Family members who are vulnerable or have a disability
by Jacqui Brauman
When any of our family members are gamblers, alcoholics, drug-users, bankrupts or have a severe disability, we may be reluctant to leave a direct legacy to them in our Will out of fear of it being wasted or abused. But we shouldnâ€™t avoid leaving anything to these family members, because they are the ones most in need of a legacy. So what can be done?
It is possible to set up a protective trust. This is a trust in your Will that is regulated by legislation in Victoria. Your executor or another appointed trustee manages the legacy and holds it on behalf of your vulnerable family member. The trustee is able to use income earned off that legacy for the benefit of your vulnerable family member, but the capital cannot be touched. When your vulnerable family members dies, your Will will nominate who that capital is ultimately left too. A protective trust would be suitable for a family member who is gambler, alcoholic, drug-user or bankrupt.
Another alternative, and this trust can be set up whilst youâ€™re alive or in your Will, is a special disability trust. This trust can be used for a specific person who meets the disability requirement in the Social Security Act 1991. There is a gifting concession of $500,000 into a special disability trust, and also the assets of a special disability trust (up to approximately $596,000) are not assessed as assets for Centrelink purposes – so your disabled family member will still retain their full pension. The requirements of such a trust are pretty stringent, so you should seek legal advice, but this could be a very useful trust for your disabled family member, and a way to provide for them in your Will.
Finally, you can utilise a discretionary trust in your Will – these are often called testamentary trusts (although all trusts set up in a Will are testamentary trusts). A testamentary discretionary trust, if worded correctly, can achieve what the above trusts can achieve in your Will, and more. For example, if there are more beneficiaries of the testamentary discretionary trust than just your vulnerable family member and the trustee is a responsible person that you trust, then the assets can be protected as effectively from your vulnerable family member.
With a testamentary discretionary trust, the trustee can issue income at their discretion to the vulnerable beneficiary and undertake income splitting between beneficiaries, and they can also release capital (unlike a protective trust). Detailed succession clauses can be built in, in case your trustee becomes unable to perform the role or dies, so that you can always be assured of who is in control of the trust. You can also leave detailed instructions to you trustee about what your intentions of the trust are. Finally, you can also build in another role into the trust – the role of protector – which is another independent person who needs to approve of certain decisions before they can occur, if you want that extra level of protection.
There are many ways that you can make sure your vulnerable family members are provided for, without having to worry about your hard-earned estate being frittered away. So please contact us for advice about preparing such trusts in your Will, or ask us any other questions that you might have.
Contact us to arrange a chat. It doesnâ€™t hurt to ask.