Family trusts are a great vehicle for streaming income to family members, and often might include your parents. You may wish to help them out with the purchase of a new car and so might make a distribution to them from the family trust (so that it is more tax-effective). But how might this affect their eligibility for the Age Pension?
It’s because they are now considered a beneficiary of your family trust, and as such the trust is now to be considered under their income and assets test. A distribution from years before could cost them the Age Pension.
There is a way to overcome this issue however. It is known as a deed of renunciation. This is a deed, that is prepared by a solicitor and signed by your parents, to tell the trustee of your family trust that they wish to no longer receive any distributions from the family trust. In the deed, they also state that this election is irrevocable (meaning that they can never reverse their decision).
After they have signed this deed, you can provide a copy to Centrelink, who will now not assess your family trust as part of mum and dad’s asset pool. This will also save you time as you will no longer have to fill out the paperwork necessary to detail your trust to Centrelink.
If a deed like this is signed, you can never again distribute to your parents. If you do, Centrelink will know and it will cause a lot of unnecessary hassle.
Though deeds often need to be prepared by a solicitor, we do have access to experts in this area that are equipped to prepare your deeds in a very cost-effective manner, if you need their assistance.
If you want to learn more about how we can help you with your super, please book a free discovery call with Natalia Clack here.