How Can A Special Disability Trust Help Your Child l Canny Group
Having children can be one of the most rewarding, challenging, stressful and enjoyable (most of the time) rollercoasters of life! Caring for children from the moment they’re first put into your arms right through to having an empty nest, there is nothing that you wouldn’t do to ensure that your children have the best opportunities that life can offer. Having a child with a disability is no different. One of the biggest concerns that we see from our clients that have children with disabilities, is what is going to happen to them when their parents pass away. Who is going to pay for their day to day living expenses? Who is going to ensure that they are given the reasonable care? Where are they going to live? These are just some of the concerns that these parents are faced with! We have put together this article to help you gather some information and understand on everything you need to know when it comes to Special Disability Trusts, introducing; How Can A Special Disability Trust Help Your Child l Canny Group.
What Is A Special Disability Trust (SDT)?
A Special Disability Trust enables family members to contribute money and/or property into trust to be used for the reasonable care and accommodation needs of a beneficiary who is considered to have a sever disability. Under this arrangement, the money and assets held in the Special Disability Trust can be used for the benefit of the beneficiary without impacting their entitlement to a Disability Support Pension. This trust can be created now or within your Will to be established upon your passing.
Who Is Eligible To Be A Beneficiary Of A Special Disability Trust?
A beneficiary is assessed by the Department of Human Services (DHS) and must be considered to have a ‘severe disability’ under section 1209M of the Social Security Act 1991.
A persona with a sever disability is a person:
- Who has reached 16 years of age:
- Whose level of impairment would qualify for or is already qualified and receiving the Disability Support Pension
- Who has a disability that would, if the person had a sole carer, qualify the carer for Carer Payment or Carer Allowance
- Who is living in an institution, hostel or group home providing care for people with disabilities and which funding is provided; and
- Who has a disability and as a result that person is not working or has no likelihood of working more than seven hours per week at the relevant minimal wage
- A person under 16 years of age:
- Who is a profoundly disabled child as defined in Social Security Act section 197(1) who has a beneficiary immediately before 1 July 2009
- A child under 16 years of age:
- Who is a person with a sever disability or a severe medical condition, and
- Another person (the carer) has been given a qualifying rating of ‘intense’ under the Disability Care Load Assessment (Child) Determination for caring for the child, and
- A treating health professional has certified in writing that, because of that disability or condition the child will need personal care for six months or more and child care is required to be provided by a specific member or persons.
The initial step should be to verify with DHS or the Department of Veterans’ Affairs (DVA) that the beneficiary meets the definition of ‘severe disability’ before establishing a Special Disability Trust.
How Is A Special Disability Trust established?
A Special Disability Trust may be set up in two ways: (a) by family members during their lifetime through the execution of a deed, or (b) through the creation of a Will incorporating Special Disability Trust provisions.
For option (a) the beneficiary must meet the criteria above prior to entering into the Special Disability Trust. For option (b) the assessment of eligibility occurs after your passing and will only be created if the beneficiary is considered eligible.
Why Choose a Special Disability Trust?
A Special Disability Trust provides the following benefits to the beneficiary:
- Beneficiary can enjoy the benefit of significant assets (within limits), without detriment to their entitlement to Disability Support Pension
- It provides asset protection for the beneficiary
- It eliminates or reduces the need for the beneficiary to have a Will of their own
- It provides certain tax, duty and gifting exemptions (within limits) for the transfer of assets into a Special Disability Trust by family members
- Income from the assets of a Special Disability Trust will not be counted for the assessment of the income test to the beneficiary of the trust
- The assessable assets of that trust of up to $681,750 (as at 1 July 2019 indexed annually) plus the main residence of which the beneficiary reside will be disregarded for the assessment of the assets test
Can Everything Go Into A Special Disability Trust?
A Special Disability Trust can hold on trust a residence (to any value) where the beneficiary resides and up to $681,750 of other assets (as at July 2019) without any impact to the beneficiary’s entitlement to the Disability Support Pension.
Therefore, $681,750 of assets plus the home in which the beneficiary lives will not be included in the assessable assets of the beneficiary. Any value above this amount will be assessed against the assets of the beneficiary.
Are There Any Restrictions On What Can Be Gifted To A Special Disability Trust?
Yes, there are some restrictions on what a beneficiary or their partner can gift to a Special Disability Trust.
Two types of assets cannot be contributed to the trust:
- Any asset transferred to the trust by the beneficiary or their partner unless
- The asset is all or part of a bequest or a superannuation death benefit, and
- The bequest or superannuation benefit was received not more than three years before the transfer;
- Any compensation received by or on behalf of the beneficiary.
These rules are intended to preserve the existing treatment of compensation payments and prevent the beneficiary from putting their own property into a SDT in order to qualify for income support, rather than using it directly for their own support.
How Is The Special Disability Trust Managed?
A trustee/s are appointed by a deed to operate the trust for the benefit of the beneficiary. The trustee/s cannot be the beneficiary.
The trustee/s manage the investment of assets and application of assets/income toward the accommodation and medical needs of the beneficiary. Discretionary expenditure is limited to $12,250 a year (as at July 2019 indexed annually).
The beneficiary continues to receive and use their Disability Support Pension as normal.
