Planning for the Future of a Disabled Child.
Options for parents or grandparents (or even siblings) with a child with a severe disability are becoming more broad.
Generally, most parents will give their estate as follows:
1/ To their non-disabled children or other relatives, trusting those children or relatives will be generous and care for their disabled child. There are many issues with this position including:
(a) parents having to trust their children or relatives to do the right thing;
(b) a parent’s non-disabled child may not be in a financial position to assist their disabled sibling (for instance if the non-disabled child is receiving Centrelink benefits themselves they are under restrictions on how much money they can give away to benefit their disabled sibling);
(c) the Public Trustee may take over management of the disabled child’s financial affairs and file court proceedings against the parent’s estate for proper provision to be provided to the disabled child – this then means that the Public Trustee manages the disabled child’s share from the parent’s estate.
1/ To their disabled child in their own right. The main issues with this position includes:
(a) the assets and income earned on those assets will be used in the assets and income tests to ascertain whether the disabled child still qualifies for Centrelink pension including the disability pension. If the assets and/or income fall over the allowable threshold, this means the disabled child misses out on receiving the pension as well as the very important medical benefits that attach to the pension;
(b) when the disabled child passes away, the assets will be distributed in accordance with the intestacy rules (unless the disabled child has capacity to make a Will). The parent may not want those who would benefit under the intestacy rules to ultimately benefit from the assets;
(c) the Public Trustee may be able to take over management of the disabled child’s financial affairs including any assets the parent may leave the disabled child. If the Public Trustee takes over management then they may charge the disabled child a management fee (usually a commission) based on the total assets held by the disabled child. In addition, the Public Trustee will manage the assets and distribute the assets for the benefit of the disabled child as and when they see fit.
Is there a better alternative to safeguard my disabled child?
Yes there is. Essentially it is now recommended that parents of a disabled child seriously considering incorporating a Special Disability Trust within their Wills.
A Special Disability Trust allows the parent:
- to set up a special trust on their deaths for the sole benefit of their disabled child;
- appoint a particular person to manage the funds in the special trust (such as a sibling, aunt or uncle of the disabled child);
- the funds are to benefit the child for care and accommodation needs;
- there is a capped amount that can be used for the child’s other needs, known as discretionary items (such as a new TV etc);
- provided the assets and income do not exceed the set threshold (which increases every year) they will not affect the disabled child’s entitlements to a Centrelink pension;
- the parent can nominate who receives the balance of the special trust assets in the event the child passes away.
A Special Disability Trust is not appropriate in some instances. Accordingly, it is important to obtain specialist advice from one of our Estate Planning solicitors.