How Special Disability Trusts work

Date: Aug 14, 2014

Making arrangements for the future can be difficult, especially if you have a person who is dependent on you. If you are the parents or family of a person with a severe disability, a Special Disability Trust can be set up as part of estate planning to provide private financial provisions for the future care and accommodation needs of the dependant.

The term special is used in relation to this trust as a reference to the different Social Security and tax regulations of the trust.

What is a Special Disability Trust?

Trusts are legal relationships between trustees and beneficiaries. The trustee is the administrator of the trust and the beneficiary is the person who is provided for by the trust, explains the Department of Families, Housing Community Services and Indigenous Affairs.

According to the federal department, the purpose of a special disability trust is for families to provide care and accommodation for a family member with a severe disability. Special Disability Trusts were introduced by the Australian Government on September 20 2006.

The Department of Social Services (DSS) states that before establishing a Special Disability Trust, the prospective beneficiary of the trust will need to be assessed by a Centrelink assessment officer as severely disabled. This trust can be established for one principal beneficiary only.

To comply with the regulations of a Special Disability Trust, a trust deed needs to be established, an independent trustee, or multiple trustees, needs to be appointed and investment restrictions need to be adhered to. The trust must also provide financial statements each year and allow independent audits of the trust as required.

The benefits of a Special Disability Trust

The DSS outlines two benefits of a Special Disability Trust - a gifting concession and an assets test assessment exemption.

Family members of the principal beneficiary may be eligible for a gifting concession of up to a combined total of $500,000. The principal beneficiary will also be eligible for an assets test assessment exemption, with a maximum limit of $609,500 (current as at July 1 2013), which will be indexed each year.

Special Disability Trusts are also subject to tax concessions. The beneficiary's personal income tax rate will be used to tax unexpected income of the trust rather than the highest marginal tax rate.

If you are considering establishing a Special Disability Trust, the Department of Human Services recommends that you consult a lawyer. This type of trust is a testamentary trust that is established as part of an estate plan, it comes into effect following the death of the person who provided for it in their will.