A trust is a common vehicle for passing property to family members. The key feature of a trust is that assets are held by one or more persons (trustees) for the benefit of another person or class of people (beneficiaries).
You can establish one or more trusts in your Will, and these are referred to as testamentary trusts.
In the case of a beneficiary with special needs, it will often be problematic to give complete responsibility for a testamentary trust to the beneficiary personally.
A “Protective Trust” in your Will may be appropriate for beneficiaries who:
In a typical Protective Trust:
Special Disability Trusts
If you have a severely disabled child or family member, another good option is to establish a Special Disability Trust (“SDT”).
A SDT can be set up during your lifetime, but can otherwise be incorporated into your Will.
The terms of the SDT must specify one “principal beneficiary” who is to benefit from the trust. This person must meet the criteria of “severe disability”, including that he or she suffers a level of impairment which qualifies him or her for a Centrelink pension.
The trustee of a SDT is able to:
Couples with dependent children, where assets and/or life insurance (within or outside Superannuation) are sufficient; for example:
The main advantages associated with having a Special Disability Trust are:
Contributions or gifts of assets to any value can be made to this type of trust at any time by almost anyone. However, the rate of a contributor’s Centrelink payment may be affected if the contribution is worth more than the allowable concessional amount or if the contributor does not meet the required eligibility criteria.
A SDT must have an independent trustee, or alternatively have more than one trustee. The trustee(s) must comply with the investment restrictions, provide annual financial statements and conduct independent audits when required.
Due to the legislative requirements of a SDT, care should be taken when incorporating one in your Will.
A Testamentary Discretionary Trust (“TDT”) can be used to provide for beneficiaries with special needs, including beneficiaries at risk of bankruptcy and those requiring asset protection generally.
TDTs can also be very tax-effective for beneficiaries with dependent children. However, they lack many of the specific advantages of Protective Trusts and SDTs referred to above.
A final option may be to give an amount directly to a beneficiary’s administrator or other representative. This may be appropriate where the amount of the gift is modest.
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