A Special Disability Trust (SDT) may be used by family members to set aside money for the future care and accommodation needs of a person with a disability. The money is placed into a trust for the benefit of the disabled person as the sole primary beneficiary.
From an estate planning viewpoint, this is attractive, as it allows parents to set aside money for a disabled child, avoiding the potential for any estate conflicts over this money.
Recent changes to both social security and tax legislation have enabled an SDT to help with estate planning for families with a disabled child as well as provide Centrelink advantages.
Requirements for an SDT
An SDT must meet the following requirements:
- Be “protective” in nature;
- Have only 1 principal beneficiary (the person with a disability);
- Have a Trust Deed that contains the clauses set out in the Model Trust Deed;
- Have an independent trustee, or alternatively, have more than 1 trustee;
- Comply with the investment restrictions and have a documented investment strategy;
- Provide annual financial statements; and
- Conduct independent audits when required.
Immediate family members can transfer up to $500,000 (combined) into the trust without the normal Centrelink gifting rules applying. This can enable parents to set aside money to help a disabled family member without a negative impact on their own Centrelink entitlements. An immediate family member includes natural, step or adoptive parents, legal guardians, grandparents and siblings.
The $500,000 exemption only applies once and will apply to gifts in date order, even if the person making a gift does not qualify for a Centrelink/DVA payment.
A disabled person and/or spouse cannot transfer assets to an SDT to avoid gifting rules on assets in their own name unless the assets come from either a direct inheritance or superannuation death benefit received within the previous 3 years.
Contact us to find out more or to arrange a consultation with an experienced Wills and Estate lawyer in Sydney.