Understanding Special Disability Trusts

A Special Disability Trust (SDT) is crafted by parents or close family members to ensure the long-term care and housing needs of a severely disabled family member are met. Establishing a SDT offers substantial benefits. It not only assigns a trustee to oversee the trust for the beneficiary’s advantage but also helps maintain the beneficiary’s pension entitlements through favorable social security rules, even when large assets are transferred to the SDT. Compliance with specific criteria and regulations is mandatory for founding and maintaining a qualifying SDT.

Eligibility Criteria for Beneficiaries

Eligibility for a SDT hinges on the beneficiary having a ‘severe disability.’ This status is defined under one of three specific criteria for SDT purposes. Understanding these definitions is crucial for determining if a potential beneficiary qualifies for support under a SDT.

Setting Up an SDT for Children

Children younger than sixteen can benefit from a SDT. Special regulations are in place for establishing these trusts for minors, necessitating careful adherence to ensure compliance and effectiveness of the trust.

Permissible Uses of SDT Funds

SDT funds should address the reasonable care and accommodation needs of the beneficiary. Allowable expenses include medical and dental care, and maintenance costs for any trust-held properties. Both capital and income from the trust can be utilized to cover these essential costs on behalf of the beneficiary.

Additionally, up to $14,500 each year (indexed 1 July each year) from SDT funds may be allocated for discretionary expenses. Trustees need to ensure these expenditures align with the stipulated rules for reasonable care and accommodation requirements.

Key Features of a Special Disability Trust

To adhere correctly to the establishment of a SDT, the following requirements must be met:

• The trust must designate a single beneficiary.
• The beneficiary needs to meet all specified eligibility criteria.
• The primary aim should focus on providing for the beneficiary’s accommodation and care needs.
• The trust deed must include all clauses necessary to comply with SDT legal standards.

• The trust management should either be under an independent trustee or multiple trustees.
• Trustees are responsible for daily operations, including asset management and compliance with all governing rules.
• Detailed acquaintance with SDT terms, asset management, account maintenance, and annual tax filing is imperative for trustees.
• Investment restrictions must be adhered to strictly.
• Annual financial statements are required to be submitted to relevant governmental authorities like Centrelink or the Department of Veteran Affairs.
• Independent audits may be required as stipulated.

Benefits of Establishing a Special Disability Trust

Efficient use of a SDT provides:

• A gifting concession up to $500,000 for the family members eligible, benefiting the principal SDT beneficiary.
• An asset test exemption up to $813,250 (indexed 1 July each year) that includes, subject to circumstances, the residence for the principal beneficiary.

Procedure for Establishing a Special Disability Trust

SDTs are structured through specific Deeds that become active immediately upon creation, usually drafted by legal professionals. It’s also possible to integrate a SDT within one’s will. This integration means that upon the estate owner’s death, part of their estate designated for the disabled individual will be managed within the SDT framework, ensuring continued support.

For further guidance or to begin setting up a Special Disability Trust, contact our expert trust advisors at Perth Probate.