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Loading ...My son is on a Disability Pension and I want to invest money for him.
May 13, 2008 by Josie Kay
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Q. I have a son aged 18 who has a disability and have just been arranging to set up a Special Disability trust via my will. I believe that Income resulting from this will not affect his disability pension.
If I were to invest some money for him now, I am wondering if there is an option that would have less impact on his disability pension now. Is it best to have an investment in my name rather than his so that when I die that money goes into his trust fund.
Josie’s answer: As you are probably aware, the intention of a special disability trusts is encourage families to make their own arrangements for family members with a severe disability.
It is great to see the Government acknowledging the contribution carers of disabled people are making to our community.
A big advantage of establishing one is that the ordinary Centrelink means test rules do not apply.
Most importantly, the trust must be established for the sole purpose of providing care and accommodation for a person with a severe disability.
As you know, income from the assets of a special disability trust is not counted for Centrelink purposes (more $132 per fortnight the pension is reduced) and you can contribute up to $500,000.
This amount is indexed annually does not count towards the assets test (more than $232K reduces the pension – May 2008).
This means that a disability pension who qualifies could have assessable assets of up to $500,000 plus the home in which they live and may still be eligible to receive the full pension.
Unfortunately, your question is not black and white. On the surface, i.e. without investigating your personal and financial circumstances, it is probably better to invest funds in your name, rather than your son.
However, it all depends on how much you are investing and the type of asset you are investing in.
For Centrelink purposes, term deposits or shares are considered financial investments and are ‘deemed’ to earn 4% for the first $39 400 of their total investments, and 6% for any balance above $39 400 (May 2008).
For example, $10K invested would be deemed to earn $400 per year for Centrelink purposes. Therefore, your son’s pension will not be reduced, as it is less than $132 per fortnight and it will be tax free.
However, if $10K was invested in your name, and you earn 8%pa, total income would be $800.
Let’s say your marginal rate of tax was 31.5% (those earning between $30 - $75K 2007/08 - Individual income tax rates), you will then have to pay the tax man $252. However, if you were to invest $100K in your son’s name (assuming it is not via a special disability trust), he would be deemed to be earning $5472 ($210.46 per fortnight).
Consequently, his fortnightly pension is reduced by 40 cents in every dollar he earns over $132.00 (link - How much Disability Support Pension do I get?) All of these figures relate to a single, non home owner pensioner.
Confusing isn’t it!
It is always a good idea to touch base with a Financial Information Services officer from Centrelink who are generally very helpful.
To sum up, it all depends on the type of investment, the amount you are investing and your marginal rate of tax.
Thank you for posting a question on askjosiekay.com and I wish you and your family all the best for the future.
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Don’t forget that the above information is general in nature and not specific to your goals and objectives. It is recommended that you seek personal financial advice specific to your needs.
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