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.
Contact Estate First, the Special Disability Trust lawyers today
Here at Estate First, we understand that navigating issues around a special needs trust is a complex and potentially emotionally fraught process. That’s why we offer our full attention as specialists in Special Disability Trusts, Estate Planning and Estate Administration. We’ll be able to take you through the various issues surrounding the implementation of such Trusts and can clearly outline specific requirements and potential roadblocks so you make the right decision for your situation.
Reach out to the team at Estate First today; we’ll be able to show you how we can assist with the specifics of your situation. Additionally, during your first consultation with us, we will provide you with a written quote for a fixed fee so that you won’t have any pricing surprises further down the road. We’re here to help provide peace of mind that you have provided properly for your vulnerable loved one.
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Frequently Asked Questions
What is a Special Disability Trust?
A Special Disability Trust (SDT) is a trust regulated by the Commonwealth government and designed to provide a trust for the benefit of a beneficiary who meets the disability criteria set in the legislation. One key advantage of the SDT is that assets held by it up to a certain threshold are immune from the Government income and assets tests for disability support pensions. The Trust can be created while you are living or placed in your Will.
This special needs trust for disabled adults or children requires particular care when being drafted into a Will as it must comply with various legislative requirements in Australia.
What is the difference between a Protective Trust and a Special Disability Trust?
A Special Disability Trust (SDT) needs to meet certain criteria set by the Commonwealth government before it can be established. Most importantly, the beneficiary must be assessed by the Department of Social Services as having a severe disability. The assets held in this type of Trust can only be applied for certain prescribed purposes, including to cover reasonable care and accommodation costs of the beneficiary. A small amount of discretionary spending is allowed each year for things like the beneficiary’s wellbeing, health, recreation, independence and social inclusion.
In contrast, there is no eligibility criteria for setting up a Protective Trust in your Will for vulnerable beneficiaries, including someone with a gambling addiction, drug or alcohol addiction, spendthrift behaviour etc. The assets and income of the Protective Trust can also be applied for broader purposes than the SDT, and the Trustees of a Protective Trust have greater flexibility in this regard.
A key benefit of the SDT is that the assets (up to a certain point) and income earned on those assets are exempt for the purposes of assessing the beneficiary’s government support pension entitlements. The assets in a Protective Trust, however, do not have this same treatment and are generally taken into account when assessing the beneficiary’s government support pension entitlements.
Can I establish a Special Disability Trust now, outside of my Will?
Yes, you can establish a Special Disability Trust (SDT) for a disabled adult or disabled child now, make contributions into it and have the Trust available for use by the beneficiary whilst you are still living. Or you can establish it in your Will, in which case the SDT would only come into operation on your death.
Whether it is established for use now or is placed in your Will for use after your death, the beneficiary will need to be assessed by the Department of Social Services as having a severe disability before the Trust is activated. If you are in receipt of the age pension, there are certain gifting concessions that may be available to you for assets that you gift into an eligible Special Disability Trust while you are living. We recommend that you seek legal advice before establishing an SDT.
Are the assets held in a Special Disability Trust exempt from the income and assets test for the purposes of receiving a government support pension?
Yes, up to a certain threshold, which is set by the Commonwealth Government and indexed annually to CPI. Assets that can be held in the Special Disability Trust (SDT) include cash, investments such as shares, and property. The principal place of residence of the beneficiary of the SDT can be owned by the Trust and does not count towards the threshold of assets that can be held by the Trust.
Any principal place of residence, along with assets up to the prescribed threshold, are exempt for the purposes of assessing the beneficiary’s government support pension entitlements. The SDT can also hold additional funds over and above the threshold, but assets above the threshold will be taken into account and may impact the beneficiary’s government support pension.
All income earned by the Trust must only be used for the benefit of the beneficiary (or for proper administrative expenses).
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