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TRANSCRIPT
Families Living with Disabilities Amaze – Autism State Conference
2014
Friday 8th August 2014
Who is Catalyst?
• Catalyst Financial Group is a specialised financial planning business working with individuals, professional people, self-employed, retirees.
• Most specifically 2 key sectors – helping women and families with disabilities - to achieve their aspirations.
• Advisors : Kathy Havers, Daniel Weeks & Michael Forer all with
many years experience
• Catalyst is a fee for service business that is focused on advice, strategies and ongoing quality service.
Who am I ? • Parent at Bulleen Heights School(married – 2 kids –
Brady 16 & India 17) • Brady has severe autism • Passionate about helping others – and giving back –
Director of a NFP – Kindred Spirits Foundation • In 2013 won the Financial Planning Association’s Vic
award for “Community Service” • President of Bulleen Heights Special School Council • Catalyst Financial Group provides experienced and
specialist advice to families like mine. • Many existing clients are special needs families.
Agenda
• Families with Disabilities
• Legal and Structuring Considerations • Superannuation & Self Managed Superannuation • Special Disability Trusts • Centrelink Pensions • Estate Planning
• Personal Insurances
General Advice Warning
This presentation has been prepared by Catalyst Financial Group, ABN 65 462 810 816. Catalyst Financial Group is an Authorised Representative of Magnitude Group Pty Ltd, AFS Licence No. 221557. Catalyst’s contact details can be found on www.catalystfg.com.au.
Information contained within this presentation has been prepared as general advice only as it
does not take into account particular investment objectives, financial situations or needs. The presentation is not intended to represent or be a substitute for specific financial or investment advice and should not be relied on as such. You should consider whether the information is appropriate and seek professional advice from an adviser before making an investment decision. Before deciding whether to acquire or to continue to hold any investment mentioned in this presentation, a Product Disclosure Statement (PDS) should be obtained and considered. Past Performance is not a reliable indicator of future performance.
All assumptions and examples are based on current laws and the continuance of these laws
and Catalyst’s interpretation of them. Catalyst does not undertake to notify its recipients of changes in the law or its interpretation. All examples are for illustration purposes only and may not apply to particular circumstances.
Families With Disabilities
Centrelink diagnoses of “severe disability” - will receive: • Carer allowance from Centrelink ($118pf) • DSP commences from age 16 (steps up to 21) • May receive respite services – family means tested up
to 16, after 16 individual means tested • Child will require lifelong physical care and financial
support • NDIS set to improve funding and outcomes for
disabled persons whereby funding is going to be provided to individuals not to service providers.
Excepted Persons – under “Tax Act”
• Under Tax Act some minor children are excluded from the special rules regarding severe taxation treatment of income earned. Excepted Persons are:
• Working full time OR • Permanently blind OR • Entitled to DSP or someone entitled to Carer
Allowance to care for them OR • Unable to work full time because of a permanent
disability
What does this mean? Adult Taxation Rates 2014 - 2015
Taxable income
Tax Payable
$
Up to $18,200
NIL NIL
$18,201 - $37,000
19% $3,572
$37,001 - $80,000
32.5% $17,547
$80,001 - $180,000
37% $54,547
Over $180,000
45% $54,547 + 45% over $180K
Minor Tax Rates -non earned income <18 yo Taxable income
Tax Payable
$
Up to $416
NIL NIL
$416 - $1,307
66% $588
Above $1,307
45% $588 + 45% over $1,307
Example – Brady or India ?
• Child < 18 with $30,000 invested (India is yet to turn 18 and Brady under 16)
• Term Deposit in their name 3.5% interest • Income Earned $1,050 pa • Minor tax payable $418 (India) • Excepted Person tax payable $NIL (Brady) • For a non excepted person child the max they could
have invested at 3.5% & pay no tax is $12,000 = $420 pa! (India)
Structures to Consider • Family Trusts: ‘Excepted Persons’ exemption to minors,
income and Capital Gains Tax at adult rates • Useful for Business People, Self employed or those with
Investment Assets & Passive Income • Useful from diagnoses – birth potentially and –
indefinitely – certainly up to age 16 • Self Managed Super Funds: Minors can be added to
parents fund. They have no earned income so can make contributions
• Special Disability Trusts: More details to follow.
