Tara (00:50):
Welcome back to another week of the Art of Estate Planning podcast. I'm so thrilled you've joined me and we are in for a very special treat in this episode. So this is a recording of a presentation by financial advisor William Johns of Health and Finance Integrated. Now if you know William, you'll know that there's hardly anyone else in the country who knows more about special disability trusts than William and I was honoured to have his knowledge and insights in this presentation about special disability trusts from a financial advisor's perspective. So tune in and enjoy this special presentation by William Johns about Special Disability Trust.
William (01:37):
Let's talk about what is a special disability trust, right? And how many of them there are? Well, when I started working on special Disability trust was 2009 and I called Centrelink to establish one and they said we usually see them in wills. We've not really seen too many of them around. I think there was like 30 in 2009 and I was already working on these things. So in time, I think now there's about 300 or 400 in the country, so they're still fairly new. There's only a handful of accountants and financial planners who know how to deal with them and also lawyers are getting more familiar, so it's great. But anyway, what are they? A trust is established to me the reasonable care accommodation and the needs of the person with severe disabilities. One trust for one principal beneficiary, no more, no less. Now that's important because if you're establishing one and survivals and one in the will, that's a problem, right?
(02:31):
So you can't have two, you can only have one and it delivers valuable social security concessions when the deed and the administration comply. But there's one more thing that I think it does deliver on, which is the additional protection. If you're going to have somebody with a disability, they're vulnerable. So to have Centrelink oversee the mechanism and making sure that there is compliance to it makes parents feel better about the whole situation. And I say, I mean I'm establishing one for my mom, so it can go the other way around. My mom's got MS, so I'm going to establish one for her. I've already got the eligibility criteria for, I met all the eligibility criteria, but I've got this house that I want to donate to her, and so it can work the other way around as well. Okay, so headline concessions as at 1st of July, 2025 asset test, you can have up to $832,750 of accessible assets inside the trust.
(03:27):
That's not accessible. That does not count your primary place of residence. So you could have a $2 million house inside the Special Disability Trust and $832,000 not counted. Now, is there a cap on how much you can have in the special Disability trust? No, you can have $20 million, but only $832,750 is going to be exempt from ING assessment. The income, however, is not assessed for sentencing purposes. So imagine if you have a really high yielding rural property that's worth $832,000, that's generating $90,000 worth of income because it's a warehouse, none of that $90,000 is counted as a income for ING purposes. So really cool thing to note. And the tax is taxed at the beneficiary tax rate, not at the trust tax rate. So we don't actually have to make a distribution either to the beneficiary, so we can hold it inside. But what happens if you hold money inside the trust is that it goes up in value.
(04:28):
And so then you start having some sort of assessment issues. By the way, the $832,750 figure, then you have the normal concession for Centrelink that you can have another $300,000 or something like that for an individual before it actually they start reducing your pension. So the normal asset test apply. If you're not familiar, please have a look at asset and income test and you'll see that every person in Australia who's got a disability or is under age pension is allowed to have a particular amount of money before they start reducing your pension. So it's that particular amount of money, that threshold plus $832,000. So potentially $1.1 million is what you can have before it impacts cent. You don't need to be receiving payment to be eligible for a special disability trust from Centrelink, but the eligibility is about meeting the severe disability definition. You should always get confirmation for eligibility before the trust can be recognised as an SDT. One of the things that I see here that is a common question, Tara, is people say to me, oh, I'm working as a parent or whatever, I don't get any car allowance or car payment, and the beneficiary doesn't get anything either because they've got assets. Are they eligible? Well, it's a matter of disability. It's not a matter of actual asset income test eligibility, it's more of a disability eligible.
Tara (05:47):
And William, we've had a question come through from Kerry Ann, is there a particular definition for severe disability? Is that somewhere that can be looked up?
William (05:56):
Eligibility? Somebody age 60 ANOVA impairment means disability support pension criteria. So what we use here is adat Adult Disability Assessment Tool and would qualify a carer for car payment or allowance and no likelihood of working more than seven hours a week at or above minimum wage. This is a problem, this is a problem for all of us people who are interested in this sort of thing because if you have a look at the wording and has no likelihood of working seven hours a week at or above, this is a problem. Why? Because take Woolworths for example, they used to employ a whole lot of people with disabilities five hours, six hours a week, et cetera because of a push to not pay people less than the award they're now getting paid at or above. But that doesn't mean that they have full capacity to work at or above.
