Special Disability Trusts: Providing for the future of those with a disability

Special disability trusts

Providing for the financial future of a child with a disability can be a source of considerable concern to parents.  Special Disability Trusts (SDTs) can provide some key financial benefits in a government supported legal framework.

An SDT can help you provide for and support your disabled child throughout their life, after you yourself may have died, in a way that will not compromise their entitlement to social security support and benefits; offering you and your loved ones peace of mind.

How do SDT’s work?

Special disability trusts can only have one beneficiary, who must be assessed as severely disabled.

Conversely, each individual can only have one special disability trust – where a number of family members may wish to provide financial support to a disabled child or grandchild, then they must all contribute to a single special disability trust.

This type of trust must have either an independent trustee (such as trustee company), or more than one trustee, for example two family members or trusted family friends.

The trustees will hold the funds in the SDT on trust for the disabled individual, for the sole purpose of supporting that individual for their lifetime.

How are they created?

A special disability trust can be established either:

  1. at the time you pass away through the gift of assets to an SDT established in your will; or
  2. during your lifetime, by establishing an SDT and gifting funds or other assets for the benefit of the disabled individual.

Financial benefits

Assets up to a certain amount, known as the concessional asset value limit, that are placed into an SDT are not factored into Centrelink and other social security asset testing for the disabled individual.

This means that the beneficiary’s right and access to social security support (including the health care card) will not be affected by the assets held in the special disability trust.

However, it should be noted that trust assets exceeding the concessional limit will constitute assessable assets when the person is assessed against the relevant thresholds.

The concessional asset value limit is indexed yearly in line with CPI, currently $700,250.  In addition to this, any primary residence of the disabled individual owned by the SDT will not be included in the assessable assets of the trust or the individual for the purpose of social security assets testing.

For those that are able to fund a SDT up to this level, the potential benefits in terms of assets and funds that do not impact other government entitlements are therefore significant.

A further benefit is that any gift up to $500,000 made to an SDT is excluded from the gifting rules which may otherwise impact the age pension of the person making the gift.

How can the funds be used?

The funds placed into an SDT can be used for a range of purposes, including paying for any reasonable care expenses, accommodation costs and medical expenses including private health insurance and dental treatments for the beneficiary.

The trust may also spend up to $12,500 annually in a discretionary manner on costs not directly relating to the beneficiary’s care and accommodation i.e. for holidays or to purchase new household items.

This amount is indexed annually with CPI and allows additional flexibility to spend trust monies on meeting other expenses such as food, household items, toiletries, vehicle maintenance and petrol, recreation, life skills workshops, clothing and footwear and cleaning services for the beneficiary.

Special disability trusts allow parents to provide for their children after their death, without impacting their rights to vital governmental support. For more information on this topic or to discuss the creation of a special disability trust contact a member of our Estate Planning Team at Fox and Thomas.