Establishing a Special Disability Trust

Special Disability Trusts are established to help families and carers provide financially for the care and accommodation of an individual with a severe disability. These Trusts, in accordance with the Social Security Act 1991, allow for parents or other family members (‘contributor’) to leave assets in a trust for an individual (‘beneficiary’), without it impacting on the continuing entitlement of the beneficiary to a disability support pension.

Special Disability Trusts can be established during the lifetime of the contributor for the benefit of their family member or after their death via a trust set up in their Will.

The benefits associated with a Special Disability Trust include potential tax concessions and gifting concessions making the trust financially attractive to those who wish to leave a substantial amount in assets for an individual with a disability.

Once a Special Disability Trust is established, contributions can be made by anyone at any time. Provided that no more than $500,000 in total is gifted to the trust during the lifetime of the donor, the gift is not deemed to be a deprivation of assets by Centrelink and will not affect the contributor’s entitlements to Centrelink benefits.

A Special Disability Trust can only be used to pay for:
 
·           Accommodation, dental, health-related costs (including medical and health insurance expenses), and other expenses related to the disability; and
·           Discretionary expenditure (up to a limit of $12,500 a year as of 1 July 2020) not directly related to the care and accommodation needs of the needs of the beneficiary.

Taxation Benefits
 
As opposed to other trusts, the beneficiary of a Special Disability Trust is not subject to a higher income tax rate. Therefore, the unexpected income of such a Trust is taxed at the beneficiary’s personal income tax rate as opposed to the highest marginal personal tax rate usually applied in other trusts. The beneficiary of a Special Disability Trust is recognised to have a legal disability, facilitating them to be treated as though they are presently entitled to the entirety of the net income of the trust.
 
Tax Returns
 
The net income of the Trust should be included in a beneficiary’s individual tax return, in addition to any personally derived assessable income or deductible expenditure incurred. To ensure there is not a double taction, any tax paid by the trustee of the Trust should be claimed as a credit on their individual tax return.
 
Further taxation benefits include:[5]
 
·           Capital gains tax exemption for any asset donated to a Special Disability Trust;
·           Capital gains tax main residence exemption for Special Disability Trusts; and
·           Capital gains tax exemption for the recipient of the beneficiary’s main residence, if disposed of within two years of the beneficiary’s death.

In addition to ensuring the beneficiary is financially looked after in relation to their care and accommodation, Special Disability Trusts have the following benefits:
 
·           Protection of Benefits: An asset value of up to $694,000 (indexed each financial year) held in a trust is exempt from the assessable assets of the beneficiary. Therefore, protecting the beneficiary’s social security benefits.
·           Residential Home: The principal home of the beneficiary, if included in the trust, is not subject to capital gains tax and is not included in the asset value limit;
·           Additional Income: A beneficiary of a Special Disability Trust can work up to seven hours a week, at or above the relevant minimum wage;
·           Paid Medical Expenses: Medical expenses, including private health insurance and the maintenance expenses of the beneficiary’s property can be paid for from the Trust; and
·           Allocation of funds for recreational needs: The Trust can spend up to $12,500 (each financial year) on items not related to the care and accommodation needs of the beneficiary of the trust, such as items relating to the social inclusion, independence and wellbeing of the beneficiary.