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Overview of Assessment - Special Disability Trusts
Last amended: 10 June 2011
What is the purpose of a special disability trust?
The purpose of a special disability trust (SDT) is to assist families, who have the financial means to do so, to make private financial provision for the current and future care and accommodation needs of family members with severe disabilities. This measure took effect from 20 September 2006. Each trust can have only one principal beneficiary and a principal beneficiary can have only one SDT. The principal beneficiary can have other (non-SDT) trusts in addition to the SDT.
A beneficiary assessment must be completed prior to setting up a SDT. When the beneficiary is being paid by Centrelink, the assessment is completed by Centrelink. Once the assessment has been completed, a copy of the assessment should be requested for placement on file. All SDT cases should be referred to the Trust and Companies Team.
Characteristics of an SDT
An SDT must meet the following requirements:
- the principal beneficiary must meet the eligibility criteria,
- the trust must be 'protective' in nature,
- the trust must have only one principal beneficiary (the person for whom the trust is established),
- the assets of the trust must not include any compensation received by or on behalf of the principal beneficiary,
- the trust must provide primarily for the accommodation and care needs of the principal beneficiary,
- the trust must comply with the expenditure restrictions for purposes other than the primary purpose
- the trust must have a trust deed, or be established via a will, that contains all of the compulsory clauses set out in the model trust deed,
- the trust must have an independent trustee, or at least two trustees (for example family members) must manage it,
- investments by the trust must be at arm's length from the immediate family members and the investment strategy must take into consideration the care and accommodation needs of the person with a severe disability,
- the trust must comply with the investment restrictions
- the trustee must provide annual financial statements to DVA or Centrelink, and
- the trustee must arrange for independent audits when required.
Note: If a trust does not contain the compulsory clauses (and cannot be issued with a waiver), or it contains clauses that could override the relevant compulsory clauses, it will not be classed as an SDT.
Eligibility of the principal beneficiary
The beneficiary must have a severe disability.
Care and accommodation
The primary purpose of an SDT is to meet the reasonable care and accommodation needs of the principal beneficiary.
Care and Accommodation
Assessment of income and assets for SDT
All income from the SDT is exempt from the income test, while the principal beneficiary is allowed an assets test exemption up to the special disability trust assets value limit.
Gifting to SDT
There are limitations to gifting to an SDT.
To be eligible to be the principal beneficiary of a special disability trust, a person must have a severe disability. A person with a severe disability is:
- a person who has reached 16 years of age:
- whose level of impairment would qualify the person for disability support pension from Centrelink or who is already receiving invalidity service pension or invalidity income support supplement, and
- who has a disability that would, if the person had a sole carer, qualify the carer for carer payment or carer allowance, or
- who is living in an institution, hostel or group home in which care is provided for people with disabilities, and for which funding is provided (wholly or partly) under an agreement between the Commonwealth and State/Territory governments, and
- who has a disability as a result of which he or she is not working and who has no likelihood of working for a wage that is at or above the relevant minimum wage, or
- a child under 16 years of age who is a profoundly disabled child as defined in subsection 197(1) in the Social Security Act 1991.
Trustee has two meanings depending on the context, (i) and (ii).
(i) a person who looks after someone else's affairs
According to section 202 of the VEA, a trustee is a person appointed by the Commission to administer the financial affairs of a pensioner who may be incapable of managing their own affairs for reasons such as:
- ill health, or
These criteria include circumstances where a pensioner has a psychiatric disorder or a mental illness as a result of alcohol or drug addiction.
A trustee can be appointed, with or without the consent of the pensioner and once appointed, a trustee has full control of the pension payment.
(ii) a person responsible for administration of a trust
Arm's length is the description of an agreement made by two parties freely and independently of each other, and without some special relationship, such as:
- being a relative,
- having another deal on the side, or
- one party having complete control of the other.
It becomes important to determine if an agreement was freely entered into to show that the price, requirements, and other conditions were fair and genuine.
According to subsection 5Q(1) of the VEA, for the purposes of the means test concession, a parent or 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, and
Centrelink is a Government service delivery agency responsible for delivering a range of Commonwealth Government services (including social security pensions and allowances) to the Australian community through a network of more than 400 Centrelink offices.