For parents or relatives of individuals with disabilities, figuring out who will take care of them after they're gone can be tough. Sometimes, a Special Disability Trust (created through a trust deed or in a will) might be the best way to ensure ongoing support for that person.
At Wealth Effect Group, we work with experts who have in depth knowledge in relation to Special Disability Trusts, they have extensive experience in legal planning for families dealing with disabilities. We can help you determine the best way to provide for someone's future based on the family's circumstances and offer advice on maximizing available resources for the person with a disability.
Planning ahead for the care, accommodation, and living expenses of someone with a disability is more complex than just making a will and appointing a power of attorney.
What's a Special Disability Trust?
A Special Disability Trust allows parents or other family members to leave assets in trust for an individual. These assets can be used to cover ongoing care, medical bills, housing, and some extra expenses without affecting the person's disability support pension.
In 2006, the Federal Government introduced Special Disability Trusts to social security laws to encourage private provision of care and accommodation for people with disabilities.
Establishing a disability trust comes with benefits like potential tax breaks and gifting concessions, making it financially appealing for families wishing to leave a significant amount for a person with a disability. Once set up, anyone can contribute to the trust at any time.
Rules for Special Disability Trusts
It's important to note that a Special Disability Trust isn't suitable for every situation. Seeking expert legal and financial advice is crucial to determine its usefulness for a family member and how it fits into a comprehensive plan for their care.
Funds in a Special Disability Trust can only be used for:
-Accommodation
-Health-related costs (like medical expenses and insurance)
-Other disability-related expenses
Discretionary spending (up to $14,000 per year as of July 2023)
A person with a severe disability can have up to $781,250 (as of July 2023, adjusted annually) in a Special Disability Trust without it affecting their social security entitlements through the assets test. The trust's income doesn't affect their income test either. Family members placing up to $500,000 into such a trust may also receive exemptions from the usual gifting rules for pensioners, improving their social security situation.
When is a Special Disability Trust Useful?
In general:
A Special Disability Trust might not offer significant advantages for parents looking to leave less than the assets test limits (around $543,750 without a residence or $301,750 with one, as of July 2023) for their child with a disability.
It may not be immediately useful for parents looking to leave significantly more than $781,250 plus the assets test threshold for part-pension, but could be beneficial in the long term.
It could be useful for parents falling in between these groups, whose child relies on the disability support pension and needs care and accommodation. The usefulness of a Special Disability Trust depends on individual circumstances and parents' plans for their children considering their disabilities.
How Do I Set Up a Special Disability Trust?
You can set up a Special Disability Trust while you're alive or specify it in your will.
Legally, the trust must be set up using a trust deed or will, following a Model Special Disability Trust outlined in social security rules.
Implementing a Special Disability Trust should be part of a broader estate plan focused on securing the future of a person with a disability. It's essential for parents to seek specialist legal advice (and possibly accounting or financial planning advice) before deciding if a trust is right for their situation.
For more information on Special Disability Trusts, contact: 1300 459 101 or click the link for a quick consult.