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

[2019] AATA 246

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(Decision by: Dr I Alexander, Member)

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

Tribunal:

Member: Dr I Alexander, Member

Legislative References:
Social Security Act 1991 (Cth) - 1207; 1207P; 1207V; 1207X; 1208E; 1237A; 1237AAD

Case References:
Commissioner of Stamp Duties (Qld) v Livingston - [1965] AC 694
Elliott v Secretary, Department of Education Employment and Workplace Relations - (2008) 249 ALR 182; [2008] FCA 1293
Lord Sudeley v Attorney-General - [1897] AC 11

Other References:
Explanatory Memorandum, Social Security and Veterans' Entitlements Legislation Amendment (Private Trusts and Private Companies-Integrity of Means Testing) Bill 2000
Macdonald, Arlene "Testamentary Trusts: Not Just 'Another' Trust?" (2006) 4(2) eJournal of Tax Research 153
Sundar, Vik, Rowland, Charles and Bailey, Phillip, Testamentary Trusts: Strategies and Precedents (Lexis Nexis, Butterworths, 5th ed, 2017)
Marks, Bernard, Trusts & Estates: Taxation Practice, (Taxation Institute of Australia, 2nd ed, 2009) Taxation Institute of Australia)

Hearing date: 11 January 2019
Decision date: 26 February 2019

Sydney

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Decision by:
Dr I Alexander, Member

DECISION

The decision under review is set aside, and in substitution, a preferable decision that:

(a)

For the period 3 November 2014 to 7 December 2015 Mrs Whitby did not incur any debt and was not required to inform Centrelink of any change in her circumstances in respect of any assets.

(b)

For the period 5 January 2016 to 2 November 2017 the debt incurred by Mrs Whitby was a debt that was solely attributable to the Commonwealth and that she received the payments that gave rise to the debt "in good faith". This means that in accordance with s 1237A of the Act the debt must be waived.

(c)

Any monies deducted from Mrs Whitby's carer allowance with respect of her presumed debt should be repaid.

REASONS FOR DECISION

Dr I Alexander, Member

BACKGROUND

1. Mrs Whitby, who is currently 77 years old, was originally granted the age pension on 16 January 2010 and continued to be paid the pension until 2 November 2017.

2. On the 3 November 2014 Ms Hart, Mrs Whitby's mother, died.

3. Mrs Whitby was a beneficiary under the terms of her mother's Will, as to one third of the residual estate in the form of a testamentary trust.

4. On 28 January 2015, the Supreme Court of NSW granted probate of the Will. Attached to the Grant of Probate was an inventory of property owned solely by the deceased with an estimated value of $1,410,458.37. The inventory included real estate, money in the bank, a nursing home bond, shares in companies, debts due to the deceased and interest in a deceased state.

5. The Will appointed Ms Hart's son, Richard Hart, as executor with Melinda Drew as an alternate.

6. At the hearing Mrs Whitby's son, Mr David Whitby, confirmed that the law firm Wilkinson, Throsby and Edwards (WTE) had been engaged to continue and complete the administration of the estate.

7. In a letter dated 8 December 2015 Mrs Whitby was informed, by WTE, that the final distribution of the estate funds had been made and that the administration of the estate had now been completed.^[1]

8. On 29 December 2015 Mrs Whitby lodged the relevant Centrelink form requesting that Mr David Whitby be authorised to act on her behalf. In a letter dated 6 January 2016 Centrelink informed Mrs Whitby that her request to appoint Mr David Whitby to act on her behalf had been approved.

9. On or about 5 January 2016 Mr David Whitby lodged a Private Trust Centrelink (MOD PT) form dated 4 January 2016.^[2]

10. Additional documents provided to Centrelink at that time included the following:

•

a letter dated 15 July 2015, from WTE confirming that a testamentary trust had been established with Mrs Whitby as the principal beneficiary and with Melinda Drew and Matthew Griffiths as the Trustees;

•

a copy of the Grant of Probate including an inventory and estimated value of the deceased estate;

•

a copy of the Will; and

•

a copy of the portfolio valuation of the Melinda Drew & Matthew Griffiths ATF Jann Whitby Trust as at 17 December 2015 of $497,618.42.^[3]

11. On 6 November 2017 Centrelink issued an Account Payable to Mrs Whitby for $50,741.28 in respect of an overpayment of age pension for the period 28 January 2015 to 2 November 2017 because of her assets in the "Jann Whitby Trust".

12. In a letter dated 1 December 2017 an authorised review officer (ARO) affirmed the decision that there was a debt to be repaid with a minor reduction in the amount.

13. On 27 December 2017, in a letter dated 19 December 2017, Mrs Whitby was notified that "the Department was withholding part of her carer allowance to recover the alleged overpayment".^[4]

14. Centrelink records note that deductions from Mrs Whitby's carer allowance were made on 28 December 2017 ($118.46), 15 January 2018 ($120.26) and 29 January 2018 ($120.74).^[5]

15. The Social Services & Child Support Division (AAT1) in a decision dated 7 March 2018 affirmed the decision of the ARO.

16. In these proceedings Mrs Whitby seeks review of the AAT1 decision.

17. Mrs Whitby did not attend the hearing but was represented by Counsel, Mr Gregory Drew, as amicus curiae; and her authorised representative, Mr David Whitby.

18. The Respondent was represented by Dr Stephen Thompson.

ISSUES

19. The Respondent submits that trust property of the "Trust" is an "asset" within the meaning of the Social Security Act 1991 (Cth) (the Act) and that the "the Trust was established on 3 November 2014, for the purposes of Part 3.18" and that the "Grant of Probate on 28 January 2015 is irrelevant to identifying the date when the Trust was established for those purposes".^[6]

20. The Respondent submits that Mrs Whitby "is attributed 100% of the assets of the Jann Whitby Trust established on 3 November 2014 for the purposes of the assets tests for her age pension during the period 3 November 2017 to 2 November 2017" (sic).^[7]

21. The Respondent also submits that the debt should not be written off or waived under the relevant sections of the Act.

