Special Disability Trusts

How they may assist your family

A Special Disability Trust (SDT) is a type of trust established in Australia to provide financial support for people with a disability, without affecting their eligibility for government benefits, like the Disability Support Pension or other income-tested payments. SDT’s can also be established by someone’s Will.

If you are thinking of making an estate plan, and you have a family member with a severe disability, it is worth considering setting up a SDT for them in your Will.

As it is often the case that the beneficiary of the SDT does not have a capacity to make a Will of their own, the testamentary SDT allows you to allocate any ‘leftover’ funds of the SDT to another beneficiary, when the SDT beneficiary dies, making it a useful tool to benefit one person during their life with any leftover capital being protected for another

Key Features of a Special Disability Trust:

1. Purpose: The primary purpose of the trust is to ensure that a person with a disability is financially supported. It can be used to fund the person’s care, accommodation, and medical or other needs, while allowing them to maintain access to government benefits that they might otherwise lose due to the trust’s assets.
2. Eligible Beneficiary: The trust must be set up for a person with a severe disability who requires care and assistance. There is strict eligibility criteria the person must meet which we can go through with you.
3. Trust Contributions: Family members or others can contribute to the trust, but there are limits on how much money can be added without affecting the beneficiary’s entitlement to income-tested government benefits. For example, the trust can hold a certain amount of assets without reducing the amount of pension the beneficiary receives.
4. Trustee: The trust is managed by a trustee, who must ensure the funds are used to benefit the person with the disability. The trustee has specific legal responsibilities, and the trust can be managed by family members, friends, or professionals. There will usually be a requirement for two Trustees at any one time, or a corporate trustee.
5. Tax Benefits: There are certain tax benefits for Special Disability Trusts. Income generated from the trust can be taxed at a lower rate compared to regular trusts, and capital gains tax may also be discounted under certain conditions.
6. Eligibility and Setup: There are specific requirements for setting up an SDT, including the need to have an assessment of the beneficiary’s disability and an official trust deed outlining the rules and purpose of the trust.

Benefits of Special Disability Trusts:

• Financial Support: Provides a stable source of funding for care and living expenses.
• Preservation of Government Benefits: By setting up a Special Disability Trust, the beneficiary can continue receiving government benefits like the Disability Support Pension (DSP) without the trust’s assets affecting eligibility.
• Tax Advantages: Potential tax savings on income and capital gains.

Limitations:

• The trust must be set up and managed in accordance with strict regulations. If the rules are not followed, the trust may lose its special status and result in financial penalties or loss of benefits.
• There are contribution limits, and exceeding these limits could affect the beneficiary’s eligibility for certain benefits.

A Special Disability Trust is a financial tool designed to support individuals with severe disabilities, ensuring they have the resources they need for care and living expenses while helping them maintain access to government assistance.

If you have questions about Special Disability Trusts, or would like to discuss setting one up for a loved one, contact Solari and Stock and speak with one of our Sutherland Shire Estate Planning Team on 8525 2700, or click here to request an appointment.

Our Estate Planning Team includes Rebecca Exley, Michael Solari, Nicole Commandeur and Valentina Abouzeid.

Article by Nicole Commandeur
Image created in Canva