A Special Disability Trust (“SDT”) is a type of trust that can be created to provide for the care and accommodation needs of a person with a severe disability. The person with the severe disability is known as the beneficiary of the trust. Quite often the trust is established at the instigation of the parents or carers of the person with the severe disability to ensure their long term needs will be taken care of.
What are the benefits of a Special Disability Trust?
SDTs first came about in 2006 and they have very specific requirements which are set out in Social Security Act 1991 (Cth), as well as the Veteran’s Entitlements Act 1986 (Cth). If the requirements are met, there can be certain financial benefits to having a Special Disability Trust in place, over and above having funds in some other type of trust or having other financial arrangements in place for a severely disabled person. For example, there is an exemption from the pension assets test in respect of the assets in the trust up to the value of $647,500 so that the beneficiary’s pension entitlements are not affected by the assets in the trust (this figure is current as at January 2017 but it is indexed in July each year). There is also an exemption from the income test in respect of income from the trust. Another benefit is that immediate family members can gift up to $500,000 (this amount is not indexed) to the trust without falling foul of the pension gifting rules which may otherwise affect their eligibility for a pension if they or their partner are of age pension age.
Consider this scenario:
Jeff and Margaret are married and are both aged in their early 70s. Their son John is aged 40 years and he has lived with his parents all of his life. John suffers from a severe intellectual disability and has done so from birth. He is unable to work and he relies on his parents heavily for his care. Both Jeff and Margaret are finding that, as they are getting older, they are struggling to keep up with John’s care. They are understandably concerned about where John will live and who will provide care to him when they are no longer able to assist him. Jeff and Margaret own their own home and they have a decent amount of savings. They qualify for a part aged pension from Centrelink. Jeff and Margaret consider depositing funds, up to a maximum amount of $500,000, into a Special Disability Trust for John so they have the comfort of knowing there will be funds available to pay for John’s accommodation and care needs. Jeff and Margaret seek expert financial advice to ensure that they can afford to proceed and that it is in John’s financial interests. They also consult with Centrelink and their Solicitor to ensure the legal requirements will be met. They need to consider who they will ask to act as trustees of the SDT – that is, the persons or entity responsible for managing the funds for John. Their first preference is for John’s siblings to be the trustees of the trust although they realise the task of acting as trustee can be onerous at times, so they also consider whether to appoint an independent trustee such as NSW Trustee and Guardian, or a trustee company. Jeff and Margaret decide to proceed and arrange with their Solicitor for an SDT to be set up for John. As another option, they could have arranged for an SDT to be set up for John when they die, by including appropriate provisions in their Wills.
Who is eligible as a beneficiary of a Special Disability Trust?
There are different requirements depending on whether the proposed beneficiary has reached 16 years of age. For a person 16 years of age and older, they will qualify as a beneficiary for a Special Disability Trust if they meet the following requirements:
- They have a level of impairment that would qualify them for a disability support pension, or they are already receiving a Department of Veteran’s Affairs (DVA) Invalidity Service Pension or DVA Income Support Supplement; and
- They have a disability that would, if they had a sole carer, qualify the carer for a Carer Payment or Carer Allowance, OR they are living in an institution, hostel or group home in which care is provided for people with disabilities and for which funding is provided under an agreement between the Commonwealth, the States and the Territories; and
- They have a disability that means they are not working and/or have no likelihood of working for more than 7 hours per week at or above the minimum wage.
A person under the age of 16 years will qualify as a beneficiary for a Special Disability Trust if they meet the following requirements:
- They are a person with a severe disability or a severe medical condition; and
- Their carer has been given a qualifying rating of intense under the Disability Care Load Assessment (Child) Determination for caring for them; and
- A treating health professional has certified in writing that, because of that disability or condition:
- they will need personal care for 6 months or more; and
- the personal care is required to be provided by a specified number of persons; and
- the carer has certified in writing that they will require the same care, or an increased level of care, to be provided in the future.
Who can contribute to the trust and receive the gifting concessions?
There are no restrictions on who can contribute assets or funds to a Special Disability Trust. However, only certain family members will be entitled to the pension gifting concessions. To be eligible for those concessions, a person must fall within the definition of immediate family which includes natural parents, adoptive parents, step parents, legal guardians, grandparents and siblings of the person with the severe disability.
What can the trust funds be used for?
The purpose of the trust is to pay for the beneficiary’s accommodation and care needs and so the funds must primarily be used for those purposes. For example, the trustees can use the funds for things like the beneficiary’s medical and dental expenses, health insurance and maintenance expenses for any property in the trust. The trustees can use a limited amount of funds, $11,500 per year, for discretionary expenses which are not related to the accommodation and care needs of the beneficiary.
Some other things to be aware of:
- An SDT can only have one beneficiary.
- An SDT must have a trust deed that contains certain specific provisions.
- There are particular requirements as to who may act as Trustee.
- The Trustee(s) must comply with certain reporting requirements annually.
- If the beneficiary does not meet the eligibility requirements or if the Trustee(s) fail to meet their obligations this could result in loss of the concessional treatment mentioned above.
If you think an SDTt could be appropriate for someone close to you, or you are considering contributing to an SDT, it is important to seek both financial and legal advice before proceeding to ensure that all of the requirements are met, and that it is the best was to proceed,
This information is of a general nature and is not intended to address the circumstances of any particular individual. If you wish to discuss the information provided and its applicability to your situation, please do not hesitate to contact our Estate Planning team on 02 4929 3995 or by email to firstname.lastname@example.org.