Transcription
Hi everybody. Welcome to the Art of Estate Planning Facebook Live, all about Special Disability Trusts. Today, I have a special guest, William John's from Health and Finance Integrated, and we are going to look at this topic from the perspective of, um, the financial advisor and the legal perspective. Because, let's face it, this is a topic that requires a lot of collaboration and integration between a client's entire advisory team. Welcome, William.
Thank you. It's, it's lovely to actually present with you.
Oh, we've been meaning, we've been meaning to do this.
No, we've been meaning to do this for a while. So, I'm really glad that it's finally, um, coming up as a topic that I'm very passionate about, and thank you for suggesting it.
Excellent. Well, um, Special Disability Trusts, it's, um, it sounds easy, right? And it is, and it should be. But as anything with disability and human emotion and everything else like that, it tends to get a little bit complicated, um, uh, when once you get into it. So, I'm hoping that today, what we'll do is we will bring to the, you know, the power of, uh, uh, multi-disciplinary, um, uh, way of actually problem-solving and workshopping what the client's ultimate desire, um, is. And look at it from both the disability expertise, which is my background as well as the financial planning, which is also my background, but, um, the, uh, and look at it from a, wrap it up within a legal layer, um, that is, uh, your forte. So, uh, I think together we can actually address quite a few issues today that hopefully the audience will enjoy.
And I want to just say thank you to everybody who is watching us live. So, we can see your questions if you post them. Feel free to add questions. Um, we'll make sure we have time at the end, and we'll also just try to keep an eye on those and watch them come up and raise, address them as they relate to what we're speaking to.
Before we get into it, it is NAIDOC week, and I would like to do a quick acknowledgement of country. So, I acknowledge that I am hosting this training from the lands of the Yugambeh people on the Gold Coast. I also acknowledge the traditional custodians of the land on which each of you are living, learning, and working from today. I pay my respects to elders past, present, and emerging, and celebrate the diversity of Aboriginal and Torres Strait Islander peoples and their ongoing cultures and connections to the land and water in Australia.
Well, I think we should get into it. So, William, you're going to start us off. Before we get into the topic, can you just tell everybody a little bit about where you're based, who you work with, and, um, yeah, what your ideal client is?
Yeah. Um, so, uh, you know, I, I run, uh, two firms, and we're about to establish the third, which is the more critical leg, um, in the, in that consultancy space to legal professionals. But I run, um, Health and Finance Integrated. It was established in 2013 to make people's lives easier when it came to disability and chronic, uh, and complex illness matters. Um, so, um, we have a team that works at Health and Finance that include a medical council, includes disability, um, specialists, um, includes financial planners, and we all work together on to resolve cases. Um, throughout that journey, um, we established Claim Right, which is a claims, uh, administration service for, you know, a low-cost service for, um, superannuation claims, TPD, and the like. But also, it was really to resolve the issue that a lot of people with disabilities were, um, you know, the decline rate for disability support pension. I'm not sure if people know this, but 74% of all applications get declined. And so, we felt like the, uh, that system was broken, and we wanted to insert some technology, um, and medical know-how, disability know-how, and financial know-how in artificial intelligence and so on to resolve that in a quick and efficient way. So, that's called Claim Right, and it's been operating since 2017. We've done about $120 million in claims since then. Um, and, uh, everything that we do has a purpose, which is to make lives easy. Three things that are core for us is people must have appropriate accommodation, somewhere where they feel safe, good stable income so that reduces the anxiety, um, and so on, and finally, good care. If we can do all three, then we've done an amazing job and left a really great legacy, um, for those people that touch us or we touch.
So, um, uh, today we're talking about something very specific, which is like almost like a solution in a big toolbox. And, um, you know, operating in my, from my practice in Parramatta, but we are Australia-wide. We get a lot of inquiries both from people who, you know, professionals, but also from the market saying, you know, what about Special Disability Trusts? How come I haven't heard of this before? I've just learned about it, and I want to have a chat about it. They think that it's a magical solution. And today, we're trying to kind of understand what that magical solution looks like, and does it work or not. Um, and so, let's, uh, let's go for it.
Thanks, William. And look, that background was excellent, and it sounds like this is just the perfect topic for you to present on, and you're more than qualified to lead us through it. So, I'm looking forward to your insights.
All right. Um, so, first of all, um, general advice disclaimer. You know, this is general in nature. This is, uh, this is not personal advice. Um, this is done through our private estate services arm. And I'll just tell you a little bit about me. So, obviously, Certified Financial Planner, Master in Disability Studies. I mentioned to you that we run multiple, um, uh, uh, companies, and I'm also a director of the Financial Planning Association. And you guys will love this. I have just lodged my STEP membership, so I'm waiting for to be, you know, formally admitted. So, that would be awesome. So, I can add that very proudly on my slide next time. And, uh, my purpose in life is obviously protecting the rights of people with disabilities and blending the disciplinary, the disciplines for superior outcomes. Um, you'll have, um, my number and email address if you need it there as well.
Let's, um, let's first start by taking a step back and, um, talking about the client universe. And, you know, if you put the person in the middle, what they are dealing with more often than not is, you know, they're dealing with housing issues, whether it's public housing, whether it's shared housing through group homes, whether it's living with mom and dad, etcetera. And I'm assuming when we talk about Special Disability Trusts, we're talking, uh, about people who either have a congenital disability, something that they were born with, or they have acquired that disability, and now there is a transition of wealth from one generation to the next. Um, so housing is always important because it, it, you know, it depends how you, um, leave money, it could impact how much rent they're paying, uh, via subsidized rents if they are, um, in government housing or in, they are, um, in group homes, etcetera. Um, so, you need to take care of that, and that has got its own special mind. It's different from Centrelink. It's much harsher than Centrelink. Um, the key difference there is that even unpreserved, um, superannuation benefits, um, even though in accumulation phase, do count as an asset for eligibility criteria and so on. So, you've got to just be aware of the differences there.
