A Special Disability Trust (‘SDT’) is a powerful estate planning tool designed to provide for the future care and accommodation needs of a person (the ‘beneficiary’ of the trust) with a severe disability.
In Victoria, establishing a Special Disability Testamentary Trust (‘SDTT’) — a special disability trust created through a will — can further secure significant benefits for both the disabled beneficiary and the family members setting up the trust.
This article explores the advantages of SDTTs and why they are a prudent choice for families managing the complexities of providing long-term care for a loved one with a disability.
What is a Special Disability Testamentary Trusts?
An SDTT is established under a will and is specifically designed to cater to the needs of beneficiaries with severe disabilities. If the circumstances of the beneficiary and the trust meet certain criteria set out under specific legal provisions, they can access benefits and favourable treatment under social security and taxation laws.
What are the potential benefits?
1. Preservation of Social Security Benefits:
Assets and income held within an SDTT are not counted towards the beneficiary’s means test for social security purposes, provided certain conditions are met. This allows certain beneficiaries to continue to receive government support, which can be crucial for their ongoing care and their ability to afford living expenses.
2. Taxation Benefits:
SDTTs can offer significant tax advantages. The income generated by the trust is taxed at the beneficiary's marginal tax rate, which is often lower than the standard trust tax rate. This can result in substantial tax savings, allowing more funds to be available for the beneficiary’s needs. Further, certain contributions to an SDTT, such as those from family members, can be made without incurring tax liabilities.
3. Capital Gains Tax (CGT) Concessions:
Under certain conditions, SDTTs can receive concessional treatment for capital gains tax. For instance, if a property held within the trust is sold, the trust may be eligible for CGT discounts, reducing the overall tax burden. This allows the trust to retain more of its capital, ensuring that a greater portion of the funds are available for the beneficiary.
4. Flexibility and Control:
SDTTs provide a high degree of flexibility in how funds are managed and used. The trustee, appointed to manage the trust, has the discretion to make decisions that best serve the beneficiary’s interests.
5. Long-term Financial Security:
Establishing an SDTT ensures that the beneficiary has a dedicated source of financial support for their lifetime. This long-term security is particularly important for individuals with severe disabilities, who may have ongoing and evolving care needs.
6. Protection of Assets:
Assets placed in an SDTT are protected from potential claims by creditors or from being dissipated due to the beneficiary’s vulnerability. It provides an added layer of security, safeguarding the financial resources allocated for the beneficiary’s future.
7. Professional and Personalised Management:
SDTTs often involve professional trustees or advisors who have experience in managing trust funds and understanding the legal requirements associated with disability trusts. This professional oversight ensures that the trust is administered correctly, complies with relevant laws, and maximizes the benefits available to the beneficiary.
Eligibility Requirements
To be eligible as a beneficiary under the SDTT, several criteria must be met:
- Severe Disability Criteria - The beneficiary must have a severe disability that meets the eligibility criteria set out by the Department of Social Services.
- Trust Purpose - The primary purpose of the Trust must be to provide for the care and accommodation needs of the beneficiary.
- Approved Trust Deed Form - The trust deed must be approved and comply with the specific requirements set out in the Social Security Act. This includes provisions on how the trust is to be managed, the appointment of trustees, and the types of expenses that can be covered by the trust.
- Reporting Obligations – For transparency and accountability, the trustees must comply with ongoing reporting obligations, including providing annual financial statements and other documentation as required by the Department of Social Services.
A Special Disability Testamentary Trust offers numerous benefits, making it an essential component of estate planning for families who are considering the long-term support of a severely disabled family member. Securing the well-being of your loved one with an SDTT is a prudent and compassionate choice, providing peace of mind and financial stability for both the beneficiary and their family.
If you are considering establishing an SDTT, you should understand the eligibility requirements and compliance obligations as they are crucial for successfully constructing and maintaining an SDTT, as well as ensuring the trust serves its intended purpose. A trusted legal advisor can be crucial then at the start of and throughout the administration of an SDTT.
Our team of Wills & Estates lawyers are experienced with helping to deliver the most beneficial and secure outcomes for families. With expertise in handling the complexities and sensitivity of both family provision planning and property and asset management, we can help you ensure the protection and well-being of your loved ones.
How can I learn more?
Julie Chambers.
Practice Group Leader.
- Wills & Estate Planning
- 03 9890 3321
- Email Address: j.chambers@robinsongill.com.au
Kelly Brown.
Associate.
- Property and Wills & Estates
- 03 9890 3321
- Email Address: k.brown@robinsongill.com.au
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