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Protecting Assets Across Generations Part 3

Protecting Assets Across Generations Part 3

19th November 2019

This is the third article in a series addressing the ways in which the wealth you have accumulated during your lifetime, or inherited upon the death of another person, can successfully pass to the next generation in difficult situations.  We examine ways that the risk of losing assets can be reduced or prevented altogether, and the benefits of the inheritance maximised for the beneficiaries involved.

Beneficiaries with Disabilities

Few things are more concerning for the parents of a sick or severely disabled child than the thought of what will happen to my child after you are gone, even if that child has grown into an adult.  Taking steps to provide for your child’s long-term needs when you are no longer around to do so yourself provides parents with peace of mind that cannot always be achieved through a simple Will.

If you have a child with disabilities or are the primary carer for a person with disabilities, contact Rapid Legal Solutions on (07) 4755 9100 to discuss the ways in which you can take steps to provide for their well-being long after you are gone.

Special Disability Trust

A Special Disability Trust (SDT) is a way that parents and other family members can continue to provide for the long-term care and accommodation needs of loved ones with severe disabilities after their deaths.

SDT operates in a similar manner to other trusts in that it has a trustee, trust property and beneficiaries.  However, SDTs have several important differences that are beneficial to a beneficiary with disabilities.

What amounts to a “Severe Disability”?

To be eligible to be the beneficiary of a SDT, the intended beneficiary must meet the legislative definition of “severe disability”.  This definition varies depending upon the age of the person under consideration.

Generally speaking, a person over the age of 16 years must have a level of impairment that qualifies for a Disability Support Pension or equivalent, is unable to work more than 7 hours per week, and either lives in an institution, hostel or group home funded by the government or has a disability that qualifies their carer for a Carer’s payment or allowance.  If the person is under 16 years of age, the tests are similar, however, there is no “work test”. 

Ultimately, the Department of Social Services will need to assess the intended beneficiary and the trust proposed to be used as a Special Disability Trust for that beneficiary and approval of the trust needs to be sought using the Department’s dedicated forms.

When the time comes, Rapid Legal Solutions can assist you or your executors navigate this approval process.

Benefits & Uses of SDT

The SDT’s assets can only be used for the beneficiary’s reasonable accommodation and care costs arising from the disability, medical and dental expenses (including health insurance premiums), reasonable maintenance expenses of the trust assets, the daily care fee and additional fees charged by a provider in a residential care service, and  discretionary spending of up to $12,000 (indexed) per year.

The beneficiary can have up to $669,750 (indexed each year) of assets that are exempt from the Centrelink assets test before his or her social security could be affected.   If the beneficiary is on a low tax rate, there may be taxation advantages arising from a special disability trust.  Eligible family members who gift assets up to $500,000 to the trust (in total) may receive an exemption from the usual Centrelink gifting rules.  This may help to increase their own entitlement to Centrelink.

Creation of Trust

SDTs can be set up inter vivos (during the life of the person setting it up) or as a testamentary trust (in the Will of the person setting it up upon their death).

Whilst the intended beneficiary or their spouse cannot create the trust or gift assets to it, a beneficiary may be able to create a trust with his or her share of a deceased estate within three years after the death of the deceased person.  Compensation or damages, for example, from personal injuries sustained by the beneficiary, that the beneficiary receives cannot be gifted to a SDT.

Any person can create or gift assets to a SDT, however only immediate family members in receipt of a Centrelink age pension or DVA service pension will be eligible for Centrelink gifting exemptions.

Death of Beneficiary with Disabilities

A SDT ends when the trust depletes all of its resources or the beneficiary with disabilities dies.  The SDT can name the persons who are to receive the remaining assets of the SDT if assets remain, which in some circumstances, can be significant in size.

If the assets of a SDT were gifted directly to a beneficiary with disabilities and left to be managed by that person’s attorney or administrator, those assets would be distributed under the Will of the beneficiary with disabilities upon their death.  Depending upon the extent of the beneficiary’s incapacity it may not be possible for the beneficiary to make a Will and the rules of intestacy would decide who would receive the assets.  This may result in persons outside of those desired receiving the assets of the original asset giver. 

For example, son with disabilities is raised by his mother and step-father who, upon their deaths, leave a Will that divides their estates between the son and his half-daughter.  Upon the son’s death, his estranged father receives his entire estate under the laws of intestacy as the son did not have capacity to make a Will of his own.  A SDT would have permitted the son’s parents to name their daughter as beneficiary of the SDT’s assets in the event of their son’s death, in preference to their son’s biological father who had not contributed emotionally or financially to his upbringing or to the assets of the son’s estate.

If you would like assistance or further information in relation on special disability trusts or other approaches that you can take to provide for special needs beneficiaries as part of your Estate Planning, contact Rapid Legal Solutions on (07) 4755 9100.