Whilst there are many scenarios where parents may have a child who is vulnerable for a variety of reasons, with World Down Syndrome Day in March, we have cause to consider those vulnerable family members who are disabled and rely heavily on their parents and family.
There are approximately 13,000 people living with Down Syndrome in Australia, and approximately 34,000 living with cerebral palsy. Many other diseases cause children to be lifelong dependents on their parents. That means there are a lot of parents who are worried about their disabled adult children, particularly as the parents age.
From an estate planning perspective, here are some of the documents that a parent of a disabled adult child should consider:
Most parents of a disabled adult child will have been to VCAT and had an Administration and Guardianship Order issued. If you have been able to get by without one of these Orders thus far; congratulations.
It is preferable to get your adult child into the system, and have an Order made by VCAT. Then, if you can no longer perform the role, it is simply a matter of another person coming forward and having the Order transferred to them. Much easier than having to apply for an Order for the first time when you are sick or incapable.
Power of attorney
Having a power of attorney is for yourself. Should you no longer be able to manage your own affairs, you need to nominate who will do that for you.
The important part of a power of attorney, when you have a disabled adult child, is to enable whomever you appoint under your power of attorney to also use your funds for the care of that disabled child.
Under the laws of a power of attorney, the attorney is only allowed to use your money for reasons that are in your best interest. However, if you have an adult disabled child, there is also this other person who needs looking after. So you need to give you power of attorney special power to be able to do that.
Superannuation death benefit nomination
Superannuation death benefits are often a large asset. If superannuation is paid to adult children, they have to pay tax. However, if an adult child is financial dependent on you because they are disabled, then they can get the superannuation tax-free. This may be an important consideration in your estate planning, and making sure there are sufficient funds for the care of your disabled adult child.
Special Disability Trust
This is a trust that can be set up whilst you’re alive or in your Will. It might be appropriate to use this form of trust in combination with another, because you can set this up now instead of waiting until you die.
This trust can be used for a specific person who meets the disability requirement in the Social Security Act 1991. There is a gifting concession of $500,000 into a special disability trust, and also the assets of a special disability trust (up to approximately $596,000) are not assessed as assets for Centrelink purposes – so your disabled family member will still retain their full pension.
The requirements of such a trust are pretty stringent, including:
- the trust must be for only one beneficiary,
- the sole purpose of the trust must be to provide for the accommodation and care of the beneficiary,
- the terms and conditions of the trust must be the standard model trust deed published by the government, and
- the trustee must get annual financial statements completed and have an annual independent audit conducted.
The trust deed that must be used is the Model Trust Deed for Specifically Disability Trusts, which is published by the federal government. There is no flexibility, and you cannot draw up your own trust deed. Centrelink also need to be informed of the trust, and will make their own assessment of the disability of the beneficiary.
Having a Will is crucial. You cannot transfer your role of guardian for your adult child in the Will, but the person whom you appoint as executor almost as important. Your executor is likely to be looking after the inheritance of your disabled child, if they are incapable of doing this themselves. Once you have selected an appropriate executor, you can then consider how to structure inheritance to your child.
Another sad fact about adult children with such disabilities is that their life expectancy is not as long as healthy adults. The parents of disabled children will also need to build into their estate planning the reserve beneficiaries who will inherit after the death of their disabled child. Both trusts mentioned above can do so in the body of the trust deed.
Considering this scenario also raises another form of trust which could be suitable for disabled children, and that is a simple life interest trust. Terms of the life interest can be established in the face of the Will, and can be transferable for changes in accommodation during the life of the disabled child. Such capital would also still be included in any asset calculation for government benefits, so the pros and cons will need to be weighed up between the various trust or combinations trusts.
Testamentary Discretionary Trust
A testamentary discretionary trust gives you the most flexibility in setting up a trust for your disabled child to receive inheritance. Unlike with another kind of vulnerable beneficiary (or wayward child) where that child would be part of a group entitled under a discretionary trust, for your disabled child you would set up an exclusive discretionary trust with your disabled child as the Primary Beneficiary. A protective trust is another form of testamentary trust, though it is very restrictive and based strongly in legislation. Rather than using a protective trust, certain protections can be built into a testamentary discretionary trust.
Like a protective trust, the Primary Beneficiary would be entitled to the income earned by the trust, and the trust would be managed by someone of your choosing. The trustee would have the discretions that you build into the terms of the trust, so you control what can or cannot be done, and you can leave instructions for the care of your child.
The downside with a discretionary trust is that it could affect your child’s entitlement to a full disability support pension. So long as the capital in the discretionary trust is low enough to still get a partial pension, your child can be better off and still get the benefits of having a pension concession card and health care card. Support that they can get under the National Disability Insurance Scheme should also be considered, and made sure that they do not become ineligible.
Because there are so many options, and ways of structuring a protective plan for your adult disabled child, it is best that this be strategically planned out with a solicitor who specialises in wills and estate planning.
Legal and financial advice are both very important to parents in this scenario, as is getting thorough advice regarding government benefits, and taking the time to consider all options. Whilst legislations continually changes, regular reviews and amendments of trusts that are intended can be made so that the parents can rest assured that they have done their absolute best for their child.