A Special Disability Trust (“SDT”) can be set up for a person with a severe disability at two times: either during your lifetime or after your death through the terms of your Will.

Many people choose for an SDT to be established after their death by Will because there is no real need to establish one any earlier. If you are providing care and accommodation for a person with a severe disability, there may be no benefit in taking on the responsibility and expense of managing a trust at that time. There are also a number of taxation advantages in establishing an SDT through a Will.

However, sometimes there can be good reasons for establishing a SDT whilst you are still alive. These include:

• Asset protection – Once an asset is gifted to an SDT it no longer belongs to the donor. The asset therefore cannot form part of the donor’s estate, and no claim can be made upon it by a disgruntled beneficiary who challenges the Will of a donor. The potential for a claim upon estate assets can be particularly concerning in blended family scenarios. Gifting an asset into an SDT effectively puts it out of reach from other potential beneficiaries. The donor can then have peace of mind that the SDT Beneficiary has a property to live in for life and that it is protected from other less scrupulous beneficiaries.
• Kindness – Having an SDT already set up makes it much easier for persons nominated as successor SDT Trustees of the SDT to take over the role. You spare them the task of liaising with Centrelink, the State Revenue Office and the Australian Taxation Office at a time when they may be grieving your loss, endeavouring to deal with your estate and supporting the person with a disability’s fears about what will happen in the future.
• Transitioning – The death of a parent or close family member in a caring role can be very traumatic and destabilising for a person with a disability. This is particularly so if the person with a disability was living with the deceased up to the time of their death. If you set up an SDT during your lifetime and wish to move. It can be done calmly at a time when you and the SDT Beneficiary are well and able. It enables you to be part of building the infrastructure necessary to make that transition a success.
• Gifting – Often grandparents or other relatives or friends intend to benefit a loved one with a disability in their Wills, but do not know how to do this other than to gift directly to that person. Beneficiaries with a severe disability that affects mental capacity may be vulnerable to financial abuse. It can be helpful to have an SDT already established to “catch” gifts that other donors (such a grandparents, etc) may wish to donate to the SDT when they die or make within their lifetime. You are then able to give potential donors specific details as to how they can make a gift into the SDT when they are making their Wills. Many donors appreciate knowing that their gift will be made in a manner that ensures it will benefit the Principal Beneficiary personally and be protected.
• Divesting assets for age pension eligibility – If you are carers of a person with a severe disability but are too “asset rich” to qualify for a full or part age pension, you may wish to explore how your situation would change if you gifted assets to an SDT for your disabled child. Under Centrelink gifting rules you can gift up to $500,000 of your joint assets to an SDT without it impacting upon your pension eligibility.
• Live in carers – As family members you can live in a home gifted to the SDT with the Principal Beneficiary and continue to provide care. As the property is owned by the SDT, it would not be means tested against the live-in family members if they are receiving a pension. However, the property cannot be used to generate income in any manner as this is seen as using it in a way that is inconsistent with the Beneficiary’s right to exclusive use and enjoyment of the property.
• Stamp duty concession – If you gift a property to an SDT during your lifetime to accommodate a person with a disability, no stamp duty is levied on the first $1,500,000 of the value of the property being transferred.

Duncan.Legal has assisted many families set up SDTs for a severely disabled family member whilst the primary caring family members are still living. It is a complex decision that needs made carefully but can offer some real benefits!

If you would like further information on creating and operating an SDT, please go to the Duncan.Legal Webinar Shop and order the Special Disability Trusts Webinar or Click Here