(06:51):
That is to say that it's more of a mechanism where Woollies feel good about itself, that it's not taking advantage of people with disabilities. Okay, eligibility for under 16. I think this is a question that came up, didn't it? Who wrote it? I can't recall, but it was definitely on the group. Tara, somebody is under 16. Can we establish a special disability Trust has severe disability or severe medical condition? Carer has an intense rating under the disability care load assessment for a child treating health professionals, certifies care will be needed more than six months and will be provided by a specific number, a specified number of people, and I've put the rule in there for you. It's Social Security Act, section 38 E that explains the disability care load assessment and I've also put the policy reference guide for you. I dunno what the situation is that you're working with, but this is where you would need what you'd need to do.
(07:47):
So now let's talk about structuring, create it, fund it, and reference it, okay? When to create it intervals versus testamentary. We all know what that means, but intervals is basically when you want to do something productive, like usually anyway a parent says, I'm getting too old, my child is getting too old. I don't want them to be staying with me forever. There's also a transition planning. I'm really worried if something happens to me, if I need care, what's going to happen to them? Let me build their capacity. Let me enable them to live by themselves. They're in the thirties, maybe younger, maybe older. Can we buy them a place? Can we make sure that they have a place to live in? And the answer is yes. Have you got the resources to donate money? Because you can't get that money back. You can't just wind it up and say No, there's only two ways you can wind up a trust, isn't it when the money runs out or when the prison die?
(08:41):
So you can't really gift money that you can't afford. So one of the big issues is can I build a home? And if you do it properly, then you might also end up with a SDA, which is a special disability accommodation that you get extra rent from. We can explore that with your client. If you called me up one day and said, look, I've got the situation, we can then unpack that a little bit more to make sure that it's viable. Immediate family donors may access the $500,000 gifting concession. Like if you asked me from my point of view as a financial planner, will the donor have enough money to retire on? The desire to look after the loved one may be counterproductive to the overall family wellbeing.
(09:18):
If you're depriving yourself of a good retirement and you've locked up your money in a special disability trust, potentially nobody can benefit from it, including the person with a disability due to the restrictions of what the money can be spent on. So it's not always a good idea how we have seen it referenced in a will. Tara, I think you probably need to vet this to make sure that it's appropriate, but this is just what I've seen. State the intention, state the intention to establish a special disability trust for name that complies with section 1209 l and T of the Social Security Act 1991, attach, incorporate or incorporate the model did, but also you can make reference to it as well. But Tara, again, I defer to you on this.
Tara (10:01):
Yeah, so I actually think there's a couple of ways you can structure it and I think it will depend on the level of certainty around the need for the special disability trust. And if you're like there's a possibility, but we're not sure perhaps, and I think you might go into this William, but sometimes the structure and compliance around a special disability trust can be too onerous and there's a state is large enough, so it just really depends on a host of factors. But the way that we train our TT precedents club members on it is yeah, firstly this option that you have set out. So we actually are using the model trust deed and incorporating that perhaps as an AHA where we are gifting directly to it. Alternatively, there is an ability for a beneficiary themselves to contribute within three years from the testator's death, the inheritance, and that can a pathway as well where we are not sure or we just want to keep the option open.
(11:08):
So then we have the ability to bypass the testamentary trust and have the inheritance go directly to that principal beneficiary so that it can be contributed into a special disability trust set up after the test data's death. Now there's a whole host of issues there in terms of needing a financial administrator to go through that process. So that can sometimes be easy, sometimes challenging, and then also if there's already a special disability trust established into vivos, we can just gift straight into that as well. So we talk about there's multiple options, multiple ways to draught it and pros and cons of each.
William (11:47):
That's great. And I've seen it done. Usually people come to me after there is no reference in the will. The usual is that there is no reference in the will then that's because let's not forget, special disability trust only became something in 2007. So a lot of the wills that have been drafted prior to that, there is no reference for a special disability trust and that's why we've got this three years rule now that's from probate and I think you can, I'm pretty sure isn't it, Tara?