Legal & Centrelink Considerations
• Generally unable to make a Power of Attorney – without Capacity
• Unable to make a Will (therefore die intestate) • At 16 Disability Support Pension (DSP, Pensioner
Education Supplement & Mobility Allowance) • Maximum amount $10,592 DSP & PES • Plus Mobility Allowance $2,314 pa • At 18 an adult under law • At 18 DSP pension increases – if living at home • Maximum amount $13,234 pa • At 21 full adult DSP – irrespective of residence • Maximum amount $22,380 pa
Guardianship & Administration Orders • Parents normally deemed to be legal guardians <18 • From 18 Parents or Guardians apply to Guardianship
Board via VCAT to be approved “administrators of care and/or financial affairs” of disabled individual
(eg: Medicare, Centrelink, ATO, Banking) • Annual reconciliation to VCAT of all income and
expenditure, plus bank balances, assets etc • EG: Pension received, investment income less living
expenses, medical costs. • Administration Orders usually only provided for a 3
year period, then review applies • Considerations apply for split families
Superannuation
• Total and Permanent Disablement (TPD) rules (not normal retirement test) = access to funds - condition of release met - at any age if applicable at that time
• Balance is in super (accumulation) is 100% exempt from Centrelink Pension Income and Assets test until Age Pension age; 65.
• No Balance limits • Normal contribution rules, see next slide • Lump sum withdrawals don’t count as income for
Centrelink assessment
Why Super? • Tax – max 15% flat rate on all earnings • Capital Gains Tax only 10% (ordinarily it can be up to
24.5% for individuals) • No Balance limitations (only contribution caps) • Contributions (non concessional) $180,000pa &
(concessional/deductible) $30,000pa per person • Maximise Government pension benefits until age 65! • Asset Protection - from any legal action • Estate Planning – Super not part of a Will • Same investment choices as money held outside super
(eg: TD’s, cash, shares, managed funds etc)
Self Managed Super Funds (SMSF’s)
• Control and Flexibility • More than 1 member (suitable for disabled) – up to 4
members permitted. EG: mum, dad & disabled child • Investment Selection and Strategy; Consolidated or
Segregated? • Family Super for younger parents – allows
contributions but can access disabled member balance anytime and can re-contribute
• Self manage contributions, TPD aspect and withdrawals as well as Centrelink reporting
• Estate Planning important - you have control!
My Family SMSF • Corporate Trustee ie: Company (recommended) • Kathy 45 and Daniel 45- members and directors • 2 children – India 17 and Brady 16 (disabled) • Brady, made a member of the super fund. • India not a member of the fund (complexity & control) • Kathy and Daniel deemed to be Brady’s trustee - minor • At Age 18 Brady required to a be a Trustee & Director. • Brady under legal disability, Kathy & Daniel his Administrator's
(VCAT order at that time) - jointly as 3rd Director. • Segregate Assets for Brady (income and growth) from rest of
fund (growth) • Contribute both concessional and non concessional
contributions if desired, with full access to Brady’s balance ONLY under TPD. Kathy & Daniel in full control.
SMSF Example
Kathy Daniel
Havo Pty Ltd
Director Director
Havers Family Super Fund
Kathy Daniel Brady
Members
ATF
Brady (Kathy & Daniel Admin)
Director
Special Disability Trusts
• Established by families for care & accommodation needs of primary beneficiary
• Only 1 beneficiary per trust • Only 1 SDT per beneficiary • Beneficiary must be >16 (in most cases) and meet
definition of ‘severe disability’ – usually a recipient of DSP or not able to work more than 7 hours per week.
• Introduced 2006 & under constant review
SDT’s Characteristics • Provides care, accommodation & medical needs • Must have a special trust deed that complies • Must have an independent trustee (arms length &
professional or alternatively 2 or more, or COY) • Complying investment strategy – primary purpose for
‘care & accommodation of primary beneficiary’ • Annual return & financial statements by 31 March
annually with Stat Dec (income/expenditure) • Must comply with independent audit when required • SETTLOR should not be FP, Accountant, Solicitor unless
they take no further part / no fees to SDT
.
