Ray Ward Estate planning involving persons with a disability

What is estate planning? Estate planning is more than simply making a will It is a process which takes into account the tax, pension and other aspects of a person dying with a view to ensuring the assets are distributed efficiently with maximum benefits to the beneficiaries

The estate planning process The process involves a review of: how you hold your assets eg trusts, companies etc superannuation nomination life insurance pension effects taxation effects (including CGT) the financial and personal position of your beneficiaries

The tools of estate planning Tools used by an estate planning lawyer include: a tax effective will testamentary trusts special disability trusts life insurance superannuation enduring power of attorney appointment of enduring guardian advance care directive

Capacity The first step in the estate planning process involving a disabled person is the assessment of that person’s capacity. This is the capacity to make his or her own decisions. There is a complicated legal interpretation but fundamentally the person must understand the nature and extent of his or her act e.g. making a will

Why is capacity important? 2 reasons: The disabled person may be able to personally participate in the estate planning process despite the disability If the disabled person is unable to participate in the process the extent of capacity is important to ensure that the disabled person is protected and receives maximum benefit under the process

Capacity assessment principles Always presume a person has capacity Capacity is decision specific Don’t assume a person lacks capacity based on appearances Assess the person’s decision-making ability-not the decision they make Respect a person’s privacy Substitute decision-making is a last resort

Estate planning by a disabled person Some disabled persons will have assets that require estate planning. If they have capacity they can instruct a lawyer and sign valid documents in the normal way e.g. will, power-of-attorney or advance care directive. If they don’t have capacity it may be necessary for their loved ones to take steps on their behalf.

Estate planning by a disabled person (cont’d) Those steps may be: apply to the Supreme Court for the making of a court authorised will under the Succession Act apply to the Guardianship Tribunal for orders in relation to power of attorney and/or guardianship apply to the Supreme Court for an order placing the affairs of the disabled person in the control of the Protective Commissioner apply to the NSW Trustee and Guardian for assistance

Estate planning by a disabled person’s relatives The objects should be to: ensure that the disabled person’s financial position is not eroded by the estate planning ensure that the disabled person’s health and other benefits are not affected by the estate planning ensure that the disabled person’s lifestyle is not diminished by the estate planning

Estate planning by a disabled person’s relatives (cont’d) The issues to be addressed are: a will that is tax effective and pension effective in respect of the disabled beneficiary a carefully considered and effective direction as to superannuation death benefits a considered choice of trustee of any moneys or assets left on trust for the disabled person

Special Disability Trusts The beneficiary must have a severe disability as defined in the Act. In broad terms this means receiving a disability support pension or an invalidity service pension Can be established either by will for the benefit of the disabled person after you die or outside of the will for immediate operation Must be in the form of the model deed in the legislation Must have a professional trustee or 2 independent trustees Must specify that the trust is established for the sole purpose of providing care and accommodation for the person with a severe disability The beneficiary may have up to $596,500 plus a residence in the trust before affecting the asset and income test Must provide annual financial statements to Centrelink Must be audited when required by Centrelink

Special Disability Trusts (cont’d) Who can gift to a special disability trust? Anyone except the beneficiary or the beneficiary’s partner Compensation money received by the beneficiary specifically can not be gifted to a special disability trust However a bequest under a will or a superannuation death benefit for a beneficiary may be gifted to a special disability trust What can the funds be used for? The accommodation & care needs of the beneficiary The beneficiary's dental and medical expenses including membership of a private health fund Maintenance expenses of the property assets of the trust Up to $10,250 per year not related to the care and accommodation needs of the beneficiary

Special Disability Trusts (cont’d) What are reasonable care needs? Must be a result of the disability Must be for primary benefit of the beneficiary Must be in Australia Examples: Specialised food Mobility aids Personal care dates Modified vehicle Transport Training for independent living skills

Special Disability Trusts (cont’d) What are reasonable accommodation needs? Must be a result of the disability Can be purchased or rented but not from a person who is an immediate family member of the beneficiary Examples: Modification of the beneficiary's place of residence Payment of an accommodation bond Fees relating to accommodation in residential care e.g. standard daily care fee Maintenance expenses in respect of keeping beneficiary’s property in comparable condition and safe to use

Superannuation benefit nominations Superannuation death benefits are not distributed in accordance with your will. The trustee of a superannuation fund is entitled to distribute the benefits amongst the named beneficiaries at its discretion. It is important that the benefits are not paid to a disabled beneficiary with a detriment to that beneficiary’s pension or health benefits. You can make a binding death benefit nomination on the trustee of your fund to ensure that the benefits are distributed to e.g. a trust established by your will.

Advance care directives An advance care directive is a document that sets out your wishes in relation to your consent or otherwise to specified medical treatment (e.g. blood transfusion) in the future. An advance care directive can appoint a person responsible for your decisions. It is important to be aware that an advance care directive cannot contain instructions for illegal activities such as euthanasia or assisted suicide. Historically, advance care directives have not had legal binding effect but that situation has changed with 2 court cases in 2010 that have held otherwise.

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