Benefits of a disability trust
If you have a child, or another close relative, with severe disabilities and need to plan for their care when you are no longer around, you can set up a special disability trust (SDT), which can pay for any care, accommodation, medical costs and other needs of the beneficiary during their lifetime. The principal benefits of an SDT are:
It can pay for the beneficiary’s dental and medical expenses, including membership costs for private health funds.
It can also pay the maintenance expenses of the trust’s property assets.
It can spend up to $12,000 in a financial year on discretionary items not related to the beneficiary’s care and accommodation.
Eligible family members can make gifts to the SDT of up to $500,000 combined.
The net income of the trust for tax purposes is assessed to the trustee on behalf of the beneficiary. However, the net income of an SDT is taxed at the principal beneficiary’s marginal income tax rate, rather than at the punitive rates normally applied where income is assessed to a trustee.
The tax law also allows a capital gains tax exemption for any asset donated into a SDT. As well, the trustee can claim the CGT main residence exemption for a dwelling held by the trust for use by the principal beneficiary where the dwelling would have been the main residence of the beneficiary if the beneficiary had owned it direct. MARK CHAPMAN, DIRECTOR OF TAX COMMUNICATIONS AT H&R BLOCK. MCHAPMAN@HRBLOCK.COM.AU