Special Disability Trusts can be established to great benefit for vulnerable people with a disability. In this news item we share our expert insight into how Special Disability Trusts operate.
What Is a Special Disability Trust?
A kind of Trust established for Succession Planning for current and future care of a person in a family with a severe disability or severe medical condition. There is only one beneficiary namely, the person with the disability.
It is not called a “Special Disability Trust” because the Disability is “Special”. It is “Special” because of the benefits available through Centrelink.
What is the purpose for the Trust funds?
The Trust fund can only be spent on the care and accommodation needs of the beneficiary. However, up to $11,500 can be applied each year for other needs on related items. This is called, “discretionary spending”. The Trust cannot pay a family member for providing any service or accommodation.
Is there an end date to the Trust?
The Trust comes to an end on the date of death of the beneficiary or when all funds have been expended.
So there needs to be a clause in the Trust Deed, directing the Trustees to pay the balance to a nominated person or persons, after death.
How much money can I contribute to this Trust Fund?
Anyone can contribute but the maximum allowable is $500,000. Amounts over this can still be received but the concessions do not apply to the excess. A contribution of some or all of this amount by a Pensioner, is not included in the asset test of that Pensioner.
Centrelink Benefits for the Beneficiary
The beneficiary can own the principal place of residence (which is exempt in the asset test) plus up to $650,000 in other assets in the Trust and still receive a full pension.
The income of the Trust, regardless of what profit is made, is not added to the Income Test for the beneficiary.
The beneficiary can work up to 7 hours a week and can receive normal wages.
Discretionary expenditure includes private health insurance, medical expenses and maintenance of the Trust property.
Tax Treatment
The Trustee lodges a Tax Return and is assessed at the beneficiary’s marginal rate. There are CGT advantages when Trust assets are sold.
Stamp Duty
As a general rule no Stamp Duty is payable when the Trust acquires a property for the beneficiary’s principal place of residence (PPR). A contribution of a residential home to the Trust for the use of the beneficiary as a PPR is also free of stamp duty.
What are the Disadvantages?
Goods and services including accommodation supplied by the beneficiary’s family members cannot be paid for by the Trust.
Example: The parents of a beneficiary, who provide the beneficiary with accommodation in their home or in another place owned by them, cannot be paid rent or board from the Trust. If another family member, parents, spouse or children of the beneficiary provide care or support, they cannot be paid for those services from the Trust.
Is the Beneficiary Eligible?
The Trust is only available if the beneficiary qualifies as having a severe disability or severe medical condition. Medical and other health reports would have to be obtained to prove eligibility. There may be a need for other evidence to prove that the condition is severe and is unlikely to change.
The persons proposing to establish the Trust will need to spend a lot of time and money to get this evidence. They will then need to get expert Financial Tax Advice and Medical Advice which could be costly. If they believe they have good reason to proceed they should make an appointment with the Centrelink Special Disability Trust official for final advice.
If a decision is made to proceed it is wise to engage Lawyers to draft the Trust Deed which must comply with the Model Trust Deed approved by Centrelink.
Who Can be a Trustee?
The Trust needs two or more Trustees. They cannot include the beneficiary or the person who established the Trust. They should be independent but family members. They have to be Australian residents and they must not have any prior problems with bankruptcy or and not convicted of any dishonest conductor an offence under the Veterans’ Entitlements Act.
Obviously there is a need to appoint a person who will have a long term commitment which is likely to mean the appointment of someone much younger than the beneficiary and this can be an issue if there are no suitable persons. The same applies for the need for a Nominator/Appointor who has the task of appointing additional Trustees when the need arises.
What to Think About
There are many reasons why it can be advantageous but there is a lot of work to be done before you can be confident that it is suitable for you, your circumstances and your beneficiary’s circumstances.
Your decision hinges on the financial and tax advice and the advice and guidance you get from the Centrelink Official.
Speak to One of Our Solicitors
Our Estate solicitors are experienced in drafting Special Disability Trusts, which can be established to great benefit for vulnerable people with a disability.
We invite you to make an appointment with our Ms Kristy Schaefer or Ms Anna Delaney to discuss whether this is an appropriate Trust for your succession planning.
© Delaney & Delaney Solicitors. This publication is for information only and is not legal advice. You should obtain advice specific to your circumstances and not rely on this publication as legal advice. Should you have any queries in relation to this publication, please contact our office on (07) 3236 2604.