Tara (12:14):
Well, I actually have not ever been sure. So I feel like it's not completely clear.
William (12:20):
Yeah, so it's an interesting one. I'm working on a couple at the moment with different colleagues and it seems to be it's from date of probate and also one particular case is really interesting where the money was distributed, it's gone under the New South Wales trustee and guardian, the parents are the appointed financial managers in this particular case, like NCAT awarded them financial management. But now we're writing to NCAT saying the money shouldn't have been paid this way. It should have been done through a special disability trust. And of course what this parents didn't do is they didn't inform Centrelink that there is half a million dollars sitting in their daughter's account. She inherited money from a cousin and we got a $63,000 bill from Centrelink for the past four years. But where the argument was that the lawyer put together is to enable us to donate into a special disability trust is that the money didn't become available from the estate until about a year and a half after probate. So Centrelink also references when money should can be assessed as an asset and it's usually if it becomes available. So there's probate dates, there's also when does it become available dates. And I think that's where collaboration and also communication with different parties is going to be very helpful because it seems to be a little bit discretionary. And Tara, I think that's why you're saying is it this or is it that we don't quite know a hundred percent.
Tara (13:45):
Yeah. I just think circumstances can change in terms of even a beneficiary who has not disabled subsequently becomes disabled that we just didn't even know when the, that's really interesting point Field was drafted. So there's lots of just, and how big is the estate and do we really need the special disability trust to preserve Centrelink? That's the main objective, right, William? Usually it's to preserve the Centrelink entitlements, otherwise you, yeah,
William (14:15):
It tax and social security, it's tax and social security effectively you're trying to extract, are you trying to preserve wealth by deferring expenses onto Centrelink and preserve tax effectively? That's why you do it. But there's also that protective overlayer. So a lot of people say if I die, I don't look, the cousin is the trustee, but I don't actually trust them, but they're the only people who are alive. I would love someone to look at them, what they're doing to make sure that my son, daughter, et cetera are not being done.
Tara (14:46):
Yeah, that's true. So I think it really depends. Some families, they have so much wealth that they really don't want to cap what the beneficiary is entitled to and they would've ordinarily received a much larger share than what can be put into the special disability trust. Others, the Special disability trust is just a godsend because they need to provide for the beneficiary with all of those protections, but still not jeopardise any of their Centrelink entitlements. So it is really hard to sort of have a one size fits all answer I think.
William (15:22):
And what else is the reason? It could be that the person, but look, I mean from a sensing point of view, we've got three real tools, right? We've got a primary place of residence. If we really wanted to make the money go away, we've got a special disability trust and we've got superannuation if they're under 67. So if we can effectively in-build that as a fallback to say that if it's a primary place of residence, maybe don't have it in a special disability trust, or maybe you do, if there are stem duty exemptions for example, then it might be very helpful to have it in a special disability trust. But then you have to have cash and stuff like that to make sure that the trust is able to meet its obligations, pay the accountant, pay this, pay that the setup fees. So it could be an expensive ongoing way to have a primary place of residence only for an upfront concession potentially.
(16:12):
The other thing you can do is that if, let's say that you've left $1.5 million for someone with a disability, so $800,000 can go into a special disability trust, $300,000 on top of that is not going to be counted for Slink, and then the remainder of say 360 can go into superannuation, you effectively made the entire $1.5 million go away. So that's a way, but you need that especially in a will. You need those as fallback suggestions, tools, options, I don't know how you reference them, Tara, when it comes to wills rules, governance and compliance, this is fun. Lawyers dream at these two trustees acting jointly unless there's a professional trustee appointed all must be Australian residents and not disqualified. You've got to do annual financial statements to the 30th of June due by 31st of March. So when I'm talking to parents, I'm like, Hey, you do realise that you have to find an accountant who is familiar with this because not all accountants are familiar and we've located a couple of really good accountants that do this for a living, you need to include a stad deck and of required the tax return.
