Estate Planning for Loved Ones with Special Needs
If you are planning on making a Will with the intention of benefiting a severely disabled beneficiary (whether physically or mentally), there are several things you will need to consider including:
Appointing someone appropriate to manage the funds for the beneficiary if the beneficiary is unable to do so themselves;
Setting out what the funds can be used for and any restrictions; and
The effect of your gift on any means tested pension the beneficiary may be receiving.
If the beneficiary is severely disabled as defined in the Social Security Act 1991 (Cth) (for example, if they are receiving the disability support pension) any potential estate gift may impact on their means-tested pension, then it may be worth considering setting up a special disability trust (SDT) in your Will. This may be of benefit to the beneficiary in the following ways:
Funds and assets up to $636,750 (current as at the 2015/2016 financial year and indexed yearly on 1 July) held in the SDT will be exempt from the asset test assessment for the purposes of any social security payments the beneficiary may be receiving; and
If the SDT also holds the beneficiary’s principal place of residence, this is also exempt from the asset test.
However, the SDT must be set up in accordance with the Social Security Act. This places restrictions on the SDT as follows:
The beneficiary of the SDT must be “severely disabled” in accordance with the meaning in the Act to receive the concessions;
It must have an independent trustee or more than one trustee;
There are restrictions as to what investments may be made;
Annual financial statements must be prepared and audits (when required) must be conducted;
There are restrictions as to the payments that may be made from the SDT. For example, whilst the funds from the SDT may be used to pay for the beneficiary’s health and certain other items, discretionary spending is limited to $11,250 per year.
Accordingly, whilst there may be significant advantages to setting up an SDT in your Will, this should only be done after careful consideration of the drawbacks as part of a holistic estate plan.