Um, obviously NDIS, which is the care aspect, that to me is extremely important. A lot of people don't, um, understand it very well, and so they turn to professionals, um, for advice on whether they should, uh, apply for NDIS or not. I certainly get that query a lot, and we register people for the NDIS. Um, and I can go into that a little bit more. Um, and then finally, you know, medical care, and through either Medicare or some other, um, uh, you know, statutory body that's basically like, for example, compensation and all that sort of stuff that may be paying for their medical expenses. Um, you've got banking, you've got Centrelink, you've got superannuation, and you've got aged care. There are other systems at play. Sometimes you've got child, uh, protection agencies and all that sort of stuff also at play, but I'm not going to get into that because it gets really complicated.
So, what I'm trying to do is kind of isolate the systems where a Special Disability Trust, um, has an immediate impact on, uh, such as housing, NDIS, and, uh, sorry, housing, care, and, uh, medical expenses. So, I've isolated those. Obviously, it also touches on aged care. I've kept Centrelink out, and you'll think, well, why is it in the circle? Um, and that's because, um, it complements rather than, it doesn't fall within the, um, trust itself. It's, it's, uh, for income purposes and all that. Centrelink is, um, separated, but we'll talk about that in a sec. But that's this, that's the universe. And the issue here is that it's complicated. And so, if you imagine if, as a 70-year-old mom who's been single for the past, you know, 40 years, um, unwell, has a child with a disability who's no longer a child, they're in their 40s. They're like, well, how do I leave a legacy behind? How do I make sure that my child is protected? My, my son or my daughter are protected, and I need to understand, I need to make sure that they are not disrupted. I need to make sure that no one's stealing their money. I want to make sure that they are safe in their home where they are. Um, sometimes the home becomes a specific issue because what happens if they live with mom or and dad, and suddenly we're disrupting that through, uh, death. So, we need to have a continuation plan of care. Um, but certainly, uh, care and, and medical, um, expenses come into it as well. And that's the limitation of the Special Disability Trust, unfortunately, is that housing, care, and, and medical. So, let's have a look at the, um, what happens next.
So, let's talk about a little bit about the SDT. Um, when we are talking specifically about an SDT and assuming you have kind of distilled the client universe and you're, you're now at the investigation stage of whether to consider an SDT or not. The first thing that you need to do is you need to ask, do you actually meet the eligibility criteria? Um, and did Centrelink issue you with an eligibility letter? So, if you got approached the Special Disability Trust team at Centrelink, you can simply, uh, uh, write, well, you used to be able to write to them. That's not the case anymore. You have to become the nominee now, or you get the nominee, um, like mom and dad, to, um, uh, apply for an eligibility letter. They used to be able to just accept it. Uh, and you have to either fax it now or mail it, which is really annoying. They, they shut off the Special Disability Trustee at Centrelink, shut off their email. Emails. They no longer accept me emails. So, good luck.
Um, I know, I know, you know, um, it's, it's a bit insane. So, when, um, when is it going to be set up? Is it now, or is it going to be testamentary? Um, and are the donors prepared for the donation? Um, and are the donors prepared for the job? So, these are the things that we kind of address, um, when we meet with a client. You know, before we even think about it, let's go and try to get an eligibility letter. When do you want to set it up? So, you do an, you know, an overall strategic view. So, yesterday, I had a client who, um, an inquiry rather, a $7 million estate, a 90-year-old mom, um, and three siblings, one of whom is, um, uh, eligible for a Special Disability Trust. Their lawyer said, um, you know, to set it up through, um, the will. And when we talked a little bit more, it turned out that they have, he's got two half-siblings, and that the, that no one wants to give any money to. So, the question was, well, do we actually set this up now and do the donation now, um, or do we set it up later? There was also issues around, you know, um, shares and donation of what, what assets, what, what's more pregnant with most CGT, and all that sort of stuff. So, we can donate that and overcome some capital gains tax issues. So, these are all issues. And I said to them, look, you've got to talk to your lawyer about it. Happy to write a brief just alerting, you know, to the complexities, but, um, you, you need proper legal advice to decide on whether the donation should happen now to potentially overcome some of the, um, uh, contestation issues down the track.
Okay. So, people say to me, well, what are you talking about when whether I'm actually ready for the job? You know, what is that job that you're referring to? Well, unlike other types of trusts, um, Centrelink provides oversight and regular review of the trust to make sure that they continue on, uh, for the trust to be, to continue on being compliant and offered that Centrelink exemption. There is also, um, a direct reasoning behind that around the protection of people who have disabilities because they tend to be, some of them tend to be more vulnerable than others, and so they want to make sure that the trustee is also doing the right thing. So, you know, expect an audit from Centrelink every 5 years. Um, but certainly, you have to prepare the financials and, you know, like proper accounting for all the trust activities, yearly. So, um, that happens yearly. So, we, in my view, what we need to do is we defer back to the Trustee Act, and, you know, in Queensland, you've got this wonderful thing called the Prudent Person, uh, principle, which, uh, uh, you would be familiar with, um, but the, um, what it looks at is the, uh, purpose of the trust, the duration of the trust, diversification and concentration risk, capital preservation, growth, income, tax consequences, costs, and so on. In New South Wales, this is, uh, 14C and 14D. I can't recall the exact. Is it 58? Section 58 of the Trustee Act in Queensland, or 54? Can't recall.
