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Protective trust definition
A protective trust is a trust established for a person who is unable to manage their own affairs.
Fixed protective trust established before 9 May 2000
If the trust is a fixed trust established before 9 May 2000, attribution should be determined according to an assessment of the trust assets or income, or both, under provisions outlined in the trust deed.
Changes made after 9 May 2000 to a fixed protective trust established before 9 May 2000
However, if after 9 May 2000:
- the trust is varied or altered under the trust deed,
- additional funds are contributed to the trust, or
- there are changes to the beneficiaries entitled under the trust,
the delegate may determine attribution among the attributable stakeholders of the trust as if the trust was established after that date, if the delegate considers it appropriate in the circumstances.
Discretionary protective trust established before 9 May 2000
If the trust is a discretionary trust established before 9 May 2000 and is administered for the exclusive benefit of a person (or persons) who are unable to manage their own financial affairs, attribution should be made to the primary beneficiary of the trust, that is, to the person (or persons) unable to manage their own affairs.
Protective trust established after 9 May 2000 – person who is source of funds retains control
If a trust is administered for the exclusive benefit of a person (or persons) who are unable to manage their own financial affairs, and the person who is the source of the majority of the assets or income, or both, of the trust (or an associate of that person) retains control of the trust, the assets or income, or both, of the trust would generally be attributed to that person (or members of a couple) who is the source of the funds. 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 assets and income of the trust.
Protective trust established after 9 May 2000 – source of assets cannot be attributed to a person
In the absence of a source, where assets were transferred to a fixed or discretionary trust for the exclusive benefit of a person unable to manage their own financial affairs, the trust assets will generally be attributed to the primary beneficiary of the trust, that is, to the person (or persons) unable to manage their own affairs.
Example of protective trust attributed to primary beneficiary
Sally received severe brain injuries as a result of a motor vehicle accident. Sally received a large compensation settlement, which was placed in a trust.
Sally's mother, Alice, aged 70, looks after Sally. Because Sally is unable to manage her own financial affairs, Alice has official control over the money in the trust. Alice conscientiously administers the fund and all trust income is used for Sally's benefit.
Alice is concerned about the effect of the Trust and Company rules on her income support pension. She can't afford to lose her pension, as it is her sole source of income. Alice visits her local VAN office. She is relieved to learn that she will not be attributed because the trust funds originated for, and are used for, Sally's benefit.
Incidental benefits received from protected trust
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 assets and/or income of the trust will be made to that person. This might include for example, private use of a vehicle that is used to transport the person who is unable to manage their own affairs would be classed as an incidental benefit.
An incidental benefit does not include fees and wages paid to the stakeholder.
According to section 52ZZJ of the VEA, a person is an attributable stakeholder if a company or trust is a controlled private company or trust in relation to the individual unless the Commission determines otherwise.
A discretionary trust is a private trust set up by an individual or individuals either to:
- hold property or investments, or
- run a business.
In virtually all cases the trust deed gives absolute discretion to the trustee to distribute both income and capital among the beneficiaries as he or she sees fit.
An associate of an individual for the purposes of private trusts and private companies has the meaning given by section 52ZQ of the VEA.
Control includes control as a result of, or by means of, trusts, agreements, arrangements, understandings and practices, whether or not having legal or equitable force and whether or not based on legal or equitable rights.
According to section 52ZR of the VEA, if at a particular time on or after 1 January 2002:
- an individual is an attributable stakeholder of a company or trust,
- the company or trust owns a particular asset (alone, jointly or in common with another entity or entities),
- had that asset been owned by the individual instead of by the company or trust, the value of the asset would not be required to be disregarded by any express provision of the VEA, and
- the asset is not an excluded asset.
there is to be included in the value of the individual's assets an amount equal to the individual's asset attribution percentage of the value of the asset owned by the trust or company.