Special Disability Trusts

Planning ahead for individuals can be challenging but that task can seem harder for family members of individuals affected by severe disability and will often involve more than making a standard Will and appointing a Power of Attorney or Enduring Guardian.

In 2006, the Government introduced Special Disability Trusts into social security legislation with the aim to encourage the private funding of accommodation and care needs for people with disabilities. A Special Disability Trust allows family members to leave assets in trust for an individual with a ‘severe disability’ which can be used to fund that person’s ongoing care, medical expenses, accommodation, and some discretionary expenditure for that person into the future without adversely affecting their entitlement to a disability support pension.

A Special Disability Trust can be established by a Will and allows assets to be left to a beneficiary without having adverse effects on their Centrelink entitlements. A Special Disability Trust may also be set up during a person’s lifetime (for instance by a parent for their child with a severe disability) and the restrictions and concessions applicable will be the same as those that apply to a Trust created by a Will.

A Special Disability Trust must conform strictly to very prescriptive rules and as such it will not suit everyone with a family member who has a disability.

The starting point must always be to determine whether the person with a disability qualifies as a beneficiary of a Special Disability Trust which must fit the definition of ‘severe disability’ under the social security legislation.

Funds in a Special Disability Trust can only be used to pay for accommodation and care expenses related to the disability (including medical and health insurance expenses) and reasonable discretionary expenditure (up to a limit of $12,250 a year, as at July 2019).

A person with a ‘severe disability’ can have $681,750 (as at July 2019, indexed annually) plus a residence held in trust before the assets test applies to reduce his or her social security entitlements. The income from the assets of a Special Disability Trust will not be included as income of the beneficiary. Family members contributing assets of up to $500,000 into such a trust may receive an exemption from the usual Centrelink gifting rules.

It is strongly recommended that individuals obtain expert legal and financial advice to determine whether a Special Disability Trust suits their circumstances. For advice a Special Disability Trust, please contact the experienced team at Everingham Solomons because Helping You is Our Business.

Can a trustee delegate his/her duties?

The position of a trustee of a trust is an important position which is governed by State and Commonwealth Legislation and Case Law.

Trustees of a family trust have many duties. Broadly speaking, these include the trustee:

• Acting in good faith;
• Acting personally;
• Acting unanimously where multiple trustees are involved;
• Not being dictated to by others such as beneficiaries;
• Having a duty to consider how distributions should be made and to whom; and
• Having a duty to avoid fettering of any discretion they have.

So can a trustee appoint someone else to perform the trustee’s duties, like an attorney? It is not uncommon to see where a Trustee has executed a power of attorney in favour of third party.

The law is that a trustee cannot delegate these duties unless permitted by the Trust Deed, legislation or a Court Order.

The office of trustee is viewed by the Courts as one of trust and personal confidence.

A trustee must not execute a Power of Attorney to a third party granting the attorney, general or wide powers relating to the authority of the trustee. A trustee who does this will be acting outside the scope of the trust and the law and any transaction entered into utilising such Power of Attorney is likely to be unenforceable.

Section 10 of the NSW Powers of Attorney Act states that a prescribed Power of Attorney does not confer authority to exercise any function as a trustee.

Accordingly, a trustee cannot delegate their powers and authorities.

There is a statutory exception with respect to trustees of a self-managed super fund.

Trusts, trust deeds, trustee duties and the law surrounding them are complex.

At Everingham Solomons, we have the expertise to assist you because Helping You is Our Business.