22. Mrs Whitby submits that the testamentary trust that was established by the Will was not established for the purposes of Part 3.18 of the Act on 3 November 2014.

23. Mrs Whitby submits that that on and from 8 December 2015, when the administration of the deceased estate was completed and the relevant assets were deposited in the Trust account, she became an attributable stakeholder within the meaning of Part 3.18 of the Act. She agrees that the value of the assets of that Trust is to be used, thereafter, for the purposes of the means test in calculating her entitlements for age pension.

24. Mrs Whitby submits that pursuant to section 1237A of the Act the whole of the calculated debt should be waived on the basis that the debt was solely attributable to an administrative error made by the Commonwealth and that she had continued to receive the payments in "good faith".

25. At the hearing Counsel for Mrs Whitby, Mr Drew, agreed that there were no grounds to write off the debt pursuant to section 1236 of the Act and submitted she did not rely on the waiver in "special circumstances" pursuant to section 1237AAD of the Act.

26. Therefore, I am satisfied that there are two definitive issues to be decided in order to determine the correct or preferable decision in this matter:

(a)

When did the testamentary trust become a trust for the purposes of Part 3.18 of the Act?

(b)

Was the claimed debt solely attributable to an administrative error by the Commonwealth and if so, did Mrs Whitby continue to receive payments in "good faith"?

When did the testamentary trust become a trust for the purposes of Part 3.18 of the Act?

27. Part 3.18 of the Act sets up a system for the attribution of assets of private companies and private trusts to individuals. The Explanatory Memorandum for the legislation which introduced Part 3.18 into the Act with effect from 1 January 2002, explained the approach of Part 3.18 as follows:

The Social Security and Veterans' Entitlements Legislation Amendment (Private Trusts and Private Companies – Integrity of Means Testing) Act 2000 amended the Social Security Act to give effect to a measure in the Government's 2000-2001 Budget to revise the means test treatment of private companies and private trusts. The measure aims to ensure that customers 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 corpus of the company or trust.

28. Subsection 1208E(1) in Part 3.18 of the Act provides for the attribution of assets: 1208E Attribution of assets

1 For the purposes of this Act, if:

(a)

an individual is an attributable stakeholder of a company or trust at a particular time on or after 1 January 2002; and

(b)

at that time, the company or trust owns a particular asset (whether alone or jointly or in common with another entity or entities); and

(c)

if, at that time, that asset had 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 this Act; and

(d)

at that time, the asset is not an excluded asset (see subsection (2));

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 referred to in paragraph (b). [emphasis added]

29. The Respondent submits that the testamentary trust was a trust for the purposes of Part 3.18 of the Act and was created for those purposes on 3 November 2014.^[8]

30. The Respondent submits that 3 November 2014 to 2 November 2017 is the relevant period for the purpose of calculating any age pension debt owed by Mrs Whitby.

31. In support of that submission the Respondent points to paragraph 16 of the MOD PT form dated 4 January 2016 in which the following question and answer are recorded:^[9]

What date was the trust set up?

For a testamentary trust, this is the date the testator passed away. For other trusts, this is the date shown on the trust deed.

3/11/2014

32. I note also that the question in paragraph 22 of the MOD PT form asks "Is this a TESTAMENTARY trust?" and was answered "yes". The question includes a statement that "A testamentary trust is one set up through a will and activated by the death of a testator (the person who makes the will)."

33. At the hearing Dr Thompson stated inter alia the following:^[10]

So on 28 January 2015 probate was granted. In my submission, that is irrelevant to the date of the trust, the testamentary trust, coming into being under Part 3.18…

Mr Whitby filed the MOD PT form. Paragraph 16: "What date was the trust set up? For a testamentary trust, this is the date the testator passed away. For other trusts, it's the date shown on the trust deed"…He answered: "3 November 2014."

That's the date of death of the late Ms Hart. In my submission, that Centrelink form accurately reflects the law in Part 3.18… The Secretary concedes that the administration of the estate was completed by 8 December 2015. [emphasis added] It seems that the trust is ongoing.

Now, that illustrates the proposition, my proposition, that it can't be the date of administration of a testamentary trust that marks the date of the trust coming into being. We can't be – and we can't be guided by the common law in this regard because the legislation provides a complete answer , for reasons I'll go into in a moment, that the date of death, rather than the date of probate or the date of administration of the estate, is the date of the trust for the purposes of Part 3.18.

Now...the deeming provision is section 1208E(1)…not any other of the provisions, they're operational provisions. 1208E says: For the purposes of the Act if …there is to be included in the value of the individual's assets, an amount equal to the individual's assets that are attributed under this part.

Part 3.18 – that's the deeming provision…

So the legislation…so the only time that trust assets are not deemed to be part of an individual's assets for the purposes of the assets test for the aged pension, is when they're an excluded asset. And there's no suggestion here that this share under the late Ms Hart's will was an excluded asset. So if Part 3.18 applies to the – Ms Hart's share under the will, then that share is deemed to be attributed to her for the purposes of the assets test.

Her share. Her attributed share. Not her actual share according to the common law, not any share that she received in her hand, or any share that could have been distributed on 8 December 2015. It's the attributed amount. That's the deeming provision. It's exactly what it says, 1208E: For the purposes of this Act there is to be included – in the value of the individual's asset…

I say they did own the assets from the date of the creation of the trust for the purposes of Part 3.18. I accept what the Privy Council said in Livingston's case, for the purposes of the common law, but the common law, to the extent of any inconsistency with Part 3.18 is displaced by Part 3.18…

The will is the trust on the date of death…Because that's the whole purpose of the trust…the beneficiary doesn't have the legal estate in the trust. Part 3.18 changes that. They are to be attributed with the assets for the purposes of the assets test.

