Parents of a child or children with a disability are naturally concerned about how their child be cared for after they pass. The RMB Wills and Estates Division explains, two kinds of Protective Trusts can provide peace of mind:
The main reasons to set up a Protective trust is to provide income and benefits to your vulnerable child for on-going care and to preserve capital.
Special Disability Trusts have numerous benefits. For example, family members gifting assets up to $500,000 to the Trust may receive an exemption from the usual gifting rules, and the beneficiary can have up to $657,250 (indexed on 1 July each year) plus a residence as assets in the Trust - exempt from the social security assets test.
There are also tax concessions for Special Disability Trusts as unexpected income is taxed at the beneficiary’s personal income tax rate instead of the highest marginal tax rate.
A Special Disability Trust can only have one beneficiary and not everyone with a disability can be a beneficiary of such a Trust. This is because the beneficiary must be assessed as being ‘severely disabled’ by Centrelink.
There are also restrictions as to what the funds in a Special Disability Trust can be used to. The funds can only be used for specific purposes including care costs, costs for reasonable accommodation and costs for medical expenses. Furthermore, a Special Disability Trust can only hold up to a certain amount of funds.
If your child is not eligible for a Special Disability Trust due to not being assessed as ‘severely disabled’, then you should consider an All Needs Protective Trust instead.
An All Needs Protective Trust is similar to a Special Disability Trust, but it is more flexible, has fewer concessions and is free from the constraints of a Special Disability Trust.
One major benefit is that it can provide for your child's day to day needs, which are not permitted to be paid for from the Special Disability Trust.
You can set up an All Needs Protective Trust as well as a Special Disability Trust, and there are benefits to doing so. For example, while a Special Disability Trust can only hold up to a certain amount of funds, if you plan to leave an amount to your child that is above the maximum limit, you can put the residue amount into your child’s All Needs Protective Trust.
If you have any questions about your will or trust, your first step should be to contact our office to arrange a free consultation. You can contact us by by phone or our 'Ask a Question' tool on our website.