4.14.3.10 General requirements for special disability trusts

Summary

This topic contains information on the following:

• legislative requirements
• establishing a special disability trust
• model trust deed
• commencement date of a special disability trust
• relationship between principal beneficiary and a special disability trust
• compensation payments
• investment rules, and
• death of principal beneficiary.

Legislative requirements

A trust is a special disability trust if the following requirements of this division of the SSAct are complied with:

• the beneficiary requirements (section 1209M)
• the trust purpose requirements (section 1209N)
• the trust deed requirements (section 1209P)
• the trust requirements (section 1209Q)
• the trust property requirements (section 1209R)
• the reporting requirements (section 1209S), and
• the audit requirements (section 1209T).

The PRIMARY PURPOSE of a special disability trust is, during the lifetime of the principal beneficiary, to meet the reasonable care and accommodation needs of the principal beneficiary.

Establishing a special disability trust

Anyone can establish a special disability trust. However, before a special disability trust can be established, it must be determined that the intended principal beneficiary meets the definition of severe disability. This assessment is undertaken by Centrelink or DVA.

After determining whether the person with a disability is eligible to be a principal beneficiary of a special disability trust, a special disability trust can be established through either a trust deed or via a will (i.e. a testamentary trust).

Model trust deed

The model trust deed exists which contains clauses that are required for the trust to be classified as a special disability trust. For a copy of the model trust deed, refer to the Special Disability Trusts page on the DSS website. If a trust does not contain the compulsory clauses (and cannot be issued with a waiver), or it contains clauses that could override the relevant compulsory clauses, it will not be classed as a special disability trust.

Centrelink is responsible for assessing whether a trust meets the legislative requirements of a special disability trust.

Commencement date of a special disability trust

A special disability trust commences from the date when all the SSAct requirements are satisfied. This may or may not be from the date that the trust was established or enacted if via a will.

If the trust is assessed as being a special disability trust, a new determination is made about the rate of the person's, either a contributor or the beneficiary, payment. In calculating the new rate the trust income and assets may be exempted which can result in a rate increase to the person, hence a favourable determination.

Date of effect rules that apply to favourable determinations are set out in SS(Admin)Act Part 3 Division 9.

Generally, if a person contacts Centrelink advising that a trust should be assessed under the special disability trust provisions, and a favourable determination is made that the trust is a special disability trust and the person's rate of payment should be increased, the determination takes effect either on the day on which the person so informed the department or on the day on which the event or change occurred, whichever is the later.

Relationship between principal beneficiary & a special disability trust

Each principal beneficiary can only have one special disability trust, and each special disability trust can only have one principal beneficiary. The principal beneficiary can however have other trusts in addition to the special disability trust.

Compensation payments

The trust is not allowed to receive compensation payments that are paid to, or on behalf of, or held in trust for the principal beneficiary.

Investment rules

The trustee must formulate and give effect to an investment strategy, the dominant purpose of which is to satisfy and fulfil the 'primary purpose' of the trust, which is to pay for the reasonable care and accommodation of the principal beneficiary as determined by the trustee from time to time. Subject to these needs, the investment strategy must have regard to:

• the risk involved in making, holding and realising, and the likely return from, the trust fund's investments having regard to its objectives and its expected cash flow requirements
• the composition of the trust fund's investments as a whole including the extent to which the investments are diverse or involve the trust in being exposed to risks from inadequate diversification
• the effect of the proposed investment in relation to the tax liability of the trust
• the liquidity of the trust fund's investments having regard to its expected cash flow requirements, and
• the ability of the trust fund to discharge its existing and prospective liabilities.

As part of the trust's investment strategy, it can purchase real estate for the accommodation, or a right to accommodation, for the principal beneficiary. The trust can also purchase property for rental purposes, if the property is rented at market value and the income from the rent is used for the benefit of the beneficiary.

When implementing the trust's investment strategy, the compulsory clauses in the model trust deed regarding related parties (4.14.3.70) must be complied with. In particular, an investment in an entity which is a related party will be a contravention of a compulsory clause. This will mean the trust cannot be classed as a special disability trust or retain special disability trust status.

These requirements are specified in the model trust deed. For a copy of the model trust deed, refer to the Special Disability Trusts page on the DSS website.

Death of principal beneficiary

On the death of the principal beneficiary, the trust ceases to be a special disability trust. For further information refer to 4.14.4.30.