Estate planning to account for disabled beneficiaries
When delving into the world of estate planning, it is important to consider the treatment of a disabled beneficiary under a Will.
Some common concerns that clients have include:
- How an inheritance will impact on the disabled person’s pension entitlements
- Protecting their assets
- Choosing the correct person to care for and manage the finances for the disabled person
- Ensuring other children/members of the family are also looked after
If your child or a person in your family has a severe disability, a Special Disability Trust under your Will may be appropriate.
What is a special disability trust?
A Special Disability Trust is a trust set up solely for the benefit of a person with a severe disability.
The trust is set up to assist the disabled person to pay for reasonable care, accommodation and other special needs during their lifetime.
The trust can be set up at any time provided the disabled person meets the relevant requirements.
It is common for parents of a disabled child to set up a Special Disability Trust under their Will, so that the child is looked after in the event the parents are no longer around.
What is a classified as a severe disability?
For a person over 16 years of age, a severe disability in basic terms means a person who qualifies for the Disability Support Pension.
For a person under 16 years of age, a severe disability means a child who will need personal care for 6 months or more and their carer has been given a rating of intense.
Benefits of a Special Disability Trust:
There are a number of benefits in setting up a Special Disability Trust, 3 of which are canvassed below.
Asset test exemption
The beneficiary of the trust is entitled to an asset test exemption of up to $681,750 (this is indexed at 1 July each year). This means the beneficiary will continue to receive their disability pension and other government benefits (in any) if their assets remain below $681,750.
From an estate perspective, if an amount up to $681,750 is gifted to a Special Disability Trust under a Will for the benefit of a disabled beneficiary, the beneficiary’s pension entitlements will not be affected by the inheritance. This allows the disabled beneficiary to benefit from both the disability pension as well as the inheritance.
If an amount is gifted directly to a disabled beneficiary under a Will (i.e. not to a Special Disability Trust), then this amount will be counted towards that disabled beneficiary’s asset test and may affect their pension entitlements. As such the disabled beneficiary may be required to rely solely on the inheritance to support their needs, which depending on the size of the inheritance may not be sufficient for their lifetime.
Also if the disabled beneficiary has lost access to their pension entitlements this may mean they also lose access to other benefits that come with the pension e.g. access to a special care facility.
The trust is subject to a gifting concession of up to $500,000 combined for immediate family members of the beneficiary to gift money to the trust.
Immediate family members include parents (natural, adoptive, step), legal guardians, grandparents, and siblings (natural, half, step, adoptive).
It is important to note that this gifting concession does not apply to donations via a Will. As such a Special Disability Trust will need to be set up under the Will for the disabled person to receive the asset test exemption on the inheritance.
Control of assets
Under your Will, the trustees (also known as managers of the trust) of the Special Disability Trust are nominated by you and are legally required to safeguard and hold the assets for the benefit of the disabled beneficiary.
Special Disability Trusts are a special vehicle which can provide significant benefits to a disabled person. This blog briefly touches on some elements of a Special Disability Trust and there are a number of requirements and restrictions not covered by this blog.
We strongly recommend you seek legal advice before setting up a Special Disability Trust to ensure it complies with the relevant laws.
If would like to discuss the above in detail or have further questions please do not hesitate to contact our office on 9523 5535 or email firstname.lastname@example.org