Oh, you're putting me on the spot.
Yeah, I, I don't, I don't recall. I've just done one for Queensland. So, I can't, but I'm pretty sure it's, it's 50-something. Anyhow, um, you want to look at the, um, you want to look at the, uh, the duties of the trustee and the Trustee Act, and you need to basically ask the, the people who are you're, who you know, want to establish it, are you actually up for the job? Because, you know, if the purpose of the trust is simply to move an investment property from your name to your child's name and not pay stamp duties and capital gains tax and all that, then you've, but you run into the issue of diversification and concentration risk because that can be seen as speculation. So, uh, there are issues there that you need to overcome. You also need to understand the purpose of the trust is not simply to grow money. It is to pay for the core, uh, principle, uh, uh, needs of the beneficiary within the purpose of the trust. So, that's important stuff that you use as a sound, as a, as a foundational conversation, as a first, you know, conversation with the client to kind of lead them to the next phase.
Succession is very important because no one lives forever, and, and beneficiaries of Special Disability Trusts tend to be, um, younger. So, you know, the, certainly, um, you could say, you know, that people are in their 30s, 40s, may live for another 50 years. So, succession becomes an extremely important issue. So, you've got to kind of turn your mind to corporate trustee, uh, versus direct control. Um, and, um, you know, how old are the trustees and directors? Do they have powers of attorney, alternate decision-makers? Um, and you've got to just keep in mind that with a Special Disability Trust, there's a minimum, uh, requirement of two trustees. Um, and you sometimes have to have a backup trustee, in my view, um, such as a, um, professional trustee.
And William, I'll just jump in there. I mean, I feel like in practice, this is an area that requires a lot of work and thinking because often the client, or, you know, the, um, the parent or the donor doesn't have a huge circle of people who they want to put this burden or responsibility on. And it, I feel like you have to really do a lot of work to guide your client to try and find out who is suitable for this role.
I think you're right. Look, you're 100% right. And especially if you're talking about, you know, look, it depends. Sometimes, sometime when you have disability and, you know, like you have the those little smaller, you know, marginalized communities, let's say, you always have an interesting dynamic between family members, you know, you, you have people who walk out, you have people, multip, you know, blended families, you've got people who are very isolated, um, and trustees who are very isolated. So, you've always got these issues, but you can't generalize. So, you have to kind of have these conversations, as you say, and and guide the client. But having, but understanding that the client is not going to live forever, or the trustee is not going to live forever. And having that backup is crucial because without that backup, what happens is that they, it ends up being, you know, a QCAT, NCAT, VCAT problem, and the public, and, and the, you know, and the TNG becomes the, uh, uh, default position. So, we need to make sure that that doesn't happen. The reason is, is that there is nothing that brings fear like an institution when it comes to this kind of work. If you start talking about taking control and giving control to government, these people remember back in the 80s and 70s where pe, where people were basically locked up. They remember back in 2012, 2013, when they were relinquishing care because government stopped funding NDIS and for, and for, and they also cut down bulk funding. So, there was a, a large cohort, very recent cohort, like young cohort of mothers and fathers who had to relinquish care so they get funding to help their children who are have extreme behaviors and so on, or have, have, uh, uh, you know, needs. Um, so, you don't want to talk about government as a solution. And so, if you're trying to avoid that, then that gives them the driver to find solutions that they may otherwise not have considered or not be a, or not, not be appealing because of cost, such as a professional trustee, such as the lawyer, for example, jumping in for the time being as, you know, as one of, as a backup plan. Um, there are several ways to cut the cake, but it really depends on how the, like, as you say, this is such an important conversation. I can't stress it enough.
Yeah, I think it is. And I feel like, you know, you can't just sort of gloss over it as being too hard. Like, the client has to do the hard work and make these decisions and put the succession plan in place.
And succession plan really scares people. You know, I've presented, you know, um, several times, you know, throughout my career in front of parents, you know, I, it depends on their cultural background and all that. They deal with succession really differently. So, you've got to be very sensitive about that cultural aspect of what succession looks like. Sometimes it's, yep, he's got an older brother. The older brother, of course, is going to take over. Um, or he's got an uncle. The uncle, for sure, is going to take over. But that doesn't mean that the uncle or the brother want to take over. Um, the other side of the coin is, um, fear of death because they're afraid, um, that without them, the child will absolutely be vulnerable. And, and that's happened to me where I presented in a, you know, say, 50 people, and one of the mothers, um, was crying, you know, was very, very distraught, and we wondered what was going on. So, we stopped the presentation, and it turns out that her child has been assaulted in a group home, and the, and, and she's taken that child back into home. And the, the thought of her not being around to protect, um, her daughter, um, was just too much for her to bear.
Yeah. And, and, and lucky, lucky I had, you know, a counselor, um, that I knew who was there, and so, you know, had to counsel her on the spot and just calm her down and all that sort of stuff. So, this is as exciting as Special Disability Trusts are, as exciting as, you know, you providing solutions such as this, it is extremely raw sometimes in terms of emotion. And so, sometimes it's okay for, um, uh, I think it's okay for common sense not to prevail in some occasions.
Yeah.
