Finance Your Budget Ask the Expert: Special disability trusts and powers of attorney
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Ask the Expert: Special disability trusts and powers of attorney

Licensed financial adviser Craig Sankey answers your burning finance questions. Photo: TND
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Question: I am 80 years old and have no family in Australia. Should I name the Queensland Public Trustee as my financial attorney in my EPA, and a trustworthy friend as attorney for personal matters?

What about if the day comes when I retain decision-making capacity but lack mobility, and need someone to pay bills and look after other matters? Should I make the friend my attorney so he could manage them for me?

I need to plan for my old age in all situations seeing as I have no family in Australia.

Answer: It’s definitely a good idea to plan ahead while you are of sound mind to ensure your wishes are respected, should you suffer some type of physical or mental impairment.

Of course, once you are not of sound mind then it is often too late to put in place any legal documents.

I strongly suggest speaking with a solicitor to ensure your legal affairs are in order, such as having a current and legal will.

And as you mentioned, it’s also very important to arrange ‘Powers of Attorney’ (POA), which differ from state to state and can take various forms.

Often, the POA is made ‘Enduring’ so that it continues after you have lost mental capacity.

Depending on the state in which you live and what powers you want to give, it can include both financial and medical authority, or you could have separate POAs for these matters.

You should only make an enduring power of attorney if there is someone you trust, who understands what is important to you, and who is willing and able to act on your wishes as far as it is possible to do so.

Otherwise, you shouldn’t make an enduring power of attorney.

The Queensland Public Trustee website provides some useful information in this regard and has a range of services available, such as acting as a trustee and acting as your POA. However, these services come at a cost.

Question: My spouse and I own our principal residence and a small holiday cottage with no debt. They are valued at $850,000 and $550,000 respectively.

We have only $450,000 in combined super with First State Super (Aware Super). We are both 61 and still have one adult child living at home with us, due to a life-long mental illness, for which they receive the DSP and other NDIS support from the government.

We intend to work part-time (three days a week) for another two years, then retire.

My questions are: 1) Is there any arrangement by the government, which allows us to sell our principal residence and set up our adult child with a residence of his own (in his name only)?

2) If so, can we then make our holiday cottage our new principal residence, if we live there, say, more than half the calendar days of any year?

3) Would we still need to pay the CGT on the holiday home, if we now use it as our principal residence, after the first point above has occurred, or will we still be required by the ATO to pay the estimated $50,000 in CGT?

4) If not, is there any relief from the government that we can take advantage of (legally of course), to minimise tax in our situation (setting up our adult child for his future housing security) without getting burnt with all sorts of fees and taxes in the process?

Thank you, Damien.

As your son is in receipt of a Disability Support Pension (DSP), you should investigate if he meets the eligibility requirements for you to set up a ‘Special Disability Trust’.

Immediate family members and carers can set up a special disability trust to provide for the future care and accommodation needs of a person with a severe disability.

A special disability trust could be used to improve the social security position of the disabled individual and/or immediate family members that can contribute to the trust.

Any income from the trust would be taxed at the beneficiaries’ marginal tax rate.

Any potential benefits should be balanced against the costs of establishing and maintaining the trust.

In relation to tax on your property, your current main residence is exempt from capital gains tax (CGT). However, you can only have one main residence at any one period.

You can use the proceeds from your main residence to set up your child with his own residence directly, or via a Special Disability Trust (if eligible).

You could move into your holiday home, and no immediate CGT would be payable. However, upon eventually selling this property, that would trigger CGT to be payable, but only for the period during which it was not your main residence. Therefore, you should obtain a valuation of the property once it becomes your main residence.

As you have a complex situation with some options that are available, I suggest seeking legal advice on the best way to provide a home for your son and seeking tax advice in relation to legally minimising any future taxation.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services.

Disclaimer: The responses provided are general in nature, and whilst they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.