Special Disability Trusts can be an extremely useful tool to both plan and provide for the future needs of your son or daughter with a severe disability. This Trust was introduced by the Federal Government in 2006 and is part of Australia’s social security framework. The Trust is designed to assist families to make their own legal planning provisions for their family member with a severe disability. Proper legal planning, such as the formation of a Special Disability Trust, ensures that any inability of a primary carer to maintain care is provided for and the needs of the person with a severe disability remain met.
WHAT ARE THE BENEFITS OF A SPECIAL DISABILITY TRUST?
Special Disability Trusts are Trusts established by a parent to meet the specific, long-term needs of their child with a severe disability both now and in the future. The Special Disability Trust can be established by parents whilst alive or through their Last Will. There are a number of key benefits in establishing a Special Disability Trust.
Firstly, the principal place of residence of the beneficiary becomes an asset of the Trust. As an asset of the Trust, the beneficiary has a life interest in the property. This provides security of tenure for the life of the beneficiary.
Secondly, the trustee may spend Trust assets on reasonable care that is directly related to the care of the beneficiary. To fall within this ambit, the need for the care must be for the primary benefit of the beneficiary and this need must be met within Australia. Examples of reasonable care needs could include any relevant aids, communication devices or vehicle modifications required for the beneficiary’s disability. This is certainly not a definitive list.
Thirdly, the trustee may also spend up to $10,500 per annum for care that is not directly related to the care and accommodation needs of the beneficiary. This is called discretionary spending. Whilst some may find this concerning, this recent legislative amendment ensures that there is some flexibility in meeting the day to day needs of the beneficiary. Examples could include workshops or recreational activities for the beneficiary, basic food as well as any required household cleaning. Again, this is certainly not a definitive list.
Fourthly, there are also significant social security benefits to a Special Disability Trust. These are outlined below.
THE SIGNIFICANT SOCIAL SECURTY BENEFITS
As noted, a Special Disability Trust enables parents to provide assets to their son or daughter. However, when social security such as a Disability Support Pension is applicable, the transfer of assets can have significant implications for a person’s entitlements. This is generally not the case in relation to Special Disability Trusts. The term ‘special’ in the name Special Disability Trust is not a reference to a beneficiary’s disability, but is in fact related to the special Social Security treatment of the Trust. This is because Special Disability Trusts are intended to encourage families to make their own arrangements for their family member with a severe disability. The Social Security treatment of Special Disability Trusts is outlined briefly below.
Firstly, the income test for Special Disability Trusts is unique. Money utilised for care, accommodation, maintaining the trust assets and on the discretionary spending noted above is not considered income for social security purposes.
Secondly, the assets test is also unique. As at July 2012 and indexed annually, the beneficiary may have assets worth up to $596,500 in Trust as well as the principal residence as noted above before there are any implications on the beneficiary’s Disability Support Pension or other relevant social security payment. This encourages families to ensure that there are sufficient assets to care for the beneficiary for their lifetime.
Thirdly, the gifting concession is also unique. As opposed to the ordinary gifting concession of $10,000, the gifting concession for Special Disability Trusts is $500,000 for immediate family members providing assets to the Trust. This figure is not subject to indexation and immediate family members may also receive concessional treatment. This encourages families and others to gift to the trust for the ongoing care of the beneficiary.
WHAT ARE THE REQUISIT COMPONENTS OF A SPECIAL DISABILITY TRUST?
Special Disability Trusts must confirm with a number of specific requirements. Firstly, a Special Disability Trust can only be established for a beneficiary with a ‘severe’ disability. The term ‘severe’ is defined under section 1209M of the Social Security Act 1991. Under this section, there are two means of classifying ‘severe’.
Firstly, a person 16 years or over must be eligible to qualify for the Disability Support Pension. The person must also have a disability that, if they had a sole carer, ensure the care is eligible for Carer Payments or Carer Allowance.
Alternatively, the beneficiary must live in an institution or group home where care is provided pursuant to Government funding. The beneficiary must also have a disability that limits the ability to work more than seven hours per week or above the relevant minimum wage. This reference to minimum wage regards the Supported Wage situation. However, amendments made in early 2011 now ensure that a beneficiary may work up to seven hours a week at or above the minimum relevant wage in open employment and still qualify.
If this definition is met, there are further requirements to establish a Special Disability Trust. Firstly, the Trust must have only one beneficiary. This ensures that there is one Trust per person. The Trust must also be established primarily to provide for the care and accommodation needs of the beneficiary. This ensures that the long-term needs of the beneficiary are protected. The Trust must also have a Trust Deed that contains all clauses outlined in the Model Trust Deed. A Model Trust Deed identifies who the relevant parties are, any important factors the trustee must consider, as well as the specific powers and duties of the trustee.
Whilst the Model Trust Deed governs the actions of the trustee, there are also important considerations for selecting a trustee for a Special Disability Trust. An independent trustee or, preferably, a panel of trustees must also be provided for by the Trust. If appointed solely, the trustee must be a prescribed person such as a solicitor, an accountant or the Public Trustee. Alternatively, a panel of two trustees who each do not qualify as a prescribed person may be appointed.
Finally, a Trust is a separate legal structure in relation to taxation. As such, the Trust has its own responsibilities to pay tax as required and submit tax returns. It is advisable that an accountant attends to these obligations. If the trustee is a company there are also ongoing legal and accountancy obligations to maintain the company.
IMPORTANT CONSIDERATIONS
Whist an excellent planning tool, Special Disability Trusts can be extraordinarily expensive to establish. This is highly unfortunate and in some situations they are not feasible solutions to a family’s planning needs. There are also ongoing legal and accountancy costs to maintain the Trust. These factors must be considered when planning for the future needs of a son or daughter with a severe disability.
HOW CAN NAUTILUS ASSIST?
Nautilus practices in Special Needs Law and has a team with significant experience in this area. We welcome you to contact our offices on (07) 5574 3560 or email info@nautiluslaw.com.au. We thank you for considering Nautilus Law Group.
Submitted by: Katrina E. Brown BA JD ATIA TEP SSA
