For parents and families caring for someone with a significant disability, one of the hardest financial planning questions is this:
What happens when we are no longer here, or no longer able to provide the same level of care?
You may want to leave money, investments or a home to give your family member financial security. Leaving substantial assets directly to a person with a disability is not always the right answer. You may be concerned about their ability to manage the assets, their vulnerability to financial exploitation, the continuity of their accommodation and care, and the effect an inheritance could have on their Centrelink entitlements.
A Special Disability Trust (SDT) offers another option.
An SDT is designed to help families provide for the future care and accommodation of a person with a severe disability. It combines a protected pool of assets, managed by trustees, with valuable social security and tax concessions. Those concessions come with strict rules about who can benefit from the trust and how its money can be used.
What is a Special Disability Trust?
An SDT is established for one person, known as the principal beneficiary.
The beneficiary must meet the legislated definition of severe disability. The requirements vary with the beneficiary’s age and circumstances and generally involve significant impairment and care needs, so confirm eligibility with Services Australia before going any further.
The trust can then receive money and other assets from parents, grandparents and other family members, and invest those assets to provide for the beneficiary over their lifetime.
An SDT can be set up during your lifetime, for example where parents establish and start funding a trust for their adult child. It can also be set up through a Will, so assets pass into the SDT after a parent’s death. This makes SDTs particularly relevant to estate and succession planning for families supporting a person with a severe disability.
The Centrelink advantages
The most significant benefit of an SDT is how its assets are treated for social security purposes.
For 2026-27, up to $862,750 of assessable assets held in an SDT is exempt from the principal beneficiary’s social security assets test. The limit is indexed each 1 July.
If the trust owns the home the principal beneficiary lives in, the home is an exempt asset and does not count towards the $862,750 limit.
There is no cap on the total value of assets an SDT can hold. If its assessable assets exceed the concessional limit, the excess counts towards the beneficiary’s assets test.
The trust’s income, and any distributions it makes, are not assessed under the beneficiary’s social security income test.
This allows a family to set aside substantial assets for a person’s future without necessarily putting their Disability Support Pension or other means-tested payment at risk.
For example, an SDT might own a $600,000 home the beneficiary lives in, $600,000 in managed investments, and $100,000 in cash and term deposits. The home is exempt, and the remaining $700,000 sits within the current $862,750 concession.
A gifting concession for family members
SDTs can also provide a Centrelink benefit to some family members who contribute to the trust.
Giving away substantial assets can normally affect a person’s Age Pension or other means-tested payment, because Centrelink’s gifting rules may continue to treat some of those assets as belonging to the person who gave them away.
Special rules allow eligible immediate family members to share a combined gifting concession of up to $500,000 for contributions to an SDT. This can be particularly valuable where parents or grandparents on a pension want to put assets aside for a family member with a severe disability.
The eligibility rules are detailed. The concession generally applies to immediate family members who have reached Age Pension age and receive an eligible social security or veterans’ payment. The $500,000 is also a combined limit, not a separate $500,000 for each family member.
Get advice before you transfer significant assets into an SDT.
What can the trust pay for?
This is where an SDT differs most from an ordinary family or testamentary trust.
The trust’s primary purpose must be to meet the reasonable care and accommodation needs of the principal beneficiary. Depending on their circumstances, this can include:
- buying or renting suitable accommodation
- modifying a home or vehicle because of the beneficiary’s disability
- medical, dental and private health insurance costs
- disability-related equipment and communication devices
- transport needed because of the disability
- maintenance and other costs of trust-owned accommodation
- appropriate paid care and support services.
An SDT can also spend a limited amount each year on items for the beneficiary that are not directly related to their care and accommodation. For 2026-27, this discretionary spending limit is $15,250, indexed each year. It gives some flexibility for the beneficiary’s general wellbeing, recreation, independence and social inclusion.
An SDT is not a general-purpose family trust. Its assets cannot be used for other family members, and payments to immediate family members for care and other services are restricted.
Who controls the money?
The trust owns the assets and the trustees manage them. The beneficiary does not own or control them directly, and for many families this is a large part of the appeal.
The trustees invest the assets and make sure they are used appropriately for the beneficiary. The trust must generally have either an independent trustee or more than one trustee, and individual trustees, or directors of a corporate trustee, must meet specific eligibility requirements.
The trustees must also maintain an appropriate investment strategy, having regard to risk, return, diversification, liquidity and the beneficiary’s expected future needs.
For parents, the planning is not only about how much money to leave. It is also about who you trust to manage that money, potentially for several decades.
The tax concessions
SDTs are taxed quite differently from an ordinary discretionary trust.
For income tax purposes, the principal beneficiary is generally treated as presently entitled to all of the trust’s income. Income kept in the trust is not automatically taxed at the top trustee rate just because it has not been paid out to the beneficiary. The tax outcome instead generally depends on the beneficiary’s own circumstances.
There are capital gains tax (CGT) concessions too. Where an asset is transferred to an SDT for no consideration, the person transferring it can generally disregard any capital gain or loss on the transfer.
Special rules also let an SDT that owns the beneficiary’s home access the CGT main residence exemption, broadly to the extent the beneficiary would have qualified had they owned the property themselves.
In the right circumstances, these concessions can make transferring or leaving assets to an SDT considerably more tax-effective than using an ordinary trust. CGT is only part of the picture, though. Property transfers can carry other tax, stamp duty and legal consequences, so review those before you transfer anything.
What happens when the beneficiary dies?
An SDT provides for the principal beneficiary during their lifetime and ends when they die.
The remaining assets are then dealt with under the trust deed and pass to the nominated residuary beneficiaries. For example, parents may set up an SDT for one child and provide that, after that child’s death, whatever remains passes to their other children or grandchildren.
This is another reason the initial estate planning matters. Families need to think about more than who will look after the person with a disability. They also need to decide:
- who will control and manage the assets
- which assets should go into the SDT
- whether the beneficiary should also have a separate testamentary trust
- how superannuation and life insurance should be dealt with
- where any remaining assets should ultimately go.
Why wouldn’t everyone use an SDT?
The concessions are attractive, but an SDT is not the right structure for every person with a disability.
The eligibility requirements are deliberately narrow, and the limits on how the trust can spend its money can make it less flexible than an ordinary testamentary or protective trust.
There are ongoing compliance obligations as well. The trust deed must contain prescribed provisions, annual financial statements must be prepared, reporting requirements must be met, and an independent audit may be required.
In some cases an ordinary testamentary trust offers more flexibility. In others, an SDT is particularly valuable for accommodation and long-term care, potentially alongside other estate planning arrangements. The two structures solve different problems.
Planning ahead makes an enormous difference
For families caring for someone with a severe disability, estate planning involves much more than deciding who receives what under a Will.
It means thinking about where that person will live, how their future care will be funded, who will manage their finances, how their Centrelink entitlements will be protected, and who will make decisions when parents or other family members no longer can.
A Special Disability Trust can be a very effective part of that plan. Because social security, tax, trust and estate planning rules all interact, it needs to be considered as part of your family’s overall circumstances, not in isolation.
At DFK Everalls, we can work with you, your financial adviser and your estate planning lawyer to consider the financial and tax implications, model how much may be needed to provide for your family member over the long term, and help work out how different assets could be structured to give them financial security. Speak with your Client Account Manager, or get in touch below.
This information is general in nature and does not take into account your individual circumstances. Special Disability Trusts involve tax, social security and legal considerations. We recommend obtaining appropriate accounting, financial and legal advice before establishing or funding a trust.
