O'Donnell Kerr Financial Planners
  • 04 August, 2015

Special Disability Trusts

The truth is we are not all born or go through life with the capability to look after ourselves. For a number of people, the assistance of others is a necessary fact of life. In a large percentage of cases it is generally a family member who provides this assistance and care, more often than not, Mum and Dad.

For parents or family members in this situation, the thought of themselves growing old and frail is rarely their main concern. Overwhelmingly, their concern is who will look after my disabled child when I pass away?

Which brings me to Special Disability Trusts (SDT); a specific arrangement for providing ongoing financial support that comes with some Social Security and Veterans Affairs concession.

A SDT trust can be set up to assist families in making private financial provision for the current and future care and accommodation needs of a family member with severe disabilities. The purpose of the trust is to protect the interests of the person with the disability.

A SDT comes with certain conditions that may not suit everyone, such as immediate family members being prohibited from providing care to the principal beneficiary and any paid care must be provided by an arms-length employee of the SDT. But from a Social Security and Veterans Affairs perspective, the trust certainly comes with some benefits.

A gifting concession of up to $500,000 combined is available for eligible family members of the principal beneficiary. Eligible family members being parents – natural, step or adoptive – grandparents and siblings.

As an example, Mum and Dad, who are in receipt of an age pension, gift $250,000 to the trust. The surviving grandparents also in receipt of an age pension, decide to gift a further $250,000 to the same Special Disability Trust. The $500,000 combined limit is met. In both cases, the gifting limits do not apply so the amounts in excess of $10,000 are not seen as deprivation, and in both cases age pensions would be increased accordingly.

The principal beneficiary of the SDT must be a person who suffers from a severe disability, the definition of which is set out in the Social Security Act. A simple guide would be a person in receipt of a Disability Support Pension.

For the principal beneficiary, the asset value of the trust up to the current level of $636,750 is exempt under the assets test. This amount excludes the beneficiary’s home which could also be placed inside the trust.

The income which is distributed from the trust, provided it is used to pay for the care and accommodation costs of the principal beneficiary, is exempt from the income test. A level of discretionary spending up to $11,000 which is not directly related to care and accommodation costs, is also exempt.

There are also benefits in relation to the unexpended income of the trust and the disposal of a dwelling owned by the trust and used by the beneficiary as their main residence. The income is taxed at the beneficiary’s personal tax rate (not the highest marginal tax rate) and the home is included under the capital gains tax main residence exemption.

The Social Security Act provides a very detailed outline of what is required in relation to the trust deed and it’s important to note, the trust needs to be established before any monies are gifted.

Before you consider the SDT, please talk to an expert to ensure that it has been established correctly and will provide the care, comfort and necessary accommodation for that member of the family who is not able to care for themselves after you’re gone.

The Realise Your Dream blogs are written by Peter Kelly and Mark Teale. More information about the authors can be found here

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