Planning for the future is always a priority for parents, but when you have a child with a disability, the importance of ensuring their long-term care and financial security becomes even more critical. In Australia, one of the most effective ways to safeguard the future of a child with a disability is through the establishment of a Special Disability Trust (SDT) in your will.
As an experienced wills and estate lawyer, I’ve seen how valuable these trusts can be in providing peace of mind to parents and ensuring that their children’s needs are met even after they’re gone. In this article, we’ll explore what Special Disability Trusts are, why they’re important, and provide practical tips for incorporating one into your will.
What is a Special Disability Trust?
A Special Disability Trust (SDT) is a legal arrangement that allows parents or other immediate family members to set aside funds specifically for the care and accommodation needs of a person with a severe disability.
The key feature of an SDT is that it allows the beneficiary (the person with the disability) to receive funds from the trust without affecting their eligibility for certain social security benefits, such as the Disability Support Pension (DSP).
The trust must comply with strict legal requirements set out by the Australian government, and the funds in the trust can only be used for the beneficiary’s care and accommodation needs. This ensures that the money is used specifically for the purpose intended, providing a level of protection and security for the beneficiary.
Why Are Special Disability Trusts Important?
For parents of children with disabilities, planning for the future can be a daunting task. There are many questions to consider, such as who will care for the child after the parents are gone, how their financial needs will be met, and how to ensure that any funds left to the child do not inadvertently affect their entitlement to government benefits.
This is where a Special Disability Trust comes in. An SDT provides several important benefits:
1. Protection of Government Benefits:
One of the biggest concerns for parents is how to leave money for their child without affecting their eligibility for government support. Funds held in an SDT are not counted as assets for means-testing purposes, meaning the beneficiary can continue to receive the Disability Support Pension (DSP) and other benefits while still having access to the trust’s funds for their care and accommodation needs.
2. Securing Long-Term Care:
An SDT ensures that funds are available to provide for the beneficiary’s long-term care and accommodation. This is particularly important for parents who may worry about who will look after their child when they are no longer able to do so themselves.
3. Tax Benefits:
There are certain tax concessions available for SDTs, including a capital gains tax (CGT) exemption for assets transferred into the trust and concessional treatment of income earned by the trust. These tax benefits can help preserve the value of the trust’s assets over time.
4. Peace of Mind:
Perhaps most importantly, an SDT provides peace of mind to parents, knowing that their child’s future is secure. The trust ensures that the funds are used specifically for the beneficiary’s needs, protecting them from financial exploitation or mismanagement.
Who Can Benefit from a Special Disability Trust?
To qualify for an SDT, the beneficiary must meet the definition of “severe disability” under Australian law. This generally includes individuals who:
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Are unable to work more than seven hours a week in the open labor market due to their disability.
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Require significant care and support for daily activities, as assessed by a medical professional.
While SDTs are most commonly used for children with disabilities, they can also be set up for other family members with severe disabilities, such as siblings or grandchildren.
Establishing a Special Disability Trust in Your Will
Setting up an SDT requires careful planning and a thorough understanding of the legal requirements. Here’s a step-by-step guide to help you incorporate an SDT into your will:
1. Consult with a Wills and Estate Lawyer:
The first step is to consult with a lawyer who specializes in wills and estates, particularly those with experience in setting up SDTs. Your lawyer will help you understand the eligibility criteria, the legal requirements, and the potential benefits and drawbacks of establishing an SDT.
2. Determine the Trust’s Purpose:
The primary purpose of an SDT is to provide for the care and accommodation needs of the beneficiary. However, it’s important to clearly define what this means in your specific context. Your lawyer will help you draft the terms of the trust to ensure that they meet your goals and comply with legal requirements.
3. Choose a Trustee:
The trustee is responsible for managing the trust and ensuring that the funds are used in accordance with the trust’s terms. It’s crucial to choose someone who is trustworthy, financially responsible, and has a good understanding of the beneficiary’s needs. You can also appoint a professional trustee, such as a trust company, to manage the trust.
4. Fund the Trust:
Once the trust is established, you’ll need to transfer assets into it. These can include cash, shares, real estate, or other investments. It’s important to work with your lawyer and financial advisor to determine the most effective way to fund the trust, taking into account the potential tax implications and the needs of the beneficiary.
5. Include the SDT in Your Will:
The SDT can be established as part of your will, ensuring that it comes into effect upon your death. Your will should clearly state your intention to create the trust, specify the assets to be transferred into the trust, and outline the terms and conditions under which the trust will operate.
6. Review and Update Your Will:
As with any estate plan, it’s important to regularly review and update your will and SDT to ensure they continue to meet your needs and the needs of the beneficiary. Changes in your financial situation, family circumstances, or the beneficiary’s needs may require adjustments to the trust’s terms or funding.
Practical Tips for Setting Up a Special Disability Trust
- Start Planning Early: Establishing an SDT requires careful planning, so it’s important to start early. The sooner you begin, the more time you’ll have to make informed decisions and ensure that the trust is properly funded.
- Communicate with Family Members: It’s important to communicate your plans with other family members, particularly those who may be involved in the beneficiary’s care or who may be affected by the trust. Open communication can help prevent misunderstandings and ensure that everyone is on the same page.
- Consider Professional Trustees: Managing a trust can be complex, particularly if it involves significant assets. Consider appointing a professional trustee to ensure that the trust is managed effectively and in accordance with your wishes.
- Stay Informed: The laws and regulations governing SDTs can change, so it’s important to stay informed and work with your lawyer to ensure that your trust remains compliant.
Establishing a Special Disability Trust is a powerful way to ensure that your child with a disability is cared for and supported long after you’re gone. However, setting up an SDT requires careful planning and legal expertise. If you’re considering an SDT or want to learn more about how it can benefit your family, I encourage you to take action today.
As an experienced wills and estate lawyer, I can help you navigate the complexities of setting up an SDT and ensure that your estate plan provides for your child’s long-term needs. Contact my office to schedule a consultation and take the first step in securing your child’s future.
By incorporating a Special Disability Trust into your estate plan, you can provide peace of mind and security for your child with a disability, ensuring that their needs are met for years to come.