What is a Special Disability Trust?

A Special Disability Trust is a legal trust created to enable families in Australia to financially provide for a person in their family with a severe disability. The trust allows for private financial provision for the future care and accommodation needs. There can only be one beneficiary to the trust, who must meet the eligibility criteria . The person must be on or be eligible for a disability support pension or  invalidity service pension or income support supplements.

The trust expenditure is restricted to the reasonable care and accommodation of the beneficiary, as well as costs related to the administration of the trust, and other payments that benefit the beneficiary such as medical expenses, therapy and home modifications. Reasonable care is defined as:

• A need that arises because of the person’s disability.
• Medical or dental costs of the beneficiary.
• Payment of fees for residential care facilities, institutions, hostels or group homes operating under a Commonwealth agreement.

An accommodation need is reasonable if the need arises as a direct result of the person’s disability. It can include payment for the purchase or rental of a home for the beneficiary or the payment of rates, property tax or property maintenance. The trust cannot be used to cover the care, accommodation or services provided by a trustee, partner, or any other immediate family members.

The trust may spend up to $14,500 (as of July 1, 2024) on discretionary spending for other purposes that are for the health, well-being, independence, recreation and social inclusion of the beneficiary. The discretionary payment needs to remain compliant with legislative requirements. The value of income and assets used for discretionary payments may change each financial year.

Anyone can contribute to the Special Disability Trust to ensure that the beneficiary is provided for in the future. However, there are restrictions on how much the beneficiary, or their partner can contribute into the trust. Compensation payments paid to the beneficiary cannot be placed into the trust. The trust is primarily used by immediate family to provide for the care and accommodation of the beneficiary.  Immediate family who are on an Aged or Veterans Pension are able to contribute up to $500,000 without affecting their asset test in accordance with Section 1209Y Social Security Act 1991 (Cth). This means a person on a part pension may be able to qualify for a full pension after gifting an amount to the Special Disability Trust to benefit the beneficiary. The trust can have assets up to $813,250 (as of 1 July 2024), without it impacting on the beneficiary’s government benefits. Unlike normal trusts where undistributed income is taxed at the highest threshold, income from the trust is taxed at the tax thresholds of the beneficiary even if the income is not distributed.

The Special Disability trust must meet certain requirements including:

• The trust must contain clauses that are set out in the model trust deed.
• It must appoint an independent trustee or have more than one trustee.
• Comply with investment restrictions
• Provide annual financial statements to Centrelink or the Department of Veteran Affairs (DVA). These financial statements must be based on the financial year and be submitted to Centrelink or DVA by March 31 each year.
• Be audited by an independent auditor when required.

The trust is terminated when the beneficiary dies. The remaining assets in the trust will be distributed to residual beneficiaries in accordance with the trust deed. The trust may also be terminated if the trust is wound up or there has been a breach in the requirements of a Special Disability Trust.

A Special Disability Trust not only gives you peace of mind knowing that the care and accommodation needs of your loved one are taken care of, but it also provides them with financial security. There can be substantial tax benefits associated with contributions and income generated by the trust.

If you are thinking of creating a Special Disability Trust we recommend you speak to a lawyer specialising in Special Disability Trusts. Contact us for a free 30 minute consultation in our office at Lindfield or over the phone if you prefer. 

We also suggest you seek financial and tax advice before setting up a disability trust. We recommend Price Financial Intelligence if you are looking for someone to provide you with financial advice.

Photo by David Knudsen on Unsplash

Any information on this website is general in nature and should not be taken as personal legal advice. We recommend that you speak to a lawyer about your personal circumstances.