With the changes to special disability trusts a relative may insert up to $578,500 worth of assets into a trust in which the primary beneficiary may receive income from and not have it’s disability social security payment reduced.
Is this correct?
I know if you get standard trust income and DSP then your DSP payments are reduced significantly every $10,000 till the point of being completely cut of by $50,000.
I am thinking this is the difference between the standard trust and special disability trust.
It is true that DSP does not form part of your taxable income and is exempt regardless and i beleive the difference is how centrelink treats your social security reductions.
So if DSP is 700 per fortnight then you will get 18,200 per annum. This amount is tax exempt and does not form part of your taxable income.
If you are involved with a trust and receive income and DSP then you will pay tax on your trust income only. But this will reduce your DSP payments on a sliding scale.
If you are involved as primary beneficiary on a special disability trust you will pay tax in the same way but your DSP payments will not be affected up to an amount worth $578,500 for asset value being inside the trust.
I think you have mixed up a few things:
There may be a CGT exemption for assets gifted to a SDT.
A pensioner could gift up to $500,000 to a SDT for a family member and not have their pension affected.Assets of the trust up to $578,000 are not counted towards reducing the centrelink payments of the beneficiary. The main residence can be held in the trust and this doesn't count either. CGT can apply too for the main residence.
But income from the trust is taxed in the hands of the beneficiary. Retained income is too – ie income that isn't distributed.
The beneficiary would have the same tax rates as every other residents I believe.
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Yes, the beneficiaries would have the same tax rate, true.
BUT, all DSP pensions are tax exempt. This means if I have a $20,000 pension and no other income my taxable income is 0.
If I then become a beneficiary of a trust and get paid 6000 in the first year I pay no tax still. Once I earn over 6000 from this I start paying tax.
http://www.fahcsia.gov.au/sa/carers/progserv/pages/specialdisabilitytrusts.aspx
This explains what I was trying to explain under means test exemptions heading.
I also understand retained income. If the trust earns 20,000 and I receive 15,000 then I and the trust will both pay tax on this 20,000.
What if you have an investment house worth 700,000 then how do I insert 578,500 only into this?
Istvan051 wrote:I also understand retained income. If the trust earns 20,000 and I receive 15,000 then I and the trust will both pay tax on this 20,000.You would pay the tax on $20,000 i think. A disability trust only has one beneficiary and that beneficiary is entitled to all the income so even if not distributed to them it is still attributed to the beneficiary
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Istvan051 wrote:What if you have an investment house worth 700,000 then how do I insert 578,500 only into this?Possibly you could transfer a % to the trustee of the SDT and yourself as tenants in common. But then you have to watch out for capital growth down the track.
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Terryw wrote:Istvan051 wrote:What if you have an investment house worth 700,000 then how do I insert 578,500 only into this?Possibly you could transfer a % to the trustee of the SDT and yourself as tenants in common. But then you have to watch out for capital growth down the track.
Yes, this is why this disability trust stuff is a little difficult.
If it grows larger than the disability amount of 578K then excess amounts would reduce your centrelink payments. So let it grow or monitor it?
Next question- Person A owns assets and sets up a SDT for spouse person B. Person C is married to person A.
Should person A integrate person C into the disability trust or a separate trust altogether in order to keep the peace between these two?
Person A has a spouse and is married to someone else?
I think a SDT can only have one beneficiary and that beneficiary has to be disabled as defined at s1209M of the the Social Security Act. A and C could be trustees though.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Sorry, child not a spouse. Person A sets up a SDT for it’s child. person C is spouse and married to person A.
From memory trustees can also be also be beneficiaries.
Setting up these sorts of structures is often difficult due to social conflict.
In this case person C is jelous of person B so person A needs to understand how to consider both beneficiaries to keep the peace.
Trustees cannot be beneficiaries of an SDT for a few reasons:
– An SDT is a special trust that is defined in legislation
– An SDT is set up for the disabled person to benefit and must have only one beneficiary (i think)
– A trustee cannot hold something on trust for himself – there would be no trust as the defintion of a trust is A holding property for B.Generally a trustee can be a beneficiary of a discretionary trust or a unit trust – but not the only beneficiary.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Could you send me a link of that social security act? I myself am going to consider applying to be in a SDT after I convince person A to do it.
Centrelink gave me three criteria which I know I can pass two but the third may be a little grey. It’s about being severly disabled and not independent and needing a personal carer 24/7 which may be a stretch.
Sure
http://www.austlii.edu.au/au/legis/cth/consol_act/ssa1991186/s1209m.htmlAlso check out the division in general:
PART 3.18A----PRIVATE FINANCIAL PROVISION FOR CERTAIN PEOPLE WITH DISABILITIES Division 1--Special disability trusts
http://www.austlii.edu.au/au/legis/cth/consol_act/ssa1991186/index.html#s1209m
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Terry,
Back to my previous question.
According to this division the SDT can only have a single beneficiary. So in this instance I need to explain to person A to create a standard trust for person C to become beneficiary. Also to create a SDT for myself (person
.Is this not expensive?
Every trust costs money to create and Im wondering if there is some other option for this.
Steven,
Unless person C is disabled he or she cannot be a beneficiary of a SDT. B can if B is disabled – under the definition in the act.
Setting up trusts costs money. You need advice as well. It may be expensive but the tax savings and Centrelink benefits will make it worthwhile – plus other benefits such as estate planning, asset protection and the fact knowing that the disable relative will be looked after if the trustee or parents etc die first.
Whether you have other trust for non disabled persons to benefit is a different matter to consider.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Ok I understand we would need to pay to set up both a standard trust and SDT. This is worthwhile due to the savings.
I just want to make sure we don’t spend money on things which are not nessasary.
Considering the fact person C has an spouse relationship with person A it is nessasary to consider C as a standard trust beneficiary
to prevent C conflicting with B.I imagine all people who have trusts run into the same dilemmas. Consequently as we all generally belong to family groups
we need to consider each other in light of one another for things to work.Setting up a trust won't prevent conflict because there will still be decisions to be made by the trustee. So C could not like these decisions and complain to A – but be not able to do anything legally because a beneficiary of a discretionary trust has no right to income just the right to be considered.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
No right to income? I don’t understand how a beneficiary of a discretentary trust can have no right to income.
Beneficiaries receive income from the trusts. Do you mean they CAN receive income at the discretion of the trustee but do not have a RIGHT to it?
The beneficiaries have no influence or control over these decisions in a discredentary trust. ??
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