Welcome to the fourth in our series on Special Disability Trusts (SDTs), where we hope to demystify particular aspects of these trusts, and highlight the benefits, eligibility requirements and restrictions to look out for.
As discussed in our previous articles in this series, the two main benefits of establishing a SDT for a vulnerable person are:
- Protecting the person from poor decision making and exploitation from others; and
- Preserving the person’s receipt of the Disability Support Pension (DSP).
In this article we discuss additional benefits that may be available to immediate family members, where gifting to the SDT can improve their own eligibility for a Centrelink benefit.
Generally, a person cannot reduce the value of their assets in order to obtain a social security advantage (we note that different rules apply in relation to “granny flat” arrangements).
Sections 1123 – 1127A of the Social Security Act 1991 (Social Security Act) limit the value of assets that can be disposed of to the lesser of $10,000 per year or $30,000 over a five year period.
If the value of disposals exceed these amounts, then for the purposes of means testing, the excess value will be deemed to still be part of the person’s assets for a period of five years after the disposal.
However, Div 4 of Part 3.18A of the Social Security Act provides that if certain conditions are met, an asset transferred to an SDT is not to be considered a disposal within the meaning of section 1123.
The main conditions are that:
- the gift is made by an immediate family member of the principal beneficiary; and
- the donor receives no consideration (ie nothing of monetary value in return) and is not entitled to any consideration for the transfer of the asset; and
- the gift is unconditional; and
- the total combined value of the gift and any previous gifts made where a concession was claimed (including by other immediate family members) does not exceed $500,000.
To illustrate this last point by way of example, if an immediate family member had previously gifted $400,000 to the SDT and claimed a gifting concession, then there is only $100,000 remaining which can be gifted and a concession claimed. Any amount gifted in excess of the $500,000 total concession available would be treated as a disposal of assets.
If the conditions are met, this could mean that a person (eg a parent of someone who qualifies for an SDT) could reduce their own means tested assets by gifting up to $500,000 into an SDT, thereby immediately increasing their own eligibility for a Centrelink benefit (eg the age pension).
How we can help
If you (or someone you know) are in a position where your Centrelink eligibility for a benefit could be increased if you were able to reduce your assets and an immediate family member has a disability that would qualify them for a SDT, then this could be something to explore further. You should first seek advice from a licenced financial planner who has expertise in this area, to see if this would be suitable for your particular circumstances.
Look out for the next article in our series, when we discuss the State Duty concessions and exemptions that are available when transferring dutiable assets to a Special Disability Trust. For more information or guidance, please do not hesitate to contact us.