If that makes sense. Yeah, you've got to be, you've got to be okay.
Sorry to, sorry to take you on that tangent.
No, no, it's a good tangent to go in. It's a, it's a really good tangent to go in. Um, so, um, impact on housing. Um, like I said to you, housing has two parts. An asset test, uh, an asset means test, which is at eligibility point. So, if somebody's going into a group home, that it will come into, um, effect, or if somebody is going into a public housing. Uh, NDIS is a bit different, but it does have that element as well. And, um, an income test to determine the portion of ongoing rent. So, with the, uh, Special Disability Trust, is obviously exempt. And this may be a reason why we would, uh, want to use a Special Disability Trust specifically for housing eligibility and, um, and, uh, support with the rent if the rent's high, etcetera. Um, I hope I'm not going too fast, but I'm conscious of time, and I want to allow, um, a full discussion on this, Tara, especially from your point of view. So, I'm just pressing on. But a lot of the times, we get, you know, this question, is superannuation an alternative? You know, it's a trust in itself, it's got trustees, you know, it's got that protection, it's got that Centrelink benefit for the purposes of, you know, um, asset exemption for accumulation and all that sort of stuff. Um, why can't we consider? Absolutely consider it. And, but just be aware that you lose control, um, of that because the trustee of the superannuation trust, unless an SMSF, will have, you know, their own views of whether a, a power of attorney is valid. They will have their own views of what disability, uh, may be, um, and within the confines, obviously, of the SIS Act. So, for example, if somebody is, and I'll give you an example actually, I'd rather, um, just go through the slide. Um, so, absolutely, is an, is an alternative strategy. Um, but you've got to be aware of the gainful employment test. And let's, so let's play devil's advocate. What happens if a client, um, is intellectually disabled, um, sorry, you know, um, or could be anything else, but, they work. They work in a supervised place, or part-time for 16 hours a week since they were 18. Can you get the money out if you use superannuation? So, you can see the limitation of using superannuation because superannuation is linked to, uh, capacity, and that's why it's called incapacity payment. So, capacity to undertake, um, uh, paid employment, um, in accordance to the, uh, SIS Act, which is 10 hours or more. So, even if you've got somebody who has got, you know, um, IQ of under 70, which is what we call manifest condition, at that point, it means that the disability support pension is granted automatically. Um, even if you've got somebody with Prader-Willi syndrome, even if you've got somebody with, you know, Fragile X, or severe autism, or whatever, if they are engaging with the community for remuneration, um, then you've got a problem with the, um, uh, with this alternative as a viable alternative because you lose control of accessing that money potentially, um, if you use a, um, a trustee, or you, if you're an SMSF, uh, trustee, then you could in fact be in contravention of, um, rules and regulations for releasing money, um, to people who, uh, otherwise don't meet the definition. So, how often do these definitions, um, uh, how often do you need to look at that? Usually every 12 months, you would need a sign-off saying that the person is unable to work in a job they're suited for by training, education, or experience. Um, if you can't get their sign-offs and you release the money, then you're in big, big trouble, um, potentially. Now, some people say to me, what happens if the money has been released earlier, and they, it's all unpreserved, unrestricted, and they, the person goes back to, uh, the workforce, or they find the job afterwards? That is a decision for the trustee to make. Some trustees will allow it, some trustees will close the fund. It depends on the risk appetite of that specific trustee. I suggest that you speak to, uh, your colleagues who are, um, seasoned in, uh, SMSF, uh, rules and regulations, so that you don't end up, um, uh, you know, doing something that you'll regret.
And William, just to, um, go back because I, I'm sort of following you, but I don't know that I totally get it. And I think there might be some of the lawyers who are also in the same boat. So, you're saying, um, an alternative could be like a super pension income, like an income stream from super? No, let's say that the objective of a, of any trust is to protect, to preserve, and to pay for, uh, you know, whatever it needs to pay for through an income stream or whatever. But let's say that that you're trying to preserve this, the Centrelink pension, otherwise, why would you use it, you know?
Well, yeah. Could we just say that? So, like, cuz some of the people watching this might be like, why a special, why a Special Disability Trust versus a capital protected trust? Or, you know, and, and so the whole driver of the Special Disability Trust is Centrelink.
Firstly, Centrelink. Secondly, a reframe around the funds.
