Parenting is hard work. As the father of three healthy and rather rambunctious kids, I can vouch for this. I can also attest to the fact that being a father forced me to change my priorities and to think about the future in a way I hadn’t previously. As an Estate Lawyer, I work with lots of couples professionally and help them undertake the often daunting task of drafting their Wills. It occurred to me recently that for most couples, there is an end to their parenting journey. Mostly we tend to move through these years, waiting with bated breath, until our kids reach adulthood. Only then can we finally relax, settle into retirement and enjoy spoiling our grandkids (and perhaps a bit of golf). Unfortunately this isn’t always the case. Things can go wrong and one’s parenting journey might take a very different turn from what we had initially envisioned. Having a child (or an adult child) with a severe disability is one of the ways this might unfold. Estate planning under these circumstances brings with it additional challenges that are worth exploring in an effort to ensure that the future needs of the child are considered in detail.
In 2006 the Federal Government passed legislation allowing the creation of a special disability trust. This legislation was designed specifically to accommodate the needs of a family member with a severe disability. The trust can be established during the lifetime of the person contributing assets to the trust or, in that person’s Will.
Under the Social Security Act, a means test applies to the assets and income of an individual for the purposes of assessing their entitlement to social security payments. Assets owned by a special disability trust up to the specified limit (currently $605,500 indexed annually plus the value of a home occupied by the principal beneficiary) are disregarded for the application of the Centrelink or Department of Veterans Affairs (DVA) assets test. In addition, trust income, or the use of money from the trust to pay for the beneficiary’s reasonable care and accommodation, will not be counted in the application of the income test. Furthermore, immediate family members who are in receipt of a social security or service pension and have reached pension age, can take advantage of gifting concessions and are not affected by the ordinary gifting rules when contributing to a special disability trust.
Establishing a special disability trust has many benefits for both the beneficiary and the testator. However, it is important to remember that there are limitations on eligibility with the potential for tax consequences. For example, before commencing the trust, Centrelink or the DVA must determine that the proposed beneficiary is “severely disabled” as required by the rules. An experienced lawyer in the field of Estate Planning is best equipped to determine if this is the appropriate strategy in your situation.
For further information related to ‘Special Disability Trusts’ please contact Greg Welden on 0466111790 at Welden & Coluccio Lawyers where I am happy to discuss this approach in detail or provide you with an informational leaflet on this topic.