Special Disability Trusts
If you are considering providing for a loved one with a disability, a Special Disability Trust (“SDT”) may be worth considering, especially if you have reached pension age. Correctly set up, an SDT allows a trustee to control and manage assets for the benefit of your loved one. An SDT may attract significant tax concessions but there are some restrictions on the way that those funds can be spent. The alternative is to establish a standard discretionary trust which will not attract the same tax concessions but is not locked into the SDT expenditure rules.
An SDT is only available to a person with a “severe disability”. To qualify for an SDT, the beneficiary of the trust must:
- be over the age of 16 and have an impairment which entitles Disability Support Pension (Social Security Act) or invalidity service pension or invalidity income support supplement (Veterans’ Entitlement Act); and
- because of the disability, not be working (and is not likely to work) at relevant minimum wages;
and either
- live in an institution, hostel or group home that provides care for people with disability (funded directly by government sources); or
- have a disability that would allow a carer to receive Carer Payment or Carer Allowance.
Gifting Concessions
Tax rules impose penalties on granting gifts to family members (the “gifting rules”). However, funds contributed into an SDT may receive a concession from gifting rules provided the person providing the gift has reached pension age.
Concessions
Income received via an SDT will not be subject to an income test for the purpose of income assistance. Also, any assets up to the value of $551,750 (indexed annually and current as at 1 July 2009) will be disregarded for the application of the assets test. The principal home of the person with severe disability is not included in the assets test which means that the SDT could have assessable assets of up to $$551,750 plus the relevant home.
Expenditure Rules
Funds from an SDT may only be spent on the reasonable accommodation and expenses that arise because of the disability and must be in accordance with guidelines developed by the Commonwealth.
SDT funds cannot be spent on:
· expenses (including ordinary day-to-day expenses) that a person without disability would ordinarily buy;
· payment to immediate family members for providing care and accommodation;
· payment to immediate family members for providing maintenance services;
buying or leasing property from an immediate family member, including ‘granny flats’.