Special Disability Trusts, a great planning tool for people with disabled children

08 Jan 2013

By Shadforth Financial Group

Death remains one of the certainties in life and for many people with disabled children this is a frightening prospect.

Planning for the future care of a disabled child can be daunting and with the goalposts constantly moving, many people simply adopt the ostrich approach -putting their head in the sand and ignoring the problem.

There is however one magic tool in the estate planning tool shed that can provide peace of mind to parents of disabled children. The Federal Government in 2006 set up what is called "Special Disability Trusts" which allow parents and families to make provision for disabled children after their parents die.

What are 'Special Disability Trusts'?

In simple terms, these are private trusts set up for the benefit of a severely disabled person, and providing you meet certain pre-conditions, the money contributed into the trust is not subject to the gifting rules for Centrelink purposes. In effect, this allows a parent to contribute money to the trust and still allows the disabled child to receive a Centrelink benefit, such as a disability support pension.

How much money can be put into the trust?

Originally, family members could put up to $500,000 into the trust. This amount has increased over time in accordance with inflation, and for the 2012-2013 financial year, you can contribute up to $551,750.

Up to this amount the capital and the income of the trust are not means-tested by Centrelink. The main bonus is that the disabled person's pension or Centrelink payments are not reduced or impacted in any way.

What are the requirements?

There are a number of conditions that must be met before the trust is eligible for the concessions. The main requirement is that the beneficiary of the trust has a certain level of disability. There are two tests, depending on the age of the child:

If they are under 16, they must be 'profoundly disabled'; or

If they are 16 or over, they must qualify for a disability support pension or equivalent.

How can these be set up?

Special Disability Trusts can be set up whilst you are alive or alternatively your lawyer can set up a Testamentary Disability Trust – which simple means the trust is established on your death - as part of your Estate Planning.

What are the annual reporting requirements?

To maintain the special disability trust you need to provide Centrelink every year:

  1. A certified copy of the tax return
  2. Financial statements prepared by a suitable qualified accountant
  3. A statutory declaration from each trustee of the trust to confirm that the income only went to help in the maintenance and care of a disabled person. In a nutshell in the right circumstances a Special Disability Trust can be a valuable estate planning tool providing peace-of-mind to parents and ongoing financial support to disabled children.

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