ISE04/16-17

Subject:

welfare services, guardianship system

• Currently, there are about 71 000 to 101 000 persons with intellectual disabilities in Hong Kong.^{1Legend symbol denoting See Census and Statistics Department (2014).} There is concern about the well-being and financial security of these persons particularly when they lose their parents. Under the existing guardianship system for mentally incapacitated persons in Hong Kong,^{2Legend symbol denoting An application for guardianship can be made to the Guardianship Board which is an independent statutory body authorized to appoint guardians for adults aged 18 years old and above who are mentally incapable of making decisions about their personal affairs, financial matters, or medical or dental treatments. In normal situation, application for guardianship will be accepted only where there are no effective informal arrangements already in place or such an arrangement cannot be made.} an appointed guardian has the financial power to manage cash assets up to a limit of HK$15,000 per month for the benefits and maintenance of the incapacitated person concerned. However, some parents who intend to leave their assets after their death for their children with intellectual disabilities consider that the financial power of an appointed guardian is too limited. For example, a guardian is not empowered to handle non-cash assets such as real estate and stocks, or manage other financial affairs such as making investments for their children. Moreover, the financial limit of HK$15,000 per month may not be sufficient in certain circumstances to cater for the special needs of their children with intellectual disabilities.

• While parents of children with intellectual disabilities may consider setting up a private trust which allows greater flexibility in terms of the types and amount of assets to be managed, the high administrative cost involved in running a private trust renders it not cost effective for parents with small to medium level of assets. As such, these parents have called for the Government to consider setting up a public trust to provide affordable trust services for them. To address the concern of these parents, the Inter-departmental Working Group on Review of the Disability Allowance ("the Working Group") recommended in early 2016 the establishment of a working group to examine the feasibility of setting up a public trust for children with special needs and their parents, and review the related guardianship system.^{3Legend symbol denoting The Working Group was set up by the Labour and Welfare Bureau in 2013 to review the eligibility criteria of Disability Allowance. The Working Group completed the review in early 2016 and put forward nine recommendations covering, among others, improving support for children with special needs and their parents.} In his 2016 Policy Address, the Chief Executive announced that the Government would implement the aforementioned recommendation put forward by the Working Group.

• Overseas places such as Australia and Singapore have set up institutions to provide public/non-profit trust services for needy residents, and their trust services are operated under two different service models. In Australia, individual state and territory governments set up public/state trustees, which are statutory agencies or state-owned companies, to provide trustee services for the general public and financial administration services for persons with decision-making impairment. In contrast, Singapore provides non-profit trust services to persons with special needs and their parents or caregivers through the Special Needs Trust Company Limited ("SNTC"), which is a non-profit trust company with a charity and an institution of a public character ("IPC") status.^{4Legend symbol denoting IPCs are registered charities which are able to issue tax deductible receipts for qualifying donations to donors. To qualify as IPCs, the activities of the charities must be beneficial to the community in Singapore as a whole.} This issue of Essentials highlights the key features of the trust services provided by the public trustee in New South Wales ("NSW") of Australia^{5Legend symbol denoting The public trustee in NSW manages the largest number of trusts and handles the largest number of financial management cases among the public/state trustees in the states and territories in Australia.} and SNTC in Singapore.

Services provided by the public trustee in New South Wales

• In NSW, NSW Trustee and Guardian ("NSWTG") was established in 2009 as a self-funding government agency under the NSW Department of Justice. NSWTG is tasked with providing a full range of trustee services such as trust administration, will making and deceased estate administration for the general public. For trust administration services, NSWTG offers parents of children with special needs the options of setting up a children's trust in a will to provide for the ongoing financial support for their children (the beneficiaries) after their death or setting up a special disability trust in a will or trust deed which has the benefit of allowing the beneficiary and eligible parents and contributors to receive social security means test concessions.^{6Legend symbol denoting A total gifting concession of up to A$500,000 (HK$2.96 million) is available for immediate family members of the beneficiary who are of service-pension age and above and are receiving a pension. The beneficiary is offered an asset test assessment exemption of up to A$647,500 (HK$3.83 million) (indexed each year) plus his/her principal residence regardless of its value.}