Right. I agree with that. So, that, you know, that you've got three things that really go, that are really going, actually four things that are really going for a Special Disability Trust. The first thing is governance, right? Because governance is because of the supervision by Centrelink. The trustee has to behave themselves. So, that's the, that's the first thing. The sec, and, and it's a very defined, as you will say, I think I saw in your slides earlier, it's a very well-defined, uh, uh, you know, playbook when it comes to, um, Special Disability Trusts, because the model deed doesn't give you a whole lot of leeway. In fact,
Yeah, that's so you got the governance as going for it. Secondly, you've got Centrelink exemptions going for it. Thirdly, you've got, uh, capital gains taxes going, ex, you know, exemptions going for it. So, if you donate shares that you would otherwise pay capital gains taxes on to the trust, then you can do that, um, without, you know, for no consideration. The, the fourth thing that's going for it is stamp duty exemptions. If you want to acquire a property, and those, um, stamp duty exemptions, uh, can be, it depends on the states. And again, Tara, I think I feel like I'm stealing from your slides, but in Victoria, you've got to watch out for because they've got a cap of half a million dollars. Um, everywhere else, almost, you know, there's no problems, and you can trade property. And this is interesting, you can trade property inside the Special Disability Trust, um, uh, and I think it's also stamp duty exempt, um, that's my confirmation. But you got to make your own, um, you know, so you've got, you've got few things going for it. Um, but if you have an estate that's large, if you have an estate that's large, so yesterday, that $7 million estate, we have to exhaust several things. So, we exhausted the Special Disability Trust, you know, the caps and all that sort of stuff. Now, if you go over the cap, you just normal Centrelink rules apply. So, you could have another $3, $400,000 over the cap without it impacting Centrelink, just like a normal pensioner would have money in their savings before the pension gets reduced. But then what happens if you got over that, like substantially over that, you need those protections to come into place. So, superannuation is an alternative, as well as an all needs protective trust, a fixed trust, that, and, and I feel like you've got to specify what you want to do in your lifetime or through the will, so that you give the, the full kitten koodle to, uh, um, uh, to the executors or to the trustees. Um, and you've, but you've got to consider all things. Now, why would you want to use superannuation? Well, a Special Disability Trust is not taxed at a trustee level. It's taxed at the personal tax level. So, you don't have to actually make a distribution for the taxes to be taxed at the beneficiaries, right? So, if the beneficiary is not receiving any income, then the first 18 grand is going to be tax-free, and they just pay marginal tax on the earnings of the trust. You don't have to make a distribution to them. You don't have to do that for that to occur. And that's another advantage of a Special Disability Trust. Um, but if you're using, um, other types of trusts, you may have to make distributions. It depends on how you set it up and who you know, who's the ultimate beneficial owner and all that sort of stuff. But a superannuation is a good tax environment for you to start, as you say, Tara, an income stream. Um, you also control the capital gains taxes. You control income taxes. It's a tax structure that's got a governance, uh, uh, overlay that may work well to protect the beneficiaries' rights, but also, it could limit their right to access the money. It depends on whether they're working or not, etcetera.
Okay. So, the condition of release issue is where this, um, over 10 hours a week comes in.
Correct? Because that, because you're looking at incapacity releases. So, I'll give you a practical problem that I had in the past where a, um, um, where the, uh, we put money in super, and we used the power of attorney that was vested into, uh, the brother, to withdraw money. Now, the person didn't work, and we just simply wanted to make a withdrawal because we wanted, we, the trustee said, give me two medical certificates. So, we gave them the medical certificates. Now, it was a congenital disability. So, the person was born with an intellectual disability. The question the trustee asked is, how did the power of attorney get drafted if the person has had the disability, if the disablement date is their date of birth?
Yeah.
Because the taxes, the tax is calculated on the date of, on the date of disablement. So, if the date of disablement is 1982, when they, this person was born, how can the power of attorney be valid? So, then we had to then, their, their request to the trustee's request is that we go to, uh, the doctor in 2004 who was seeing him and write a, uh, a test that the, the intellectually, um, disabled client, um, had a, um, you know, understanding of the power of attorney that they were signing off to his brother. So, that was a disaster. Was, you can see where this, you know, you can see, first of all, the doctor is long dead. Secondly, there is no way because his IQ is under 70. So, that was like a question like, how did the lawyer actually draft this bloody thing?
Um, but, you know, it was a family lawyer. Somebody wanted to help. But boy, did it blow up the system in our faces because, you know, you've got to do this properly.
Otherwise, just don't do it.
Yeah. Yeah.
And I mean, I think this is the key to this whole message. I'm speaking to the lawyers here, particularly, like, you have to do this properly. You have to involve the financial advisors. The worst file I've ever had, with the, the worst mistake I've ever made on a file, and I don't have that many, thankfully, but I have, everyone's got a few, was on a superannuation proceeds trust, and I just didn't really know what I was doing, and I had to learn the hard way. And thankfully, you know, there's enough checks and balances to get you, you know, you just don't, you know, settling doesn't approve the model trustee, all these things. So, you, you know, it's, thankfully, it gets sorted out in real time. But I think the whole point of it is, you have to really work through the rules. You have to, like, pay attention to all the detail and collaborate with the client's advisors because it's serious. There's a lot at stake here. You know, we're dealing with the most vulnerable of beneficiaries. And as you were saying, you know, there's a lot of really raw issues around it from a family perspective as well. So, I, if you take nothing away from today's presentation, don't wing these, please.
