A special disability trust is a way for families and carers to plan for the long term care and accommodation needs of someone living with a severe disability. In order to be a special disability trust a number of legislative requirements must be met as the trust is highly regulated by the Social Security Act 1991, the Veterans’ Entitlements Act 1986 and the Income Tax Assessment Act 1997.
As the main purpose of the trust is to protect the interests of the person with disabilities, trust expenditure is restricted to supporting the person with the disability. Funds on trust therefore, cannot be used to meet the cost of care, accommodation or services by the trustee, partner, parent or an immediate family member.
There are a few important things to be aware of when considering setting up a special disability trust:
The trust is only allowed to have a sole beneficiary (called the “principal beneficiary”) and must have as its primary purpose to meet the principal beneficiary’s reasonable care and accommodation needs. It must be documented by a trust deed that contains the necessary clauses provided by the Department of Veterans Affairs.
The principal beneficiary must be an individual who meets certain disability requirements set out in the Acts. These requirements will differ depending on whether the individual is over or under 16 (see below).
The trust is established for the sole benefit of the principal beneficiary with the special disability. Accordingly, no immediate family member or carer is allowed to be paid by the trust to care for the principal beneficiary (this includes parents whether natural, adoptive or step, legal guardians, grandparents and siblings).
- The trust will remain in existence until the principal beneficiary passes away.
- The trust has an asset value limit of $657,250. Any assets above this limit will be added to the assessable assets of the principal beneficiary and taxed at their marginal rate. This limit does not include the value of the beneficiary’s principal home (if this is owned by the trust).
- Any gift made by immediate family members are disregarded for the purposes of assessing the donor’s entitlement to income support payments.
- There are various tax concessions available in relation to assets of the trust. These include disregarding any gain or loss from gifting an asset to the trust and the application of the main residence exemption for capital gains tax (CGT) purposes in relation to the beneficiary’s dwelling.
To be eligible to be a principal beneficiary, a person who has reached 16 years of age must have:
- a level of impairment that would qualify him/her for a Disability Support Pension (or the person is already receiving a Department of Veterans’ Affairs Invalidity Service Pension or Department of Veterans’ Affairs Invalidity Income Support Supplement);
- a disability that would, if the person had a sole carer, qualify the carer for Carer Payment or Carer Allowance or the person is living in an institution, hostel or group home in which care is provided for people with disabilities, and for which funding is provided (wholly or partly) under an agreement between the Commonwealth and States and Territories; and
- a disability as a result of which he or she is not working and who has no likelihood of working for over 7 hours per week for a wage that is at or above the relevant minimum wage.
A person under 16 years of age must have:
- a severe disability or a severe medical condition;
- a carer who has been given a qualifying rating of ‘intense’ under the Disability Care Load Assessment (Child) Determination for caring for that person, and who has certified in writing that the person will require the same care, or an increased level of care, to be provided to him or her in the future; and
- a treating health professional who has certified in writing that, because of that disability or condition:
– the person will need personal care for 6 months or more; and
– the personal care is required to be provided by a specified number of persons.
Whether a special disability trust is suitable for your particular circumstances is a complex matter involving consideration of the personal situation, of the intended beneficiary and their carer. However, the special disability trust has the potential to offer real benefit to the individual concerned in certain situations. It is therefore important to obtain professional advice prior to setting up a trust in order to ensure that it is suitable to your needs.
If you find yourself in a relatable situation and would like to discuss Special Disability Trusts and whether it is right for you, book an initial discussion with one of the DPM’s Tax Consultants or speak directly to DPM’s partner law firm Fletcher Clarendon for more information by clicking on the link or call 03 9282 9200.
Disclaimer: The content of this article was written by Fletcher Clarendon’s legal team. The information contained in it is general and is not intended to serve as advice. DPM Financial Services Group recommends you obtain advice concerning specific matters before making a decision.