Fixed testamentary trust activated on or before 31 March 2001

The assets and income generated by fixed trusts, including fixed testamentary trusts, are fully assessed against the trust beneficiaries in the fixed proportions laid down by the trust deed. The practice of assessing the asset value based on the fixed entitlements of the beneficiaries and the income on actual distributions to beneficiaries will continue only for fixed trusts established before 7.30pm 9 May 2000.

Changes made after 9 May 2000 to a fixed testamentary trust activated before April 2001

However, if after 7.30pm 9 May 2000:

• the trust is varied or altered in accordance with the trust deed, or
• additional funds are contributed to the trust, or
• there are changes to the beneficiaries entitled under the trust,

attribution should be determined among the attributable stakeholders of the trust as if the trust had been established after that date if, in the circumstances, the delegate considers it appropriate to do so.    

Example of attribution applying to a fixed testamentary trust

Janet (66) is the beneficiary of Robert's (her late husband's) will. Robert owned the principal home and $600,000 worth of other assets, and passed away on 20 February 2000. In Robert's will Janet was granted the principal home and $100,000 worth of other assets. Robert's will also specified that their five children each receive roughly $100,000 worth of assets. However the trust deed provides that the trust can be altered with the unanimous agreement of Janet and the five children (who are all trustees of the trust). Janet and her children agree to increase Janet's share of the trust property to $200,000 with them each taking a smaller share (and knowing that they will receive the balance of what they are transferring to Janet on her death). The change to the will takes place on 22 June 2000 and means that the eligibility of Janet and her children to income support payments must be reconsidered as these changes have been made after 7:30pm on 9 May 2000. The reassessment of Janet's entitlement results in a 100% attribution of income and assets to Janet.

Discretionary testamentary trust activated on or before 31 March 2001

If a discretionary testamentary trust is activated by the death of the testator on or before 31 March 2001, the trust assets and income would generally be attributed, via the basic attribution rules, to the formal controller. However, if the trust is being administered for the benefit of the surviving spouse and the surviving spouse is exercising informal control, attribution will be to the surviving spouse.

Testamentary trust activated after 31 March 2001

If a testamentary trust is activated by the death of the testator after 31 March 2001, the surviving spouse will be attributed with the assets and income of the trust if:

• the surviving spouse has control of the trust (irrespective of whether the surviving spouse is a beneficiary), or
• an associate of the surviving spouse has control of the trust, and the surviving spouse is a potential beneficiary.

This is because if the surviving spouse directly controls the trust, they can simply appoint themselves as a beneficiary or alternatively exert their powers to obtain benefit informally. Alternatively, if an associate has control and the surviving spouse is a potential beneficiary, a reasonable assessment of the situation is that the surviving spouse will enjoy the benefits of the trust. If the surviving spouse (or an associate of the surviving spouse) does not control the trust, attribution may be made, via the basic attribution rules, to the person(s) or members of a couple who have control of the trust.

Testamentary trust with a commercial trustee

Some testamentary trusts will be established with a commercial trustee as the controller of the trust. In these cases the terms of the will need to be examined carefully to determine who the testator intended to benefit under the terms of the will. Where the surviving spouse is not a beneficiary of such a trust, attribution should be made to those who are specifically nominated as beneficiaries of the trust.