Well, the thing is, if you wing them, two things can happen. And I've seen this a lot. You know, we, you know, a client comes to me and says, you know, I've got a special disability. I've got a deed drafted. I look at it, I'm like, you sure don't want to spend more money getting this redone? No, no, no. My lawyer got it done. Okay. Send it to Centrelink for approval. Because before you do the asset execution, what you want to do is you want to send the deed to Centrelink, have them review it and come back with any issues. That's like the golden rule. Okay. So, we send, we send the deed to the, uh, Centrelink. Centrelink comes back saying, um, the settler is the lawyer. Do, does the lawyer still advising on this? Yeah. Well, we can't do it. Get out, you know, or, um, this clause has been removed. This is a critical clause. Um, and you can't amend that clause. Redo it. And then the client loses faith in the lawyer, and then we lose faith in the lawyer as well. And then we go to somebody else that we know who knows what to do and then redo it for money, and just, it's just a pain in the neck. Why do it? Yeah. Um,
So, let's, let's move on. Um,
All right. Because I think you've got more to cover. But
That's it. I swear, that's, after this, I'm done. Um, you need to, so in New South Wales, um, we've got the, uh, um, um, Disability Inclusion Act that came alive in 2014. Um, in Queensland, you've got the Disability Services Act that's been, there was a consultation that started in 2018 to make it align with the United Nations, um, rights for people with disabilities. And, uh, essentially, what that means is that, um, uh, first of all, you've got to have a consultative approach, um, to people with disability. Now, what's interesting is that disability is not defined by, uh, age. So, what that means is that, um, even when you are asking for a donation from, to go from a mother to a child, the mother could have mild cognitive impairments, or she could have a power of attorney actually doing all of this for her. And you need to have a consultative approach to all parties. Um, and so, every voice is heard, essentially. That's what, what it's trying to do. So, you need to be able to show that that you've done that. Um, and the reason why you want to, uh, show that is because if it goes to a government body like NCAT, VCAT, QCAT, etcetera, the first thing that they will ask is, um, was that consultation made? Um, show us proof of that. So, you want to be able to show that. Um, did you include? So, I've got a little bit of a, a list here. Did you consider the rights to include the person with a disability? Do they have, do they want their assets tied up in a Special Disability Trust? Um, do they want the gift in the first place? Some people say, "I don't want the money. I don't want it. It's going to give me anxiety. I simply don't want it." Um, do they want the strictness, or do they want to buy a hot car and travel Australia, or a caravan? You've got to ask them these questions. Um, do they want to identify as disabled in the first place? Um, now, I know this happens a lot in acquired disabilities where people simply don't identify as disabled, even though they can classify as disabled. Um, you must understand the will and preference of the beneficiary to determine the appropriateness to take and take a consultative approach. Um, and I've put in here the, um, acts that you need to look at. And look, I'm done.
That, that was awesome. So, I'm going to just come on in with, um, some slides to look at the legal framework. So, I'll just get those shared if you can bear with me. Where's my StreamYard gone? Sorry. Let's, that's a bit clunky. Let's try and get this going up again.
Thanks, David. Um, thank you for the questions coming through in the meantime.
Thanks, Jay.
Okay. All right. I think you can all see that. So, um, I think we've talked about collaboration. Hopefully, that point has sunk home. One of the things that I, from the lawyer's perspective, is I really want to emphasize that time needs to be spent on evaluating and testing, is this really the best solution for the client? And that's, I think, where, you know, before I would even start drafting or quoting, I would, if they're not working with a financial advisor, I would make a referral to a financial advisor with experience in this, like William, to to just talk the client through, like, what is this going to look like financially? Does it work with their goals and provide the best solution? Um, so, from my perspective, these are all the moving parts that need to be considered. We haven't really talked about it, but William, I understand that there's also, from the donor's perspective, if, if they are likely to receive Centrelink benefits, there's also rules around how much they can actually contribute into the Special Disability Trust environment. Is that right?
Yeah. So, if the, the, if the donor is on Centrelink benefits, then the rule is $500,000 before you trigger the deprivation rules. You can certainly donate more than that. That's not an issue. It's just that $500,000 is under the deprivation rules.
Oh, thank you for that. And look, my experience has been, everyone who has been considering a Special Disability Trust has not been in receipt of benefits anyway. They have probably been, um, in a higher net wealth kind of scenario. But it is worthwhile having that on your radar, especially if your, if the first sort of area this is addressed or brought up is from the lawyer's office. Um, and then obviously, we need to look at the estate plan and that question of timing. Secondly, from the beneficiary's perspective, you know, the main driver, I think, when we're comparing this to if we're doing it as part of an estate plan, because we, I'll focus on the estate planning aspect, since this is the Art of Estate Planning. Um, as William was saying, there are tax and CGT, or sorry, CGT and stamp duty concessions about contributing assets into this environment. But often, you will also get very similar concessions if we're doing it as part of the estate plan and transferring assets into, like, into say, a protected, um, testamentary trust. So, I think if you're comparing a protected testamentary trust with a superannuation proceeds trust, the main, sorry, a Special Disability Trust, the main reason for looking at the Special Disability Trust is to preserve access to Centrelink, um, benefits for that beneficiary, so that they don't, um, go out of the eligibility. So, again, sort of understanding those thresholds and what Centrelink benefits are available and what they mean financially to the beneficiary, I think is an important area for the financial advisor to give guidance on. And then, yeah, I think William has sort of covered off on the trustee perspective, but that, I don't think that can be understated in terms of you've got to find the right people to manage this. And if you can't, or you like, that's work has to be spent on that part of it. So, from my perspective, when a client is coming to me as part of the Special Disability Trust strategy, I'll spend a lot of time looking at when do we want to establish it? Is it something that the donor can set up during their lifetime? And there's obviously benefits from that in terms of removing funds from an estate, but also, you know, putting funds into a restricted environment immediately is not something to be done lightly because once it goes in there, you are really subject to a lot of restriction. And I'll talk a little bit about the restriction in a moment. Um, the next part is using that model trust in their will, so that rather than diverting funds into a super, why do I keep saying super proceeds trust, Special Disability Trust, um, in the donor's will, sorry, rather than diverting the proceeds into a testamentary trust, we're actually setting up a testamentary Special Disability Trust using the model trust and putting that into the will. So, that's another option. The other option. Oh, sorry.
Would you like to go?
I have a question for you.
Yeah.
Um, in 2011, there were major changes done and updates to the, uh, to the model deed that required trustees to update their model deeds as well. Now, if you've got something testamentary, and I don't know the answer to this, by the way, but, um, if you embed the, the terms, um, as per model trust, and there is an update, what happens? Do you update the will, or do you, what happens at that point?