• NSWTG also functions as an independent statutory authority providing financial management services for persons with decision-making impairment, such as those having mental illness or intellectual disability, subject to a court or tribunal order, and supporting and supervising private financial managers appointed by a court or tribunal order.^{7Legend symbol denoting A family member or some other persons who have concern for the welfare of a person having decision-making impairment can make an application for a financial management order to the NSW Civil and Administrative Tribunal or the Supreme Court. A separate application to the NSW Civil and Administrative Tribunal may be made for the appointment of a legal guardian to make personal and lifestyle decisions on behalf of a person with decision-making impairment.}

• The key features of the trust services and financial management services provided by NSWTG are as follows:
  
  

  (a)	eligibility criteria: there is no specific eligibility requirement for setting up a children's trust in a will. However, for setting up a special disability trust, the beneficiary has to meet the specified criteria of having a severe disability, and the parents and contributors have to meet the specified criteria to be eligible for the social security means test concessions;
  (b)	service scope: for trust services users, NSWTG will administer the trust in accordance with the provisions of the wills or the trust deeds. While funds in a children's trust are managed and disbursed to meet the needs of the beneficiary as specified in the will, the funds of a special disability trust can only be used to meet the reasonable care and accommodation needs of the beneficiary. For financial management services users, NSWTG provides a range of financial and legal services including day-to-day income and expenditure management, facilitating the buying and selling of a home, making investments and protecting assets and legal rights of the users;
  (c)	types of assets managed: NSWTG manages cash and non-cash assets (including real estates and stocks) for users. NSWTG may also invest funds of trust and financial management services users in a range of funds according to the financial plan prepared for each user;
  (d)	termination of the services: the trusts are terminated according to the provisions in the will or trust deed, or when the funds are used up. For financial management services, a financial management order may be reviewed or revoked upon an application to the responsible tribunal or court; and
  (e)	service fees: the service fees are charged at levels to cover NSWTG's costs of operation and are competitive when compared to the service fees of service providers in the private market.8Legend symbol denoting See Independent Pricing and Regulatory Tribunal of New South Wales (2014). The service fees comprise a one-off trustee fee or establishment fee, an annual management fee, an investment fee and an account keeping fee.9Legend symbol denoting For example, NSWTG charges trust services users (a) a one-off trustee fee based on asset values when a trust is set up; (b) 0.77% on the value of assets managed per annum; (c) 0.11% on the value of assets invested in NSWTG investment funds per annum; and (d) an annual account keeping fee of A$132 (HK$780). For financial management services, the initial establishment fee and the annual management fee are capped at specified levels, and service users with limited assets are provided with subsidy on payments of the establishment fee and the account keeping fee. Specialist service fees are also charged on services such as investment planning and preparing tax returns.

Recent developments

• NSWTG provides a comprehensive range of trustee and financial management services at competitive service fees. NSWTG also provides flexibility to users who require administration of different types of assets and financial affairs, and attracts users with assets that are below the market threshold.^{10Legend symbol denoting It was observed that some service providers in the private market might not serve clients with assets below certain thresholds due to cost efficiency consideration. See Independent Pricing and Regulatory Tribunal of New South Wales (2014).} In 2012-2013, NSWTG managed about 300 trusts that were initiated by the general public, including parents of children with special needs,^{11Legend symbol denoting NSWTG also managed about 5 300 trusts other than those initiated by the general public, most of which were court ordered trusts such as those arising from court awarded damages or workers' compensation payments.} and the average asset value of the trusts managed was about A$46,600 (HK$275,000). NSWTG also provided financial management services for about 10 500 individuals.

• Nonetheless, NSWTG faces financial sustainability issues due to operation inefficiency and inadequacy of its pricing structure to recover the service provision costs as pointed out by a review report released in 2014.^{12Legend symbol denoting According to the review report, over-recovery of the service provision costs was observed for trust and estate administration services while under-recovery was observed for other services such as financial management services. See Independent Pricing and Regulatory Tribunal of New South Wales (2014).} In response to the review report, NSWTG has recently reformed its fee structure to more accurately reflect the costs of servicing users of different services. NSWTG has also enhanced its service model to improve operation efficiency and service quality in order to deliver value for money services to its users.

