A Special Disability Trust (SDT) allows immediate family members and carers to provide for the future care and accommodation needs of a ‘severely disabled person’. The benefits of a SDT include:
families being able to set up a fund to provide for a severely disabled person after the death of the primary carer or parent; and
income from assets in the SDT is not taken into account for the purpose of the income test and therefore not reduce the beneficiary‘s social security benefits.
Recent changes to SDT’s
The Government has recently passed legislation introducing further tax-relief for SDT’s, including:
a CGT exemption for an asset transferred into a SDT;
extending the CGT main residence exemption to assets held in SDT’s; and
a CGT exemption for a person who inherits the severely disabled person’s main residence on their death, where the property is sold within two years of the deceased’s death.
Other recent changes that have increased the flexibility of SDT’s include:
widening the type of expenses that can be paid from the trust, including private health fund membership and maintenance expenses for trust property (which were previously excluded);
beneficiaries can now undertake paid work of up to seven hours per week;
income that is assessed to the trustee is taxed at the beneficiary’s personal tax rate, rather than at the marginal rate under section 99A of the Income Tax Assessment Act 1936; and
the trustee can now spend up to $10,250 a year on discretionary expenses (not related to the care and accommodation needs of the beneficiary).
What are the requirements for establishing a SDT?
To be a qualifying SDT, the trust must:
be established for a person who is ‘severely disabled’ for Centrelink purposes;
be established for the sole purpose of providing for the reasonable care and accommodation needs of the beneficiary; and
have a trustee that is either a parent, immediate family member, accountant, solicitor, corporate trustee or state trustee.
In order to qualify for the benefits for these types of trusts it is important you meet all of the requirements for the trust. Failing to do so will mean all the assets and income of the trust will be assessed for threshold purposes and therefore potentially cause the loss of social security benefits and assistance.