Yeah, maybe, no, it is a little bit problematic. Um, you would hope that your, your will, um, has a variation, and I'm pretty sure the model trust will version of the deed has a variation power in.
There was a will version. There's a will version.
Yeah.
Well, I didn't know that.
Well, it's the one version, and then it has like user notes in there saying, if, if it's for a will, then use this version of the clause, and if it's not.
It's clunky. It's super clunky.
Right.
It's really clunky. So, I actually prefer to go with this third bullet point, which is relying on the power to contribute the inheritance on behalf of the beneficiary into a, um, death. Oh, sorry, into a Special Disability Trust after death. Because that way, you can just like, work out what is the size of the inheritance they're receiving. Um, how are we going to structure this? Like, who's who's around? We had ideas about who the trustees would be, who's still alive, who's got capacity to take this on. And you can actually set it up at the relevant time when it's needed. From a lawyer's perspective, that is an easier way to potentially draft it, and it overcomes that issue that you've raised about the model trust becoming outdated. Um, but, you know, it potentially does give the donor less comfort and certainty about how everything's going to be structured. You know, I would think if you're going with that option, you would probably put together like a memorandum of wishes, sort of saying, this is how I envision it would all be set up, and these are, you know, how I want it structured.
If they want more certainty than that, then, you know, maybe under their will, or setting it up during their lifetime would give them more certainty. If, if there's people that they trust to be the executors, and, um, they've got enough comfort on that, and they're happy to maintain some flexibility, then that three-year option can be a really good one. And I'll just note, if you're using my testamentary trust precedents, there is a power in there which allows the executor to say, well, I know that part of the inheritance was allocated to this beneficiary, but we are going to actually allocate it to their benefit through a Special Disability Trust. So, I just think this is also something worth talking your clients through the pros and cons of to decide what, where they want to land on that. Um, and most of the time, I will end up relying on that three-year power, but it does obviously depend. Um, I'm not going to spend a lot of time on these particular requirements because they're all in
Um, the Social Security Act, but it is just worthwhile knowing that there are, you know, restrictions. You can only have one beneficiary per trust and each principal beneficiary can only have one trust of their own. The other thing, um, is there, there's so many restrictions around this, you know, in terms of related family dealings, um, use of the fund capital and income. And I'll particularly focus on that. The funds have to be used for what is defined as reasonable care and accommodation needs and ex-discretionary spending outside of that is capped at $12,500 per year. And I've just put in some an example of what some of the discretionary spending. So things that have a cap on there and it's pretty like toiletries, food, like most of the living expenses that aren't, um, care and maintenance needs would come within this. And I, I don't know. I think for some families, they might feel like this is too restrictive. I don't know. William G's, what do you think?
>> Yeah, it's, it's certainly, look, you've got to put it in context. You know, we're talking about the NDIS funding a whole lot of the with the core, um, issues that the disability trust trying to fund with the exception of, uh, accommodation. So, it's very hard to spend the money in a special disability trust. So, you're trying to kind of say, you know what, this my son or daughter is going to end up wealthier than I am. They're, you're investing the money and you're making them $50, $60,000 a year potentially in returns, yet we don't have anything to spend it on. What can we spend it on? So we use this list to kind of say, well, at least we're spending 12 and a half thousand dollars out of it. Um, so, yeah, it's, it's a balancing act to try to like not grow the wealth beyond the, uh, centering caps and, uh, also you want to spend the money. You just don't want it to sit there and
>> Yeah, that's what the thing is about. Yeah. And I, I think you have to just be like, bring this to the attention of the donors in terms of them understanding the needs of their the beneficiary and and what
>> but you still have to account for it. Like you, this is not like $125,000 that you simply just don't account for. You still have to account for it. It's just that it's allowed to be spent on stuff that is not the core, uh, uh, purpose.
>> Yeah. And so if we go to your example of the $7 million estate, why would you put like a third of that into a structure where you can only spend, you know, 12 and a half thousand a year? So I think it really comes down to understanding the financial situation, um, the beneficiaries needs, and also like balancing freedom and flexibility over that money and having it there protected, but also available for other interests in the broader family versus, you know, truly making sure that whatever is in this trust, you, you know, for some families, this discretionary spending is perfect. They want that restriction. They know that the money is only going to be used for that principal beneficiary, but for others, it's too restrictive. And so I would always emphasize that too. Um, there's also, um, asset requirements, which is, and I didn't realize that you could have in excess of the cap and, um, it only, you know, it only kicks in to impact your center link. So that was, that's, um, really useful to know. Have a, you could have a $2 million house in there in the special disability trust as well, plus the $681,750.
[Music]
>> Yeah. So the house is exempt from the test and then you can have a bit more than the 6,81, you know, it's only after you get too high above the threshold. So you can, there's a bit of a buffer.
>> Yeah. Ex, just like normal pensions.
>> Yeah. Um, so again, another way, you know, I just think as a lawyer, you'd never want to advise on this in isolation without understanding the financial position behind it. Um, there's also rules around you can't, um, borrow or, um, lend from the trust. You can't revoke the contributions. Um, you have, you can't even acquire property from an immediate, um, family member. There's a fair amount of issues there. Like you can make the donation, but I think you can't purchase. I actually haven't looked at that point, but
>> yeah, well, it's got to be, it's got to be on the arms left. Yep.