34. Dr Thompson also expressed the opinion that "the legislation creates a special date for the beginning of the trust".^[11]

35. When asked by the Tribunal if he could point to any authority or other document to support his opinion, Dr Thompson said "No authority – just the plain reading of the legislation. I am quite confident there is no authority on this point…probably the reason for that is the legislation's clear in my respectful opinion."^[12]

36. Dr Thompson made further submissions with respect to the definitions of a "trust" and "trustee" and stated, inter alia, as follows:^[13]

Clearly, the trustee is the executor in this will of 30 April 2004…As I conclude in 6.1, the trust, capital "T" on page 170,^[14] it's a trust for the purposes of Part 3.18… The trust was created on 3 November 2014 because that's the date the trust arose according to the definition in the Social Security Act.^[15] It mentions nothing about probate, it mentions nothing about the administration of estate…The beginning and end of the matter is what the legislation says, the definition's in 14078 [sic].^[16]

It clearly infers that, it doesn't use the words, "Date of death". It clearly infers that because it says 1207, trust is or includes a trust estate and it includes the executor. To me that means it's got to be the date of death. Certainly, nothing can be distributed under it.

37. The Respondent also contends that there was "no administrative error whatsoever by the Department" from 3 November 2014 to 4 January 2016 when the MOD PT form was lodged with the Department.^[17]

38. Mrs Whitby provided written submissions which are summarised as follows:^[18]

(a)

It is well established that a beneficiary of an un-administered estate does not have proprietary interest in the estate's assets.^[19] Rather the "interest" of a residuary beneficiary of an un-administered estate amounts to nothing more than a right in equity to require the executors to properly carry out their functions and duties of administration.

(b)

The circumstances of this case do not involve the use of a trust or company structure to avoid the means test provisions of the Act, or any activity which has that effect.

(c)

Mrs Whitby had no proprietary interest in any of the estate's assets prior to 8 December 2015, when the administration of the estate was completed.

(d)

Mrs Whitby had no entitlement to receive anything out of the estate pending administration. Prior to administration completing on 8 December 2015 she could not receive any distributions of corpus or income and has never had the power to direct moneys to herself directly or indirectly. She did not in fact receive any distribution prior to that date.

(e)

Pending the administration of the estate, there had been no change to her financial situation that was required to be notified to the Department.

(f)

The statement at paragraph 16 of the MOD PT to the effect that a testamentary trust is set up on the "date the testator passed away" is wrong.

(g)

The assets of an un-administered estate are the property of the executor personally (subject to his or her duties of administration) and no "trust estate" comes into existence until administration is complete.

39. Relevantly the decision of the Privy Council in Commissioner of Stamp Duties (Qld) and Livingston,^[20] upheld a majority decision of the High Court of Australia. The Judgement delivered by Viscount Radcliffe, addressed the role of the executor with respect to the ownership of assets of a deceased estate and stated, inter alia, as follows:

When Mrs. Coulson died she had the interest of a residuary legatee in his testator's unadministered estate. The nature of that interest has been conclusively defined by decisions of long established authority, and its definition no doubt depends upon the peculiar status which the law accorded to an executor for the purposes of carrying out his duties of administration. There were special rules which long prevailed about the devolution of freehold land and its liability for the debt of a deceased, but subject to the working of these rules whatever property came to the executor virtute officii came to him in full ownership. Without distinction between legal and equitable interests. The whole property was his. He held it for the purpose of carrying out the functions and duties of administration, not for his own benefit; ……..he was in a fiduciary position with regard to the assets that came to him in the right of his office, and for certain purposes and in some aspects he was treated by the Court as a trustee …. It may not be possible to state exhaustively what those trusts are at any moment. Essentially, they are trusts to preserve the assets, to deal properly with them, and to apply them in a due course of administration for the benefit of those interested according to that course, creditors, the death duty authorities, legatees of various sorts and the residuary beneficiaries. They might just as well have been termed "duties in respect of the assets" as trusts. What equity did not do was to recognize or create for residuary legatees a beneficial interest in the asset in the executor's hands during the course of administration……..

The assets as a whole were in the hands of the executor, his property; and until administration was complete no one was in a position to say what items of property would need to be realized for the purposes of that administration or of what the residue, when ascertained, would consist or what its value would be. Even in modern economies, when the ready marketability of many forms of property can almost be assumed, valuation and realization are very far from being interchangeable terms.

At the date of Mrs Coulson's death, therefore, there was no trust fund consisting of Mr Livingston's residuary estate in which she could be said to have any beneficial interest, because no trust had as yet come into existence to affect the assets of his estate.

40. Also, in an article published in 2006 entitled Testamentary Trusts: Not Just "Another" Trust?^[21] the author, Arlene Macdonald, stated, inter alia, as follows:

A testamentary trust is a trust created by a Will (or a codicil to a Will)

Therefore, for the testamentary trust to be valid, the will must be valid!

The executor has duties of a trustee to administer the estate (ie to pay all debts including tax bills, funeral expenses and to distribute the bequests). It is only when administration is complete (ie all debts paid or assets have been set aside by the executor to pay them) that the beneficiaries become absolutely entitled to any assets or their share of cash (if there are no further trusts created) and the assets and/or cash are distributed to the beneficiaries.

The beneficiaries at this stage have no right to anything except proper administration. A

The testamentary trust starts when property is given to the trustee to hold on trust or if already held by the executor, when the executor starts to hold the property under the new trusts. It would be rare for an executor to make a declaration that "I am now holding this property under the testamentary trust". The evidence would be more likely to show commencement at the earliest of the time when income is first distributed under that trust or a new bank account opened or a TFN sought or some other act which indicates the trustee is now holding under these trusts.

The ATO explains its view is that the trust will commence at the completion of the administration of the estate or at earliest when the trustee first pays income:

41. At the hearing Counsel for Mrs Whitby, Mr Drew, made the following observations with respect to the decision in Livingston:^[22]

Now, this decision is an old decision, but it has never seriously been disturbed. It has been applied hundreds, if not thousands of times. I didn't want to take the Member to any more recent authority, it doesn't advance the position any further, its fundamental principles remain unaltered at general law.

I think it is and in fact the misapprehension that we're confronted with today, precisely the misapprehension, was addressed by the Privy Council, and the arguments put both ways were fully ventilated on that occasion and in fact this was an appeal from the High Court which reached the same decision.

