In Will preparation and estate planning generally, particular consideration should be given to the possible establishment of protective trusts and Special Disability Trusts (SDTs) for any family members who are vulnerable because of, e.g:
- serious/significant physical disabilities;
- mental illness;
- gambling, alcohol or drug addition;
- spendthrift tendencies.
If a potential beneficiary does have a serious disability, it may either be imprudent from a practical perspective or impossible from a legal perspective to allow him/her to have unfettered control over the testamentary gift.
Depending on the degree of disability and any entitlements which the beneficiary has to social security support for that disability, the establishment of a protective trust and/or a STD under the Will may be better options than an outright bequest to that beneficiary personally.
What’s the difference?
Protective trusts have been around as an option for Will-makers for a very long time.
Under a protective trust, the person with the disability (principal beneficiary) will usually be the sole beneficiary of a specific trust fund established under a Will. The principal beneficiary receives the benefit of the income and/or capital bequeathed to the fund, but cannot call for it or deal with it personally.
The period of the protective trust will typically end upon the principal beneficiary’s her death, but it can be shorter.
The person who is appointed trustee of the protective trust will usually have the general power to use the trust funds for the broad purposes of maintenance, education and advancement benefit of the principal beneficiary and may also have additional powers to use the funds for specified purposes.
The Will may direct that the funds available be limited to income only or may be wide enough to allow the trustee to access all or some of the capital as well as the income.
Upon the death of the principal beneficiary (or, if a specified period is stated, upon the expiration of that period), the balance of the trust then vests in persons specified in the Will (e.g. the principal beneficiary’s children or siblings).
With a general protective trust, it is the Will-maker who determines the important issues such as the duration of the trust, whether income or income and capital can be applied, the purpose(s) of expenditure (limited or expansive), and the intended ultimate beneficiaries once the protective trust has come to an end. The Will-maker’s decisions, in turn, will probably be moulded having regard to the nature and severity of the disability.
Special Disability Trusts
SDTs are a special limited form of trust which has been recognised for the purposes of persons receiving support payments under the Social Security Act 1991 and Veterans’ Entitlements Act 1986.
They were introduced in 2006 to assist families to make private financial provision for the current and future care and accommodation needs of a family member with severe disabilities.
The primary objective of SDTs was to make it easier for carers such as parents to ensure that children (including adult children) with a significant disability would be cared for when the parents were too old to provide the necessary care, and/or after the parents’ deaths.
SDTs can be established by deed during the donor’s lifetime, or, by Will, and become operative on the donor’s death.
SDTs provide significant concessions for both the donors and the severely disabled beneficiary, which is why they have become an increasingly more popular protective trust.
Are there limits to how much can be put into a SDT?