that special provision would need to be expressed in clear terms.) Prior to the testator’s death, the will merely provides for what will occur upon his death. Until that death, the will is, for present purposes, merely a valid plan for the disposition of assets post mortem.

12. The trust in this case was not created at the time of the execution of the will. It was not created until the testator’s death in 2009. It follows it cannot be treated as an excluded trust for the purpose of s 1207P. The assets and any income held in trust are therefore properly attributed to the beneficiaries in the ordinary course.

13. I would add I have considered whether there are or were any special circumstances that would provide a basis for exercising the discretion in s 1237AAD of the Social Security Act 1991 to waive recovery of the debt raised against Mr David Nicholls. Mr Nicholls has already repaid that debt, but that does not of itself prevent me from the exercising the discretion if I am satisfied there are circumstances about his case that are special or unusual and which justify treating his case differently from the usual run of cases.

14. As it happens, I was not able to discern any circumstances that might qualify as special circumstances, let alone circumstances that would justify the exercise of the discretion.

    Conclusion

15. The decisions under review must are affirmed.

I certify that the preceding 15 (fifteen) paragraphs are a true copy of the reasons for the decision herein of Senior Member Bernard J McCabe.

........................[Sgd]..................................

Associate

Dated 8 January 2016

Date of hearing	22 December 2015
Applicants’ Representative	Mr J Nicholls
Advocate for the Respondent	Mr R McQuinlan