Section 2: Planning for the future: choosing the right option (questions and answers)
Why special planning for disability?
You do not have to make any special arrangements for a family member with disability. Whether you need to think about special arrangements depends upon the abilities of the person with disability, the resources available, and your wishes for the future.
If the person with disability is able to manage their own money or manage money with informal assistance, it is less likely that you will need to make special arrangements. You can use family resources the same as you would for family members who do not have disability. You can give assets to the person with disability through your will or a trust just the same as you would do for other members of the family – usually by a straight-out gift.
However, there are two main reasons why it might be a good idea to make special arrangements.
- If the disability affects the person’s mental capacity (such as intellectual disability, brain injuries, mental illness or dementia), the person with disability may need help to manage assets or money. You may need to provide for this. Different options for doing this are discussed below.
Example
Kwame has an intellectual disability. He works, lives in a unit and can look after himself day to day, but needs help with money. His sister Rose helps him manage his money, including paying bills and weekly budgeting.
This arrangement looks like it will continue. Kwame’s mother, Grace, decides to give Kwame half of her estate, confident that it will be well looked after by him with Rose’s help.
If Kwame did not have Rose to help him, or if his disability were more severe, Grace would have to decide who to appoint to help look after Kwame’s share of her estate.
- Sometimes you will want to keep more control than usual over how family resources are used in the long run, even if the person with disability can look after their own affairs. You may want to control how family resources are used after the person with disability no longer needs them.
For example, because the person with disability has greater needs than other family members, you might want to let the person with disability use a larger share of your estate than your other children who do not have disability. However, after the person with disability has died, you may want whatever assets are left to go to your other children or your grandchildren. To achieve this result rather than leave it to chance, you may need to make special arrangements.
Example
Fred and June have four children. Their daughter Jessica has a physical disability and does not work. Fred and June feel that she needs greater support than her sister and brothers.
They decide to set aside 75% of the estate, in a trust set up by their will, for Jessica’s use, to buy a suitable house and leave some money to cover other expenses. The other three children share in the remaining 25%.
The trust deed states that after Jessica has died, the house and any other money that is left is to be divided between Jessica’s children and Fred and June’s other grandchildren, so that each branch of the family ultimately shares equally in the estate.
To decide whether any special arrangements are necessary, and what those arrangements should be, you need to think about the abilities and needs of your family member with disability. You need to consider what issues may arise and what you can do about them. You also need to think about the needs of other members of your family.
You can talk to the person with disability to find out what they want to happen before deciding what to do. You can also talk to other people in your family or in the network of people who know the person with disability.
Your assessment will be an individual assessment based on specific circumstances: every situation is different and there are no right answers.
The starting point is your vision of what you want to be available to look after the interests of your family member with disability into the future, after you have gone. This will help you decide how you can best set that up while you are still around to do it.
How important is it to have a will?
A fundamental question is what assets you will leave to a family member with high support needs and in what form.
It is very important to have a will in place and to get assistance from a lawyer in making a will. There are a number of reasons for this.
- If you do not have a will, when you die your assets will be distributed in the way that the law determines in the state where you live or where your assets are. These are called laws of intestacy and will not give consideration to the special needs of a person with disability. This may leave your family member with disability seriously under resourced to provide for their future. Provision is made in all States (for example, in NSW it is the Family Provision Act) for a person with disability to apply to the court to obtain a larger share of the estate (this also applies when there is a will) but it is very stressful for a person to have to take this action.
If a person with disability is not able to make decisions by themselves, action can be taken by a ‘next friend’ – usually by a financial manager appointed by the Guardianship Tribunal or by the Protective Commissioner (each state/territory has its own title – see Section 5).
In many cases where there is no will, the family will agree on how the assets will be divided without going to court. If this happens a ‘deed of family arrangement’ is prepared by a lawyer and takes the place of a will. If the person with disability cannot have input into the decision making, a financial manager can be appointed to represent their interests. - By having a will you have the security of knowing that you have set in place your hopes and wishes for the future support and care of your family member with high support needs. It provides you with a safeguard to ensure that the plans you have developed continue to be implemented.
You should see a lawyer to draw up a will. A lawyer can help you to make sure that you include all the things you want in the will, that you understand the consequences of what you have written, and that it is written in the correct way. As many lawyers are not experienced in providing advice to people who have a family member with high support needs, and may not be up to date with disability and social services, it is worth spending some time finding a lawyer who understands these issues.
A will should be regularly reviewed and updated to allow for changes in your circumstances. For more information on wills see Section 3.
Can I give assets directly to the person with disability?
This is certainly an option, either while you are alive or through your will. It is the way in which people most often transfer their assets to other family members. If you are thinking of doing this, consider the following.
- Will the family member with disability need assistance to look after their assets?
Can the person look after money in the bank or look after a house, including paying rates and other expenses, dealing with maintenance and insurance and so on? Would they be vulnerable to exploitation or abuse if someone tried to ‘rip them off’ or somehow take over their assets? To the extent that the person needs support, is it available or do they need a financial manager? - Is it fair, balancing their needs and the needs of others?
Look again at the example above. If Fred and June gave 75% directly to Jessica without any further control, is that a fair way to do things, considering their other children? The assets would then be Jessica’s, and she could leave them to whomever she likes in her will (or if she can’t make a will, they would automatically pass to her closest family member). That might be the way you would want things, but maybe you would want your assets to be distributed more evenly, in the interests of other family members in the long run. Talking things over with your children and including them in the planning may prevent resentments arising. - If you are thinking of giving away money while you are alive, do you have enough additional funds available for your own needs, especially as you get older?