In that case at the date of Mrs Coulson's death there was no trust fund consisting of Mr Livingston's residuary estate in which she could be said to have any beneficial interest, and this is the point:

So what we have is the assets of an un-administered estate. The ownership of those things is formally in the hands of the executor but otherwise they're effectively in limbo subject to the duties and obligations in equities deal with those assets for the purposes of administration…Because no trust had yet come into existence to affect the assets of his estate…

42. On the issue of the nature of a testamentary trust Mr Drew stated, inter alia, as follows:^[23]

Well, there is no trust. Sometimes people misapprehend the nature of a trust…A trust is more the obligations that are fixed to property through the trustee. The trust assets are merely the assets subject to those obligations, and people often get it back to front. So what we have here is the estate assets, upon the death of the testator, fall into the hands of the executor, who as the Privy Council points out, has the whole ownership of those assets in every legal sense, subject to duties in equity that deal only with them for the purposes of the administration, and the administration includes discharging all of the estate debts and everything else, so that there's basically a net residue. Upon all of those debts being discharged for the first time that property, the residue of that property becomes subject to different obligations in the nature of trust obligations, and that's when what is known as a testamentary trust arises.

Yes, I think the thing is that as I mentioned earlier, the progenitor of the testamentary trust is of course the un-administered estate……. An un-administered estate was incapable of satisfying this requirement.

43. With respect to the Respondent's submissions on the "deeming provisions" Mr Drew submitted, inter alia, as follows:^[24]

As a matter of general law I had thought it unarguable that a testamentary trust does not arise until administration is completed. If my friend has a different view he can take us to the authorities.

…firstly that contrary to the respondent's contentions the estate did not comprise a trust for the purposes of 3.18 at any time prior to that date…as a matter of construction, and that no assets of the estate could properly have been attributed to her for such purposes in respect of that prior period. Insofar as the MOD suggests otherwise…if Mrs Whitby's argument is correct that statement must be wrong

…the respondent's contentions on the matter of the statutory construction or the deeming provisions are not supported by any reasoned analysis referring to the applicable decisions; without more it's inadequate…And the other thing is that it's well established, the definitions themselves have no independent operative effect. They are not deeming provisions, we have to go to the operative provisions to ascertain what is meant by those definitions in proper context.

If we go to the respondent's submission at 6.22^[25] the Member will see that this is the primary operative provision in this case, and in particular whether or not the trust is a controlled private trust.

Mrs Whitby contends that section 1207X(2) is not engaged at any time prior to the administration of the estate because the estate was not yet a trust within the meaning of that provision or otherwise, certainly not at general law, and we say as a matter of construction not in the context of 1207X.

Trust means a person in the capacity of a trustee, and this is significant, or as the case requires.^[26] A trust estate is not defined, and we can see that as a matter of ordinary language the point is made that, or as the case requires, signals that the term trust may have one but not both of those alternative meanings, as dictated by the context. A trustee has the same meaning as under the Tax Act, and under the Tax Act it's accepted that a trustee includes an executor

…I would suggest it's well established at general law that an un-administered estate is not a trust estate. Trust estate is not defined, ordinary meaning is a trust estate is assets, the subject of some kind of trust. There's nothing in the Social Security Act that provides otherwise. It follows that in 1207X(2) in respect of an un-administered estate the expression of "trust" can only be a reference to the executor, because you can't refer to a trust estate that doesn't exist

Th remaining question is therefore whether the executor of an un-administered estate can be a controlled private trust in relation to an individual, and even if they are what the implications of that are. The meaning of controlled private trust in relation to an individual is found in 1207V, which is referred to at 6(16) by the respondent^[27], and this, so far as my friend is concerned I suggest, is the only provision that could operate as a deeming provision, and it doesn't do that, for reasons I'll come to.

Now, looking at the language of 1207V, to accommodate the facts of this case the trust, that is the executor, because that is the only meaning of trust that can be accommodated here, will be a controlled private trust in relation to an individual if the executor is a designated private trust and the individual passes the control test in subsection (2). The un-administered estate doesn't even engage paragraph 1207V. It is only the executor that can be dealt with under 1207V. The meaning of the designated private trust is found in 1207P, which is mentioned by the respondent on the same page of their submissions at 6.13.

But unlike 1207X, the term "trust" in 1207P^[28] can only be properly construed to be a reference to trust estate, and not to a trustee. And you can see all of the conditions are satisfied, the trust is a fixed trust; an executor can't be a fixed trust; you can't have units in an executor; an executor can't be a compliance; and all of those things indicate that this is not referring to a trustee but to a trust estate, if any.

In the case of a testamentary estate, or should I say a deceased estate, the word "trustee" must refer to the executor, and the word "trust" must refer to the trust estate held by the executor. That's a matter of language. It can't mean anything else because you can't have the executor being a trustee of themselves

The trust estate is the assets in respect of which the trustee owes duties... in fact trust estate is the expression used in the definition of trust, and the trust estate means the assets of the trust. The trustee is the person who has duties in equity in respect of those assets, and the trust in truth is the composite of those duties. The trust is the way that you describe a person having duties and equity in respect of property. The trustee in fact holds the legal title. They are the owner in law, but in equity they have duties in how they can deal with that property and the constraints that they have to deal with it for the benefit of the beneficiaries of the trust. The ownership of the trust at law is always with the trustee. The benefit of those assets is with the beneficiaries by the application of those duties in equity.

…if 1027V^[29] is concerned with a trust estate it can't intended to be engaged prior to the existence of the requisite trust. So it can't even be engaged in respect of an un-administered estate because an un-administered estate is not a trust estate for the purposes of 1207V(1).1207V is engaged for the first time when the testamentary trust comes into existence, and that is the point here, in the operation of these provisions.

…the assets of an un-administered estate are owned personally by the executor and wholly by the executor. There is no beneficial interest anywhere else, and that point is made by the Privy Council if you read the decision. No trust estate comes into existence until administration is complete, and it therefore follows that until that occurs a deceased estate cannot constitute a controlled private trust within the meaning of 1207V. That is until administration is complete there is no trust in respect of which 1207V can operate.

