A Special Disability Trust is a type of Trust which can be established by an immediate family member for a loved one who has been diagnosed with a severe disability, to provide for their future care and accommodation needs. They are useful where an intended beneficiary receives a disability support pension and the amount they are likely to receive from an estate will result in them losing their pension (or their pension being decreased).
In order to establish a Special Disability Trust, a beneficiary must meet the definition of a person with a ‘severe disability’. Generally, if a person has been assessed as having a ‘severe disability’ by Centrelink, they will meet the definition required for a Special Disability Trust.
A Special Disability Trust must be established by a Trust Deed (or Will) which contains the Trust’s operational clauses and appoints a Trustee or Trustees, who will manage the ongoing administration of the Trust. The Trust must comply with investment restrictions and will need to file annual financial statements with the Australian Tax Office.
The key benefits of a Special Disability Trust are that the beneficiary has an asset test assessment exemption of up to $669,750.00 (as at July 2018), and there is a gifting concession of up to $500,000.00 combined for eligible family members of the beneficiary. Whilst anyone can make a gift to the Trust, only immediate family members qualify for the gifting concession.
As at July 2018 (and indexed each year), Special Disability Trusts are allowed to spend up to $12,000.00 in each financial year on discretionary items for the beneficiary (such as items relating to the beneficiary’s health, wellbeing, recreation, independence and social inclusion) and Trust funds can be used to pay medical expenses, such as private health insurance, and maintenance expenses for the property of the Trust.
The intended beneficiary cannot create the Special Disability Trust themselves, or gift their own assets into the Trust. Their inheritance from an estate, however, can be used to establish the Trust or a Will can include a Special Disability Trust. If this is the case, upon the death of the Willmaker, the Special Disability Trust is activated and the beneficiary’s share of the estate will pass into their Trust, so that their disability pension is not impacted.