(17:19):
Now I say if required because what happens if this special disability trust is established on the 29th of June and no money's gone in yet, so it might be required, tax returns might not be required for that financial aid, but you need to let Centrelink, no, that's effectively, it's just been established and there's no money. Audit can be requested by beneficiary, immediate family, guardian administrator or the secretary trustees must comply. Now this is interesting because we do have a case at the moment where a friend who is really, really, really annoying of the family requested that an order be done because he promised the mother before her passing that he would look after. Now he is not a trustee, he is got nothing to do with it, the siblings are the trustees, but he decided to basically request a audit. And so that's happening at the moment.
(18:10):
So sometimes well-meaning people can utilise this too. Okay? What the trust can pay for the primary purpose. So there is a primary purpose and a discretionary spending, primary spending care needs related to disability, medical, dental therapies, mobility aids. If you've seen some of my other presentations, we talked about food, can food be paid? Well, if it's special food that is to say that it's for example, low calorie food and it's requested by a dietitian, et cetera, then that goes under the primary purpose. If it's standard items, consumables, then it goes under the discretionary. So if there's an N nexus between the expense and the disability direct nexus, then it goes under primary. If there is that nexus, then we fall into the discretionary cap, which one's told you about. Now accommodation needs buying, renting a home, so rent can be paid through the special disability trust, taxes, rates, maintenance, et cetera, can be paid through the Special Disability trust, but it cannot pay for family members for care or services and must use arms length providers.
(19:14):
Now this is really interesting because some parents do end up establishing the package. The NDIS package is so large a million dollars and they need to make it stretch because that's not even enough to care for somebody 24/7. So what they end up doing is establishing their own companies and register them as NDIS providers and then the company would hire people and then they would pay people. Can we pay extra from the special disability trust for extra support? The answer is that's not arm's length. Yeah, and you've got to ask the family. I think when somebody comes through your doors and says, I want to set something like this up for my child or whatever, whoever you might want to say to them, how are you setting up the care for NDIS? Did you set up your own company or are you using a third party provider?
(20:01):
If they're setting up their own company, you have to let them know that they cannot pay themselves from the special civil trust or anything that their company has to do with discretionary spending. So 14,750, this goes up every year. It's indexed covers every day, lifestyle items, food, utilities, household items, clothing, non disability therapies, recreation, vehicle running costs, et cetera. Okay, keep receipts. You must keep receipts and disclose yearly financials. So just because it's called discretionary, it doesn't mean that you don't keep receipts. You still have to keep receipts and if you want to know the ACT reference, it's section 23 1 and it's got a list of all the things that you can pay for from the discretionary items. I suggest cigarettes and all that sort of stuff and it might not be a good idea to pay for it on the trust, but that happens a lot, especially with some people.
(20:51):
I smoke quite a lot. Okay means testing how the concessions work. Asset test SDT set up assets up to 832,700 hour exempt from the beneficiary. The home is exempt. Income test is exempt. Gifting concessions, lifetime cap of $500,000. Peer principal beneficiary. Now this is really important because it's a lifetime cap off on the principal beneficiary. Let me give you an example so you can kind of visualise it, right? There's four of us. There's a family who wants to put in money and we're all almost at the age pension. So I'm 65, my siblings are 64, 63, 60 whatever, and we all want to get rid of money because we want to be eligible for the age pension together. So I want to put in 200,000, my brother wants to put 200,000 and so on. Now, if my brother beats me and puts half a million dollars in, how much can I put in nothing, right? Well, I can, but it'll be still counted as my asset for five years. Does that make sense to you? Because the Centrelink gifting rules work. If you've given money within the last five years above the gifting concession cap, then it counts as yours until the five years is up. So that's where the last point is. If gifts are made within five years before the donor claims a pension, the concession may apply when they qualify.
Tara (22:15):
And so William, that's only relevant for donors who do need Centrelink entitlements. If they are not eligible, if they're never going to be eligible anyway because they're over the thresholds, then they can just ignore that.
William (22:31):
If somebody is self-funded retiree and not getting anything, then that's fine, but when does it actually, when does it actually count? When does it matter? There's only one other area where it matters is that if you're entering into aged care, because aged care is assessed, it means tested as well. So the more assets you have, the more aged care fees you pay daily care fees and means tested fees and all that sort of stuff. So if you get rid of money by donating it to a disabled person within your household, then you're paying less aged care fees. If somebody has beaten you and if the whole thing was established with a gift, you've got a problem.
