Special needs require a special trust
If you are the parent, relative or carer of a person with special needs, it’s natural to worry about how they’ll be cared for after you’re gone. Your role in their life is critical -being a parent and/or carer is a big job, and it also requires financial responsibility to ensure that their needs are properly taken care of in the long term.
That’s why a Special Disability Trust can be a great way to ensure that your loved one is cared for effectively. This can be created while you are still living or placed in your Will, where you can gift an inheritance into it for the benefit of a named beneficiary. Click here to read more.
What is a Special Disability Trust?
A Special Disability Trust (SDT) — sometimes called a “special needs trust” — is a trust regulated by the Commonwealth government. It’s designed to provide a trust for the benefit of a beneficiary who meets specific disability criteria set out in relevant legislation. This can be a way for families, relatives, and other key people in the life of a person with special needs to ensure that their loved one is looked after financially in the long term. It can be a means to reduce strain and worry about the person’s future by setting funds aside for their care, while minimising the impact on their eligibility for government pensions. A Special Disability Trust has trustees who control the fund exclusively for the benefit of the nominated disabled beneficiary. By including one in your Will, you can help ensure that the person with special needs in your life is appropriately funded for the long term.
Advantages and disadvantages of a Special Disability Trust
One key advantage of a special needs trust is that assets held by it up to a certain threshold are immune from the Government assets test for disability support pensions. Income earned by an SDT is exempt from the pension income test. This means funds can be set aside for the care of a person with special needs – and potentially even a home – while minimising the impact on their eligibility for government benefits. However, capital and income can only be used for a certain type of expenses for the vulnerable beneficiary and this is subject to strict annual limits.
Setting up and contributing to an SDT is an important decision, so we recommend anyone considering doing so gets specialist legal and financial advice to ensure it is right for their particular personal circumstances.
There are strict requirements for SDTs, which are overseen by the Commonwealth government. There’s much less flexibility in comparison to a regular protective trust, particularly regarding how money is spent on the beneficiary. There is also a limit on the concessionally gifted amount you can place into the SDT, so these are often used in conjunction with protective trusts. Ongoing costs should also be considered, as trusts must lodge tax returns and statements for review with Centrelink every year, plus there are usually other administration and investment expenses involved.
Finally, it is important to give a lot of thought to selecting appropriate trustees for the SDT, as they will be responsible for taking your place in making the decisions on how trust funds are invested and managed for the long term. They must understand the needs of the beneficiary, and have significant responsibilities, so it’s not a job everyone can, or would want to, do. Alternatively, selecting an independent trustee company is an option, and family member/s could still have some input if appropriate. SDTs only last for the lifetime of the named beneficiary, unlike protective and testamentary trusts which can last up to 80 years, so succession planning for the SDT is also important in case the capital outlives them.
Protecting your vulnerable beneficiary in your Will
In situations where your intended beneficiary meets the criteria for an SDT, including both a protective trust and an SDT in your Will may be appropriate. Both of these can contain specialist clauses to allow your Executors to decide how much each Trust should receive so that any disability pension can be preserved while simultaneously keeping the income flexibility and tax planning of the protective trust. This blended approach is utilised by many families to help ensure that any members with special needs are appropriately catered for in the long term.
This is a sensitive and complex area where you need the full attention of a wills and estates lawyer experienced in the area of special disability trusts to talk through the issues. At your first consultation with us, we will provide you with options to help you best structure your estate plan for your situation so that you can have peace of mind that you have provided properly for your vulnerable loved one.
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