What is a Special Disability Trust?
A special disability trust enables family members to contribute money and/or property into a special trust to be used for the reasonable care and accommodation needs of a loved one. The assets in the trust can provide a benefit to the beneficiary, without counting as a personal asset, and therefore not impacting upon their entitlement to a Disability Support Pension.
Who is eligible to benefit from a Special Disability Trust?
In order to establish a Special Disability Trust, a beneficiary must meet a specific definition:
A person who has reached 16 years of age:
a) who would qualify for Disability Support Pension; and
b) who has a disability such that, if the person had a carer, the carer would qualify for Carer Payment/Allowance; or
c) living in an institution, hotel or home providing care for people with disabilities; and
d) who has a disability which prevents that person from working or has no likelihood of working 7+ hours/week at normal wage.
This assessment is carried out by the Department of Human Services Special Disability Trust Team.
How is a Special Disability Trust established?
A Special Disability Trust Deed can be established by family members of a person with disability during their lifetime (for example, if family members have assets to dispose of immediately) or created in a Will of family member, so that the Special Disability Trust is established upon the death of the family member only.
Anyone can establish a trust for an eligible beneficiary. In general, there are four main roles in establishing a trust:
- Settlor: The settlor is the person or company who, with the trustee(s), establish the trust by executing a trust deed. After the trust is set up, assets or cash to purchase assets can then be transferred into the trust.
- Appointor: An appointor can be any person or corporation who is not the beneficiary or Settlor. The appointor indirectly controls with the power to appoint and remove the trustee(s). An appointor is not responsible for the day-to-day operation of the trust.
- Trustee: The trustee manages the day to day activities of the trust and making investment decisions aimed at increasing the value of the assets. Trustees must be familiar with the terms of the trust and their responsibilities, know what the assets and liabilities of the trust are, keep proper accounts and prepare tax returns.
- The beneficiary: The beneficiary is the person who benefits under the trust. They have no right or claim to any of the trust property and they receive what the trustee(s) determine is applicable under the trust deed.
How does a Special Disability Trust differ to other trusts?
A Special Disability Trust must meet the following requirements:
- have only one beneficiary;
- the beneficiary must meet all eligibility criteria, as assessed by DHS;
- the primary purpose must be to provide only for the accommodation and care needs of the beneficiary;
- have a trust deed that contains the clauses as set out in the Model Trust Deed,
- have an independent trustee, or alternatively have more than one trustee,
- provide annual financial statements and conduct independent audits when required;
- trustee is limited as to the discretionary spending for the beneficiary’s benefit, outside of expenses for that person’s care and accommodation needs
What are the benefits of a Special Disability Trust?
A Special Disability Trust:
- Allows the beneficiary to enjoy the benefit of significant assets (within limits), without detriment to their entitlement to a disability support pension;
- Provides asset protection for a potentially vulnerable beneficiary;
- Eliminates or reduces the need for the beneficiary to have a Will of their own;
- Tax, duty and gifting exemptions (within limits) for the transfer of assets into a Special Disability Trust by family members.
- Control over the destination of the balance of assets upon the passing of the beneficiary (at which time the trust will be wound-up).
Are there any limitations or downsides in establishing a Special Disability Trust?
Special Disability Trust Asset Limits
A Special Disability Trust can hold a residence (to any value) within which the beneficiary resides, plus up to $694,000.00 of other assets (as at July 2020) without any impact to the beneficiary’s entitlement to the Disability Support Pension. Assets in the trust above that limit will be deemed to be assets of the beneficiary personally (for asset-test purposes) and may therefore reduce the Disability Support Pension to which the beneficiary is entitled.
Limitations on application of trust assets
Once assets are in a Special Disability Trust (either assets, or income from the investment of those assets), the application of those funds are limited as follows:
- For the benefit of the primary beneficiary only;
- To be used to pay for the accommodation and care expenses related to the disability (including medical and health insurance expenses)
- Restricted discretionary spending, which is limited to $12,500.00 a year (as at July 2020 – indexed annually)
Once an asset is gifted/contributed to a Special Disability Trust, it will remain an asset of the trust, and any movement or dealing with that asset may have tax or duty consequences.
How does a Special Disability Trust operate practically?
The practical process for the lifecycle of a Special Disability Trust can be summarised as follows:
- Trust is established (by deed or Will)
- Trustee(s) are appointed by the deed (independent to the beneficiary) to operate the trust for the benefit of the person involved.
- Assets gifted to trust (by family members, or from estate of deceased family member)
- The trustee/s manages investment of assets, and application of assets/income towards the accommodation and medical needs of the person (and application of discretionary spending)
- Disability Support Pension received by the beneficiary personally and utilized as normal
- Annual reporting on expenditure of the trust completed by the Trustee/s
- Upon the death of the beneficiary, the trust is wound-up and the balance of the trust assets are distributed in accordance with the direction of the initial contributor of the assets (family member).
What are the benefits for family members contributing to a Special Disability Trust?
Any gift to the trust must be unconditional and made without expectation of receiving any payment or benefit in return to the contributing family member.
However, the benefits for the contributing family member are particularly beneficial for immediate family members in receipt of the Aged Pension, or within five years of eligibility for Aged Pension, and include:
- Gifting concession of up to $500,000.00 (normally only $30,000.00 in a 5 year period before impact to pension)
- Reduction of assets for pension assets test, or aged care asset test
- CGT/duty exemptions for transfer of assets to trust.
How much does it cost to establish a Special Disability Trust?
Our professional fees for preparing a Will including a Special Disability Trust or establishing a Special Disability Trust during your lifetime vary depending on the complexity of your circumstances. In your initial appointment, one of our lawyers will discuss your circumstances, provide a formal cost disclosure (quote) and assess if you would benefit from any additional documentation.
How can Coulter Roache help?
Just how useful a Special Disability Trust will be for a particular family is likely to be very much dependent on individual circumstances and the plans and wishes parents have for their children, taking into account the potential beneficiary, available assets and living arrangements.
The Coulter Roache Wills & Estate Team can provide specialist legal advice to help decide whether a Special Disability Trust is suitable for your individual situation, and whether to set up the trust now, or via your Wills.