Private company and family trusts in Pension means tests

by Christine Hopper

The inclusion of private company and family trusts in Pension means tests surprises many seniors. Small businesses and farmers often own their business assets and investments within a private company or family trust structure. Ownership of the shares in the private company could be passed to the next generation without selling the business and/or its assets.

When the parents want to retire from active involvement in the business the next generation could operate the farm or other business. The challenges come when the parents need an income to cover their living expenses and consider asking for an Age Pension.

Your interests in private companies and private family trusts, must be disclosed as part of the Asset and Income Assessment process for an Age Pension.
If the parents still own a portion of the shares in a private company then the value of their portion would count as an Asset and their share of the business income would count as Income.

Many families decide that they do not want to prepare accounts and disclose all of the private company records just to find out that the parents are too wealthy to qualify for any Age Pension. The family might prefer to pay the parents a regular distribution from the private company and only report to the ATO.

Social Security rules also ‘look through’ family trusts. So if the parents hold their investments via a family trust and they are eligible to be receiving a substantial portion of the trust’s income then Social Security could treat the parents as if they owned all of the trust’s assets themselves. You cannot hide assets by transferring ownership to a private or family trust.

Placing substantial amounts of money into a family trust for the benefit of the grandchildren could be treated as a ‘gift’ for Age Pension means testing .

Further complications await the family of an aged care entrant who has an interest in a family trust or private company. Read more below about the options for residential aged care when the family assets are held in trusts, superannuation funds or private companies.

When your Assets include your interests in a family trust, private company or superannuation fund.

Self-funded retirees who hold a substantial part of their assets via interests in private company and/or private family trusts could have no need for means tested DVA or Age Pensions. For these self-funded retirees the treatment of private company and family trusts by Social Security and DVA is irrelevant until someone needs residential aged care.

Asset Declarations for Supported Aged Care places

Entrants to Commonwealth regulated residential aged care are expected to submit Asset Declarations. These Asset Declarations are compulsory for aged care entrants to access Supported places for which the Commonwealth pays an Accommodation subsidy.
Aged care entrants with net assets over $120,000 may choose to submit an Asset Declaration. New entrants to Non-Supported residential aged care places must provide a statement that their assets are sufficient for the agreed level of Accommodation Bond or maximum Accommodation Charge.

The Aged Care Entry Asset Declaration requires you to disclose that you have an interest in a business, a private company or a private or family trust. You would then be provided with a form to submit more details of your interest and the type of assets owned by the business, private company or trust. (MOD F for your business, MOD PC for your private company or MOD PT for your private/family trust). If you cannot easily provide a valuation of the assets or business of the private company or trust then the Commonwealth could arrange a valuation at no cost to you.

Remember that Social Security, DVA and ATO share data. Thus any information that you provide to Social Security or DVA, regarding your business, private company or trust should be consistent with the data that is provided to the ATO regarding that entity.

Income tested fees for Residential Aged Care places

Once you have provided either an Asset Declaration or written statement that the aged care entrant has sufficient assets to warrant the agreed level of Accommodation Bond, or maximum Accommodation Charge, then the new resident needs to consider the daily Income Tested Fee assessment process.

The options are to either provide a full disclosure of all of the new resident’s assets and income or to agree to pay the maximum rate of Income Tested Fee. In November 2013, a Single resident would pay the maximum rate of Income Tested Fee if her assessable Income exceeded $3,371 per fortnight, $87,655 per year.

At 30 November 2013 deeming rates, a Single with $2.5 million of financial assets would have a deemed financial income of $86,800 per annum, $3,338 per fortnight. Thus a Single resident would need to have a substantial amount of financial assets and/or business income and/or superannuation income to be required to pay the maximum rate of Income Tested Fee.

The form for disclosure of assets and income for the purposes of determining the resident’s rate of Income Tested Fee requires you to disclose that you have an interest in a business, a private company or a private or family trust. Any transfers of assets as gifts or loans to a private company or private or family trust must be disclosed in your Income and Asset Declaration.

Residential Aged Care Options for seniors with an interest in a private company or family trust

The Application form for each Social Security or DVA, Income Support payment has an Asset Declaration section. The Asset Declaration includes a specific question about your interests in private companies and private trusts including family trusts.

When a senior with extensive interests in a private company or family trust needs residential aged care, the family could have choices.

Option 1 Provide the selected Commonwealth regulated aged care facility with a statement that the resident has sufficient assets to allow for the negotiated amount of Accommodation Bond or the maximum daily Accommodation Charge and submit to a full disclosure of all assets and income including details of every business, private company and private family trust that the new resident has an interest in or has transferred assets to in the five years prior to entry to residential aged care.

Option 2 Provide the selected Commonwealth regulated aged care facility with a statement that the resident has sufficient assets to allow for the negotiated amount of Accommodation Bond or the maximum daily Accommodation Charge, together with a signed statement that the new resident will pay the maximum rate of Income Tested Fee.

Option 3 Place the senior in Supported Residential Service (SRS) facility. These independent residential services operate like guest houses that provide personal care and possibly nursing care, for fees as agreed with the resident guest and their family.

The SRS operator decides the level of personal care that could reasonably be provided at that facility. The SRS manager has the right to ask a resident to leave the SRS because that resident requires more nursing care and/or personal assistance than the facility has agreed to provide and/or the resident is disturbing the peace of other residents.

SRS operators are not permitted to take an Accommodation Bond from the resident. The cost of the accommodation is included in the weekly rate of service fee for living in the SRS.
In Victoria, SRS are regulated by the State Government which requires that residents and their legal representatives are provided with information about the fees to be charged and the level of personal care and nursing that could be provided. The SRS manager is operating a small business so all fees must be paid monthly in advance.

For a senior with substantial interests in private companies and/or trusts, the SRS fees could be lower than the fees required for Commonwealth regulated aged care.
Note that SRS fees are not normally accepted by the ATO as ‘medical expenses’.

Choosing an aged care place for a senior with interests in a private company or family trust.

In summary, when a senior with interests in a private company or private family trust needs more personal assistance than could reasonably be provided at home the family have choices. Each family should check the costs and cash flow implications of Commonwealth regulated aged care or SRS living before signing a contract for a ‘permanent’ placement.

Professional help is available.

Before you start the Commonwealth asset and income disclosure process for aged care consult with Christine at Financial Care Services. Christine can help you understand your options for accessing the care your family member needs whilst minimizing unnecessary disclosure of your family’s financial position.

Contact Financial Care Services to arrange a confidential, independent and professional consultation about Pensions aged care, lifestyle or granny flat issues.

Financial Care Services is an independent advisory service specialising in retirees of modest means and aged care entrants. Our core values of working with clients supports claiming DVA and Social Security entitlements. Financial Care Services charges fees based on the work involved in advising you about pensions and aged care financial solutions .

Christine at Financial Care Services understands both the DVA and Age Pensions systems and the Commonwealth aged care fee arrangements.

Financial Care Services does not base fees on the value of your assets nor do we accept any commissions or payments from other service providers.

Financial Care Services welcomes clients from Melbourne and beyond. Please email your enquiry to receive a Financial Care Services Client Services Guide and Aged Care Data Checklist.
Disclaimer: The information contained in this website is of a general nature only and does not constitute “financial advice”.

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