DVA FACTS IS163

Trusts and Companies

Special Disability Trust

Introduction

This fact sheet explains what a special disability trust (SDT) is and the rules for setting up such a trust. We recommend that you consult with your financial advisor and/or solicitor prior to establishing a trust.

What is an SDT?

An SDT is a trust that may be set up to assist families to make private financial provision for the current and future care and accommodation needs of a family member with severe disabilities. The purpose of the trust is to protect the interests of the person with disabilities.

Gifts made by immediate family members to a complying SDT may be disregarded for the purposes of the donor’s income support payment. The asset value limit of $532,000 and income from the trust may also be disregarded for the purposes of the principal beneficiary’s income support payment.

There are restrictions on the payments that can be made into an SDT. For example, compensation payments made to the person with severe disabilities cannot be paid into an SDT. The trust is intended only for succession planning by parents and immediate family members.

Trust expenditure is restricted to what can be considered reasonable and related to the care and accommodation needs of the person with severe disabilities.

For private trusts and companies assessment rules, the only attributable stakeholder of an SDT is the principal beneficiary.

Requirements of a complying SDT

In order to be a complying SDT the trust must:

· have only one principal beneficiary, who must be severely disabled;

· provide only for the accommodation and care needs of the principal beneficiary;

· have a trust deed that contains the clauses set out in the model trust deed, which can be found at http://www.facsia.gov.au/internet/facsinternet.nsf/disabilities/carers-special_disability_trusts.htm;

· have an independent trustee, or have more than one trustee (e.g. two or more family members);

· comply with the investment restrictions;

· provide annual financial statements;

· conduct independent audits when required; and

· ensure that no immediate family member is paid by the trust to care for the principal beneficiary.

Allowable care and accommodation costs

The sole purpose of an SDT is to meet the reasonable care and accommodation needs of the principal beneficiary.

A care need is considered reasonable if:

· the need arises as a direct result of the disability; and

· the need is for the primary benefit of the principal beneficiary; and

· the need is met in Australia.

Examples of reasonable care needs include specialised food, a modified vehicle, mobility aids, continence aids, communication devices and therapy approved by a medical practitioner.

An accommodation need is considered reasonable if the need arises as a direct result of the disability of the principal beneficiary.

Examples of reasonable accommodation needs include modification to the principal beneficiary’s place of residence because of the disability, payment for the purchase of a residence for the principal beneficiary and payment of an accommodation bond for the principal beneficiary’s entrance to residential aged care. Payments cannot be made to an immediate family member.

Allowable care and accommodation costs, continued

The need to pay for property, or for an interest in a property, is reasonable if the property or interest is acquired or rented:

· from a person who is not an immediate family member of the principal beneficiary; and

· for the accommodation needs of the principal beneficiary.

Rates and taxes on a property are a reasonable expense if the property is owned by the SDT and is used for the accommodation of the principal beneficiary.

The trust cannot be used to meet the costs of care provided by the trustee, partner, parent or an immediate family member.

Severe disability

The principal beneficiary of a trust must be a person with a severe disability. The person must:

1) have a level of impairment that meets the criteria for a disability support pension, or be a child under 16 years of age whose level of impairment would qualify their carer for a carer payment; and

2) have care needs that would qualify a carer for carer payment or carer allowance, or be living in a state-funded accommodation service for people with severe disabilities; and

3) have no likelihood of working in employment at or above the relevant minimum wage.

Immediate family member

For the means test concessions to apply for gifts to the SDT, an immediate family member includes:

· natural parents

· legal guardians (a person who is, or was, the legal guardian of the person with a severe disability while that person was under the age of 18 years)

· adoptive parents

· step parents

· grandparents

· siblings.

Trustee requirements

A trustee for the SDT can be either an individual or a corporation. An individual, or a director of a trustee corporation, must:

· be an Australian resident;

· not have been disqualified at any time from managing corporations under the Corporations Act 2001;

· have not been convicted of an offence or dishonest conduct against a law of the Commonwealth, State, Territory or a foreign country; and

· have not been convicted of an offence under the Social Security Act 1991 or the Social Security (Administration) Act 1999 or the Veterans Entitlements Act 1986.