Tara (23:09):
And I think that just demonstrates how many moving parts and nuances to this and the importance of involving a financial advisor who knows what they're doing because of that future planning and thinking about all the different areas that we could trip up.
William (23:26):
What I love about the whole aged care thing is that if mom and son who's got a disability are living together and they and mom suddenly finds herself in aged care, then we could potentially establish the special disability trust then to make sure that mom is not basically eroding her wealth that she intends to leave for son daughter with a disability. And we can do that by establishing a special skilled trust and accessing the $500,000 gifting concessions to reduce her accessible income. Now on that which is really important is if there is a beneficiary who lives, who has got a disability, who lives in the house, then the house might also enjoy some exemptions while the person with a disability lives in there from aged care testing, but that's a different presentation, okay? Investing and funding. So trust income is generally taxed at the principal beneficiaries margin and tax rate, not as section 99 1A rates, which is basically attributed back to the trustee effectively rates CGT transfer of assets for no consideration disregarded, that's a AA 97 section 118 85 CGT main residence and SDT can access the main residence exemption to the extent that the beneficiary lives the home.
(24:44):
There's also state-based concessions, stem duty concessions and all that sort of stuff that you've got to be mindful of on the donations. Cash contributes directly to SDT moving money. How do we move money? Don't sell your assets that you want to gift or you want to put in a special disability trust, including from an estate. Don't sell the estate assets that you want to. Lemme give you an example. Lemme give you an example, right? Say that we've got an estate, it's got a bit of cash and it's got a bit of shares and let's say that they're equivalent value. So $50,000 in cash, $50,000 worth of shares. If you sell everything, then you have to pay CGT on the shares, correct? So then the estate, instead of being worth a hundred thousand dollars, it's now worth $90,000 because $10,000 has gone in tax and then you divide it by two.
(25:32):
So assuming that there's two beneficiaries, they get $45,000 each, or you could do it this way, you could donate the $50,000 shares to the Special Disability Trust, then sell it. No CGT, the Special Disability Trust gets $50,000 and then you give the $50,000 cash to the person without a disability. What's the effect? You've just saved $10,000 off estate money. So don't sell assets that have CGT implications. If you've got provisions for a special disability trust, move them in specie into the Special Disability Trust and then sell inside the Special Disability Trust because you're resetting the cost days. Prudent investing. Everyone familiar with the prudent person investing rules? So under Trustee Act in New South Wales, section 14 C and 14D, it basically tells you that you've got to diversify, you've got to give consideration. By the way, every state has effectively the same copy paste trustee investment obligations, common reasons, and SDT eligibility is rejected, insufficient evidence that the DSP level impairment is met and there is no capacity for work more than seven hours a week for work.
(26:37):
Remember that a lot of people who are 16 years and over, they might not be on this disability pension just yet. So if they're already on a disability pension, then it should be fine, but then we have to evidence that they're not working more than seven hours a week or they have no capacity of working more than seven hours a week at or below the award. Four under sixteens carer not rated intense or health professional certification lacking. So that will get you declined. And then eligibility assessments are not obtained before establishing or funding the trust. That's really important. Good example of that is some really, really wealthy client that came to me has donated a $5 million property to his schizophrenic son. Centrelink wrote back saying that he's not eligible for a special disability trust. His lawyer and financial planner and accountants all were complicit in establishing the special disability trust before they got the eligibility letter from Centrelink, 5 million property.
(27:35):
Then he gets a letter say from of course Centrelink being Centrelink, he gets a letter from state revenue, et cetera, saying that you've got to pay all the stem duty plus plus plus. So he thought that he was doing a smart thing by not paying stems, right? He had to pay interest on that and then reverse that transaction and became what an ordinary trust with with a lot of restrictions, that doesn't enjoy any exemptions whatsoever, so they can't undo it because the deed is the deed. They can't undo the transaction because the deed is lock money in, but it doesn't do anything that they intended it to do. So now you've got a trust, you've got a place, you've got a house that's worth $5 million and nobody can do anything about it. They can't unwind it, they can't. Anyway, Tara, it's a tough one. It's a tough one. I enjoyed working on that particular case. My heart was breaking, but I still enjoyed it.
