What is a Special Disability Trust?

Introduced by the Australian Government in 2006, a Special Disability Trust (SDT) is a trust used to assist families with the current and future care and accommodation needs of a family member with a severe disability.

A primary concern of parents who have a child with a disability is how their child is going to be supported when they pass away. With a properly prepared Special Disability Trust in place, it will (in all but the most exceptional circumstances) cover the costs of care, accommodation, medical expenses and other needs of the beneficiary during their lifetime.

A Special Disability Trust is a trust that holds funds on behalf of a person with a disability that can be structured to comply with the Social Security Act 1991 (Cth) (the SSA). Drafting the trust to meet the requirements of the SSA is important because, if the beneficiary of the trust is eligible and the trust is set up in compliance with the SSA, the settlor (donor) or testator can currently contribute up to $500,000 in trust assets without affecting the beneficiary’s social security entitlements or income support payments.

While a Special Disability Trust can be established at any time, many parents choose to include it in their Wills rather than set it up during their lifetime. This is often because, while they are alive, they are actively managing both the financial and personal care needs of their child. Additionally, they may wish to avoid the administrative overheads required to comply with the trust’s requirements or may not be in a position to establish the trust or contribute sufficient funds to make it worthwhile. Realistically, while establishing a trust during their lifetime may have been considered, it is often the confronting thought of what would happen if they were no longer around that compels parents to include a Special Disability Trust in their Will.

Including a Special Disability Trust in Your Will

A Special Disability Trust can be established through a Will either by including all the terms of the trust within the Will itself or by inserting a clause directing the executor to establish the trust in accordance with prescribed guidelines after the testator’s death.

Meeting both the testator’s wishes and the SSA requirements can be a complex task, requiring significant planning to ensure compliance. For example, a parent may wish to activate a Special Disability Trust upon their passing but also include provisions for the funds to transfer to another family member upon the trust’s termination or the passing of their child. This requires careful consideration of how the trust needs to stay compliant with the SSA and, at the same time, achieve transferring trust assets and income to the nominated person or organisation in the future.

Special Needs Trusts for Disabled Adults

A Special Disability Trust can be an effective solution for parents or carers of adults with a severe disability. Where the beneficiary is over 16 and meets the eligibility criteria under the Social Security Act 1991 (Cth), the trust can provide ongoing financial support while protecting their entitlement to government benefits.

These trusts are commonly used by families to make sure that an adult child or relative with a disability continues to receive care and support after their primary carer has passed away. The trust can be structured to pay for care, accommodation, medical needs and other reasonable expenses throughout the beneficiary’s lifetime.

The trust structure also allows families to plan for the eventual transfer of remaining assets to another beneficiary when the trust ends, such as on the death of the primary beneficiary, ensuring that long-term estate planning goals are met.

Eligibility

To establish a Special Disability Trust, the intended beneficiary, the person with a disability, must meet the definition of ‘severe disability’ under the Social Security Act 1991 (Cth) (‘the SSA’).

Over 16 Years Old

To qualify as an eligible beneficiary, the disabled person aged over 16 years must:

Have a level of impairment that would qualify the person for Disability Support Pension or is already receiving a Department of Veterans’ Affairs Invalidity Service Pension or Department of Veterans’ Affairs Invalidity Income Support Supplement; and
If the disabled person has a sole carer, the carer would qualify for the Carer Payment or Carer Allowance; or
The disabled person is living in an institution, hostel or group home which is provided for people with disabilities and funded by the Commonwealth, the States and Territories; and
Does not work more than seven hours per week due to the disability.

Under 16 Years Old

To qualify as an eligible beneficiary, the disabled person under 16 years old must be a profoundly disabled child as defined in the SSA, or:

Have a severe disability or severe medical condition; and
A carer has been given a qualifying rating of intense for caring for the child; and
A treating health professional has certified in writing that, because of that disability or condition, the child will need personal care for 6 months or more, and child care is required to be provided by a specified number of persons; and
The carer has certified in writing that the beneficiary will require the same care, or increased care, provided in the future.

Benefits

The benefits of Special Disability Trusts include:

Planning for the future
Asset control
Tax benefits
Social security benefits

Planning for the Future

A Special Disability Trust ensures the ongoing needs of the beneficiary can be met even when family members are unable to provide assistance and care.

Asset Control

The trustee of the Special Disability Trust has the obligation of holding the assets of the Special Disability Trust on trust for the intended beneficiary.

Taxation

The net income on the Special Disability Trust assets is taxed at a lower personal income tax rate, and there are Capital Gains Tax exemptions.

Social Security Benefits

Under the Special Disability Trust, a gifting concession is available of up to $500,000 combined by one or more eligible family members of the beneficiary, and an asset test exemption is available for the beneficiary (the amount is indexed each year).

This means that the income support entitlements of the person with a disability remain unaffected.

Ongoing Obligations

Given that a Special Disability Trust is a trust, there are ongoing legal and accounting requirements and reporting obligations.

The obligations that a trustee must undertake include, but are not limited to, the following:

Providing a compulsory annual financial statement to Centrelink
Providing a schedule for each class of assets
Providing a statutory declaration confirming that the expenditure was spent on care and accommodation costs
Lodging a tax return for the Special Disability Trust each financial year

Whilst Special Disability Trusts have complex rules and guidelines, they can provide significant benefits to persons with a disability and provide peace of mind to family members.

Contact Us

If you have a family member with a disability and think a Special Disability Trust may be a good option, contact us at Bambrick Legal to discuss your circumstances and how we may assist you. We offer a free, no-obligation 30-min consultation for all enquiries.