Planning for the Financial Future of a Severely Autistic Child

planning for the financial future of a child with a severe disability is very difficult. Here are some ways to do it.

 

I haven’t written anything on this subject yet. This is weird, since you may know that in addition to being the mum of a child on the spectrum, I am also a tax lawyer.

The truth is that I have been shying away from thinking about Michael’s future. Except when I can’t help it. Which is of course every night right around when I should be falling asleep.But that’s not really productive planning.

On this blog I often write about the things that I am researching. That is the point of it. I have to look up and think about this stuff anyway, so I may as well share my knowledge with other people. So now I am going to talk about Special Disability Trusts. It’s a boring topic and a complex one. But it is so very important to our children’s future.

Michael has severe autism and moderate global developmental delay. This means that (barring any miracles) when he is an adult it is very unlikely he will be independent. He will probably be living with us for our entire lives. It is unlikely that he will be able to be left alone for long periods of time. Except of course for being able to go to his room for some privacy.

If we are lucky, with a lot of therapy and teaching, when he is 30 years old he will have the mental capacity of a 7 year old. He may be unable to talk, and I am not 100% sure he will ever learn to read and write (although I am very hopeful that with lots of ABA he will). This is a difficult fact to face. But it is very important to face it as a parent because then you can move on to the more important task of planning for the financial future.

Disability

He will of course be receiving (hopefully) some help from the government. Some form of the NDIS may still be available. There is also the Disability Support Pension.

If you are in Australia, over 16 years old and have a permanent medical condition that stops you from working, you may be eligible for a disability support pension. The amount that you get depends of course on your income and your assets.

So it is likely that once Michael is over 16, as long as we are still living in Australia, he will be getting this pension. Once he is over 16 he would be receiving approximately $360 a fortnight. The income he is allowed to receive before he reaches the ‘cut off point’ for the disability support pension is currently about $920 a fortnight. This pension increases to about $900 a fortnight when he is over 21. At this point the ‘cut off’ income he is allowed to receive increases to about $1000 a week. He is also not allowed to have more than $456,000 in assets (not counting his family home) to be eligible for the pension. Naturally anything he might receive on the NDIS is not counted in the assets or income tests.

Tax Concessions

Now turning to a more boring (and inevitable) topic, let us move on to taxes. In Australia, we have strict rules about what income children are ‘allowed’ to have. Obviously they are there to prevent wealthy parents from putting lots of money in trust for their 5 year old and thus avoiding paying tax on the interest. So our rules state that if a 5 year old does magically have several million dollars in their trust’s bank account and earns lots of interest, that interest is taxed (broadly speaking) at the highest tax rate.

There are exceptions. If a child legitimately works and gets income from a part-time job, for example, at McDonald’s, they don’t have to pay this very high tax rate. Very likely they will be under a threshold and not in fact pay any tax on it at all. But ‘passive income’ (which is pretty much anything that isn’t a job) is taxed at a very high rate, until the child is over 18.

Setting up a trust for a child with a disability

These rules are different however if your child is disabled. If the imaginary wealthy parents set up a trust for their child with a disability and put millions of dollars in there, the interest from that would be taxed at normal tax rates, not special high children’s tax rates. Which means they would also have a tax free threshold, and then gradually increasing rates that adults have.

There would be rules to follow, like with any trust. The funds would need to actually be used for the benefit of the child etc. And the child must have a disability that is likely to be permanent.

Special Disability Trust

Quite recently the Australian government has also introduced something called a Special Disability Trust, to encourage people to set aside money for severely disabled children. This is separate and in addition to any other trusts they may set up for their disabled child and has stricter rules.

A special disability trust is a great vehicle, especially for retired parents, to set aside money for their severely disabled child without breaching social security rules. It has many tax and social security benefits.

Benefits of a Special Disability Trust

As an example the money in a special disability trust will be taxed differently. Assets in a special disability trust do not attract capital gains tax. This means if you buy an investment property or some shares and they are ever sold, you will not need to pay tax on the capital gains. More importantly, the assets and income of the trust are not counted towards your child’s eligibility for the disability support pension. Up to a value of about $650,000 (indexed to inflation).

If you set one up, you must get some advice from a solicitor that is experienced in special disability trusts. There are strict rules about eligibility for setting up this kind of trust, and what you can spend the trust money on.

Rules regarding Special Disability Trusts

The beneficiary of the trust (so the person with the disability) first has to meet strict criteria. They would meet this criteria if they are over 16, eligible for the disability support pension and their carer must meet the criteria for the Carer Allowance. Alternatively they could be living in a group home. They must be unable to work for more than 7 hours a week.

If the child you are planning for is under 16, you might still be able to set up a special disability trust for their benefit. In this case they have to have a severe disability or severe medical condition. The carer must have a rating of ‘intense’ under the relevant legislation. You would also need a letter from a doctor testifying that they will need personal care. So the first step would be to contact the Department of Human Services and check whether the person for whom the trust is being established meets the definitions. The Special Disability Trust Team has a dedicated phone number: 1800 734 750. Alternatively you can make an appointment at your nearest Centrelink.

There are also strict rules around what the trust money can be spent on. Broadly speaking, the money must be spent on the accommodation and care needs of the person with the disability. This would be things like rent, therapy, medical costs and insurance, etc. About $10,000 of spending per year is allowed on more ‘discretionary’ things. There are certain requirements for how the trust deed must be set up.  It must also have annual financial statements and may be audited.

Costs involved

So in order to set up and run such a trust, there would be some considerable costs. You would also of course need to lodge a tax return for the trust and for the person with the disability. An accountant would be necessary and some trustees. Or you and your partner can do this yourselves but I would only recommend this for people that have of experience in financial matters. This must also be considered.

For more information about Special Disability Trusts, have a look at the website of the Department of Social Services with a great pamphlet on the subject in several languages.

Facebook Comments