If you are a parent that has a child with special needs, setting up a trust in your Will can be an essential part of an Estate Plan that ensures the long-term needs of your child will be met in the event of your death.
In some cases (but not all), a Special Disability Trust can be an appropriate solution to address concerns that your child will be able to access care services, finances, and social security benefits.
What are the benefits of a Special Disability Trust?
There are several benefits offered in establishing a Special Disability Trust in your Will or during your lifetime. These include:
· providing for a beneficiary with special needs whilst allowing them to continue accessing social security benefits. The trust can hold assets of up to $813,250 in value (current for the 2024-2025 Financial Year), not including the principal home of the beneficiary, before those assets will impact the beneficiary’s social security payments;
· allowing eligible family members to donate up to $500,000 to the trust without any effect to their own social security payments;
· mitigating the risks of beneficiaries being exploited; and
· possible exemptions from capital gains tax.**
Who can be a beneficiary of a Special Disability Trust?
A person intended to be the beneficiary of a Special Disability Trust must satisfy several requirements that have been mandated by legislation in order for them to receive the benefits of both the trust and social security payments. The applicable rules depend on the age of the person.
If the person is aged 16 years or over, the requirements include:
· The person qualifies for a Disability Support Pension, Service Pension Invalidity or Income Support Supplement on the grounds of permanent incapacity; and
· The person is either living in a government-funded institution, hostel or group home that provides care to people with disabilities, or their disability would, if they had a sole carer, qualify the carer for a Carer Payment or Carer Allowance; and
· As a result of their disability, the person is either not working (and has no likelihood of working) for more than 7 hours per week at or above the minimum wage, or is working in accordance with the Commonwealth-supported wage scheme.
If the person is aged 15 years or under, the requirements include:
· The person has a severe disability or a severe medical condition; and
· The person’s carer has been given a qualifying rating of intense under the Disability Care Load Assessment (Child) Determination for caring for the person; and
· A treating health professional has certified in writing that, because of that disability, the person will need personal care for at least 6 months, and the personal care is required to be provided by a specified number of persons; and
· The carer has certified in writing that the person will require the same care, or an increased level of care, to be provided to him/her in the future.
What can a Special Disability Trust be used for?
Assets in the trust can only be used for the primary purpose of meeting the beneficiary’s reasonable care and accommodation needs. This may include to meet the expenses of specialised food, mobility aids, vehicle transportation, medical costs, rent, or the purchase of property. However, depending on the wording of the trust, it may also be acceptable if money is spent for other purposes that are primarily for the benefit of the beneficiary (for example, the health, wellbeing, recreation, independence, and/or social inclusion of the beneficiary). Legislation caps the amount that can be spent on these other purposes. For the 2024-2025 Financial Year, this maximum amount is $14,500.
For how long does a Special Disability Trust last?
Depending on what you provide in your Will, Special Disability Trusts generally exist for the duration of a beneficiary’s lifetime. For this reason, it is recommended to consult with medical and healthcare professionals and financial advisers to determine the value of assets that will be necessary to make adequate provision for the needs of the beneficiary. If the trust is created under a Will and some trust assets remain following the death of the beneficiary, the Will should then make provision for which persons should receive those assets and in what proportions.
Who can be a trustee of a Special Disability Trust?
An individual or a corporation can be a trustee of a Special Disability Trust, provided that they fulfil certain eligibility requirements under legislation. If an individual, or several individuals, is/are a trustee of the trust, these requirements apply to each individual. If a corporation is a trustee, the requirements apply to each director of the corporation. The individual/director must be an Australian resident who has no prior convictions for dishonest conduct (including under social security legislation) and must not be disqualified from managing corporations under the Corporations Act 2001 (Cth).
Are there any reporting or auditing requirements in respect of a Special Disability Trust?
The trustee(s) are required, on or before 31 March each year, required to give the Secretary of the Department of Social Services written financial statements about the trust in relation to the financial year ending on 30 June in the previous year. These statements can only be prepared by a registered accountant or employee of a trustee corporation who is engaged as an accountant or financial planner, and that person must not be an immediate family member of a trustee, the principal beneficiary or a residuary beneficiary.
The trustee(s) of a Special Disability Trust are only required to cause an audit to be carried out if they are requested to do so by the beneficiary, the Secretary of the Department of Social Services, or an immediate family member, guardian or financial administrator of the beneficiary. The audit can only be conducted by a registered accountant who has not prepared financial statements in respect of the trust for the relevant financial year, and that person must also not be an immediate family member of a trustee, the principal beneficiary or a residuary beneficiary. The requesting person can request the audit to be carried out on a period of up to five previous financial years. The trustee(s) are required to give copies of the audit report to the person(s) who requested the audit to be carried out, as well
as the legal guardian of the beneficiary, financial administrator of the beneficiary and Secretary of the Department of Social Services if any of those did not request the audit to be carried out.
Are there any other Estate Planning mechanisms available in respect of my estate?
Due to these restrictions on qualifications of beneficiaries, limits on the value and use of trust assets, and reporting, special disability trusts are not suitable for every client.
Where clients instruct Willis & Bowring to prepare Wills providing for special needs beneficiaries, we generally ensure the Will gives the option to establish a Special Disability Trust, or another form of protective trust (called an “All Needs Protective Trust”), which can allow the executor(s) of the Will to seek legal and financial advice following the Willmaker’s death on the best method to invest and distribute trust assets, taking into account many factors, including the needs of the beneficiary, value and type of assets proposed to be held in the trust, and the laws effective at the time (especially those governing special disability trusts and the beneficiary’s social security entitlements).
An All Needs Protective Trust can operate for the duration of the beneficiary’s lifetime for that beneficiary’s exclusive purposes of accommodation, medical needs, and other general maintenance and welfare. While an All Needs Protective Trust may not have the advantage of allowing a special needs beneficiary to continue accessing social security benefits, it can provide greater flexibility to trustees than under a Special Disability Trust. For example, depending on what you provide in your Will, there may be fewer restrictions on who is eligible to be a beneficiary or a trustee, and the trustee may have greater discretion to determine for what purposes the trust assets can be applied.
Contact our Estate Planning team on (02) 9525 8100 for advice on suitable Estate Planning mechanisms to provide for special needs beneficiaries in your circumstances.
** Willis & Bowring is unable to provide taxation or financial advice of any nature and advice from an appropriately qualified accountant, taxation or financial practitioner should be sought for specific advice in individual circumstances