Financial planning when your child has a disability
Katherine and Guy have always worried about how their son, Roman, would manage without them. Roman, who is 18 years old, lives with a severe disability and his parents manage most of his needs.
A perplexing issue for Katherine and Guy is who to appoint as Roman's trustee, because managing his care can be full-on. They put off drawing up an ongoing care plan in their will, but when Katherine found out she had breast cancer, they decided they had to act.
Instead of leaving Roman a lump sum or the house in their will, they need to protect the funds to provide an income to support Roman as he ages. He has severe spina bifida and an intellectual disability and is incontinent. He uses a wheelchair.
The National Disability Insurance Scheme (NDIS) has really helped, giving Roman care services and freeing up Katherine's caring role for several hours on certain days, but NDIS doesn't provide accommodation or food.
Roman has turned 18 and qualifies for a government disability pension, but it won't cover all his needs. It pays $503.50 a fortnight for 18- to 20-year-olds and $987.60 for those who are 21 or older.
Katherine and Guy want Roman to have extra income to help pay for his accommodation, therapies, food, medical emergencies and recreation. But the funds could disqualify him from the disability pension because of its assets and income test.
Roman loves his computer and electronic gadgets that connect him to his friends through chat rooms and has passions such as basketball. He is much loved by his parents and his healthy, neuro-typical brother and sister. He lives at home, but he could live in supported housing as an adult.
"There's a lot to weigh up. It can be emotional and difficult," says Susan Bonnici, a senior estate planning solicitor at Equity Trustees, a company that offers professional trustee services. "But once you get the conversation going and put something in place, it gives people peace of mind."
Bonnici says it is a struggle for people to find the time to make a plan.
"Disability is such a wide-ranging term and there are so many varieties. This means that no one-size solution fits all."
Special disability trust
There are several options for Roman. Perhaps the best one is to set up a special disability trust (SDT). These were introduced by the government in 2006 for families to put aside money to fund primarily medical care and accommodation needs for someone with a severe disability.
SDTs allow some limited spending - $13,000 for 2022-23 - on discretionary items, such as food, clothing and recreation.
One of the advantages of an SDT is that Roman can still receive his government disability pension if the SDT has assets of $724,550 or less. (It's indexed annually on July 1 along with the discretionary limit.)
The government gives beneficiaries an assets test exemption, but to qualify they need to follow the rules and reporting requirements of an SDT.
The income from the SDT isn't counted for social security benefits providing it is used for care, accommodation, discretionary spending and maintenance of the trust.
The NDIS is not means-tested for assets or income.
Special disability trusts can be set up by parents while they are living or as part of a will. A working will is important so parents' wishes are set out for their child with a disability.
A combination of strategies can work well for parents, says Bonnici. A single strategy could be too limiting, but combining a couple of different ways to support a child could give more flexibility.
Two-thirds of the 4.4 million Australians living with a disability don't have a severe condition and could manage their own finances. Their parents can set up a testamentary trust in their will.
"A lot of people with a disability are extremely capable of managing their own affairs," says Bonnici, whose daughter lives with a rare disability. "Parents understand what their child's abilities and disabilities are."
A testamentary trust allows an appointed trustee to distribute income and lump sums when needed in a sustainable manner.
"It is a good idea that flexibility is built into the will," says Bonnici.
But unlike SDTs, assets in a testamentary trust will count towards the income and asset test for disability pension and other social security benefits.
If a child is vulnerable to being ripped off by someone who could take over their assets, parents might need to be more prescriptive in the testamentary trust, so the money is protected and lasts.
Testamentary trusts don't have the same strict constraints as an SDT and can be useful to provide a fund for other expenses that can't be put in an SDT.
If your child with a disability could manage their own finances, parents could gift the money to them without a trust structure. But always check how a direct gift will affect social security benefits.
Some parents leave their superannuation benefits to their children as it is the biggest asset after their home. Some funds can pay out an ongoing pension to their child.
Choosing a trustee
The hardest and most important decision when setting up a trust, says Bonnici, is who to appoint as the trustee.
"It's really tricky because a lot of people don't want to burden people with the care and the responsibility of being a trustee."
Often parents appoint their other children or family members or friends as trustees because they know the child and understand their needs. Also, they don't charge fees.
Bonnici says trustees should have a genuine connection with the person and an understanding of their needs.
They also need enough time and resources to carry out the role effectively as well as understanding the regulations and compliance requirements of the trust. The role does require financial and investment skills.
Katherine and Guy want their other children to be Roman's trustees but worry about their busy lives, especially when they have children of their own.
Bonnici says appointing trustees for the duration of the beneficiary's life can be challenging as you don't know what will happen. She has had clients whose beneficiary outlives their siblings.
She recommends a back-up plan or adding trustees if something does happen to a single trustee.
Choosing trustees who are independent can be a way to make sure they serve the best interests of the person with a disability.
Conflict of interest
The Department of Human Services's (DHS) guide to looking after a child with a disability says that family members as trustees may have a conflict of interest because they often stand to benefit from whatever funds are left over after the death of the person with a disability.
It says that while many family members will do a good job, the DHS urges families to discuss the issue carefully, pointing out that you don't know who their partners will be.
Private trustee companies can be a good choice, says the DHS, because they have the experience. They do not know the person and have to rely on other people providing information as a basis for deciding where to use the available funds.
It is important to consider the fees before you start setting up a trust directly or through your will. Setting up a trust involves legal and accounting fees. If you use a trust company, there are ongoing fees that can be based on the assets under management.
Also, there are accountant fees to prepare accounts and tax returns.
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