Once the administration is complete the executor…?^[30] ---They've done their job, they move on, and the trustee then assumes the obligation of trustee. And this distinction between an un-administered estate and the duties of an executor are very different to the duties of a trustee; they are not the same. An executor has very different obligations to a trustee. They have obligations to administer the estate in accordance with the terms of the will and the principles of equity, but no other obligations. They don't hold those assets for the benefit of anybody, other than to do what they need to do to administer the estate and assets and the residue whereupon they either assume the responsibilities as trustee in accordance with the will or whatever other trust instrument there is, or they hand over to the trustee who does have those responsibilities, or the direction of the court if there is no trustee.

Furthermore Mrs Whitby could not pass the control test under 120V(2)…An executor can't be the trustee of a trust that has not yet come into existence. Secondly, pending administration, Mrs Whitby had no beneficial interest in the income of the trust. And thirdly, nor was she nor any of her associates eligible to receive any such thing. I then go on to say these provisions should not be construed contrary to the purposes of the Act or to achieve an outcome that is inconsistent with that policy point made by Kenny J^[31]. If there are different ways in which a provision can be constructed it should be constructed favourably to Mrs Whitby so that she can receive a benefit in accordance with the statutory and legislative purposes of the Social Security Act. She certainly shouldn't be deprived of an Aged Pension when she's got nothing else.

The trustee is the person who has duties in equity in respect of those assets, and the trust in truth is the composite of those duties. The trust is the way that you describe a person having duties and equity in respect of property. The trustee in fact holds the legal title. The long and the short of it is that up until 8 December 2015, there was no change in financial circumstances.

Consideration

44. The difference between the parties in this matter appears to be due, in part, to some imprecise use of language in the application of the legislation by the Respondent^[32] and a different understanding of the role of an executor of a deceased estate as well as the difference between a testamentary trust and a deceased estate.

45. A testamentary trust is a trust established by will, or in some circumstances by law.^[33]

46. The estate of a deceased person is the "entire complex of the testator's rights and liabilities" and upon death the deceased estate vests in the deceased person's legal representative, that is, the executor.^[34]

47. The duties of the executor are to carry out the administration of the deceased estate. This involves calling in all assets of the deceased, paying all of the deceased's liabilities, paying all specific legacies, ascertaining the net estate for distribution and being ready to transfer the assets either to those entitled to them absolutely or to trustees. Before these duties are carried out, the estate is to be wholly or partly un-administered.^[35]

48. Where a testator declares that the property in their estate is to be a trust property in a testamentary trust, that property actually becomes trust property in the testamentary trust "only when that property has been administered" by the executor. At that point, the property ceases to be the property in the deceased estate, and the executor holds the property as trustee. The property becomes trust property, and "is available to be transferred to the trustee of the testamentary trust". ^[36]

49. It is useful to emphasise that the roles of trustee of a testamentary trust and executor of a deceased estate are significantly different.

50. If the executor of the deceased estate is also to act as the trustee of a testamentary trust, their role will change into a trusteeship when "that part of the deceased estate that is the subject of the testamentary trust is fully administered and the assets become the subject of the testamentary trust". ^[37]

51. The role of a trustee is to hold the trust property, carry out the terms of the trust and deal with beneficiaries' propriety interests. The role of an executor is to preserve the deceased assets, pay the deceased debts and distribute the estate.^[38]

52. Both trustee and executor hold property and both owe fiduciary obligations. A significant difference is that, in the case of a trust, a beneficiary has an equitable interest in the trust property, even if it is "not an ownership interest".^[39] However, for a deceased estate during the period of administration, no beneficiary "has an equitable proprietary interest in any of the estate property".^[40]

53. The interest of the beneficiaries is to require the executor to properly administer the estate. Although the executor is often referred to as a trustee, the deceased estate is not actually a trust because no person, other than the executor, has a proprietary interest in the estate's property.^[41]

54. Clearly the purpose of a testamentary trust is to establish a trust by a will in which assets can be placed and managed by a trustee for a nominated beneficiary.

55. The notion that a testator would establish a trust specifically for the purpose of the Act is, in my view, doubtful.

56. Perhaps the question as to when a testamentary trust becomes a trust for the "purposes Part 3.18 of the Act" is not the right question?

57. The Explanatory Memorandum clearly states that the "measure aims to ensure that customers who hold their assets in private companies or trusts receive comparable treatment under the means test".

58. Section 1208E, inter alia, provides for the attribution of assets, at a particular time, if "at that time, the company or trust owns a particular asset".

59. Perhaps a more useful question may be: When does a testamentary trust become a trust for the purposes of the means/assets test within the meaning of Part 3.18 of the Act?

60. On my reading of the legislation the answer would be at the time the "trust owns a particular asset" which in accordance with Part 3.18 of the Act is then deemed to be an asset that is to be attributed to a beneficiary of the trust for the purposes of assessing any entitlement for social security payments.

61. Clearly, if a testamentary trust does not own any assets or a beneficiary of a trust does not receive social security payments then the provisions of Part 3.18 of the Act cannot be relevant.

Conclusion

62. In reaching my decision I have preferred the submissions made on behalf of Mrs Whitby.

63. I found the submissions made on behalf of the Respondent confusing and not consistent with relevant judicial precedent and current academic opinion.

64. After having considered the available evidence and for reasons set out above I am satisfied that the preferable decision is that the correct date for the commencement of the attribution of the assets in Mrs Whitby's testamentary trust, for the purpose of assessing her entitlement to age pension, was the date on which the administration of the deceased estate was completed when the assets were transferred to the trust, that is, 8 December 2015.

65. It follows that that no debt arose for the period 3 November 2014 to 7 December 2015 and that Mrs Whitby was not required to notify Centrelink of any change in her financial circumstances during this period.

