Estate Planning for children with special needs
The life of a parent of a child with special needs is filled with many worries. A significant concern for such parents is how to provide for their child when the parents die.
You need to find a balance between providing for the child with special needs and the other children of the family.
Two options we consider when preparing wills for people who have children with special needs are Protective Trusts and Special Disability Trusts.
Protective Trust in the Will
A Protective Trust is a flexible way to have your child with a disability provided for in your will.
Protective Trusts are used in many different situations when the Will maker may feel that a beneficiary should not or cannot have complete control over their entitlement. It is the executor of the will who will administer the trust for the benefit, maintenance and support of the disabled child. It is the will maker who determines things such as:
- The duration of the trust
- Whether income or income and capital can be applied
- The beneficiaries of the trust
- The purpose for expenditure
- Where the funds go when the beneficiary has died
The funds of the Protective Trust are deemed to be assets of the child under the Centrelink rules with the limits currently being (at the time of writing):
| Situation | Home Owner | Non-home Owner |
|---|---|---|
| Single Person — Full Pension | $263,250 | $473,750 |
| Single Person — Part Pension | $578,250 | $788,750 |
This is a significant limit, however for people who anticipate a benefit greater than these limits to be left to their disabled child, there is an alternative.
Special Disability Trust
A Special Disability Trust is very similar to a Protective Trust but has modifications which are prescribed by Centrelink and if you comply with those restrictions, the big advantage is that the assets and income are excluded from the Centrelink assessment levels provided that the assets do not exceed $681,750. The primary residence of the disabled child is exempt as an assessable asset.
Although this may seem like the obvious first choice, there are many restrictions surrounding a Special Disability Trust. Firstly, the beneficiary of the trust must meet the definition of a ‘severe disability’ under section 1209M of the Social Security Act 1991 (Cth) which will be assessed by Centrelink.
The funds can only be used for reasonable care and accommodation of the disabled child, but this does not necessarily include money spent on food and clothing. There is a limit on the amount of money that can be spent on clothing, food and other daily living expenses. The limit is $12,250 per annum which equates to approximately $235 per week that can be spent on anything that falls outside the ‘care and accommodation’ of the disabled child.
Funds from the Special Disability Trust can be used to purchase accommodation for the beneficiary, however, there is a restriction that no family member can live at the property with that disabled child, even if they are their registered carer which can be a big disadvantage.
Sometimes, depending upon the assets available, a Protective Trust and a Special Disability Trust combined can be helpful, but everyone’s circumstances are very different. The choice of Executor is also very important as you want someone who can both manage the funds and be compassionate to the needs of your child.
There is certainly great benefits from such trusts, if your family situation requires such planning you should contact our Wills team to discuss how we can help design and implement the right solution for your circumstances.
If you would like to know more or set up one of the trusts above, please contact a member of our Wills team. Accredited Wills & Estates Specialist Russell Robertson on 03 5445 1020, Emily Chamberlain on 03 5445 1069, or Madeleine Debono on 03 5445 1063.