Tara (28:27):
We've had a question come through that I think is related to that topic of the eligibility. So Jessie's asked, can you delve a bit further into the nuances of the eligibility rules around the likelihood of working at or above the minimum age?
William (28:42):
Yeah, sure. So, or above the minimum wage. Let's not forget the history of the disability movement in Australia. So initially they were called sheltered workshops and basically what these were, they were manufacturing places. There were workshops where people with disabilities were basically giving a dollar $52 an hour to pack boxes and other things like that that was supposed to engage them in the workplace. Centrelink disregarded a lot of the income and they were getting $10 a day, that kind of thing. Then as the momentum built in ensuring that the rights of people with disabilities acknowledged corporations started increasing, like Woollies calls all that. They do have McDonald's. There's always somebody at McDonald's will tell you how many people with disabilities they hire, people with Down syndrome, et cetera. The movement of paying them on par with their non-disabled colleagues picked up in the last few years, and what that ended up doing is they ended up giving them the minimum wage so they no longer get the supported wage.
(29:47):
So even in Fair Work Act, if you have a disability, there is a minimum that you get paid, but it's usually 30% less. Something along those lines of what somebody without a disability has. Some corporations voluntarily said, we're going to pay opa, we're going to pay the minimum wage, and that has created problems for eligibility. How do we counter that? Well, maybe they don't work for a while while we are considering eligibility. So it becomes a planning process. My child is 16 years old, we're thinking, he's thinking of working for the local McDonald's. We met with local McDonald's and they said that we would like to take him on at minimum wage. Yeah, don't do that just yet. Let's work on the eligibility. Don't deviate from the model deed, whatever you do, implementation toolkit, A practical setup checklist. First of all, obtain eligibility confirmation. Don't do anything without eligibility confirmation, otherwise you end up like the guy with a $5 million problem. Adopt the model deed with compliance, necessary variations. If Tara tells you vary, vary. If not, then don't. I'm just using Tara. But if you exercise professional judgement , if it's, I think they highlight in yellow what you can and can't vary. Correct?
Tara (30:55):
Yes. And you really do need to stick to it. It's not the best drafted deed to be honest, but Centrelink does not want to have lawyers reviewing it. They want to see that you have followed it. Exactly. So don't add your own flare, don't improve things. You would really just have to follow their directions and then live with a deed that's a bit crappy. But otherwise you'll get rejected. And I have learned that the hard way.
William (31:23):
And I think one of the things that my first lesson was the pointer has to have, not the pointer. Well, I think a pointer is really important, but I think who was it? They can't sign anything. It was the...
Tara (31:36):
Well you do have, I mean maybe this is a different point to what you are making, but you really have to be careful about involving like the financial advisor as the settler or That's right. It's the settle. They cannot, you cannot have any kind of remuneration. So it actually can be kind of tricky to find a settle law because they can't have been paid at all so...
William (32:01):
To deal with it.
Tara (32:02):
Yeah, when I've set them up, I've had to rope in my spouse to be the settler because when you've got the financial advisor, the accountant, the lawyer, they've all received remuneration and then it's hard to get a lay person to understand what being a settler is. So yeah, just be careful of that.
William (32:23):
I agree. That's what I was looking for. There's settler is what I had a problem with. We've got the neighbour to be the settler in the end.
Tara (32:29):
Yeah.
William (32:30):
It was rejected. The special civil trust was rejected on the basis that the settler couldn't be somebody that had anything to do with the trust and it was the backup trustee, in fact. So the big thing out of this is just follow the guidelines and you'll be fine. I think the issue about corporate trustee versus not I think is also important for succession considerations, et cetera. But if you try to open up a bank account for a special disability trust or an investment account, good luck. We've tried and we now work directly with the estate team at different banks to help them understand how to comply with their AML CTF obligations because they want to identify the beneficiary, they want to identify the source of money, and they don't have a concept that the beneficiaries, for example, under legal disability, so they might not have an ID.
