Special Disability Trust

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The ongoing care and provision for a disabled child or family member is a constant issue of concern for many people. In the past, certain financial arrangements for the disabled would often prejudice their entitlement to Centrelink benefits. This article outlines key changes to legislation allowing family members to financially care for the disabled without impacting their Centrelink entitlements.

From 20 September 2006, legislation allowing the creation of a Special Disability Trust (SDT) came into power. These trusts must have the sole purpose of providing for the current and future care and accommodation for a disabled person.

There are two classes of disabled person which vary depending on the individual’s age. The key requirement for those over 16 years being that they must be eligible for the Disability Support Pension.

One of the main advantages of a SDT is that the capital invested within it (limits apply) is not subjected to Centrelink’s Asset Test. Further, any income generated by that capital is not subjected to Centrelink’s Income Test. It is important to note that normal income tax rules apply.

Some recent changes now permit people with a disability to work up to 7 hours per week in the open labour market.  The trust can now also pay for the beneficiary’s medical expenses, including private health fund fees and maintenance expenses of assets and property’s.

There is now also provision for up to $10,000 in any financial year on discretionary items (such as holidays).

Just as importantly, there are also concessions and benefits for the family member contributing funds to a SDT. Provided no more than $500,000 in total is gifted to a SDT, any gift by a family member is not deemed to be a deprivation of assets by Centrelink.

Quite simply, family members can now secure the financial future of a disabled person without adversely impacting their own or the disabled Centrelink entitlements. In addition, where a family member was not eligible for the Age Pension due to their assets, they can now legitimately divest themselves of assets and possibly qualify for a full or part pension.

The SDT can be established during your lifetime so that it operates immediately from the time it is established. A SDT can also be set up like a testamentary trust in your Will, in which case it only operates from the time of your death.

SDT are subjected to many rules, for example who can be a trustee and what investment options can the trustee elect. These rules are extensive and advice from your lawyer and financial advisor is highly advisable to ensure that non-compliance and the associated consequences never become an issue.

For further information please contact James Kelly or any of our Estate Planning team at 1800 770 780.

These notes are of a general nature and are not a substitute for proper legal advice.

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