Kathy Daniel
Special Disability Trust
Director Director
Brady Havers
Beneficiary
Settlor/ Aunt
Corporate Trustee eg: Brady Havers Pty Ltd
ATF
SDT’s Characteristics
SDT continued......
• Assets test exemption $609,500 (indexed) • Gifting concession up to $500,000 (family) • Disabled person CANNOT gift to SDT themselves • PLUS home residence (not with family) • Contributions - at anytime by anyone • ALL trust income excluded from Centrelink income test
(provided used according to requirements) • All unexpended income taxed at beneficiary MTR • Vests on death of beneficiary – disbursed back to donors or
residual beneficiaries (eg: siblings) • Separately – normal asset limits outside SDT – homeowner
single = $196,750, non homeowner = $339,250
SDT Continued.......
• Capital Gains Tax exemption for donor for any asset donated to SDT eg: property
• Capital Gains Tax main residence exemption during lifetime and after death if disposed <2yrs
• Beneficiary can work up to 7 hours pw • Trust can pay for medical expenses, aides, transport,
therapy, property maintenance & rates • Care & accommodation must be arms length – not
family provided • Trust can spend $10,750 pa on disc items
SDT Example - Jess • Parents and/or grandparents donate up to $609,500
cash or investments to trust • Centrelink gifting exemption of $500,000 applies for
grandparents. • Property purchased 10 years ago by parents - CGT
accrued is transferred to the SDT free from capital gains tax to parents
• This CGT free exemption could save $thousands • Jess moves into own accommodation with full time
care
.
Note - Jess also receives a Disability Support Pension of $21,018 pa. She is also permitted to work up to 7 hours p.w.
Grandparents Parents
Special Disability Trust -$650,000 – House
-$500,000 – Investment Portfolio
$500,000 – Cash - exempt from Centrelink gifting rules
$650,000 – Property - no CGT
$30,000 p.a. - Care & Accommodation Costs
$10,750 p.a. - Discretionary spending
Beneficiary - Jess
Gift Gift
SDT Example – Jess (22)
SDT Example - Jess • Cost of care &accom met by SDT $30,000 pa (6%) • If all income disbursed NO tax to pay • Jess receives full DSP ($21,000 pa) and all associated
disability support and respite programs based on her income – pension only.
• Can draw funds - discretionary items <$10,750, plus use DSP for food, clothing etc
• Parents avoid CGT bill on investment property • Grandparents avoid 5 yr rule on gifting $500,000 • SDT vests on her death to donors or siblings
Pensions, Health Care Cards and Residential Care • Consider strategies to increase Pension
entitlements, Health Care Card eligibility and reduce Residential Care fees
• Superannuation & Super Pension income most favourably treated.
• Get structures set up and assets in right place from outset regardless of immediate living arrangements.
• Everybody is different. Super, Family Trusts or SDT strategy not be the same for everyone.
Maximising Disability Support Pension
• Superannuation for those under Age Pension Age is
NOT counted as an asset. • Lump sum withdrawals are not income tested • Super Pension income not subject to usual deeming
tests, rather provides a deductible amount that is not counted. Minimum pensions unlikely to be counted at all as income.
• Annuities, Trusts (where no control), Insurance Bonds all get favourable treatment
Case Study - Jess
• Aged 20 TPD, lives with Mum & Dad
• Family Trust – share trading and investment
• SMSF – 2 members • Parents aged 50 • Jess - Disability Pension
• At 18 parents approved as Administrators by VCAT
• Wish to set her up for future care needs and financial independence
Case Study - Jess
• Currently Family Trust Distributes about $12,000 pa income to her.
• She retains majority DSP & Health care card
• No other income • No Tax
• Add Jess as member to SMSF
• Parents – Trustees in her place
• Now 3 members • Eligible to make non
concessional contributions up to $180K pa
Case Study - Jess
• Each year $180,000 non concessional super contribution limit available for Jess
• Eligible - not working • Over time balance grows • Retains $20,000 in her
bank account • Parents in Control as
Trustees
• Super exempt from Centrelink Assets and income test to age 65
• TPD-lump sums any time • Mostly Tax free – medicare
only – 1.5% • Pension not affected – nor
disability services and respite – income tested to Jess only
Case Study - Jess
• SDT provides for a further stream of income that doesn’t affect her pension
• She can also have a home in SDT
• Can do SMSF or SDT in isolation or together – each different
• Considerations are her estate planning
• She can’t make a Will • SDT funds will be
returned to donors or siblings upon death but not prior
• Super Nom’s? SMSF Parents are trustees & in control!