66. I am satisfied that the debt raised for this period amounts to an administrative error solely attributable to the Commonwealth and that Mrs Whitby had received her age pension payments in "good faith". Therefore, any debt that has been raised, in respect of age pension payments received by Mrs Whitby during this period must be waived pursuant to s 1237A of the Act.

67. The administrative error is demonstrated in the Centrelink electronic screen dated 6 November 2017 where the Centrelink Officer stated that "Customer provided information on 1/2/16, which is more than 12 months after probate of the will was granted, which is when the customers share was available to her trustees (sic)".

68. As noted above, at the time probate was granted and until the administration of the deceased estate was completed on 8 December 2015 the assets of the estate were still held by the executor/s and not available to the trustees of the testamentary trust.

69. Finally, I would add that, in my view, the questions as set out in paragraphs 16 and 22 of the MOD PT form, although essentially correct, create an inference which may lead to a misapplication of the legislation.

Was the debt raised for the period 8 December 2015 to 2 November 2017 solely attributable to an administrative error by the Commonwealth?

70. Section 1237A of the Act provides that a debt may be waived if the debt is solely attributable to an administrative error by the Commonwealth, provided the debtor received the payments in good faith: 237A Waiver of debt arising from error

Administrative error

1

Subject to subsection (1A), the Secretary must waive the right to recover the proportion of a debt that is attributable solely to an administrative error made by the Commonwealth if the debtor received in good faith the payment or payments that gave rise to that proportion of the debt.

Note:

Subsection (1) does not allow waiver of a part of a debt that was caused partly by administrative error and partly by one or more other factors (such as error by the debtor).

1A

Subsection (1) only applies if:

(a)

the debt is not raised within a period of 6 weeks from the first payment that caused the debt; or

(b)

if the debt arose because a person has complied with a notification obligation, the debt is not raised within a period of 6 weeks from the end of the notification period;

whichever is the later.

71. Mrs Whitby contends that the debt that arose for the period 8 December 2015 to 2 November 2017 is attributable solely to an administrative error by Centrelink and that she continued to receive her age pension payments "in good faith".

72. The written submissions provided by Mrs Whitby stated, inter alia, as follows:^[42]

Centrelink did not respond for over 22 months, when on 6 November 2017 it sent an Account Payable to Mrs Whitby and her Authorised Representative for $50,741.28…due 5 December 2017. Meanwhile Mrs Whitby was in no position to know whether and, if so by what amount her age pension might need to be adjusted. She certainly had no reason to believe that she was no longer eligible for the age pension. Having given all the required information to Centrelink, there was nothing more she could do but wait for Centrelink to make that determination….the lengthy delay in Centrelink's response was an administrative error for which she cannot be held responsible.

73. At the Hearing Mr Drew submitted as follows:^[43]

The long and the short of it is that up until 8 December 2015, there was no change in financial circumstances. What happened then was that there was an inordinate delay by Centrelink to respond to the advice given to them shortly after administration was complete by providing them with a copy of the will and the fact that the administration had been completed. Nothing more was heard from the department for almost two years

74. The Respondent contends that there was "no sole administrative error by the Department" because of Mr Whitby's "unhelpful conduct" in that he had provided "incomplete and misleading information" such that it was not "reasonably practicable" for Centrelink "to work it out".^[44]

75. At the hearing Dr Thompson stated that "Centrelink can only act on the information given by Mrs Whitby in the Mod PT form".^[45] Later in the hearing he submitted that "Centrelink acted on this MOD PT form" and submitted that Mr Whitby had provided wrong answers to the questions in paragraphs 33 and 49 and had committed an error which meant that "Centrelink did not commit a sole administrative error".^[46]

76. There appears to be no dispute that in early 2016 Mrs Whitby's son, Mr David Whitby, her authorised representative, provided Centrelink with an MOD PT form together with relevant supporting documents.

77. The supporting documents included a copy of the Grant of Probate, a copy of the Will and copy of the valuation of an investment with Macquarie Investment Manager.^[47] The portfolio valuation indicated that, as at 17 December 2015 the Melinda Drew & Matthew Griffiths ATF Jann Whitby Trust account was valued at $497,618.42.

78. The Respondent's SFIC's refer to 4 January 2016 as the date of lodgement, whereas Mrs Whitby claims that these documents were provided to Centrelink on 5 January 2016^[48] approximately four weeks after the completion of the administration of the deceased estate.

79. In the Centrelink electronic screens, provided to the Tribunal in the section 37 documents, the lodgement date is noted as 1 February 2016.^[49]

80. There is no explanation for the apparent inconsistency in the dates and there is no dated document before the Tribunal which records the date of receipt of the documents provided by Mr Whitby. It is clear however, that Centrelink had possession of these documents and that in November 2017 used them for the purposes of assessing Mrs Whitby's pension entitlements.

81. For reasons that are unclear the section 37 documents provided to the Tribunal include no electronic screens between 6 January 2016 and 6 November 2017; that is, for 22 months.

82. The electronic screen dated 6 January 2016^[50] refers to an enquiry with respect "General Enquiry for Age Pension" with respect to "NOMINEE CORRESPONDENCE" with no reference to any issues regarding the testamentary trust.

83. Electronic screens dated 6 November 2017 state, inter alia as follows:

Centrelink Specialist Officer actioned record on 6 NOV 2017 regarding General Enquiry for Trust or Company. Information was obtained via Internal. Document created by KPR039 on 6 NOV 2017^[51]

Centrelink Specialist Officer actioned record on 6 NOV 2017 regarding review of Entitlement for Age Pension. Customer provided MOD PT on 1/2/16 advising she received an inheritance from her late mother. Probate was granted 28/1/15- customer had entitlement for her share from this date … the resulting testamentary trust- Jann Whitby Trust holds an investment with a value of $497618 holds an investment. (as at 17/12/15). No other financial information was provided. Copy of the will & probate along with mod pc & investment statement is located on the Trust record. DOV has been used as date probate granted. (28/1/15). I have spoken with customer & advised of assessment and cancellation of her payment from 1/1/17 due to change in assets test……..Customer advised that she does not know much about it & that she has nothing to do with it. Customer provided information on 1/2/16, which is more than 12 months after probate of the will was granted, which is when the customers share was available to her trustees. A delay in processing has contributed to the overpayment, however customer has made no attempt to have her record updated after initial provision of information & should have expected to receive a reduction in rate. ^[52][emphasis added]

