Understanding Special Disability Trusts: Securing the Future for Your Loved Ones
Special Disability Trusts (SDTs) can change lives. If you have a family member with a severe disability, this blog post is for you. Let's dive into what SDTs are, how they work, and why they might be the solution you've been searching for. A SDT has only one principal beneficiary (this is the person the trust is established for), who must meet the eligibility criteria. If for example, you had two children with severe disabilities, then two trusts would be required to be set up.
What is a Special Disability Trust?
A Special Disability Trust is a unique structure designed to provide for the future care and accommodation needs of individuals with severe disabilities. It's not just another trust – it's a lifeline for families looking to secure their loved one's future. To be able to set up a SDT, the person with a disability must meet the definition of severe disability. The departments who confirm the person is eligibile are The Department of Social Services (DSS) or Department of Veterans' Affairs (DVA) see more information here.
Key Benefits of Special Disability Trusts
Generous Gifting Concessions: Eligible family members can contribute up to $500,000 combined without affecting their own Centrelink benefits. Immediate family members may be eligible for the gifting concession if they get a pension and are of either age pension age or service pension age.
Assets Test Exemption: Up to $813,250 (from 01 July 2024) is exempt from Centrelink's assets test for the beneficiary.
Income Test Exemption: No income or distributions from the SDT are assessable under Centrelink's income test.
Capital Gains Tax (CGT) Benefits: Both donors and the trust itself enjoy CGT exemptions under certain conditions.
Potential State-based Benefits: Depending on your location, you may qualify for transfer duty and land tax exemptions on the beneficiary's main residence.
Setting Up a Special Disability Trust
SDTs can be established in several ways:
By deed during the donor's lifetime
Through a will upon the donor's death
By the beneficiary or their partner contributing an inheritance or superannuation death benefit
Each method has its pros and cons, and the best choice depends on your unique circumstances.
What Can a Special Disability Trust Pay For?
SDTs can cover a wide range of expenses, including:
1. Reasonable Care Needs:
- Occupational therapy and case management
- Professional care services
- Traditional and alternative therapies
- Specialised food and dietary needs
- Medical equipment (eg prostheses, mobility aids, continence aids)
- Communication devices, including computers
- Vehicle modifications or a modified vehicle
- Transportation costs
- Independent living skills training
- Daily care fees for residential care services
- Medical and dental costs, including health insurance, medicines, and specialist services
2. Reasonable Accommodation Needs:
- Modifications to the Principal Beneficiary's residence due to their disability
- Purchase of a residence for the Principal Beneficiary
- Ongoing rates and maintenance of the residence
- Rental costs for the Principal Beneficiary's accommodation
- Accommodation bond for residential care
- Specific accommodation-related fees in a residential care service
3. Discretionary Spending (limited to $14,500 annually from 01 July 2024, indexed annually):
- Food, household items, and toiletries
- Vehicle running expenses and maintenance (not disability-related)
- Recreation, holidays, and lifestyle activities
- General-use computer and communication devices
- Household cleaning services
- Clothing and footwear (not disability-related)
- Life skills and social inclusion workshops
- Non-disability related therapy
- Residential improvements not required for the disability
- Building/contents insurance and utility charges for the residence
It's important to note that expenditures must comply with the trust's rules to maintain its status and benefits. The trust cannot be used to make payments for care to immediate family members or children of the Principal Beneficiary, nor can it purchase or lease property from these individuals.
Understanding these allowable expenses is key to maximising the trust's benefits for your loved one.
Important Considerations and Limitations
While SDTs offer tremendous benefits, they come with strict rules. Non-compliance can result in the loss of concessions and benefits. Regular management and annual reporting are essential to maintain the trust's status.
The main items to note are:
Only one principal beneficiary per trust
Expenditure must be compliant with care and accommodation needs
Limited discretionary spending (up to $14,500 annually as of July 2024)
Restrictions on transactions with related parties
Annual reporting requirements to Centrelink
Beyond Special Disability Trusts
For needs that fall outside the scope of an SDT, consider complementary options such as:
'All needs trusts' for non-care related expenses
Life interest provisions in wills
Superannuation Income Stream Death Benefits
There are opportunities for families to plan a supported life for their loved one.
Special Disability Trusts offer a beacon of hope for families caring for individuals with severe disabilities. They provide financial security, peace of mind, and the ability to enhance the quality of life for your loved one.
Taking Action: Your Next Steps
Assess Eligibility: Determine if your loved one meets the criteria for a Special Disability Trust.
Gather Information: Collect details about current and future care, accommodation, and financial needs.
Consult Experts: Engage with lawyers, accountants, and financial planners experienced in SDTs.
Plan Holistically: Consider how an SDT fits into your overall estate and financial planning.
Implement and Monitor: Set up the trust and ensure ongoing compliance and management.
Don't delay in securing your loved one's future. Take the first step today by reaching out to a Special Disability Trust specialist, Bronwyn Wandell to help you navigate this complex but rewarding process.
Remember, a Special Disability Trust is more than just a financial tool – it's a way to ensure that your loved one with a disability will be cared for long into the future. By taking action now, you're not just planning for tomorrow; you're providing peace of mind for years to come. Ready to get started? Call Bronwyn on 0438 810 589 to begin your journey towards a secure future for your loved one with a disability.