Special Disability Trusts – By Alette Rennie
For many families of children with severe disabilities the future can represent a time of uncertainty and angst. As parents age, questions as to the ongoing care and accommodation needs of their adult child can loom large.
In 2006, the Federal Government amended the Social Security Act 1991 (Cth) (‘the Act’) to allow for the creation of what is known as a ‘Special Disability Trust’. The purpose of a Special Disability Trust is to enable families to provide for the future needs of a person with a severe disability or medical condition. This can be done by way of contributing, for example, a home and money to a Special Disability Trust, established for the benefit of a specific person, known as the beneficiary. A beneficiary is only entitled to have one Special Disability Trust established for their benefit.
In broad terms, a Special Disability Trust can provide for reasonable accommodation needs (which may include the payment of rent or the purchase of a primary residence), reasonable care needs (such as mobility aids, modified vehicles, communication devices etc), medical and dental expenses (including health insurance) and limited discretionary expenditure of up to $11,000 per year. The discretionary expenditure can be used to meet additional costs relating to the health, wellbeing, recreation, independence and social inclusion of the beneficiary.
A beneficiary may have up to $636,750 in trust assets (as at 1 July 2015 and indexed annually to the CPI) before their Disability Support Pension, or other social security payments, are affected. In addition, a home can be contributed to a Special Disability Trust, and provided it is the beneficiary’s primary residence, it will be exempt from asset test assessments. By way of example, parents could contribute a house for their adult child to live in as their primary residence, along with $500,000 for their care. In such a scenario, the house would be exempt from assessment and the $500,000 is under the current concessional limit, therefore there would be no effect to the beneficiary’s receipt of a Disability Support Pension.
In order to qualify for a Special Disability Trust, a beneficiary must meet eligibility criteria and the definition of severe disability as provided for by s 1209M of the Act. An impairment which qualifies the beneficiary for receipt of a Disability Support Pension is an example of eligibility, however there are a number of specific criteria which must be met, and which are assessed by Centrelink.
Not any trust can be classified as a Special Disability Trust. A Special Disability Trust must be established by trust deed which complies with clauses as set out in the Model Trust Deed provisions under the Act. Such a trust can be established whilst family members are still alive or alternatively as a testamentary trust established through a Will, in which case the Special Disability Trust will not come into effect until such time as the person making the Will is deceased. Establishment of a trust whilst family members are still alive can provide substantial taxation and social security benefits by way of generous gifting concessions of up to a combined sum of $500,000 for eligible immediate family members of the beneficiary.
A Special Disability Trust terminates on the death of the principal beneficiary and the assets of the trust will then vest in the residual beneficiaries named in the trust deed. A trust can also end at an earlier point in time if all the assets are fully expended.
Special Disability Trusts must comply with strict rules, reporting and auditing requirements and do not suit the needs of all families. However, if you believe a Special Disability Trust has the potential to be of assistance to you and your family, and provide peace of mind then please contact us to discuss this further.