Special Disability Trusts & Estate Planning

A special Disability Trust is a trust that is set up by parents and/or immediate family members of a person with a severe disability or medical condition for their current and future care and accommodation needs.

A Special Disability Trust can either be set up by a Trust Deed during the lifetime of the parents/immediate family member or alternatively, it can be established under their Will (in which case the Trust does not come into effect until after the death of the person who makes the Will). As a Special Disability Trust is set up for the sole benefit of meeting the care and accommodation needs of the principal beneficiary who has a severe disability, the Special Disability Trust will come to an end when the beneficiary passes away.

Special Disability Trust Criteria

A Special Disability Trust must satisfy the following criteria:

• The Trust must have only one principal beneficiary (the person for whom the Trust is established), who must meet certain eligibility criteria;
• The Trust must provide for the accommodation and care needs of the principal beneficiary;
• The Deed establishing the Trust must contain the clauses set out in the Model Trust Deed;
• The Trust must have an independent trustee, or alternatively have more than one trustee;
• The Trust must comply with various investment restrictions; and
• Annual financial statements must be prepared for the Trust and independent audits must be undertaken in respect of the Trust.

Advantages of setting up a Special Disability Trust

An asset test exemption is available for the beneficiary of a Special Disability Trust in respect of the assets held in the Special Disability Trust up to the concessional asset value limit ($781,250.00, indexed annually on 1 July).  In order to qualify for the asset test exemption the Special Disability Trust must be established and maintained in compliance with the statutory requirements. The exemption (if applicable) means that any assets below the asset value limit will not be included when calculating the Government income support payments of the beneficiary (i.e. these assets will be exempt from the social security asset test).

Where the primary beneficiary’s home is also held by the Special Disability Trust, an additional concession can apply, whereby the home will be classified as an exempt asset, in addition to the concessional limit permitted in relation to the other assets held by the Trust.

Immediate family members who are receiving social security or veteran entitlement payments, and are within five years of the aged pension age (or older), who make contributions to a Special Disability Trust could also be eligible to receive a concession from the usual rules relating to the making of gifts.

Who can be a beneficiary of a Special Disability Trust?

In order to be eligible as a beneficiary for a Special Disability Trust, the disabled person must satisfy the strict legislative requirements.

If the person is 16 years or older then they must:

1. be eligible for the Disability Support Pension; or
2. they must already be receiving a Department of Veterans’ Affairs Invalidity Service Pension; or
3. they must already be receiving a Department of Veterans’ Affairs Invalidity Income Support Supplement.

In addition to this first requirement, they must also either:

1. have a disability whereby if they had a sole carer, that carer must also be eligible to qualify for Carer Payment or Carer Allowance; or
2. they must be living in an institution, hostel or group home in which care is provided for people with disabilities and for which funding is provided under an agreement between the Commonwealth, the states and the territories.

The person’s disability must also limit them from being able to work for more than seven hours per week at or above the minimum wage.

If a person is under the age of 16 then the following conditions must be met:

• they must have severe disability or a severe medical condition;
• they must have a carer who has been given a qualifying rating of ‘intense’ under the Disability Care Load Assessment (Child) Determination for caring for them;
• the carer will need to certify in writing that the disabled child 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 must certify in writing that, because of that disability or condition, the disabled child will need personal care for 6 months or more, and care is required to be provided by a specified number of persons.

Further Considerations

As noted above, in order to comply with the statutory requirements, a Special Disability Trust must contain all the clauses outlined in the Model Trust Deed. It is therefore vital that legal advice be obtained to ensure that the proposed Trust meets the strict requirements.

Due to its complexity, the costs associated with drafting a Will incorporating a Special Disability Trust are more than a standard Will, and once the Trust begins to operate, there will be ongoing administration costs associated with maintaining the Special Disability Trust. The Trustee will be required to submit annual financial statements and tax returns for the Special Disability Trust.

The cost to set up and maintain a Special Disability Trust should be weighed up against the benefits in the case of smaller estates, to help determine whether or not it is appropriate to incorporate a Special Disability Trust in your Will.

It is recommended that in addition to obtaining legal advice, financial advice should also be sought when deciding whether or not setting up a Special Disability Trust will be appropriate for your specific circumstances.

Should you wish to obtain legal advice regarding Special Disability Trusts, please do not hesitate to contact one of our estate planning solicitors via the link below.