FEDERAL COURT OF AUSTRALIA Secretary, Department of Family & Community Services v Geeves [2003] FCA 1486 SOCIAL SECURITY – working out value of assets for purposes of carer payment entitlement – whether court ordered trust to be treated as assets Social Security Act 1991 (Cth) s 198D(1) Re Secretary, Department of Family and Community Services v Zangari (1998) 54 ALD 155 cited SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES v ROSLYN GEEVES T4 OF 2003 HEEREY J 16 DECEMBER 2004 MELBOURNE (HEARD IN HOBART) IN THE FEDERAL COURT OF AUSTRALIA TASMANIA DISTRICT REGISTRY T4 OF 2003 BETWEEN: SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES APPLICANT AND: ROSLYN GEEVES RESPONDENT JUDGE: HEEREY J DATE OF ORDER: 16 DECEMBER 2003 WHERE MADE: MELBOURNE (HEARD IN HOBART) THE COURT ORDERS THAT: 1. The appeal is dismissed. 2. The applicant pay the respondent's costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA TASMANIA DISTRICT REGISTRY T4 OF 2003 BETWEEN: SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES APPLICANT AND: ROSLYN GEEVES RESPONDENT JUDGE: HEEREY J DATE: 16 DECEMBER 2003 PLACE: MELBOURNE (HEARD IN HOBART) REASONS FOR JUDGMENT 1 The Secretary of the Department of Family and Community Services appeals from a decision of the Administrative Appeals Tribunal which in substance decided that the respondent Ms Roslyn Geeves was entitled to receive carer payment under Pt 2.5 of the Social Security Act 1991 (Cth) ("the Act"). Ms Geeves had for some years been caring for Mr Craig Andrew Escott. The point of law raised on the appeal is whether the Tribunal was wrong in holding that a court-ordered trust fund should not be treated as assets of Mr Escott for the purposes of working out carer payment entitlement. 2 Mr Escott, now aged 43, sustained permanent brain injury in an accident. Ms Geeves began receiving carer payments in respect of his care in 1995. Mr Escott brought an action in the Supreme Court of Queensland. On 5 August 1998 Moynihan J in that Court sanctioned a compromise in the sum of $900,000 plus costs. The order of Moynihan J directed that the amount of the settlement, after payment to any entity having any statutory or other charge in respect of the fund, be paid to the Public Trustee of Tasmania who was to hold all sums paid to it by the defendants upon trust for Mr Escott. The terms of the trust were ordered to be those set out in O 21 r 11 (3) and (4) of the Rules of the Supreme Court of Tasmania. Those rules provide in effect that such money shall, subject to the directions of the Supreme Court, be held in trust and applied by the Public Trustee in such manner as he may think fit for the maintenance and education or otherwise for the benefit of the person under disability. The Public Trustee may at any time request the Court or a judge to give directions as to the trust, its administration or, the varying of any directions. 3 On 24 January 2002 the applicant cancelled the respondent's carer payments on the ground that Mr Escott's assets exceeded the disqualifying assets level. As at the date of the cancellation of the payments, the assets of the trust amounted to $774,174. 4 Section 198D(1) of the Act has the effect, relevantly for present purposes, that the care receiver's assets must be less than $376,750. 5 Section 198E supplies the test for "working out" the value of assets. It relevantly provides: "For the purposes of sub-s 198D(1) … the value of assets is to be worked out in accordance with: (a) Part 3.12, except Divisions 2, 3 and 4 of that Part; (b) Sections 198F to 198MA (inclusive) and (c) Part 3.18, except division 9." 6 The requirement in (c) was added by the Social Security and Veterans Entitlements Legislation Amendment (Private Trusts and Private Companies – Integrity of Means Testing Act 2000 (Cth) ("the 2000 amendment")). None of the provisions referred to in pars (a) and (b) of s 198E are relevant in the present case. However Pt 3.18, referred to in s 198E(c), is relevant. 7 Part 3.18 is headed "Means Test Treatment of Private Companies and Private Trusts". In the explanatory memorandum for the 2000 amendment it was stated: "This measure aims to ensure that customers [sic - presumably recipients of social security payments] who hold their assets in private companies or private trusts receive comparable treatment under the means test to those customers who hold their assets directly. The assets and income of the structure will be attributed to the person or persons who control the company or trust, or to the person or persons who were the source of the capital or caucus of the company or trust." 8 Under the heading "Summary of Proposed Changes" it was stated: "Under this measure, a person who holds assets and/or income in a private company or private trust may have the assets and/or income of that company or trust attributed to them for the purposes of the means test under the Social Security Act." 9 Under the heading "Background" it was stated: "A key principle of our social security system is that people with similar levels of private resources should receive similar pension or allowance payments. However, the existing means test treatment of private trusts and private companies is inconsistent with the principles underlying effective targeting of social security payments. Under current social security law, assets and income are only attributed to a person where legal ownership or a fixed right to income is established. This means that private trusts and private companies may be used to hold and control assets and/or income outside the scope of the means test. The keyissue for means testing purposes is: to whom the assets and/or income of a structure should be attributed? At present, assets held by individuals, sole traders or partnerships are taken into account. Similarly, investments in public companies and public unit trusts currently are assessed as financial assets of the customer. It is with structures legally separate from, although controlled by, the customer, where the current means test does not consistently attribute assets and/or income to reflect a customer's real circumstances." 