Special Disability Trusts – can they work for your family?

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.