Debt: Age pension period 28 JAN 2015 – 02 NOV 2017…Debt due to - lost qual / payability, as Assets over the limit. Recoverable under s 1223(1) of SSA 1991. Waive option considered, but not appropriate. Cust failed to advise the correct value of assets

84. The MOD PT is a formidable, 23 page form with 99 questions.

85. The relevant questions and answers, for present purposes, are as follows:

•

p 7 What is the name of the private trust? - THE JANN WHITBY TUST

•

p16 What date was the trust set up? (For a testamentary trust this is the date the testator passed away) – 3/11/2014

•

p 18 What date did the trust commence trading? – 17/12/2015

•

p 21 Change in circumstances since last financial statement – This is a new trust

•

p 22 Is this a TESTAMENTARY trust? – Yes

•

p 22 Date of death of testator? – 03/11/2014

•

p 25 Details of the trustee – Matthew John Griffiths & Melinda Drew

•

p 33 Does any person have use or enjoyment of the assets and/or income of the trus t? – Yes (crossed out) and changed to No

•

p 36 Who are the beneficiaries? – JANN WHITBY

•

p 47 Does the trust hold any managed investments? – Macquarie Wrap Cash Account - Please see attached details of fund manager investment to be provided

•

p 49 Does the trust own any assets? - No

86. At the hearing Mr Whitby agreed to give oral evidence and was asked why he crossed "no" for the questions in paragraphs 33 and 49.

87. Mr Whitby explained that, at that time, he had taken the advice of a financial planner and the belief was that his mother "wasn't able to access the money directly. She had to depend upon the trustees giving her access to that money".

88. There was obviously some confusion about the meaning of the question in paragraph 33, particularly as the answer to the question in paragraph 36 clearly identified Mrs Whitby as the only beneficiary.

89. With respect to the question in paragraph 49, Mr Whitby explained that again he had taken the advice of the financial planner, and when asked whether he agreed that the answer to the question was wrong he said "Making a purely un-legal qualified guess at this, so obviously there's money in the trust these days. I have no legal way of answering that yes or no".

90. I note at this point that the question in paragraph 50 lists various assets which were to be considered with respect to the question in paragraph 49. Apart from "bank accounts" the types of assets listed were clearly not relevant to Mrs Whitby's trust.

91. Furthermore, in answering the question in paragraph 47, in conjunction with the attached documents, Mrs Whitby had declared the Trust's "managed investment" account including the current cash balance. I see no necessity for this account to have been listed again in response to the question in paragraph 49.

92. On review of the MOD PT form and the attached documents, I am not persuaded that the information provided to Centrelink by Mr Whitby was "incomplete" or "misleading" such that it was "not practicable" to make a reasonable assessment of Mrs Whitby's entitlement for age pension at the time of lodgement of the documents or any later time.

93. I am also not persuaded that, the arguably "wrong" answers" to the questions in the MOD PT form can be considered to be an "error" which could void Centrelink's administrative error.

94. Therefore, I am satisfied that on or about 5 January 2016 Centrelink had been provided with sufficient information to allow for a proper determination with respect to Mrs Whitby's entitlements for age pension.

95. The more pressing issue is why such a determination was not made and the lack of a satisfactory explanation as to why her file was not updated and actioned until 6 November 2017.

96. Furthermore, the apparent lack of any electronic file entries during the relevant period is of some concern. Either there was no communication with Mrs Whitby during that period or the relevant screens have not been provided to the Tribunal; an alternative which would be quite disturbing.

97. On 6 November 2017, the Centrelink Officer noted that "the resulting testamentary trust – Jann Whitby Trust holds an investment with a value of $497,618 (as at 17/12/15). No other financial information was provided".

98. In a subsequent screen, also dated 6 November 2017 the officer noted that "Customer failed to advise of correct value of assets".

99. In his letter of 1 December 2017, the ARO noted the portfolio valuation for the Trust account at 17 December 2017 as $497,618.42 and states that on "6 November 2017 your value of assets were updated on your departmental record to reflect the changes to your financial circumstances".

100. It is quite clear that the final calculation of Mrs Whitby's debt was based on the value of assets in the trust account on 17 December 2015. This information was provided to Centrelink on 5 January 2016 and the file should have been updated and actioned on or about that date.

101. I am satisfied that the failure by Centrelink to update and action the new information in a timely manner constituted a significant administrative error for the purposes of the Act.

102. Furthermore, I am satisfied that the debt incurred because of the failure by Centrelink to update and action the new information for the period 5 January 2016 to 2 November 2017 is a debt that is solely attributable to the Commonwealth.

103. It is of some concern that the inferences in the Centrelink documents, namely that the customer had not provided the necessary correct information, appear to be misinformed or misrepresented.

104. This raises the question as to whether Mrs Whitby received the payments in "good faith."

105. In his letter of 1 December 2017, the ARO stated that he was satisfied that "departmental delay in processing" was a contributing factor in the accrual of the debt and then went on the state the following:

The department received no contact from you, or your nominee, enquiring on any changes to your eligibility for payment from the date you provided the correspondence to the department on 1 February 2016, until 6 November 2017 when the department contact your nominee regarding the outcome of the review of the debt period. On this basis it cannot be said the payments during the period 1 February 2016 to 2 November 2017 were received in good. As such, the debt for this period cannot be waived on this ground.

106. With respect to the "good faith element" the Respondent agrees with "the reasoning and findings" of the AAT1^[53] and made no further submissions.

107. In the decision of AAT1 the presiding Member stated, inter alia, the following:

Mrs Whitby had consulted a financial advisor in respect of the information prepared for the Department (received on 1 February 2016) about her changed financial situation. She was advised to submit information to the Department so her correct rate of aged pension could be determined. Although the details of the advice is not in evidence before the Tribunal, it is a reasonable presumption that a competent professional advisor would have informed Mrs Whitby the rate of her age would reduce given the value of the assets received from the estate….

