When it comes to estate planning, ensuring the well-being of vulnerable beneficiaries—such as individuals with disabilities, those facing addiction, or those susceptible to financial exploitation—requires special attention. A comprehensive estate plan not only secures their financial future but also preserves their eligibility for essential benefits and protects assets from potential mismanagement.
Understanding Vulnerable Beneficiaries
Vulnerable beneficiaries encompass a diverse group, including:
- Individuals with physical or mental disabilities
- Those struggling with substance abuse or addiction
- Persons prone to financial mismanagement or exploitation
- Young adults lacking financial maturity
Providing for these individuals necessitates tailored strategies to ensure their inheritance serves their best interests without unintended consequences.
Trust Structures: Protecting and Providing
Two main options that can be instrumental in safeguarding the interests of vulnerable beneficiaries include a special disability trust (subject to eligibility) and a protective trust.
Special disability trust (“SDT”)
An SDT is designed to cater to the care and accommodation needs of a person with a severe disability, as defined under the Social Security Act. They can be established during a person’s lifetime or pursuant to a Will provided the terms of the trust reflect the model trust deed endorsed by Centrelink.
Key features include:
- Means-Tested Concessions: Assets up to $700,250 (indexed annually) are exempt from the beneficiary’s asset assessment for pension eligibility.
- Income Exemptions: All trust income is excluded from the income test assessment. The principal place of residence is also an exempt asset.
- Gifting Provisions: Anyone can gift assets to the SDT except for the beneficiary and their partner, who may only gift a bequest or superannuation death benefit within three years of receipt. There is a gifting concession of up to $500,000 which applies to eligible family members of the beneficiary if that family member is also receiving or might be eligible for a government pension. Additional contributions made by immediate family members are assessed under the usual gifting rules.
- Discretionary Spending: Permits up to $12,500 annually for expenses beyond care and accommodation, provided it is for the benefit of the beneficiary.
- Compliance Requirements: Annual financial statements must be submitted to the Department of Human Services or the Department of Veterans’ Affairs, ensuring transparency and accountability. An audit may be requested by certain people, including the beneficiary and immediate family members. The trustee can be either a professional trustee or two or more individuals.
Establishing an SDT can be done during the benefactor’s lifetime or through a Will, provided it aligns with the model trust deed endorsed by Centrelink.
Protective trust
An alternative option is a protective trust. This trust can be established where a beneficiary does not fit the eligibility requirements of a SDT and can be used for broader purposes as the trust is free of the restrictions imposed on SDTs. Protective trusts can also be prepared during a person’s lifetime but most are established in a Will. The asset and income exemptions that apply for an SDT do not apply to the capital or income of a protective trust.
It is not uncommon for the primary beneficiary of a testamentary trust to also be the trustee. However, with a protective trust, a separate trustee holds the trust assets for the beneficiary. They have the discretion to distribute income and capital to the beneficiary, subject to any terms specified in the trust deed or the Will. The terms can be specific in relation to how much can be distributed or what the distributions should be used towards. Alternatively, the terms can provide the trustee with wide discretion to create flexibility for changes in circumstances. In some circumstances control of the trust can be transferred to the beneficiary upon a certain age or other condition.
The choice of trustee is critical and two or more trustees may be preferable, such as a family member and an independent person such as an accountant. A professional trustee can be appointed if there is no one suitable.
Crafting a Thoughtful Estate Plan
Implementing the appropriate trust structure is pivotal in:
- Preserving the beneficiary’s eligibility for government benefits
- Ensuring funds are utilised effectively for their intended purpose
- Protecting assets from potential mismanagement or external threats.
To ensure that assets are protected for vulnerable beneficiaries, it’s important that structures are put in place either during a person’s lifetime or on their death as part of their Will. The type of trust to be established and the terms of the trust depend upon the needs and circumstances of the beneficiary.
At Perspective Law, we specialise in developing customised estate plans that address the unique needs of vulnerable beneficiaries. Our expertise ensures that your intentions are honoured, and your loved ones are protected.
Contact us today on 07 3839 7555 to discuss how we can assist in securing a stable and supportive future for those you care about.