Katherine and Guy have always worried about how their son, Roman, would manage without them. Roman, 18, lives with a severe disability and his parents provide for most of his needs.
A confusing question for Katherine and Guy is who to appoint as Roman’s trustee, as the management of his care may be comprehensive. They put off developing an ongoing care plan in their will, but when Katherine found out she had breast cancer, they decided they had to act.
Instead of leaving Roman a lump sum or the house in their will, they must protect the funds to provide income to support Roman as he gets older. He has severe spina bifida and intellectual disability and is incontinent. He uses a wheelchair.
The National Disability Insurance Scheme (NDIS) has really helped, providing Roman care services and freeing up Katherine’s care role for several hours on some days, but NDIS does not provide accommodation or food.
Roman turned 18 and is entitled to a government disability pension, but it won’t cover all of his needs. It pays $503.50 per fortnight for those aged 18 to 20 and $987.60 for those aged 21 or over.
Katherine and Guy want Roman to have extra income to help pay for housing, therapy, food, medical emergencies and hobbies. But the funds could disqualify him from the disability pension because of his assets and income.
Roman loves his computer and the electronic gadgets that connect him to his friends via chat rooms and has hobbies such as basketball. He is much loved by his parents and healthy neurotypical siblings. He lives at home, but he could live in supported accommodation as an adult.
“There’s a lot to weigh in. It can be emotional and difficult,” says Susan Bonnici, senior estate planning attorney at Equity Trustees, a firm that offers professional trustee services. “But once you get the conversation started and put something in place, it gives people peace of mind.”
Bonnici says it’s a struggle for people to find the time to make a plan.
“Disability is such a broad term and there are so many varieties. It means there is no one-size-fits-all solution.”
Special Trust for Persons with Disabilities
There are several options for Roman. Perhaps the best solution is to set up a Special Disability Trust (SDT). These were introduced by the government in 2006 for families to put money aside to primarily fund the medical care and accommodation needs of a severely disabled person.
The SDTs authorize some limited spending – $13,000 for 2022-2023 – on discretionary items, such as food, clothing and recreation.
One of the benefits of an SDT is that Roman can still receive his government disability pension if the SDT has assets of $724,550 or less. (It is indexed annually on July 1 with the discretionary limit.)
The government grants beneficiaries an asset test exemption, but to be eligible they must follow the rules and reporting requirements of an SDT.
SDT income is not counted for social security benefits provided it is used for care, housing, discretionary expenses and maintenance of the trust.
The NDIS is not means-tested for assets or income.
Special disability trusts can be set up by parents during their lifetime or as part of a will. A valid will is important so that the parents’ wishes are established for their child with a disability.
A combination of strategies can work well for parents, says Bonnici. A single strategy might be too restrictive, but combining several different ways to support a child might provide more flexibility.
Two-thirds of the 4.4 million Australians living with a disability do not suffer from a serious illness and could manage their own finances. Their parents can establish a testamentary trust in their will.
“A lot of people with disabilities are extremely capable of managing their own affairs,” says Bonnici, whose daughter lives with a rare disability. “Parents understand their child’s abilities and disabilities.”
A testamentary trust allows an appointed trustee to distribute income and lump sums in times of need on an enduring basis.
“It’s a good idea to have flexibility built into the will,” says Bonnici.
But unlike SDTs, the assets of a testamentary trust will count towards the income and assets test for disability pension and other social security benefits.
If a child is at risk of being scammed by someone who could take over their property, parents may need to be more prescriptive in the testamentary trust, so that the money is protected and lasts.
Testamentary trusts do not have the same strict constraints as an SDT and can be useful in providing a fund for other expenses that cannot be placed in an SDT.
If your child with a disability could manage his own finances, parents could gift the money to him without a trust structure. But always check how a direct donation will affect Social Security benefits.
Some parents leave their retirement benefits to their children because it is the next greatest asset to their house. Some funds can pay a continuous pension to their child.
Choose a trustee
The hardest and most important decision when setting up a trust, Bonnici says, is who to appoint as trustee.
“It’s really tricky because a lot of people don’t want to impose on people the care and responsibility of being fiduciary.”
Often parents appoint their other children or family members or friends as trustees because they know the child and understand their needs. Also, they don’t charge a fee.
Bonnici says directors need to have a genuine connection to the person and an understanding of their needs.
They also need sufficient time and resources to perform their role effectively, as well as to understand the trust’s regulations and compliance requirements. The role requires financial and investment skills.
Katherine and Guy want their other children to be Roman’s administrators, but worry about their busy lives, especially when they have children of their own.
Bonnici says appointing lifetime trustees can be tricky because you don’t know what will happen. She has had clients whose beneficiary outlives her siblings.
She recommends a backup plan or adding trustees if something happens to a single trustee.
Choosing independent trustees can be a way to ensure that they serve the best interests of the disabled person.
Conflict of interest
The Department of Human Services (DHS) guidance on caring for a child with a disability indicates that family members as trustees may have a conflict of interest as they are often likely to benefit from funds left over after the death of the disabled person. .
He says that while many family members will do a good job, DHS urges families to discuss the issue carefully, stressing that you don’t know who their partners will be.
Private trust companies can be a good choice, says DHS, because they have the experience. They don’t know the person and have to rely on other people providing information to decide where to use the available funds.
It is important to consider the fees before you start setting up a trust either directly or by will. Creating a trust involves legal and accounting costs. If you use a trust company, there are ongoing fees which may be based on assets under management.
In addition, there are accountant fees for preparing accounts and tax returns.
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