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<\/p>\nAustralians suffering with dementia or cognitive decline could be vulnerable to being hit by a \u201cdeath tax\u201d under the Albanese government\u2019s plans to change trusts.<\/p>\n
From July 1, 2028, Labor will impose a 30 per cent minimum tax rate on discretionary testamentary trusts.<\/p>\n
These allow a trustee to choose who receives income or assets and are written into a person\u2019s will. They are often established to protect children or vulnerable people after parents have died.<\/p>\n
Treasurer Jim Chalmers has argued for the changes targeting discretionary trusts because they can be used to reduce tax by distributing income to beneficiaries on lower marginal tax rates.<\/p>\n
Trusts will not be impacted by Labor\u2019s changes provided they are established before July 1, 2028.<\/p>\n
However, a testamentary trust does not come into existence until the person passes away.<\/p>\n
This could cause problems for Australians who have established a testamentary trust and begin experiencing dementia or serious cognitive decline.<\/p>\n
Wealth Lawyers co-founder and former Westpac executive Anthony Hunt warned testamentary trusts authored in a will, but which have not come into effect will not be covered by the government\u2019s grandfathering arrangements.<\/p>\n
\u201cThese people who are (experiencing dementia) are caught in this horrible trap where they can no longer change their will because they’ve lost the capacity to do it – either through dementia or some other illness,\u201d he told Business Now.<\/p>\n
Many who suffer dementia or cognitive decline appoint a loved one as a Power of Attorney to make challenging legal or financial decisions for them.<\/p>\n
However, a Power of Attorney cannot change a will.<\/p>\n
The only way a person\u2019s will can be changed \u2013 regardless of their cognitive ability \u2013 is through the Supreme Court.<\/p>\n
A trustee or beneficiary can write an application to the Supreme Court to ask if they can create a statutory will.<\/p>\n
<\/p>\n
Mr Hunt said the new tax arrangements will heap excess pressure on Australians caring for a loved one suffering with dementia.<\/p>\n
\u201cIt does seem very unfair because not only are they in difficult situations, their families are suffering as well and they’re the ones who will bear the longer term consequences of this,\u201d he said.<\/p>\n