A statutory declaration to this effect is required from each of the trustees or directors of the trustee company.

Gifting

Usually, gifting is restricted to $10,000 per year and $30,000 over a rolling five year period. Gifts above these values are classified as deprived assets and will impact on your pension assessment. However, immediate family members of veteran pension age can gift their assets to a complying SDT, up to the value of $532,000 in total, without incurring any adverse effect on their DVA income support payment.

Contributions can come from different sources within the family. Members of the immediate family of the person with a severe disability may gift prior to reaching veteran pension age, but will only gain the concession when they attain pension age, providing that the $532,000 limit has not been reached.

Should an SDT cease to exist or cease to be a special disability trust, the assets revert to the donors in the proportion they were given. The value of any assets that cannot be returned, because they have been expended by the trust, are then regarded as deprived assets if less than 5 years has passed since the assets were gifted to the trust.

Example: A grandfather has gifted $300,000 to an SDT. The principal beneficiary dies three years later. Only $225,000 remains which is returned to the grandfather. The grandfather is then taken to have gifted $75,000 so $65,000 is assessed as a deprived asset for the remaining two years.

Assets test exemption

The principal beneficiary of the complying trust is allowed an assets test exemption of up to $532,000, indexed on 1 July each year. Assets above that limit are added to the assessable assets of the principal beneficiary. The principal home of the principal beneficiary, if owned by the special disability trust, is not an assessable asset.

Income test exemption

All income from the trust is exempt from the means test. The income can only be used for the benefit of the principal beneficiary, including reasonable care and accommodation needs, trust expenses and any personal income tax associated with assessable income from the trust.

Obligations

You are required to tell us within 14 days (28 days if you receive remote area allowance) of changes to your circumstances that might affect the rate of income support pension you receive or your eligibility to receive that pension. In relation to special disability trusts, you need to tell us if:

· further gifts are made to the trust;

· an event occurs that may cause the trust to become non-complying;

· the trustee changes;

· the beneficiary commences paid employment; or

· the beneficiary dies.

Financial reporting

The trustee must provide the financial statements of the trust as at 30 June of each relevant financial year. The financial statements must include information which complies with the Australian Accounting Standards, including;

· Profit and loss statement for the relevant financial year;

· Balance sheet with applicable notes for the relevant financial year; and

· Depreciation schedule for each class of assets for the relevant financial year (where applicable).

A copy of the trust tax return for each relevant financial year must also be provided.

Financial reporting, continued

A statutory declaration must be included that confirms that:

· expenditure for the relevant financial year (apart from reasonable trust costs and taxes) was spent on care and accommodation costs of the principal beneficiary;

· expenditure for the relevant financial year was not spent on the day to day living expenses of the principal beneficiary or payments to any immediate family member; and

· the trustee has declared that the information provided therein is all true and correct.

The financial statements and statutory declaration must be provided on or before 31 March each year for the previous complete financial year.

When you have finalised your financial statements for the year you should forward a copy to DVA within 14 days (28 days if you live overseas or receive remote area allowance).

Oral advice

While we make every effort to ensure that you are given accurate information, it is important that you seek written confirmation of oral information or advice before making any major decisions based on that information.

We continually strive to improve the level of service you receive and make this request as an added safeguard for you.

Other fact sheets

Other fact sheets related to this topic include:

· IS92 Giving away Income or Assets

· IS89 Deeming and financial assets

More information

All DVA fact sheets are available on request from any DVA office or on the DVA website at www.dva.gov.au/factsheets/default.htm

If you need more information about this topic, contact your nearest DVA office or visit the DVA website at www.dva.gov.au

You can telephone DVA for the cost of a local call* on:

133 254 - general inquiries

1800 555 254 - non-metropolitan callers.

Note: If you use a mobile phone, calls may be more costly. You are advised to use a normal phone (i.e. a landline phone) when ringing these numbers.