(33:19):
So the actual implementation side is exhaustive. Not only they dealing with Centrelink and their systems, but you're also dealing with the banking system that has not seen a lot of these, but lucky my firm has got really good contacts now with the multiple banks to basically get this through the line and we've got direct contacts with different people at different levels to assist. Okay, how do you name the trust? My favourite is name and special disability trust because then we know what we're dealing with and there could be an all needs protective trust and all that. So just give it the name so that everybody knows how to even do that account for it and all that sort of stuff. It's just so much better than just writing William Jones trust. Just tell us what it's empower the executives establish the SDT using the model deed.
(34:09):
If you don't, then that's okay. I guess we can, we have that timeline where we can do that. Authorise the transfer of the estate assets to the SDT, including direction for superannuation proceeds via estate, what appropriate and set the residual beneficiaries on the beneficiary's death so we know where the money's going to go after. Can compensation money that the beneficiary has received, can it go into a special disability trust? Well, it's very basic. It's like a charity trust, charitable trust. You can't donate to yourself. Fair enough. Person's own money cannot be donated into the trust itself to reduce their, because it would have an effect of reducing their own assets and get more Centrelink. So cannot donate own money. You cannot direct the court to pay into a special disability trust where there's compensation, for example, for the beneficiary, any payment to or dealing with immediate family risks non-compliance if they don'tpay.
(35:04):
Well, there's one exemption is that if someone lives with you in your house that's owned by a Special disability trust, but they're in a carer role, but there could be a family member record keeping matters, you've got to keep your receipts. Otherwise you face problems with Centrelink and Centrelink discount and say you give us receipts, build an annual trust health check eligibility, indeed, compliance investment review. So we do that every six months. We have an investment review, we go through the trustee Act requirements and we tick the boxes saying, yes, we're comply. We comply. We comply. Anyone SDT per beneficiary, we said that there is no cap of how much an SDT can hold only the concessional asset threshold for the mean cyst. So you can have 20 million in there, but don't expect Centrelink to not count anything over the threshold concessional threshold.
Tara (35:52):
William, can I just interject for a few things there? Can you confirm? Someone has asked, can you have more than one special, sorry, more than one beneficiary of a special disability trust? So the answer's no?
William (36:07):
No, no, no.
Tara (36:09):
Where does the assets go? So you've just said that here, the trust, the asset's vest. So if you put the link in the chat to the model trust deed, and you'll see there's actually a schedule where you set it up about where the assets go on the beneficiary's death so that you can do that future planning. Can I also just interject when you said a beneficiary can't contribute to the special disability trust, there are two exemptions. Tell me, and I think this 1209R of the Social Security Act, it says, the assets of the trust must not include any asset transferred to the trust by the principal beneficiary of the trust or their partner unless it's part of a bequest or a superannuation death benefit, and you have to contribute it for three years. That's true. Yeah. So just to confirm, if we're like, oh, but you said we can't put it in, that's the only exemption, so super death benefit or bequest and you've got the three years.
William (37:10):
So go within the three years. That's right.
Tara (37:13):
Yeah. So have a look at the Social Security Act, people who are sort of curious and asking questions under part 3.18A, 3.18 A because it sets it out really clearly what's allowed and not allowed. It's a very easy sort of section of legislation to follow and there's obviously so many nuances that Williams's talking about us today, but for the core stuff, just go to the source in the Social Security Act.
William (37:42):
I agree. I agree. And let me just confirm what you said because I think it's such an important point if it's coming from somebody else, that is to say that it's coming from a superannuation death benefit. It's coming from a bequest in a will, et cetera. That is not my money. If you remember how I gave you that example where I said to you there's a half a million dollars and this lady we're trying to unwind that and it come from the cousin, the money is in her name now, right? And Centrelink has already penalised her about $63,000 for being overpaid for the last few years. But what we're trying to do now is because the origin of the money has come from the cousin, it's a bequest. We're trying to trigger that three year rule to put the money now in the Special Disability trust, but for the time being where the money was in her name, Centrelink, I don't think we can do anything about, we'll just have to say sorry and hope that there are no penalties associated with an nondisclosure. So you're absolutely right now, just remember that the special civil trust has been changed twice, I think 2011 and 2017 or 16. I can't recall like small variations. And so sometimes you have to go back to your lawyer to update the model deed that you've put together.
Tara (38:59):
William, can I just ask you, I've always found that publication, special Disability Trusts, getting things sorted as a helpful resource both for me and for clients. Do you rate that booklet or?
