Maryanne and Edward are a married couple aged 66 living in their own home. They have two children Rachel aged 38 and Tony aged 40. Tony is severely disabled and is receiving disability pension as well as being financially supported by Maryanne and Edward for his accommodation and health expenses. Rachel is married and has her own young family.
Maryanne and Edward have a self-managed superannuation fund with an investment portfolio of $600,000. They also have share portfolios worth $350,000 which they own in their personal name. The majority of the share portfolio includes shares that were purchased many years ago and the cost base of those shares are very low. In other words, if Maryanne and Edward are to sell those shares (on current high valuation) they will face a substantial capital gains tax.
Both Maryanne and Edward are retired. They are using the income pension from their SMSF as well as the partial aged pension that they are receiving to support themselves and they are using the income from their share portfolio to support Tony. On the 1st January 2017 the government is introducing a new threshold for asset test limits. This will mean that Maryanne and Edward will lose their current partial pension which will put them into financial difficulties considering that they are supporting Tony. If they establish a Special Disabilities Trust (SDT) and donate the share portfolio into it and then restructure the investment within the SDT they will be able to achieve the following:
- reduce their asset tests without being caught out by the gifting rule and therefore continue to receive their pension after January 2017
- be exempt from Capital Gains Tax on the shares
- the asset in the SDT will not affect Tony’s asset and income tests and therefore will not affect Tony’s disability pension
This will allow Maryanne and Edward to keep looking after Tony and at the same time keep looking after themselves.
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Disclaimer and Warning
The information above is of a general nature only. It should not be used as a source to make financial decisions. It’s also important to note that the legislation and figures related to this topic tend to change regularly and therefore the information above may not reflect the current status. We recommend that if you are looking for advice on this matter, you should contact us.