>> Yeah. Yeah. Okay. Um, we've also talked about so it's mo, it's mainly the normal trustee requirements, but they, you can't have a sole trustee. You have to have at least two. Um, usually it can, it's usually relatives. You just have to be careful like if you do want to use a financial, um, like accountant or financial advisor, they can't be paid, um, so it is in for their role as trustee. So it is interesting in terms of who's going to be willing to take this on. And the settler, as you mentioned, William, this is a big one. I find trying to find someone who actually can be the settler is really complex. I think because you can't have anyone from the accountant's office, the financial advisor's office, or this lawyer, you know, the lawyer drafting the deeds office. So then trying to find somebody who can, who understands what a settler does and is willing to take it on but isn't involved can be a real sticking point. Um, and I just like that's, that was one of the issues that I had when I messed my very first one up that we were the settler, you know, we just didn't realize that. That example. Sorry to have used that example before, but it happens all the time.
>> No, exactly. Because it's, um, you know, now I know I'm like, oh, obviously it's, it's there in black and white, but as lawyers, we're so used to just being the settler that, um, you didn't even realize. I think we've covered off on the, um, tax tips. So, just use the model trusted. Exactly. Um, the other thing I want to mention is I, I'll just skip away from this slide because we've covered off all of those points. The other thing I want to mention is the getting things sorted special disability trust booklet, which I'm going to try and share now. Um, not that you have to see it in too much detail, but I find this a really good resource when I'm first having a conversation with clients. Um, assuming, you know, they've got the sort of they're happy to do a little bit of independent research and understanding it. I find this is a really good booklet to send to them because it sets out all of the rules and how they work in plain English and it can be a really good summary. So, this is a good resource just to sort of know that it's there even for you to read. Um, but also if your clients just want to sort of learn a little bit about it. It's a good starting point. So, we've got about 2 minutes left. I just want to go through the questions now. Thank you everybody for watching. Um, so I'll just have a look at what we've got here. If there is a significant amount of money in the estate, several beneficiaries, and one has a disability, how do you best go with the option three? So, contributing it into a special disability trust within 3 years of death and stipulating that it is the testator's wish to limit the gift so as not to preclude the disabled beneficiary from accessing center link benefits. Um, I think you can either if you use my precedent, you can, you don't have to gift the whole amount into the, um, trust. You can gift part of it, but you probably have to be careful about, you know, if you're drafting a multiple testamentary trust and that disabled beneficiary is a nominated beneficiary of a testamentary trust as well, you have to like exclude them as a beneficiary or disclaim them and then what do you do with that trust? So I think the other way to do it is to have a gift to that beneficiary that is calculated with reference to the, um, the fixed sum that you can contribute in. So whether you just keep it at that 680,000 or so, um, plus a property perhaps and say, you know, it's equal to the amount in the, I think it's the regulations and define it by reference to that. That could be one way of just making sure that only like the, um, eligible amount goes into the trust. I think if you're going to do that, you really need to talk to the donors about what are the needs. Is this, is this a disability of the type where that beneficiary is never going to need more than that amount anyway? Like, that amount of money is always going to be enough for them, or if they've got, you know, a large amount of estate, maybe you just say we're going to forgo the center link benefits and they're going to get their third, the couple of million.
>> Well, yeah. I mean, I think, I think this is like a really touchy thing and and if I take an absolute a disability advocacy hat on, um, and and just take that approach. If a person didn't have disability, what would you do if they only were were on an age pension or new start? What would you do? Would they just say, "Oh, yeah. I'd like my $24,000, but I'll forgo the $2 million. Thanks, because the $24,000 is so important to me." Absolutely not. That sounds ridiculous. Um, that's, that's the approach I would take. And so, um, the question is why do they want to preserve center link so badly? It could be for, um, the income, uh, sorry, for the, um, uh, healthcare card and, uh, so on, because certainly the income that comes out of the special disability trust or any other form of trust or or or, you know, multiple structures that you set up for them is going to be way more than $24,000. Um, so what's the point? And the point may well be that they want to keep the ancillary benefits and so you then work with the rules to make sure that you retain them, such as the low-income healthcare card, that that that has different rules. It does. It doesn't have to be attached to these disability support pension.
>> So William, what you're saying there is, I think, going to answer Jane's, um, question as well. Thank you, Jane. Great one. Can you elaborate what type of benefits are we actually trying to protect here by using the
>> Well, you can, you can protect, you can protect almost allowances and pensions. Um, so when you go down the center link list and you see allowance, you see pension, they're all exempt from, uh, if you've got money in the special disability trust, it's income test and asset test exempt. The only time where you run into problems is say, if the beneficiary has a, um, has children from, uh, from and they're divorced or they have to pay child support, that goes into the income tax act and because the income shows up on the, uh, the income from special disability trust shows up on their tax returns. I don't know the answer to that. I've just thought about that issue. So, I haven't had that issue before, but I can see it where other systems can blow up, like child support payments and all that sort of stuff. But as for assets, uh, so as for the asset and income, anything that's got an allowance, anything that's got a payment next to it is not going to be impacted.
>> Okay. Well, um, that's amazing. Now, I said I had to finish a few minutes before one because I'm heading off to the testamentary trust President's Club hot seat and we, we're one minute before one. So, I'm going to wrap it up. William, that is so insightful. I'm echoing the comments from everybody just saying how clear and, um, it was so good to hear the practical side of it and obviously you have such a depth of experience in this. So, we all know who to call next time one of these comes across our desk. Thank you so much and thanks to everybody for tuning in live. Have a good day.
>> Bye.