People aren't always born with disabilities. They can arise from many different reasons; from physical trauma, sickness and brain injuries (at birth or later) mental health and intellectual impartment, sports and motor vehicle injuries and even falls-related injury.
The ABS report over 700,000 Australians have a brain injury, with daily activity limitations and participation restrictions. Three in every four of these people are aged 65 or under. As many as two out of every three acquired their brain injury before the age of 25. Three-quarters of people with a brain injury are men. Brain Injury Australia
If you, or someone you know, have a child or a relative with special or additional needs, there is a particular legal structure designed to help support disabled and vulnerable people, that’s worth knowing about.
- It’s called a Special Disability Trust (or SDT for short)
The team at Sapience Financial can help you learn more about whether this might be appropriate for your situation.
A SDT can be used by family members to put money aside for the future care and accommodation needs of a family member with a severe disability. The money is placed in a trust and invested for the benefit of the disabled person (referred to as the sole beneficiary).
One of the advantages of an SDT is it allows parents to set money aside for the future avoiding the potential estate conflicts over the funds.
This may be from savings or the sale of assets. Many younger parents or siblings still growing their wealth, set up a life insurance policy and name the SDT as the beneficiary. This way they guarantee the SDT will still receive an amount of money for the care of the beneficiary, in case they themselves were to unexpectedly pass away before they were able to generate sufficient funds to add to the trust from their own efforts.
For those closer to qualifying for the aged pension, the government's cap on gifts to children is $10,000pa before that action forms part of the assets test.
But when gifting to a SDT, immediate family members can transfer up to $500,000 * (*combined) into the trust without the normal Centrelink Gifting Rules applying.
- The care and accommodation needs of the beneficiary including paying rent or purchasing a home for the beneficiary, (as long as payments are not made to an immediate family member)
- Modification to the beneficiary’s home that arises from their disability (like ramps, bathroom and kitchen modifications etc)
- Maintenance of the assets held by the trust to keep the property in comparable condition, or in a condition that is safe to use (excluding replacement)
- All reasonable care expenses (including a modified vehicle, sleeping and sensory aids and specialised food)
- All medical and dental expenses (including private health fund membership, ambulance cover, medicines, surgery, and specialist and general practitioner services) are deemed to be reasonable care expenses.
- Fees relating to the accommodation of the beneficiary living in a residential care service
An SDT can provide families peace of mind that on-going financial support will be available for their loved ones who need additional assistance.
The Social Security Benefits associated with SDTs operate for the benefit of both the donor and the disabled beneficiary. The tax and social security concessions are intended to encourage family members to make future arrangements for a beneficiary with a severe disability.
- The Donor, for example, a parent of the disabled person is allowed to donate an amount of $500,0000 without the Gifting Provisions applying.
- The disabled beneficiary can have assets of $657,250 (current indexed amount) plus the home in which the severely disabled person lives without impacting the Asset Test for the disabled person. (Amounts in excess of this figure will be included in the Assets Test of the disabled person).
The Department of Social Services has a useful guide Special Disability Trust - Getting Things Sorted for download.
Case Study: Meet David and Joanne and Ethan
Ethan lives with Downs Syndrome. Ethan was a happy baby but his parents soon realised he had a significant disability with Downs Syndrome.
Ethan’s mother committed the next 6 years to ongoing physiotherapy and special care at an intensive Downs Syndrome unit attached to a leading children’s hospital. Today at 22 Ethan is a happy person, likes to square dance and works seven hours a week as an assisted person in a retail grocery shop.
His parents David and Joanne, are now in their early 60s. Their 3 elder children will help provide ongoing support, care and love for Ethan but who will be there to protect and provide for him as he, himself, becomes a retiree?
Shortly before Ethan turned 18, the family held a family meeting and it was decided that a SDT would be a good safety net for him.
- As part of David and Joannes estate planning, they set up a SDT for Ethan and transferred $200,000 into the trust through the sale of an investment property.
- Ethan's three elder siblings each took out a $100,000 life insurance policy and named the SDT as the sole beneficiary of the insurance policies until they each were in a better position and able to contribute financially to Ethan's long-term care and provision.
Ethan's future looks more stable and the family now has a central focus on what the next step is to help make his future as settled and cared for as can be.
Each year I meet with Ethan and his family* for dinner and a chat about how their lives are going, if situations or relationships are changing and of course a compulsory round of square dancing before I get to leave.
*Names and identifiers have been changed for privacy.