Financial Planning for Disabilities and Personal Injuries

Financial Planning can be a challenging at the best of times, however for people living with or having developed a disability or personal injury, it can be particularly complex navigating the different rules and considerations listed below.

This blog will consider both:

• Those with existing Disabilities (and if applicable their carers/POAs/parents), who need to understand:

  
  

  • The National Disability Insurance Scheme (NDIS)

  • Disability Support Pension (DSP)

  • Special Disability Trusts

  • Estate Planning and Capacity
    

• Those who have recently developed/acquired a Disability or Personal Injury and need to understand the dot points listed above, as well as:
  

  • Whether they have access to personal insurances such as Total and Permanent Disability Insurance and Income Protection

  • Whether they have access to Personal Injury Compensation (if applicable)
    

1. The National Disability Insurance Scheme (NDIS)

The National Disability Insurance Scheme (NDIS) is an Australian government initiative designed to provide funding for people with permanent disabilities to access the support and services they need to live more independently and participate in the community.

The NDIS provides funding for essential services such as therapies, equipment, support workers, and home modifications. Eligibility is based on having a permanent disability that significantly impacts your ability to participate in everyday activities.

Importantly, the NDIS is not means tested which makes it simpler to navigate compared to the other payments listed.

2. Disability Support Pension The Disability Support Pension (DSP) is a government payment designed to help those who are unable to work due to a disability. To qualify, you must meet both medical and income criteria.

To qualify for the DSP, the applicant must be under the age of 65, unable to work for more than 15 hours a week due to a disability, and meet income and assets tests.

As the DSP is means tested it can often be partially or fully offset by payments such as Income Protection and TPD insurance and some forms of Personal Injury Compensation (if applicable), however, there are often financial strategies available to maximise the amount of DSP that remains payable (discussed in further detail below).

The medical assessment generally considers whether the condition is permanent or likely to last for more than two years and is often more strict than the assessments for income protection and sometimes also TPD insurance.

3. Special Disability Trusts Special Disability Trusts (SDTs) are a legal structure designed to help families provide for the long-term care of a loved one with a disability.

It is commonly used by parents who wish to provide assets for their children with a disability in the present and in the long term. It can be created either whilst the parents are still alive or when they pass away through their will.

The main benefits are:

• Asset Protection: The assets that are contributed into the trust are now owned and protected within the trust. A trustee can be appointed to manage the assets of the trust on behalf of the beneficiary (the person with the disability). For example, if the parent's of the person with a disability were to pass away, they could nominate an adult sibling of the disabled person to be the trustee of the trust and manage the investments and allocate the income for the benefit of the disabled person for medical care, accommodation, and other expenses. A Financial Planner can also be appointed to help the trustee invest and manage the assets.
  

• Tax Benefits: One of the main benefits of a SDT is that children beneficiaries are eligible to receive 'adult tax rates'. This means that the income that is allocated to them is taxed at normal marginal tax rates rather than the more punitive child tax rates. By contrast, with MTRs, the first $18,200 if income is tax free, whereas for child tax rates, income above $1,307 p.a. is taxed at 47%.
  

  Another significant tax benefit of an SDT is that assets transferred into the trust (such as real estate or shares) are generally exempt from Capital Gains Tax (CGT).

• Asset Test & Gifting Exemptions: If the parents/family members of the beneficiary are eligible for Age Pension or DSP of their own, they receive a gifting concession of up to $500,000 combined which helps reduce their own pensions being penalised for gifting into the trust.

  
  

  The beneficiary can also receive an assets test assessment exemption of up to $813,250 (indexed 1 July each year) for assets held in the trust.

SDT's are an extremely complex area and should only be created with the assistance of a Financial Planner, Accountant and Estate Planning lawyer. Whilst the concessions listed above are very generous, you need to have the financial means to make it viable as there are some yearly fees required (most notably the annual accounting required for the trust).

4. Estate Planning and Capacity

Estate planning is crucial for everyone, but it becomes even more critical when a person has a disability or is managing a serious injury. In cases where a person may lose the capacity to manage their affairs, a comprehensive estate plan should include:

• Enduring Power of Attorney (EPOA): This allows someone to make financial and legal decisions on a person's behalf if they lose capacity to do so.
  

• Guardianship and Trusteeship: It may be necessary to establish a legal guardian or trustee to manage the personal, medical, and financial affairs.
  

An Estate Planning specialist should always be sought in the event of these situations for guidance.

5. Total and Permanent Disability and Income Protection Insurance

Total and Permanent Disability (TPD) Insurance provides a lump-sum payment when two doctors sign off that a person is either unlikely or unable to ever work in any (including based on their education, experience, and training) or their own occupation. The specific policy you have will state whether the terminology is 'unlikely or unable' and 'any or own' and these terms will impact the ease of the TPD claim process. If you haven't already applied for TPD insurance through a Financial Planner, some people have small default amounts already within their superannuation.

Income Protection Insurance (IP) pays a monthly benefit for as long as the benefit period lasts, after serving your waiting period, providing the insurer is satisfied you are unable to temporarily work. If you haven't already applied for IP insurance through a Financial Planner, some people have small default amounts already within their superannuation.

If you would like to know more about Life insurances, you can read our blog.

As the name suggests, TPD insurance is typically only able to be claimed on for serious illnesses and injuries, whilst IP insurance is easier to claim on given it is consistently re-assessed by the insurers and doctors.

Both TPD and IP insurance can have significant impacts on your DSP and overall tax when they are not planned for effectively.

When people make lump sum withdrawals of the TPD claim in their super, they can considerably affect the 'asset test' assessment of the DSP, and this can lead to lower DSP payments being received. It can also negatively affect the 'income test' assessment. Therefore, you shouldn't withdraw your TPD lump sum from super without receiving Financial Advice first.

Income Protection also affects the income test of DSP, however there is little you can do to prevent this, unlike the TPD example above and below.

Lump sum TPD withdrawals can also lead to significant tax as the taxable component is taxable at 22%.

If you have incurred a serious injury or disability and need to apply for TPD, or have received a TPD claim, it is imperative you reach out to a Financial Adviser with expertise in this area. We help create a preferred strategy for you by where possible:

• Ensuring you continue to maximise the amount of DSP you receive.

  
  

• Minimise the amount of taxes you pay on the TPD claim, personal income tax and within the superannuation environment.

  
  

• Maximise the after tax benefits of the strategy, whether that is through investing or paying down debts.

6. Personal Injury Compensation

Personal injury compensation is designed to cover medical expenses, lost income, and other costs incurred as a result of an injury. This compensation can also address pain and suffering, future care needs, and any impact on the injured person's quality of life. Common claims include:

• Workers Compensation: If an injury happens at work, workers’ compensation benefits can cover medical treatment and rehabilitation costs.
  

• Motor Vehicle Accident Claims: If an injury occurs as a result of a car accident, you may be entitled to compensation from the at-fault driver’s insurance or the state’s compulsory third-party (CTP) insurance.
  

• Public Liability Claims: If you’re injured on someone else's property, you may be eligible for compensation under public liability insurance.
  

• Medical Negligence Claims: If your injury is due to the negligence of a healthcare provider, you may be able to file a medical negligence claim.

Most Personal Injury Lawyers will operate under a 'no win, no fee' model providing they think the case has a reasonable chance of success and are willing to take on the case.

It is important to note that certain personal injury compensation claims can also trigger a 'preclusion period' for DSP.

Conclusion

We can help you.

Whether it is directly through our Financial Advice services or, by putting you in contact with an Estate Planning Lawyer, Personal Injury Lawyer or Accountant.

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