When contemplating putting together an estate plan, an important aspect to consider is the personal circumstances of the prospective beneficiaries of your Will.
Special Disability Trusts
If a beneficiary would benefit from assistance in managing their inheritance, as a consequence of a disability that prevents them from managing their affairs, it is possible to set up a trust in your Will to look after their needs and protect their interests. This type of trust is known as a Special Disability Trust.
The Special Disability Trust (“SDT”) is a Federal Government program that works to assist family members and guardians to provide for the future care and accommodation needs of family members with a disability.
The SDT attracts social security means test concessions for the Principal beneficiary and eligible contributors to the trust. The benefit and the purpose of the SDT, as opposed to a standard protective trust, is to assist immediate family members and carers who have the financial means to do so, to make private financial provision for the future care and accommodation needs of a family member with a severe disability and receive means test concessions, and ensuring that the disabled beneficiary’s entitlements are not adversely impacted by their inheritance.
The SDT can hold up to $694,000 (indexed annually on July 1) without the trust assets contributing towards the disabled beneficiary’s resources when calculating their entitlements to the Disability Support Pensions and allows for concessions from gifting rules. Where eligible family members contributing to the trust are in receipt of a social security or veterans’ entitlement, and are within five years of Age Pension age or older, they may be entitled to receive a concession from usual rules in relation to making gifts or disposing of assets.
In respect to eligibility requirements for the proposed beneficiary of a SDT, certain criteria must be met, including:
a. where the Principal Beneficiary is 16 years or older
i. the Principal Beneficiary must:
(A) have an impairment that would qualify them for the disability support pension;
(B) be receiving an invalidity service pension; or
(C) be receiving an income support supplement due to permanent incapacity and
ii.the Principal Beneficiary must:
(A) have a disability that, if the person had a sole carer, would qualify the carer for carer payment or carer allowance; or
(B) lives in an institution, hostel or group home that provides care for people with a disability; and
iii. the Principal Beneficiary must have a disability as a result of which they either
(A) are not working or unlikely to work for more than seven hours per week for a wage at or above the relevant minimum wage; or
(B) are working for wages set in accordance with the Commonwealth supported wage system.
An important function to note when considering whether a SDT would be a suitable estate planning tool, is that funds held in a SDT can only be used by the trustees for the ‘care and accommodation’ of the Principal Beneficiary, with restrictions in place on certain payments.
While these requirements are quite stringent, there are allowances for the following payments to be made to or for the Principal Beneficiary’s benefit with up to $12,500 per year (as at 1 July 2020, indexed annually) to be spent on ‘discretionary items’ for the Principal Beneficiary. Discretionary spending can include items relating to the beneficiary’s health, wellbeing, recreation, independence and social inclusion.
How can Sharrock Pitman Legal assist?
As Accredited Wills & Estate specialists, we provide sound and concise legal advice for you and the trust beneficiary. If specific advice is sought in relation to the matters contained in this article, or any other estate planning matters, feel free to contact us on 1300 205 506 or by email at firstname.lastname@example.org.
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The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.
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Sarah is a lawyer at Sharrock Pitman Legal. As a member of our Wills and Estates team, Sarah is dedicated to successfully resolving her clients matters in a cost-effective and timely manner. For further information, please contact Sarah directly on (03) 8651 3322.