For parents or family members of individuals affected by disability, the question of who will look after that individual when they are gone is often a difficult one. In some instances, a Special Disability Trust (either set up by a trust deed or under the provisions of a will) may be the most appropriate tool to provide for that person into the future.
Stephen Booth has significant experience in legal planning for families affected by disability or mental illness. He is able to determine the most appropriate method of providing for an individual into the future, based on the family’s circumstances, and provide advice regarding the options for maximizing resources available for the person with a disability.
Planning ahead for the ongoing care, accommodation and living costs of a person with a disability is far more complicated than simply preparing a Will and appointing a Power of Attorney or Enduring Guardian.
What is a Special Disability Trust?
A Special Disability Trust allows parents or other family members to leave assets in trust for an individual which can be used to fund ongoing care, medical expenses, accommodation, and some discretionary expenditure for that person into the future, without affecting their entitlement to a disability support pension.
Back in 2006, the Federal Government introduced Special Disability Trusts into social security legislation with an aim to encourage the private provision of accommodation and care for people with disabilities.
The benefits of establishing disability trusts include potential tax concessions as well as gifting concessions that can make the use of the trust financially attractive to families who wish to leave a substantial amount in assets for an individual with a disability. Once it has been established, contributions can be made by anyone at any time.
Rules for Special Disability Trusts
Importantly, a Special Disability Trust is not appropriate in every situation. Expert legal and financial advice should be sought to determine whether it can be used to benefit a family member, as well as how the trust might fit into a more comprehensive legal plan to look after a person with a disability.
Funds can only be used to pay for:
- accommodation, health-related costs (including medical and health insurance expenses), and other expenses related to the disability; and
- discretionary expenditure (up to a limit of $14,000 a year (as at July 2023).
A person with a severe disability can have up to $781,250 (as at July 2023, indexed annually) held in a Special Disability Trust exempt from the assets test (so that the test will not apply to reduce his or her social security entitlements. The income test does not apply at all to the income of a Special Disability Trust. Family members placing assets of up to $500,000 into such a trust may receive an exemption from the usual gifting rules applying to pensioners, in turn improving their social security position.
When will a Special Disability Trust be useful?
Broadly speaking a Special Disability Trust:
- probably won’t have any major advantages for parents looking to leave less than the assets test limits (approximately less than $543,750 if there is no residence, or $301,750 if there is – July 2023 figures) for their son or daughter with a disability;
- may not be immediately useful for parents who are looking to leave significantly more than $781,250 plus the assets test threshold for part-pension for their son or daughter with a disability, but may have longer term advantages as the funds held in trust change; and,
- may well be useful for parents who fall in between these two groups, whose son or daughter relies on the disability support pension, and who need to provide for care and accommodation.
With the above in mind, just how useful a Special Disability Trust is likely to be is very much dependent on individual circumstances, and the plans and wishes parents have for their children, to take account of the disability.
What do I need to do to set up a Special Disability Trust?
A Special Disability Trust can be set up while the parents are alive, or specific instructions can be laid out in their Wills.
The legislation requires that the Special Disability Trust is set up by a trust deed or Will, using a Model Special Disability Trust (prescribed by social security rules).
The implementation should be just one part of a broader estate plan focused on fully providing for the future of a person with a disability. It is important for parents to obtain specialist legal advice (and potentially accounting or financial planning advice as well) before deciding whether a Trust is suitable for their individual situation.
For further information, contact:
Stephen Booth
Phone: +61 2 9895 9200
Email: sbooth@colemangreig.com.au
About Stephen Booth
Stephen is a Consultant at Coleman Greig and has been involved with intellectual disability issues since 1984. He has advised many parents on Wills, and has written extensively on Wills providing for people with intellectual disabilities, including his book When I’m Gone (Intellectual Disability Rights Service), then co-authored Special Disability Trusts: Getting Things Sorted and Planning for the Future (both Dept of Families and Community Services and Indigenous Affairs) and several industry publications on this same subject.
Stephen was recognised as Most Outstanding Legal Practitioner in Special Disability Trusts in Australia in 2022 in the 2022 Enablement Awards.
Disclaimer: The information provided in the document is a general summary and is not intended to be nor should it be relied upon as a substitute for legal or other professional advice.
