What is a Special Disability Trust?
A Special Disability Trust is a trust established by parents and immediate family members for the future care and accommodation needs of a person with a severe disability (principal beneficiary).
Before a Special Disability Trust can be established, the beneficiary must first contact Centrelink to make sure they are eligible.
Centrelink recommends consulting with a financial adviser and/or a solicitor for advice before establishing a Special Disability Trust. This allows the person to carefully consider the effect it may have on their financial security and Centrelink/Veterans’ Affairs payments.
What are the benefits of a Special Disability Trust?
A Special Disability Trust allows money to be set aside to meet the specific care needs of a severely disabled person. It also provides Centrelink/Veterans’ Affairs (DVA) advantages through:
A gifting concession of up to $500,000 (combined limit) is available for eligible family members of the principal beneficiary
An assets test assessment exemption of up to $ to $781,250 (indexed 1 July each year) is available for the principal beneficiary. An income test exemption also applies.
What are the Characteristics of a Special Disability Trust?
A Special Disability Trust must:
Have only one principal beneficiary who meets the eligibility criteria
Provide for the accommodation and special disability care needs of the principal beneficiary
Have a trust deed that contains the clauses as set out in the model trust deed
Have an independent trustee, or alternatively have more than one trustee
Comply with the investment restrictions
Provide annual financial statements, and
Conduct independent audits when required
Who can be the Principal Beneficiary?
To be eligible to be a principal beneficiary, the person with disability must meet the definition of severe disability. The definition of severe disability is:
a) Person who has reached 16 years of age:
Whose level of impairment would qualify the person for Disability Support Pension or who is already receiving a DVA Invalidity Service Pension or DVA Invalidity Income Support Supplement, and
Who has a disability that would, if the person had a sole carer, qualify the carer for Carer Payment or Carer Allowance, and
Who has a disability and is able to work no more than seven hours a week in the open labour market.
b) Person who has reached 16 years of age:
Whose level of impairment would qualify the person for Disability Support Pension or who is already receiving a DVA Invalidity Service Pension or DVA Invalidity Income Support Supplement, and
Who is living in an institution, hostel or group home where care is provided for people with disability and funding is provided under an agreement between the Commonwealth, states and territories, and
Who has a disability and is able to work no more than seven hours a week in the open labour market
c) Child under 16 years of age:
Who is a person with a severe disability or a severe medical condition, and
Who has a carer that has been given a qualifying rating of intense under the Disability Care Load Assessment (Child) Determination for caring for that person, and
Who has had a treating health professional certify in writing that, because of that disability or condition:
The person will need personal care for 6 months or more, and
The personal care is required to be provided by a specified number of persons.
Who can benefit from the Gifting Concessions for a Special Disability Trust?
Immediate family members of the principal beneficiary who are at, or over, age or service pension age and are receiving a pension (for example Age Pension, Service Pension age).
Where there is more than one contributor to the trust, the combined concession first applies to those eligible family members who are receiving a pension after age or service pension age.
Who is an Immediate Family Member?
An immediate family member includes:
Natural parents
Legal guardians (as defined)
Adoptive parents
Step parents
Grandparents, and
Siblings
brother
sister
half-brother
half-sister
adoptive brother
adoptive sister
step-brother
step-sister.
Note: The term legal guardian used in the definition of parent or immediate family member includes a person who is, or was, the legal guardian of the person with a severe disability while that person was under 18 years of age.
What Amount of Money can a Person Contribute to the Trust?
Contributions or gifts of assets to any value can be made to this type of trust at any time by almost anyone. However, a gifting exemption will only apply on the first $500,000 contributed to the trust by eligible family members.
Contributors who receive Centrelink/Veterans’ Affairs benefits must tell that department about any gifts or transfers within 14 days.
Any gift or number of gifts whose total value is greater than the allowable concessional amount will be assessed under normal gifting rules.
What can the Trust Funds be used for?
The funds are intended to meet the reasonable care and accommodation needs of the principal beneficiary. The trustee is also able to pay:
The beneficiary’s dental and medical expenses, including membership costs for private health funds,
The maintenance expenses of the trust property assets, and
Up to $14,000 for the 2023-24 in a financial year on discretionary items not related to the care and accommodation needs of the beneficiary. This expenditure should remain compliant within the legislative requirements of a Special Disability Trust
What Tax Concessions are Available for Special Disability Trusts?
The net income of the trust is taxed at the beneficiary’s marginal tax rate plus Medicare.
This tax may be payable by the trustee. If the beneficiary is required to lodge a tax return, this income should be included as assessable income in that return, with a credit for the tax paid by the trustee.
If you are interested on how it works or want to know further before establishing a Special Disability Trust, Humble Goode Financial is here to assist in planning for the long term care and accommodation needs of someone with a disability. Please give us a call or book a time to visit us at our Adelaide Based Offices.
General Advice Warning:The information on this website is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS) or other offer document prior to making an investment decision in relation to a financial product.