Assets can be gifted to trust (by family members, or from an estate of deceased family member) and upon death of beneficiary, the trust is wound up and the balance of the trust is distributed as per direction of initial contributor (family member).
What Are Reasonable Care Needs?
A care need is considered reasonable if:
- The need arises as a result of the disability of the beneficiary; and
- The need is for the primary benefit of the beneficiary; and
- The need is met in Australia
The following are some examples of reasonable care needs (please note, these are only some of the examples and should not be regarded as a definitive list):
- Specialised food specified by a medical practitioner as essential for the beneficiary’s health;
- Mobility aids, prostheses and positioning aids required for, or because of, the beneficiary’s disability;
- Sleeping and sensory aids required for, or because of, the beneficiary’s disability;
- Personal care aids required for, or because of, the beneficiary’s disability;
- Communication devices (including computers) that are essential, or that have been modified, because of the beneficiary’s disability;
- Modified vehicle, if required for, or because of, the beneficiary’s disability;
- Modification to vehicle, if required for, or because of, the beneficiary’s disability;
- Transport required for, or because of, the beneficiary’s disability;
- The daily care fee and any additional itemised fees charged by an approved provider in relation to the beneficiary’s care and accommodation in a residential care service; and
- Medial related and dental costs of the beneficiary
What Are Reasonable Accommodation Needs?
An accommodation need of the beneficiary is considered reasonable if:
- It arises as a result of the disability of the beneficiary; or
- The need to pay for property ( whether purchased in part of full, or rented) is for the accommodation needs of the beneficiary and the property is acquired or rented from a person who is not an immediate family member of the beneficiary.
The need to pay rates and taxes on a property is a reasonable accommodation need if the property:
- Is owned by a Special Disability Trust; and/or
- Is used for the accommodation of the beneficiary of the Special Disability Trust
The following are examples of reasonable accommodation needs (please note, these are only some of the examples and should not be regarded as a definitive list):
- Modification to the beneficiary’s place of residence arising from his or her disability;
- Payment for the purchase of the beneficiary’s place of residence if the payment is not make to an immediate family member of the beneficiary;
- Payment of rental for the beneficiary’s place of residence if the payment is not made to an immediate family member of the beneficiary;
- Any itemised fees which specifically relate to the accommodation of the beneficiary residing in a residential care service
Maintenance of trust property assets means keeping the property in comparable condition/s and/or to a condition that it is safe for use. Maintenance does not mean replacement, unless it can be proven in writing by a specialist in the specific field that the item needs to be replaced as it cannot be fixed.
What will be reasonable in each case will depend on the level of disability and the needs of the person concerned. The most important consideration is what the beneficiary requires by way of accommodation and care.
How Can Others Contribute To The Special Disability Trust?
Any gift to the trust must be unconditional and made without expectation of receiving any payment or benefit in return.
Anyone can give to the Special Disability Trust. Any gift to the trust, whether it is from an immediate family member or any other person, must be unconditional and made without expectation of receiving any payment or benefit in return.
For anyone eligible for the gifting concession, they can gift up to $500,000. For those note eligible for the concession, they can only gift up to $100,000.
The gifting concession is only available to an immediate family member who:
- Receives a social security pension and has reached age pension age; or
- Receives a service pension and has reached the veterans’ pension age; or
- Receives a veterans’ income support supplement and has reached the qualifying age for the payment
‘Immediate family members’ of the beneficiary are:
- Parents (including adoptive and step-parents);
- Legal guardians of a person with a severe disability who is less than 18 years only;
- Grandparents; and
- Brothers and Sisters (including adoptive and step-brothers and sisters and half brothers and sisters)
To use the concession, you must be an immediate family member who is receiving a qualifying payment and inform of the DHS or the DVA of your intention to use the concession. Where the concession has been fully used, additional contributions by immediate family members will be assessed under the normal gifting rules.
What Happens To The Assets Of The Special Disability Trust After The Passing Of The Beneficiary?
If the trust deed allows, the people who have contributed funds to the trust can specify what they want to happen to any surplus property derived from their contribution.
For example, it could be returned to them (if they are still alive) or to their executors to be dealt with under their Will. Or they could nominate their children, other family members or a charity to receive their share.
If the trust comes to an end or ceases to be a Special Disability Trust within five years of the property being transferred to the trust, that property may be subject to the gifting rule and may affect the income support entitlements of the person who gave the property to the trust.
What Other Factors To Take Into Consideration When Considering Setting Up A Special Disability Trust?
Just how useful a Special Disability Trust is likely to be is very much dependent on individual circumstances, and the plans and wishes parents have for their children, to take account of the disability.
It is important for you to obtain legal advice (including accounting or financial planning advice as well) before deciding whether a Trust is suitable for their individual situation and whether to set up nor, or via your will. You may wish to look at the Special Disability Trust, Model Trust Deed to see if this could possibly be an option for you and your family, however, obtaining advice first is highly recommended and required.
At Canny Group, we have all the services that you need to to guide you to offer you advice on which path is the right to take for your individual circumstances. We pride ourselves on ensuring Special Disability Trusts are set up with the wealth of knowledge our team have behind them for the people that need them the most. Get in touch with our team today!