Is your retirement fully funded so that you are not likely to need those assets at all? Once assets are given to someone else or put into a trust, they are no longer yours and you cannot rely on getting them back. A parent of a person with high support needs may be used to putting the needs of their son or daughter before their own and not consider the impact of giving away their assets on their own future wellbeing.
Are there tax implications in planning for the future?
Taxation is a highly complex area as there are various taxes at both the Commonwealth and state levels that need to be considered when planning (for example, Commonwealth taxes include income tax and capital gains tax; state taxes vary from state to state and may include land tax and stamp duty).
This complexity makes it impractical to provide more than just a brief summary of some of the key areas. One of these complexities is that taxation is dependent on your personal circumstances and, as such, specific taxation information cannot be provided in this booklet.
It is essential that you seek appropriate professional advice to be clear about the tax implications of your plan.
| Tax | When it may be applicable |
|---|---|
| Capital gains tax – may apply to any situation where there is a change in property or legal rights. |
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| Stamp duty – payable on the transfer of specific assets from one party to another. Stamp duty is not payable on property that is inherited through a will. |
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| Income tax – payable by individuals and trustees of trusts based on their assessable taxable income. |
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Are there Social Security implications?
If the person to whom you give assets receives an income support payment, their payments might be affected by receiving those assets.
As you have no guarantee about possible changes to your circumstances in the near future, before you give assets to your family member with disability, find out about the potential implications on your, and their, income support payments.
What about financial management orders or guardianship orders?
By law, once a person turns 18 years old, they are no longer under the guardianship of their parents whether they have disability or not. If a child is under the age of 18, a parent can appoint a guardian in their will. Once their child turns 18 a parent cannot appoint a guardian for their son or daughter even if they have high support needs.
Your family member may not need a formally appointed guardian or financial manager if they have a committed group of people to assist with decision making.
If a person with disability is unable to manage his or her own affairs, it is possible:
- to have a financial manager appointed to make financial management decisions on behalf of the person with disability; or
- to have a guardian appointed who can make decisions on other life issues (such as health care and other services, where the person will live, and so on).
This can be done under legislation in each state and territory such as the Guardianship and Administration Act in Queensland and the Protected Estates Act in NSW. The person appointed can be an individual, including a family member. However, a body such as the Guardianship Tribunal will only make an appointment if the person with disability has a current need. You could apply to have a financial manager or guardian appointed while you are alive, or you can suggest in your will that this occurs.
A financial management order may address concerns about management of assets given to the person with disability. A financial manager or guardian is someone who will ‘look out for’ the person with disability. In considering who you would like to fill these roles, the same considerations arise as in choosing a trustee, but while you can have a say in who is appointed this is ultimately a decision for the Guardianship Tribunal (or other relevant tribunal), which might consider someone else better suited to the task.
See Section 5 for the contact details for the guardianship bodies in each state who can provide you with further information.
What about a power of attorney?
An attorney is appointed by a legal document called a power of attorney. An attorney is a person you appoint to take care of your financial and assets matters if for some reason you are not available to make decisions or if you can no longer make those decisions. This means that they can operate your bank accounts, pay your bills, and buy or sell assets or shares on your behalf.
Who can make a power of attorney?
You can appoint an attorney. This would allow someone to do the things you are currently doing for your family member with disability while you are still alive but no longer able to do these things yourself. This will be important if you later develop dementia or can no longer make decisions.
You may want someone to look after your interests and to look after the interests of the person with disability as you would. You need to include directions to the attorney about using your assets for the benefit of your family member with disability, as well as for your own benefit.
The person with disability can appoint an attorney (to make decisions on his or her behalf) if he or she is able to do so. Like a financial manager, the attorney could help with financial management and decisions.
However, if the person with disability is able to control his or her own affairs sufficiently to be able to appoint an attorney, you and other family members are less likely to have concerns about their ability to manage their affairs in the future.
The person with disability cannot appoint an attorney if he or she has impaired decision making capacity. If the person with disability cannot understand the nature of a power of attorney and its implications, they will not have the legal capacity to sign such a document. In that case, a power of attorney is not an option for managing their assets.
So what are the other options if I decide not to give assets directly to my family member with disability?
If a direct gift is not suitable, then the other options are:
- to informally give the assets to a third person for the benefit of the person with disability, or
- to give the assets to a third person to use for the benefit of the person with disability on a formal basis. This is called setting up a trust.
An example of the informal approach would be a gift of assets to a third person in a will – for example, leaving all of your estate to one of two children with the expectation, either stated in the will or just ‘understood’, that the child who inherits will look after the child with disability.
Hoping that someone else will ‘do the right thing’ with assets over which they have absolute control can give rise to many problems. Such an arrangement is very uncertain. You cannot be sure it will benefit the person who has disability, and it may give rise to a range of other problems such as a challenge to the will.
Example
Yee Min has two children. Her son, Tim, has high support needs and cannot look after money himself. Her daughter, Sue, does not have disability. Yee Min thought that Sue would look after Tim, although she had not discussed this with Sue and said nothing about it in her will. Yee Min’s will gave everything to Sue.
In fact, Sue took no interest in Tim after their mother died and did not use any of her mother’s money for Tim’s benefit. Even if Yee Min had told Sue what she expected, or said in the will ‘I would like you to look after Tim’, Sue would not have any legal obligation to look after him.
(In a situation like this, Tim might challenge the will, with the help of someone else in his life such as a service provider or advocate.)
The formal approach of using a trust is much better than the informal approach. The following section of this booklet provides you with more detailed information about setting up trusts.