In circumstances where Mrs Whitby should have been aware age pension would reduce given the value of her assets, and the reduction did not occur after 1 February 2016 and until November 2017, it could not be found the overpayments of age pension were received in "good faith" as required by section 1237A of the Act.

108. Mrs Whitby's written submissions state, inter alia, the following:^[54]

Centrelink did not respond for over 22 months...Meanwhile Mrs Whitby was in no position to know whether and, if so, by what amount her age pension might need to be adjusted...Having given all of the required information to Centrelink, there was nothing more that she could do but wait for Centrelink to make that determination.

In these circumstances, it cannot be concluded that Mrs Whitby was not acting in good faith by reason only that she continued to receive he regular age pension, pending further determination of a possible adjustment By Centrelink. As the Member concluded there was no suggestion that she was being dishonest. To the contrary, Mrs Whitby reasonably believed that she had done all that had been required to do by giving all the information to Centrelink for consideration. In the absence of any response from Centrelink, she could not know what more might be needed, or could be done by her.

There is no proper basis to find that Mrs Whitby was not conducting herself in a manner consistent with "the values of ordinary, decent members of the community" in their dealings with a Government administrative process (e.g., see Pledger (2002) FCA 1576).

109. The submissions at the hearing by Mr Drew are as follows: ^[55]

The long and the short of it is that up until 8 December 2015, there was no change in financial circumstances. What happened then was that there was an inordinate delay by Centrelink to respond to the advice given to them shortly after administration was complete by providing them with a copy of the will and the fact that the administration had been completed. Nothing more was heard from the department for almost two years …. She thought she was entitled to it until Centrelink acted upon the information that had been given to them

They're the experts. Ms Whitby is in her seventies. She doesn't understand any of this. She relies upon - and, indeed, Mr Whitby is not a lawyer either. They rely upon giving the information to Centrelink and they expect Centrelink to act upon it within a reasonable period so that these situations do not arise and by reason of administrative error they didn't.

Had Centrelink engaged with Ms Whitby at some earlier point, much of this could have been clarified, or at least she would have been alerted to the fact that there was a problem. She was proceeding, shall we say, in blissful ignorance that if they continued to pay the aged pension she was entitled to it because she'd told them that she was a beneficiary under the will. She'd provided them with a copy of it. So, we have this quite lengthy period from the beginning of 2016 until quite some time later, 22 months later, when they sent an account payable.

I must say that this caused Ms Whitby considerable distress, as one might imagine. Meanwhile she had no idea about what she was entitled to or not. Had Centrelink alerted her to the fact that they, at least, perceived a problem she might have been able to get proper advice and respond. She certainly wasn't receiving those moneys otherwise but in good faith and so we would argue that Ms Whitby has spent that money. She has relied upon the aged pension for her living expenses, and so forth, and, indeed, expended the carer's allowance and the care of her disabled husband and they now come to retrieve it, well, that seems a little bit unreasonable and so we just say that there is no proper basis of a finding that she wasn't conducting herself in accordance with the values of ordinary decent citizens and it should not be held against her. You know, the argument that she should have known better, the only way she could have known better is if she had been alerted to the problem and gone and got some advice …

CONSIDERATION

110. In my view, Mrs Whitby had a reasonable expectation that, when she had submitted the correct information to Centrelink, the Government Department which is responsible for the proper administration of the Act, Centrelink would update that information and make a decision with respect to her age pension entitlement in a timely manner.

111. Mrs Whitby would also have had a reasonable expectation that Centrelink would acknowledge the receipt of the information and inform her of any decision as soon as that decision was determined or if any additional information was required.

112. In my view, it would have been reasonable for Mrs Whitby to assume that the lack of response by Centrelink meant that no decision had been made or that there had been no change in her pension entitlement and that no further action was needed at that time.

113. The notion that Mrs Whitby, a 76 year old aged pensioner, with no knowledge of the complex details of the Act should bear any responsibility for the failure of Centrelink to appropriately action her information and respond in a timely manner, is in my view untenable.

114. Furthermore, after having complied with the requirement to update her financial circumstances to the best of her ability, to suggest that she was able to question the actions or the lack of action of the designated Government Department, in the situation where there had been no acknowledgement of the lodgement of her information, is in my view, highly questionable.

115. Therefore, I have decided that Mrs Whitby had received the payments that gave rise to the debt in "good faith".

116. This means that, I am satisfied that the preferable decision is that the debt accrued for the period 5 January 2016 to 2 November 2017 must be waived.

117. Finally, there remains the question as to whether a debt should be raised for the period 8 December 2015 to 4 January 2016 that is prior to the date on which Centrelink was provided with the relevant documents.

118. The Respondent contends that "generally, Mrs Whitby was required to inform Centrelink within 14 days about assets which would affect her eligibility for age pension and to inform Centrelink about a change of circumstances that would affect the rate of payment of her age pension."^[56]

119. Mrs Whitby was informed that the administration of the deceased estate was completed on 8 December 2015. Therefore, she was not required to notify Centrelink until the 22 December 2015 just before the Christmas/New Year holiday period.

120. Mr Whitby submitted the relevant information on Tuesday 5 January 2016, the first working day after the New Year long weekend.

121. In my view, to raise a debt in respect of the holiday period would appear to be unreasonable.

DECISION

122. For reasons set out above, the decision under review is set aside, and in substitution, a preferable decision that:

(a)

For the period 3 November 2014 to 7 December 2015 Mrs Whitby did not incur any debt and was not required to inform Centrelink of any change in her circumstances in respect of any assets.

(b)

For the period 5 January 2016 to 2 November 2017 the debt incurred by Mrs Whitby was a debt that was solely attributable to the Commonwealth and that she received the payments that gave rise to the debt "in good faith". This means that in accordance with s1237A of the Act the debt must be waived.

(c)

Any monies deducted from Mrs Whitby's carer allowance with respect of her presumed debt should be repaid.