Special Disability Trusts & Testamentary Disability Trusts

Introduction

Death is inevitable. For most people this inescapable truth is both frightening and depressing. For people with severely disabled children there is even greater concern. The issues surrounding what happens to profoundly disabled people when their parents die is one of the leading causes of anxiety for those parents.

To make matters worse, governments and Centrelink have put many rules in place to stop people planning for disabled people’s needs.

Fortunately, parents of disabled people can now achieve some peace of mind. From September 2006 special treatment is given to certain trusts set up for disabled people. These new ‘Special Disability Trusts’ allow parents and family to make provision for disabled people after the parents die.

What is a ‘Special Disability Trust’?

It is a private trust set up for the benefit of a severely disabled person. If the sole purpose of the trust is the maintenance and care of a disabled person then the trust may be given concessional treatment under the Social Security Act 1991(Cth)and the Veterans Entitlement Act 1986 (Cth). This reduces the draconian effects of the dreaded ‘Deprivation Rules’.

The Deprivation Rules work in 2 insidious ways. Firstly, let’s say you have too much money to receive a government pension due to means testing. You decide to give some money to your family. Sorry. The Deprivation Rules mean that you are deemed to still have that money in your possession for another 5 years - even if the gift put you below the means-tested threshold. The injustice of the Deprivation Rules is that, secondly, the person you gave the gift to is still recognised as receiving the money – which may affect their Centrelink entitlements. The government taketh, then it taketh some more.

How does a Special Disability Trust help?

Basically, gifts made in a Special Disability Trust or a Testamentary Disability Trust are no longer subject to the Deprivation Rules. The disabled person’s Centrelink benefits won’t be reduced because of ‘means testing’. The family member giving the money won’t lose out. This means that now even middle-class people – who are punished the most by the Deprivation Rules – can look after their disabled children.

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 2008, the amount was $533,000. This is in addition to their residential home.

Up to this amount the capital and the income of the trust are not means-tested by Centrelink. The disabled person’s pension or Centrelink payments are not reduced.

What are the requirements?

There are a number of conditions and requirements. These 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 2 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.

See here for the official disability criteria.

In summary, there are 3 criteria -

1. Get Disability Support Pension (this is means tested) or if you are too rich, go through lots of hoops of 2 medical reports and IQ testing.
2. Show evidence the person can’t work at or above the federal minimum wage; and
3. Be living at a care facility that gets government money or show support by a carer that would qualify for a Carers Allowance. (Carers Allowances are not means tested so apply and get it. It requires your local GP to say you need help at a certain level.) If in doubt, ring Centrelink’s special division for SDTs: 1800 734 750.

Can it be set up as part of a Will?

Yes, it can be. Civic Legal can set up Testamentary Disability Trust as part of your Estate Planning.

What do I do now?

What are the yearly reporting requirements

To maintain your ongoing suffering, the legislation requires you to give 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 trust of the trust to confirm that the income only went to help in the maintenance and care of a disabled person

You can instruct Civic Legal to set up:

1. Special Disability Trust - by printing and faxing or mailing our Instruction Form .
2. Testamentary Disability Trust – by contacting Civic Legal on 08 9460 5000. We will set up a meeting at $440/hour with a solicitor at Brett Davies Lawyers. The solicitor will ensure that the trust is fully integrated with your Will and wider Estate Planning.