A special disability trust is an instrument set up by family members in order to maintain and provide for the future care and accommodation of a person with a severe disability.
Although a relatively new instrument created under Commonwealth legislation, they are becoming increasingly popular with an estimated 30 registered trusts in Queensland and 160 nationally.
There is the option of setting up a trust now to commence operating immediately, or through your Will to begin operating upon your death. The requirements of the trust and the rules that will apply to the trust are essentially the same in either circumstance.
What are the requirements of a Special Disability Trust?
A Special Disability Trust must:
1. Have only one principal beneficiary that meets the eligibility criteria;
2. Provide for the reasonable accommodation and care needs of that principal beneficiary;
3. Have a trust deed that meets the strict requirements;
4. Have an independent trustee;
5. Comply with the investment restrictions; and
6. Comply with the specific reporting and audit requirements.
Who may be a principal beneficiary?
The person intended to be the principal beneficiary must meet the definition of ‘severe disability’ as set out in the Social Security Act 1991 (Cth). The first step should be to verify with Centrelink that the person for whom the trust is being established meets the definition of severe disability.
What can the Special Disability Trust use the funds for?
The funds held by the trust are intended to be used to meet the reasonable care and accommodation needs of the principal beneficiary.
In addition to the reasonable care and accommodation needs, the trustee is able to spend up to $11,000 in a financial year on discretionary items not related to the care and accommodation needs of the beneficiary such as mobility aids, personal care aids and modifications to the beneficiary’s place of residence.
What are the benefits of establishing a Special Disability Trust?
There are benefits available by way of concessions if the trust deed is registered with Centrelink. These benefits include:
1. Eligible family members may gift up to $500,000 without the gift being subject to the pension gifting rules;
2. An assets test assessment exemption of currently up to $626,000 (indexed annually and current at 1 July 2014) is available to the primary beneficiary;
3. The principal place of residence of the primary beneficiary (the person with the disability) is not counted towards the asset test;
4. The trust income is ignored when calculating the beneficiary’s disability pension entitlement.
There are additional taxation benefits available including:
1. The unexpended income of the trust is taxed at the beneficiary personal income tax rate rather than at a higher marginal rate;
2. There is a Capital Gains Tax exemption for certain assets donated to the special disability trust;
3. There is a further Capital Gains Tax exemption on property that is held by the trust and used as the beneficiary’s main residence, if it is disposed of within 2 years of the beneficiary’s death.
If you think a Special Disability Trust may be right for your family please contact your preferred solicitor at our firm who will be able to assist you in the creation of the trust.