Special needs trust services provided in Singapore

• SNTC was established in Singapore in 2008 as a non-profit trust company with the support of the Ministry of Social and Family Development ("MSF") and the National Council of Social Service.^{13Legend symbol denoting The National Council of Social Service is a statutory board under MSF tasked with providing leadership and direction in social services, enhancing the capabilities of social service organizations and promoting strategic partnerships for social services.} SNTC is dedicated in providing special needs trust services targeting at persons with special needs, and their parents or caregivers. The operating expenditure of SNTC has been funded by MSF since 2012.

• The key features of the special needs trust services provided by SNTC are as follows:
  
  

  (a)	eligibility criteria: the parent or caregiver of a person with special needs (the beneficiary)14Legend symbol denoting A person with special needs is a person whose prospect of securing and retaining place and advancing in education, training institutions, employment and recreation as equal members of the community is substantially reduced as a result of physical, sensory, intellectual and/or developmental impairments. can set up a trust account with a minimum of S$5,000 (HK$28,000) under the conditions that the beneficiary is a Singapore citizen or permanent resident, and is residing in Singapore;
  (b)	service scope: SNTC focuses on supporting the beneficiaries to meet their daily living needs through the disbursement of funds from the trust accounts upon the death or incapacitation of the parents or caregivers. Disbursement is made in accordance with the agreed care plan and the caregiver's wishes as set out in a letter of intent;
  (c)	types of assets managed: SNTC only manages cash assets for the beneficiaries. Nonetheless, the parents, caregivers or other contributors can nominate the trust to receive cash assets or cash proceeds from non-cash assets in their wills. The funds are invested in low-risk income earning investments and the principal value of the trust funds is guaranteed by the Singapore government;
  (d)	termination of the trust account: the trust account is terminated if the funds in the account are fully utilized, or the beneficiary leaves Singapore permanently or dies; and
  (e)	subsidization of service fees: with 90% subsidization of MSF, SNTC charges S$150 (HK$840) for the one-time set up fee of the trust account, S$40 (HK$220) for the one-time activation fee upon the death or incapacitation of the caregiver, and S$40 (HK$220) for the annual post-activation fee after disbursement of fund has commenced. The annual pre-activation fee is 100% subsidized by MSF.

Recent developments

• Through the provision of the special needs trust services, SNTC provides a financial safety net for persons with special needs that stretches beyond the lifetime of their parents or caregivers. The service scope is limited to supporting the daily care needs of the beneficiaries through the management and disbursement of cash assets in the trust accounts set up by the parents or caregivers. Nonetheless, the services are highly subsidized by the Singapore government. In the 2014-2015 financial year, government grants to SNTC amounted to about S$1.13 million (HK$6.34 million). 

• As at March 2015, 324 caregivers had set up trust accounts with SNTC. The fund balance of the trust accounts managed by SNTC amounted to about S$11 million (HK$61.7 million). According to SNTC, potential users not having sufficient cash assets to set up and/or sustain the trust account are barriers to adopting the trust services. As such, SNTC has subsidized some needy users to set up trust accounts. It also offers a service option for parents with low savings to nominate their children to receive a regular stream of fixed pay-outs from their Central Provident Fund savings upon their death. SNTC has been conducting publicity and outreach activities to promote awareness and usage of its services among the target users, particularly elderly caregivers.

Observations

• NSWTG in NSW and SNTC in Singapore provide public/non-profit trust services for parents or caregivers of persons with special needs under a self-funding model and a subsidization model respectively. NSWTG provides a comprehensive range of trustee and financial management services to the general public, including persons with special needs. The experience of NSWTG indicates that a cost-reflective pricing structure and a high level of operation efficiency are imperative to ensure sustainability of a trust services provider operating under a self-funding service model. Besides, the service pricing has to be kept at a competitive level to attract trust service users with low to medium level of assets. On the other hand, SNTC focuses on supporting the daily care needs of the beneficiaries through its special needs trust services, and its service model requires financial commitment of the government.

