A Special Disability Trust is a trust established primarily for succession planning by parents and immediate family members for the current and future care and accommodation needs of a person with a severe disability or medical condition. The general approach is that the trust can pay for any care, accommodation, medical costs and other needs of the beneficiary during their lifetime.
A Special Disability Trust is not the same as a normal trust and needs to be established by a solicitor and strictly drafted to include the compulsory clauses of the Model Trust Deed as set down in the legislation. In addition, before a Special Disability Trust is established, it is important that the prospective trust beneficiary is assessed as severely disabled under the legislation for this type of trust. Further details are available at www.dss.gov.au.
Once a disability trust is established family members can then transfer property, shares and cash to the trust. The income from the trust will then be used to provide for the disabled person’s future care and accommodation. The trustee of the disability trust will be taxed annually on the trust income at individual marginal tax rates.
A capital gains tax exemption (CGT) applies to CGT assets transferred into the disability trust for no consideration. This allows family members to provide for the disabled person by transferring CGT assets without personally incurring capital gains tax liabilities.
In addition, if the Special Disability Trust acquires a residence for the trust beneficiary to live in, the capital gains tax main residence exemption will apply to it. The capital gains tax exemption also applies to the recipient of the beneficiary’s main residence, if the main residence is disposed of within two years of the beneficiary’s death.