Case Study - John
• Single man aged 50. • Intellectual disability • Last family member • Inherited family wealth • Lives in inherited home
independently with home care
• Will need Residential Care support @ approx 65
• Solicitor is his POA (able to make one)
• Solicitor is Executor • $1.1M super • $20,000 in bank • Lump sums 2 x pa not
taxable and not income tested
• Full DSP until age 65 • Taken advice and made Will
to Charity
Case Study John
• At Age 65 • No longer eligible for
DSP – due to assets > $735,700
• Commence super Pension
• Say $1.5M @ 5% = $75,000 pa tax free.
• Due to deductible amount will retain Seniors HCC
• Residential Care required
• Has Capacity to pay upfront Bond – say $400,000
• Most favourable treatment of super pension for Income Tested Fee (next)
• Can chose to retain, rent or sell home.
Estate Planning
• “No Death Tax in Australia” • BUT........ • Superannuation left to a dependant (i.e. Spouse or
Disabled adult child) is received tax free. • Superannuation left to a non dependant (i.e. Non
disabled adult child) is subject to tax of up to 30%. • Important for your Estate Planning – get financial
advice and review your super before 65! • As parents of children with disabilities perhaps
review your parents estate planning also.
Estate Planning
• Parents require comprehensive Estate Planning advice to provide for their child
• Including Estate Trust clauses (next slide) • Advice about any Structures to manage in Estate • Including any Super Nominations (potentially better
with SMSF & NO nom’s) • Matters to consider : Estate Taxes, Income affect on
DSP and Financial Support for life as well as future Guardians/Administrators
• Legal Advice required in conjunction with Financial Planning Advice
Estate Planning Options
• All Needs Protective Trust – for disabled persons - all income and capital set aside for their ongoing lifelong needs – they cannot take care of own affairs
• Capital Reserved Trust – a life interest – someone ultimately receives capital & other beneficiaries income during their lifetime
• Beneficiary Controlled Testamentary Trust – beneficiary controls own trust for their own family needs – both capital & income
Insurance Review
• Parents and Guardians have greater need for insurance with a disabled child
• Consider their needs for rest of their life • Life (death) TPD, Trauma and Income Protection. • You need to cover them as well as yourself • Child Trauma - for life (medical requirements child
affect family) $25 pm for $100,000. Take out before age 15.
Insurance Options
• Life and Disability insurance can be owned paid inside super (regular or SMSF)
• Saves personal cashflow cost for insurance • Income Protection - tax deductible and protects your
ability to earn income and support family & commitments
• Trauma or Critical Illness - lump sum paid to you on diagnoses of a major illness
• Don’t assume Workcover, DSP or Sick Leave will get you through! Protect yourself and your family.
Summary
• Superannuation is THE MOST friendly Taxation, Centrelink (DSP and AGE Pension) and Residential Care investment vehicle.
• Can use Family Trusts and SMSF’s to advantage & for control and flexibility
• SDT complex but useful – for care & accommodation • Family Insurance critical (parents, guardians & child) • Advice opportunities are presented - any age TPD, but
especially at 16, then 18 and on entry to residential care. • Consider Gifting, Structures, Centrelink Pensions and
benefits and Estate Planning.
What Next?
• Catalyst Financial Group happy to chat to you about your circumstances individually.
• We work with you on the right strategy for your family both now and the long term.
• Based in Camberwell, Melbourne. • We have many existing special families all around
Victoria as clients due to our expertise in this field. • We can also assist you with Accounting & Tax since
they are intrinsically linked to advice or work closely with your specialist Lawyers and Accountants to get things right.
What Next?
• FREE individual meeting 1.5 hours initially to discuss your circumstances and needs and from there we can provide you with a proposal for advice and any costs to move forward.
• www.catalystfg.com.au
• QUESTIONS????