William (39:13):
Yeah, I think so. I think for human consumption, for clients, it could be a bit full on, especially if you've got ageing population. So I think it's a good start to any good discussion.
Tara (39:25):
I just sort of found when I first started wrapping my head around though it does answer a lot of the sort of preliminary questions I think are being asked in the chat here. So we've had a few questions about the home. You can both purchase a residence, transfer a residence into the trust, and then you can also use cash that's been transferred into the trust to purchase a principal place of residence. Those are both allowed?
William (39:52):
Yes.
Tara (39:54):
Do people run into problems when there is a residence principal place of residence, so that is being exempt in terms of the Centrelink asset limit, but then the beneficiary can no longer live in that and they might go into care and suddenly are people over the limit or?
William (40:15):
It's a very good question. In fact, and in fact I will complicate it for you in a second, but I will tell you this is that if they haven't got a second primary place of residence, then we can have it exempt for as long as possible. Centrelink gives you general exemption guidelines one year off the bat, another year. If we bec in this case, we may be able to persuade them to apply the aged care exemptions. So we get few months. It does become an asset after a while, which wouldn't be prudent by the way, for a trustee to have an empty home there. If you look at it from a trustee investment point of view, it's no longer they're in care. You've got to rent out the property because what are you doing otherwise? Are you trying to capital maximise capital gains or are you trying to serve the person who you're supposed to be looking after by making sure that there is income coming in to serve their needs?
(41:09):
So let's say that we maximise the Centrelink exemptions once it becomes a parental property, then those exemptions lapse. Does that help you understand that there is a way, call it a year of exemption safely and then anything beyond that, once it becomes a rental property, then we lose the exemption, which means that it becomes an asset of the trust. So let's say that you've got half a million dollars, $600,000 in cash or shares or whatever, plus a primary place of residence, another half a million dollars. Now your trust is worth $1.1million, $1.2 million. It could still in the aggregate fall under the Centrelink threshold of doing something about it or reducing your pension.
Tara (41:51):
That was a great answer. Thank you, William. And in terms of managing or monitoring the values of assets in the trust and meeting those limits, who's responsible for that? Does Centrelink audit it and work out what happens if you're kind of up to the limit and then the capital growth means you've gone over?
William (42:11):
So every year Centrelink will review the, like I said to you on 30th of June, you've got to do the accounts and you've got to submit them Centrelink on the 31st of March. It'll be very silly to push it all the way to the 31st of March when you know that you're now exceeding the assets cap. So you want to do, come 30th of June, you want to get the accounting done and you want to submit it Centrelink as soon as possible so Centrelink can do the adjustment because if you send it on the 31st of March, Centrelink will come back and say to you, listen, you've been over the cap for the last six months. We want our money back.
Tara (42:46):
And so how do you divest the trust of the asset?
William (42:50):
You?
Tara (42:50):
Yeah, so for lawyers, even often it's tempting to be like, I'm going to gift to the special disability trust and amount equal to the current cap at the date of the test date is death. And we are pushing it right to the limit. And then there's really no leeway for,
William (43:14):
I can tell you this, we've got probably Australia's largest number of special disability trusts under management. So we advise a lot on this. The significant money that they end up having will blow your mind because NDIS funds everything these days, right? So we're not exactly depleting the money, the investment returns if invested prudently or making five, 10%, 15% compound depends on, because we've got to give regard to the duration of the trust. If somebody is in their thirties, forties, they could live another 40 years. What am I doing holding so much cash in a special disability trust given regard to, so I've got to think about that and I've got to say, well, actually you've got to go into a higher risk profile because we've got the time and time to invest prudently and that, and holding so much cash is not going to be a prudent investment.
(43:59):
Suddenly you start with half a million dollars becomes 600, becomes a million, becomes 1.5 million in the span of 10 years, and you think, are we going to spend any money? What am I going to spend money on then spending on this and spending on that? So it becomes an education piece for the family to say, citizens start spending the money. And even when you spend money, 10, 20, $30,000, if you're returning 60, 70, $80,000 a year, it's going to compound really quickly. Some people say, well, I'm just not going to give anything to a person with a disability because I don't want their pension to be impacted. I don't think that's right.
