We know it can be difficult to think about what might happen to those you love after you pass away. It can be even more difficult to think about leaving behind a loved one with a disability. There are steps that can be taken under a Special Disability Trust set up under your will to look after your loved ones after you have passed.
Establishing a Special Disability Trust in your Will is the best way to ensure your loved one’s interests are protected by ensuring their financial future after your death and it means that they will retain their entitlement to a Disability Support Pension from Centrelink.
What is a Special Disability Trust?
u003cbr/u003eSpecial Disability Trusts are established to help families and carers provide financially for the care and accommodation of an individual with a severe disability. These Trusts, in accordance with the u003cemu003eSocial Security Act 1991u003c/emu003e, allow for parents or other family members (u003cstrongu003e‘contributor’u003c/strongu003e) to leave assets in a trust for an individual (u003cstrongu003e‘beneficiary’u003c/strongu003e), without it impacting on the continuing entitlement of the beneficiary to a disability support pension.u003cbr/u003eu003cbr/u003eSpecial Disability Trusts can be established during the lifetime of the contributor for the benefit of their family member or after their death via a trust set up in their Will.
What are the benefits of a Special Disability Trust?
The benefits associated with a Special Disability Trust include potential tax concessions and gifting concessions making the trust financially attractive to those who wish to leave a substantial amount in assets for an individual with a disability.
What contributions can be made to a Special Disability Trust?
Once a Special Disability Trust is established, contributions can be made by anyone at any time. Provided that no more than $500,000 in total is gifted to the trust during the lifetime of the donor, the gift is not deemed to be a deprivation of assets by Centrelink and u003ca href=u0022https://www.servicesaustralia.gov.au/individuals/services/centrelink/special-disability-trusts/how-use-it/trust-contributionsu0022u003ewill not affect the contributor’s entitlements to Centrelink benefitsu003c/au003e.
What can a Special Disability Trust be used to pay for?
A Special Disability Trust u003ca href=u0022https://www.dss.gov.au/disability-and-carers-programs-services/special-disability-trustsu0022u003ecan only be used to pay foru003c/au003e:u003cbr/u003e u003cbr/u003e· Accommodation, dental, health-related costs (including medical and health insurance expenses), and other expenses related to the disability; andu003cbr/u003e· u003ca href=u0022https://guides.dss.gov.au/guide-social-security-law/4/14/3/35u0022u003eDiscretionary expenditureu003c/au003e (up to a limit of $12,500 a year as of 1 July 2020) not directly related to the care and accommodation needs of the needs of the beneficiary.
What are the taxation benefits of a Special Disability Trust?
u003cbr/u003eu003cstrongu003eu003ca href=u0022https://www.ato.gov.au/General/Trusts/Specific-rules-for-some-trusts/Reporting-the-income-of-a-special-disability-trust/u0022u003eTaxation Benefitsu003c/au003eu003c/strongu003eu003cbr/u003e u003cbr/u003eAs opposed to other trusts, the beneficiary of a Special Disability Trust is not subject to a higher income tax rate. Therefore, the unexpected income of such a Trust is taxed at the beneficiary’s personal income tax rate as opposed to the highest marginal personal tax rate usually applied in other trusts. The beneficiary of a Special Disability Trust is recognised to have a legal disability, facilitating them to be treated as though they are presently entitled to the entirety of the net income of the trust.u003cbr/u003eu003cemu003e u003c/emu003eu003cbr/u003eu003cemu003eTax Returnsu003c/emu003eu003cbr/u003eu003cemu003e u003c/emu003eu003cbr/u003eThe net income of the Trust should be included in a beneficiary’s individual tax return, in addition to any personally derived assessable income or deductible expenditure incurred. To ensure there is not a double taction, any tax paid by the trustee of the Trust should be claimed as a credit on their individual tax return.u003cbr/u003eu003cstrongu003e u003c/strongu003eu003cbr/u003eu003ca href=u0022https://www.dss.gov.au/disability-and-carers-programs-services/special-disability-trustsu0022u003eFurther taxation benefitsu003c/au003e include:u003ca href=u0022#_ftn2u0022u003e[5]u003c/au003eu003cbr/u003e u003cbr/u003e· Capital gains tax exemption for any asset donated to a Special Disability Trust;u003cbr/u003e· Capital gains tax main residence exemption for Special Disability Trusts; andu003cbr/u003e· Capital gains tax exemption for the recipient of the beneficiary’s main residence, if disposed of within two years of the beneficiary’s death.
What benefits are there to the beneficiary of a Special Disability Trust?
In addition to ensuring the beneficiary is financially looked after in relation to their care and accommodation, Special Disability Trusts have the following benefits:u003cbr/u003e u003cbr/u003e· u003cstrongu003eu003cemu003eProtection of Benefits:u003c/emu003eu003c/strongu003e An asset value of up to $694,000 (indexed each financial year) held in a trust is exempt from the assessable assets of the beneficiary. Therefore, protecting the beneficiary’s social security benefits.u003cbr/u003e· u003cstrongu003eu003cemu003eu003ca href=u0022https://www.dva.gov.au/financial-support/support-families/effects-special-disability-trustu0022u003eResidential Homeu003c/au003e: u003c/emu003eu003c/strongu003eThe principal home of the beneficiary, if included in the trust, is not subject to capital gains tax and is not included in the asset value limit;u003cbr/u003e· u003cstrongu003eu003cemu003eu003ca href=u0022https://www.dss.gov.au/disability-and-carers-programs-services/special-disability-trusts#:~:text=a%20beneficiary%20of%20a%20Special,of%20the%20Trust’s%20property%2C%20andu0022u003eAdditional Incomeu003c/au003e:u003c/emu003eu003c/strongu003e A beneficiary of a Special Disability Trust can work up to seven hours a week, at or above the relevant minimum wage;u003cbr/u003e· u003cstrongu003eu003cemu003eu003ca href=u0022https://www.dss.gov.au/disability-and-carers-programs-services/special-disability-trusts#:~:text=a%20beneficiary%20of%20a%20Special,of%20the%20Trust’s%20property%2C%20andu0022u003ePaid Medical Expensesu003c/au003e: u003c/emu003eu003c/strongu003eMedical expenses, including private health insurance and the maintenance expenses of the beneficiary’s property can be paid for from the Trust; andu003cbr/u003e· u003cstrongu003eu003cemu003eu003ca href=u0022https://guides.dss.gov.au/guide-social-security-law/4/14/3/35u0022u003eAllocation of funds for recreational needsu003c/au003eu003c/emu003e: u003c/strongu003eThe Trust can spend up to $12,500 (each financial year) on items not related to the care and accommodation needs of the beneficiary of the trust, such as items relating to the social inclusion, independence and wellbeing of the beneficiary.
If you are concerned about someone in your family who has a disability and what might happen to them after your death, let us do the hard work for you. Our team are experts in advising and drafting documents which meet your personal circumstances and give you peace of mind. Please call us today or book an appointment online to speak with our friendly team.