10 The explanatory memorandum goes on to give a hypothetical example. A husband and wife own assets substantially in excess of allowable limits for the purposes of the Act. The husband has a degenerative disease. On legal advice, the wife transfers her assets to the husband who sets up a discretionary testamentary trust that becomes effective on his death. The wife is the trustee and she and their children are beneficiaries. The husband's assets, including those acquired from the wife, are placed in the trust. 11 The memorandum states that "the current means test rules" mean that when the husband dies the assets of the trust could not be regarded as the wife's as she is only one of several beneficiaries. Thus she would be eligible for age pension at maximum rates. In reality, however, the wife would be able to direct income of the trust to any of the beneficiaries, including herself, and could use the trust's assets. But as a result of the 2000 amendment, the wife's entitlement to a social security payments will be nil. The 2000 amendment will employ tests to "look through" interposed structures to identify who controls a particular structure and who is the source of the structure's assets. 12 The memorandum notes that to ensure that people are not treated unfairly or affected unintentionally there are provisions in the attribution process for assets and/or income to be disregarded if inappropriate. 13 Turning to the text of Pt 3.18, s 1207 gives a "simplified outline". It relevantly states that, in the case of a trust, for an asset or income to be attributed to an individual * the trust must be a "designated private trust"(s 1207P) * the trust must be a "controlled private trust" in relation to the individual (s 1207V) * the individual must be "an attributable stakeholder" (s 1207X) 14 Section 1207P(1) provides that for the purposes of Pt 3.18 a trust is a "designated private trust" unless it satisfies certain conditions, one of which is that the trust is "an excluded trust" (sub-s (1)(c)). That concept is dealt with in sub-s (4) which provides: "The Secretary may, by writing, declare that each trust included in a specified class of trust is an excluded trust for the purposes of this section. Such a declaration has effect accordingly (sub-s (5)) and is a disallowable instrument for the purposes of s 46A of the Acts Interpretation Act 1901 (Cth) (sub-s (6)). 15 The Secretary in fact made a relevant declaration, the Social Security (Means Test Treatment of Private Trusts – Excluded Trusts) Declaration 2001 ("the Declaration"). Clause 6 of the Declaration provides: "(1) Each trust that is a court-ordered trust is an excluded trust for s 1207P of the Act. (2) A court-ordered trust is a trust created by an order of a court that (a) relates to a person injury matter; and (b) provides for some or all of the proceeds of the judgment of the court, or of a settlement between parties, to be held in trust for the benefit of the person in whose favour the judgment or settlement was made." 16 It was not in dispute that the trust in favour of Mr Escott created by the order of the Supreme Court of Queensland was a court-ordered trust within the meaning of the Declaration. 17 Mr Wilson, counsel for the applicant, said that the trust was excluded because there was no need for it to be included because it was already covered in the ordinary assets test. He said the exclusion of the trust meant no more than the special attribution rules in Pt 3.18 do not apply to it. But, he argued, there was no need for them to apply because Mr Escott's beneficial interest in the trust was an asset under the "ordinary rules" including the definition in s 11(1) of the Act which defines "asset" as meaning "property or money (including property or money outside Australia)". He said those terms bear their ordinary English meaning: Re Secretary, Department of Family and Community Services v Zangari (1998) 54 ALD 155 at [28]. 18 However, as Mr Locke for the respondent submitted, the key lies in s 198D(1) and s 198E. What is determinative is not the question of assets in the abstract but how the value of assets is to be "worked out" for the specific purpose of eligibility for carer payments. The clear words of the legislation lead unavoidably to the conclusion that the trust for Mr Escott is an "excluded trust" and therefore not a "designated private trust" for the purposes of Pt 3.18. Thus he is not to be "affected unintentionally" because the Act has made specific provision for what must be a common situation. 19 Moreover, the premise of the applicant's argument – that Mr Escott's trust would have been caught by the "ordinary rules" prior to the 2000 amendment – seems doubtful. Plainly it was a discretionary trust over which he had no legal control. In that regard he was in substantially the same position as a beneficiary of a discretionary trust like the hypothetical example given in the explanatory statement. Yet the drafters of the 2000 amendment assumed such a trust would not be caught under the Act as it then stood. That was the whole point of the 2000 amendment. 20 The appeal will be dismissed with costs. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey. Associate: Dated: 16 December 2003 Counsel for the Applicant: D Wilson Solicitor for the Applicant: Australian Government Solicitor Counsel for the Respondent: H Locke Solicitor for the Respondent: Hobart Community Legal Service Date of Hearing: 8 December 2003 Date of Judgment: 16 December 2003