Special Disability Trusts Explained

Wills and Estates: 25 February 2025

Author: Susan Bonnici - Our People

For families of children with a disability, a significant concern is making sure that child will be looked after long into the future. This means making plans to safeguard the child’s financial and health care needs. For many families, establishing a Special Disability Trust may be an effective way of doing this.

What is a Special Disability Trust?

Simply speaking, a Special Disability Trust is a type of trust that allows families to put aside funds or other assets to support the accommodation and future care needs of a person with a severe disability. Special Disability Trusts were introduced by the Social Security Act in 2006, and they are regulated by Services Australia and Centrelink.

Important roles in a Special Disability Trust

As with all trusts, a Special Disability Trust involves the appointment of a Trustee who is responsible for managing trust assets for the benefit of a Principal Beneficiary. There are strict requirements around who can be a Trustee and a Principal Beneficiary, and there are also several other roles that are important to consider when establishing a Special Disability Trust.

The Principal Beneficiary

The eligibility criteria for who can be the Principal Beneficiary of a Special Disability Trust is set out in the legislation and is assessed by Centrelink. The criteria differs depending upon whether the potential Principal Beneficiary is over or under 16 years of age, but in very broad terms they need to have been diagnosed with a severe disability or a severe medical disability; the level of care required for that person must be rated as “intense”; and they must be unable to work for more than seven hours per week in the regular labour market (if over 16 years). Assessing the eligibility of the Principal Beneficiary is typically the first step when considering a Special Disability Trust.

The Trustee

The Trustee of the Special Disability Trust is a role of great responsibility. The Trustee is charged with managing the assets and investments of the trust, assessing the needs of the Principal Beneficiary, and making sure that the trust assets are appropriately applied to meet those needs.  As with the Principal Beneficiary, there are requirements for who can be the Trustee of a Special Disability Trust. If individuals are appointed as Trustees (for example, friends or family members) then there must be two individuals acting jointly, and they must be Australian residents who have not been convicted of any offences involving dishonest conduct or breaches of the Social Security Act. Alternatively, the Trustee could be a Trustee Company, a lawyer, or a corporation (provided that that corporation has at least two directors who satisfy the individual Trustee requirements).

The Appointor

The Appointor also holds significant authority in a Special Disability Trust as they are the person or entity with the power to replace the Trustee. The Appointor doesn’t have any involvement in the management of the trust, instead it is an important oversight role. If they Appointor determines that the Trustee is no longer suitable, then they can “appoint” another person or entity to that role.

The Settlor

The Settlor is the person who establishes the Special Disability Trust. If the Special Disability Trust is established by a Will, then there is no Settlor as it is the Will-maker establishing the trust.

What are the benefits of a Special Disability Trust?

Special Disability Trusts offer a range of social security and tax concessions that can be advantageous for the Principal Beneficiary and for family members who contribute to the trust. These concessions can be summarised as follows:

• Assets and income test exemption – Assets up to the value of $813,250 (indexed to CPI each year) PLUS the Principal Beneficiary’s primary place of residence will be excluded from the Principal Beneficiary’s assets test when Centrelink is assessing their eligibility for the Disability Support Pension (DSP) if these assets are held in a Special Disability Trust. Similarly, any income earned within the Special Disability Trust is exempt from the income test assessment for DSP eligibility. This means that the Principal Beneficiary can receive the benefit of the trust assets, while retaining their DSP eligibility.

• Concessional gifting – Typically, anyone receiving an Aged Care pension may only gift $10,000 per year, up to a maximum of $30,000.00 over a 5-year period, and the value of any further gifts made would be included in their assets assessment. These gifting rules do not apply where the gift is made by a family member to a Special Disability Trust. In these circumstances, a total of $500,000 may be gifted to a Special Disability Trust.

• Capital Gains Tax (CGT) and stamp duty exemptions – Under the Income Tax Assessment Act 1997 (Cth) any capital gain that results from the transfer of an asset to a Special Disability Trust is disregarded. This can be an effective financial planning strategy to remove a large CGT liability attached to a particular asset (for example, shares that have increased significantly in value since the date of purchase).

In addition to these significant concessions, other benefits of using a Special Disability Trust to provide for a family member with a disability include the following:

• The person contributing funds or assets to the Special Disability Trust (known as the “Donor”) directs how any surplus trust funds are to be distributed upon the death of the Principal Beneficiary. A Special Disability Trust may have more than one Donor, in which case the distributions of surplus funds will be in accordance with the instructions of each Donor, and proportionate to the amount each Donor contributed.

• It avoids the application of the laws of intestacy which may be inappropriate for some families. For example, if a person with a disability receives an inheritance directly rather than into a trust, then it will form part of their personal estate when they pass away. If they lack the capacity to sign their own Will, then the laws of intestacy will apply.

• Most importantly, the assets intended to be used for the long-term care and support of a vulnerable family member are protected for that purpose. It significantly reduces the risk of those assets being mismanaged, or of the beneficiary being taken advantage of.

How can I establish a Special Disability Trust?

A Special Disability Trust may be established while the Donor is living (“inter-vivos”) or after the Donor has passed away via their Will. Once assets are contributed to a Special Disability Trust, these assets may only be used for the purpose of the trust – that is the accommodation and care needs of the Principal Beneficiary. This means that the Donor needs to be very confident that any assets they are contributing will not be needed for another purpose. This is why many people prefer to establish Special Disability Trusts in their Wills

Whether a Special Disability Trust is established by a living Donor or via a Will, it is essential that all of the legislative requirements are complied with. Failure to do so may invalidate the trust and mean that the potential beneficiary loses the benefits that they would otherwise have received. This is why seeking appropriate legal and / or financial advice in relation to establishing a Special Disability Trust is highly recommended.

Next Steps

Whether you would like to review your Estate Planning to include a Special Disability Trust in your Will, or if you are considering establishing a Special Disability Trust during your lifetime, our team is experienced in all aspects of Special Disability Trusts. We are well-equipped to provide you with expert advice, tailored to the unique circumstances of your family, to ensure that the people you care about are protected.