Special Disability Trusts allow you to safeguard the future of your loved one while also offering significant financial concessions. There are various things you need to know if you’re considering setting up a Special Disability Trust for someone in your family. You can’t just ‘set and forget’ them – the disabled person needs to meet certain criteria in order to qualify, and there are financial and legal obligations.
Willcraft Estate Planning has put together this blog post to tell you everything you need to know about Special Disability Trusts in Perth.
We’re passionate about ensuring people with disabilities receive the care they need. In fact, one of our Directors has a disabled family member and another is currently part of a working group that is looking to fund group housing for disabled people under the National Disability Insurance Scheme (NDIS).
What is a Special Disability Trust?
Introduced in 2006, Special Disability Trusts allow immediate family members to ensure the current and future wellbeing of a person with a severe disability.
Parents, siblings, grandparents and legal guardians can contribute money to the trust, which is invested. The generated income, along with capital if needed, is then used to meet the ongoing reasonable accommodation, care and discretionary needs of the person.
Both the Beneficiary and contributors can receive substantial concessions for funds transferred to the Special Disability Trust (see below for further details). The Beneficiary and/or the Beneficiary’s partner cannot transfer assets directly into the trust themselves, with the exception of bequests and superannuation death benefits.
Who is eligible for a Special Disability Trust?
In order to qualify for a Special Disability Trust, the person must be assessed as ‘severely disabled’ by Centrelink. Medical documentation may also need to be provided. If over the age of 16, the person must qualify for a Disability Support Pension and be unable to work more than 7 hours per week in a minimum wage role. If under the age of 16, a treating health professional must warrant that the young person requires personal care for 6 months or more and it’s likely that this will need to be maintained or increased as time goes on.
What can a Special Disability Trust pay for?
The money in a Special Disability Trust can be used to fund:
Reasonable accommodation expenses, such as:
Rent or purchase of a primary place of residence
Modifying an existing residence to suit the needs of the disabled person
Maintaining properties within the trust
Fees related to the disabled person being in a residential care facility
Reasonable care expenses (must be closely tied to Beneficiary’s disability – e.g. health, wellbeing and accessibility), such as:
Vehicle modifications
Mobility aids
Sleeping and sensory aids
Communication devices
Specialised food
Medical and dental expenses, including health insurance
Discretionary funding (up to $12,250*), such as:
Car registration and fuel
Utility bills
Regular food
Regular clothing and footwear
Toiletries
Personal, vehicle and property insurances
Recreation and leisure activities
Holidays
It’s important to ensure that the money is spent appropriately within these different areas, which are indexed annually. If the amounts are exceeded, the trust’s concessional status can be lost.
What legal requirements are involved in a Special Disability Trust?
A disabled person can only have one Special Disability Trust, though other types of trusts can be in their name (e.g. a Discretionary Trust or Testamentary Trust). Due to the nature of Special Disability Trusts, a legal professional needs to be involved in drafting and amending the Trust Deed – such as our team of specialist Estate Planning and Special Disability Trust lawyers at Willcraft.
All trusts must have a Trust Deed, which is a legal document that governs how the trust is run; how the money is invested; how expenses are paid; how income is paid to the Beneficiary; and what happens to the money when the beneficiary dies or the trust is dissolved.
Ultimately, the Trust Deed protects the money in the trust. The Commonwealth Government has created a standard Trust Deed model that must be used when a Special Disability Trust is established. While the Trust Deed can be customised for an individual person’s needs, the following legal requirements must be met:
Roles
Settlor – a person or organisation that establishes the trust through an initial contribution (often the lawyers who create the Trust Deed will ‘settle’ the trust by putting in a nominal amount)
Appointor – the person with ultimate control who can appoint and remove the Trustee(s)
Trustee – an independent person who makes the day-to-day decisions, determines what the Beneficiary receives and has a legal obligation to safeguard the assets for the Beneficiary (or alternatively multiple Trustees)
Beneficiary – the recipient who benefits from the trust
Investment restrictions – complies with various investment restrictions (i.e. investments must be at arm’s length from immediate family members)
Investment strategy – a formal document that establishes the investment structure that allows the trust to pay for the reasonable care and accommodation needs of the Beneficiary
Financial documents – annual lodgement of a trust tax return to the Australian Taxation Office (ATO) and financial statements to Centrelink
Statutory Declarations – the completion of annual Statutory Declarations by all Trustees, which affirm that all expenses have been used for the identified expense areas
Audit – the completion of independent audits when required (e.g. by Centrelink)
The cost of meeting the documentation and audit requirements are funded by the Special Disability Trust.
What are the benefits and concessions of a Special Disability Trust?
In addition to peace of mind for your loved one’s wellbeing, Special Disability Trusts provide a variety of taxation and social service benefit concessions. Here’s an overview:
Beneficiary asset test exemption: up to $681,750* can be held in the trust before it affects the Beneficiary’s social security benefits (indexed each financial year)
Beneficiary primary residence exemptions: if the Beneficiary’s primary residence is in the trust, it isn’t subject to capital gains tax and doesn’t count towards their social security asset test
Trust personal income taxation rate: after the trust’s expenses are deducted, the net trust income is taxed at the Beneficiary’s adult personal income tax rates
Contributor capital gains exemption: if you gift profits from your own investments, neither you nor the trust are liable for capital gains tax
Contributor asset test exemption: family members can collectively gift up to $500,000* without adversely affecting their own Centrelink or Department of Veteran Affairs payments – usually the threshold is $10,000* per year or $30,000* over 5 years – and this concession may potentially improve Centrelink entitlements for the contributors (Financial Planning advice should be sought regarding asset test exemptions)
Furthermore, if the Beneficiary dies the Special Disability Trust is dissolved and the capital is returned to the contributors and/or the Beneficiary’s estate.
How does a Special Disability Trust affect my Will?
If you are the Appointor and/or Trustee of a Special Disability Trust, your Will needs to recognise the existence of the trust and factor in who will replace you when you die.
Otherwise someone will need to apply to be Trustee via the WA Supreme Court, which can be time-consuming and expensive.
Often Special Disability Trusts are established upon the death of the parents or primary caregivers. Willcraft recommends setting up this type of trust now and the necessary funds can be drawn from the estate if needed. This will give you peace of mind that your loved one will be looked after no matter what.
Expert Special Disability Trust lawyers like our Willcraft team can assist you in ensuring the necessary safeguards are in place in your Will and Estate Planning.
How do I find out more about Willcraft’s Trust and Will services in Perth?
For assistance with setting up any trusts, as well as Will preparation and Estate Planning, contact Willcraft by filling in our online form or giving us a call.
We’ll talk through your specific needs and circumstances, and the different options available to you. If you have a Will we can review it to ensure it is valid and identify any oversights.
Our team of specialist Will lawyers has also created a whole series of fact sheets. They cover a variety of important things to keep in mind when you make a Will or establish a trust, as well as the different types of Estate Planning and Will services that we offer in Perth.
*Figures are current as at 2019/2020 Financial Year.