Estate Planning

Since 2006, families with a disabled child have been able to establish a Special Disability Trust (SDT). SDTs allow immediate family members and carers to provide for the future care and accommodation needs of a ‘severely disabled person’. The benefits of a SDT include:

• income from assets in the trust is generally not taken into account for the purpose of the income test and therefore will not reduce the beneficiary‘s social security benefits; and
• families can make provision for a severely disabled person after the death of the primary carer or parent.

Recent changes to SDTs

The Government has recently passed legislation introducing further tax-relief for SDTs, including:

• a CGT exemption for an asset transferred into a SDT;
• extending the CGT main residence exemption to assets held in SDTs; and
• a CGT exemption for a person who inherits the severely disabled person’s main residence on their death, where the property is sold within two years of the deceased’s death.

Other recent changes that have increased the flexibility of SDTs include:

• widening the type of expenses that can be paid from the trust, including private health fund membership and maintenance expenses for trust property (which were previously excluded);
• beneficiaries can now undertake paid work of up to seven hours per week;
• income that is assessed to the trustee is taxed at the beneficiary’s personal tax rate, rather than at the marginal rate under section 99A of the Income Tax Assessment Act 1936; and
• the trustee can now spend up to $10,250 a year on discretionary expenses (not related to the care and accommodation needs of the beneficiary).

What are the requirements for establishing a SDT?

To be a qualifying SDT, the trust must:

1. be established for a person who is ‘severely disabled’ for Centrelink purposes;
2. be established for the sole purpose of providing for the reasonable care and accommodation needs of the beneficiary; and
3. have a trustee that is either a parent, immediate family member, accountant, solicitor, corporate trustee or state trustee.

Want to find out more?

Our estate planning team can assist with the establishment of a SDT (either while clients are alive or in their Will). For more information, contact one of our estate planning team members.

Applicants who challenge wills in order to gain a greater share of an estate (and their solicitors) have long taken comfort from the 1994 decision of Singer v Berghouse. In that case the High Court said that, generally, costs orders will not be made against unsuccessful applicants and that everyone’s costs will  be paid from the estate, particularly if a cost order would have a detrimental effect on an applicant’s financial position.

However, in light of the flood of applications to challenge wills over the past few years, especially in relation to small value estates, the courts seem to be changing their attitude towards costs orders.

This is demonstrated by the recent Victorian decision of Moerth v Moerth. The deceased had two sons, both of whom brought claims for a greater share of the estate. One son was successful, but the other was not. The unsuccessful applicant failed, not because he was not eligible to make a claim, but because the judge ultimately decided that his financial position did not warrant any increase in his share of the estate.

The court ordered the unsuccessful son to pay not only his own costs, but also the estate’s costs of defending the claim even though he would have to sell property to meet the costs order.

For more detailed information please contact Scott Hay-Bartlem via scott.hay-bartlem@cgw.com.au or Paul Coves via paul.coves@cgw.com.au of Cooper Grace Ward Lawyers.