Prepared by Ivy CHENG
Research Office
Information Services Division
Legislative Council Secretariat
14 November 2016

Endnotes:

1.	See Census and Statistics Department (2014).
2.	An application for guardianship can be made to the Guardianship Board which is an independent statutory body authorized to appoint guardians for adults aged 18 years old and above who are mentally incapable of making decisions about their personal affairs, financial matters, or medical or dental treatments. In normal situation, application for guardianship will be accepted only where there are no effective informal arrangements already in place or such an arrangement cannot be made.
3.	The Working Group was set up by the Labour and Welfare Bureau in 2013 to review the eligibility criteria of Disability Allowance. The Working Group completed the review in early 2016 and put forward nine recommendations covering, among others, improving support for children with special needs and their parents.
4.	IPCs are registered charities which are able to issue tax deductible receipts for qualifying donations to donors. To qualify as IPCs, the activities of the charities must be beneficial to the community in Singapore as a whole.
5.	The public trustee in NSW manages the largest number of trusts and handles the largest number of financial management cases among the public/state trustees in the states and territories in Australia.
6.	A total gifting concession of up to A$500,000 (HK$2.96 million) is available for immediate family members of the beneficiary who are of service-pension age and above and are receiving a pension. The beneficiary is offered an asset test assessment exemption of up to A$647,500 (HK$3.83 million) (indexed each year) plus his/her principal residence regardless of its value.
7.	A family member or some other persons who have concern for the welfare of a person having decision-making impairment can make an application for a financial management order to the NSW Civil and Administrative Tribunal or the Supreme Court. A separate application to the NSW Civil and Administrative Tribunal may be made for the appointment of a legal guardian to make personal and lifestyle decisions on behalf of a person with decision-making impairment.
8.	See Independent Pricing and Regulatory Tribunal of New South Wales (2014).
9.	For example, NSWTG charges trust services users (a) a one-off trustee fee based on asset values when a trust is set up; (b) 0.77% on the value of assets managed per annum; (c) 0.11% on the value of assets invested in NSWTG investment funds per annum; and (d) an annual account keeping fee of A$132 (HK$780). For financial management services, the initial establishment fee and the annual management fee are capped at specified levels, and service users with limited assets are provided with subsidy on payments of the establishment fee and the account keeping fee.
10.	It was observed that some service providers in the private market might not serve clients with assets below certain thresholds due to cost efficiency consideration. See Independent Pricing and Regulatory Tribunal of New South Wales (2014).
11.	NSWTG also managed about 5 300 trusts other than those initiated by the general public, most of which were court ordered trusts such as those arising from court awarded damages or workers' compensation payments.
12.	According to the review report, over-recovery of the service provision costs was observed for trust and estate administration services while under-recovery was observed for other services such as financial management services. See Independent Pricing and Regulatory Tribunal of New South Wales (2014).
13.	The National Council of Social Service is a statutory board under MSF tasked with providing leadership and direction in social services, enhancing the capabilities of social service organizations and promoting strategic partnerships for social services.
14.	A person with special needs is a person whose prospect of securing and retaining place and advancing in education, training institutions, employment and recreation as equal members of the community is substantially reduced as a result of physical, sensory, intellectual and/or developmental impairments.

References:

Hong Kong
1.	Census and Statistics Department. (2014) Special Topics Report No. 62 - Persons with disabilities and chronic diseases.
2.	Guardianship Board (2016).
3.	Labour and Welfare Bureau and Social Welfare Department. (2014) Guardianship System for Mentally Incapacitated Persons. LC Paper No. CB(2)1301/13-14(01).
4.	Labour and Welfare Bureau. (2016) Review of Disability Allowance. LC Paper No. CB(2)826/15-16(05).
5.	Legislative Council Secretariat. (2014) Report of Joint Subcommittee on Long-term Care Policy. LC Paper No. CB(2)2154/13-14(01).
Others
6.	Independent Pricing and Regulatory Tribunal of New South Wales. (2014) Review of fees of the NSW Trustee & Guardian.
7.	NSW Trustee & Guardian. (2013) Financial Management Services & Private Management Services.
8.	NSW Trustee & Guardian. (2015) NSW Trustee & Guardian Annual Report 2014-2015.
9.	NSW Trustee & Guardian. (2016a) A Guide for Wills, Estates and Trusts.
10.	NSW Trustee & Guardian. (2016b) Fact Sheet: New operating model for NSW Trustee and Guardian.
11.	Special Needs Trust Company Limited. (2015) Annual Report 2014.
12.	Special Needs Trust Company Limited (2016).