For families caring for a person with a severe disability, planning for their loved one’s long-term financial security can involve a range of complex legal, financial and social security considerations.
A Special Disability Trust (SDT) is one option available to eligible families seeking to provide for the current and future care and accommodation needs of a person with a severe disability. However, the rules surrounding eligibility, establishment, gifting concessions and ongoing compliance can be complex, and families may be unsure where to begin.
This article provides a straightforward introduction to SDTs, including how they operate, the potential benefits they can provide and some of the key considerations for families assessing whether a SDT may be appropriate for their circumstances.
What is a Special Disability Trust?
A SDT is a legal structure designed to assist families in providing for the current and future care and accommodation needs of a person with a severe disability. This person is known as the principal beneficiary.
The purpose of a SDT is to allow families to make private financial provision for the principal beneficiary while, subject to the relevant rules and eligibility requirements, allowing the principal beneficiary to retain access to certain social security benefits.
What are the benefits of a Special Disability Trust?
If you have a child or family member who receives the Disability Support Pension, you may already be familiar with Centrelink’s income and assets tests.
One of the key benefits of a SDT is the asset-test exemption that can apply to SDT assets up to the prescribed concessional amount. As at 1 July 2026, this amount is $862,750 and is indexed annually.
In addition, income generated by the SDT is generally disregarded for the purposes of the principal beneficiary’s income test, subject to the relevant rules.
Another significant benefit relates to gifts made by certain immediate family members who receive a pension.
Eligible immediate family members may be able to gift up to $500,000 to a SDT without the gift affecting their pension entitlement. This is significantly higher than the general gifting limits, which ordinarily restrict gifts to $10,000 in a financial year and $30,000 over a rolling five-year period.
These concessions can make a SDT an important consideration for families who wish to provide financially for a loved one with a severe disability.
Why use a Special Disability Trust instead of a discretionary trust?
A person’s entitlement to a Disability Support Pension can be affected by the assets and income available to them.
When assessing a person’s entitlement, Centrelink considers whether they have control over, or access to, assets held in a trust. In some circumstances, a person may be regarded as controlling a trust if the trustee could reasonably be expected to use the trust’s assets or income to support them financially.
This can create difficulties where a person with a disability is a beneficiary of a discretionary trust. Even if they are not the trustee and have no formal control over the trust, Centrelink may determine that the trust’s assets and income are effectively available to them.
If this occurs, the trust assets and income may be attributed to the person for social security purposes, which could reduce their pension entitlement.
For this reason, it is important to obtain appropriate legal and financial advice when considering how assets should be held for a person with a disability. Depending on the circumstances, a properly structured Special Disability Trust may provide a more suitable outcome, provided the relevant eligibility and legislative requirements are satisfied.
What is a severe disability?
For a person to qualify as the principal beneficiary of a SDT, they must satisfy the relevant criteria for having a severe disability.
The requirements differ depending on the age of the individual. Broadly, Centrelink assesses factors such as the person’s level of impairment, care requirements and capacity for employment when determining eligibility.
For individuals aged 16 and over, eligibility generally requires that the person qualifies for the Disability Support Pension (or an equivalent Department of Veterans’ Affairs payment), requires substantial ongoing care, and has limited capacity to work because of their disability.
For children under 16, Centrelink considers the severity of the disability or medical condition, the level of care required and supporting certification from the child’s treating health professionals.
Centrelink is responsible for assessing whether a person satisfies the relevant requirements to be the principal beneficiary of a SDT.
Who is an immediate family member?
The rules surrounding who can make concessional gifts to a SDT are important.
An immediate family member of the principal beneficiary includes:
- their parents, whether natural, adoptive or step-parents;
- their legal guardians, including a person who was their legal guardian while they were under 18;
- their grandparents; and
- their siblings.
The gifting concessions are subject to specific eligibility requirements, so it’s important to obtain appropriate advice before making a significant contribution to a SDT.
What is required to ensure a SDT remains compliant?
There are specific rules about how the funds held within a SDT can be used.
Generally, trust funds are intended to be used for the care and accommodation needs of the principal beneficiary. This may include expenses arising from the person’s disability, medical and dental costs, accommodation costs, and other approved expenses that support their health, wellbeing, independence and social inclusion.
SDT assets may also be used for certain discretionary expenses, subject to the applicable annual limits. As at 1 July 2026, discretionary spending is capped at $15,250, with this amount indexed annually.
There are also ongoing compliance and administrative obligations associated with operating a SDT. For example, the trustee must comply with reporting and record-keeping requirements and provide financial information to demonstrate that trust funds have been used in accordance with the applicable rules.
Is a Special Disability Trust right for you?
A SDT can provide significant benefits for some families, particularly where they wish to make long-term financial provision for a person with a severe disability.
However, a SDT is not necessarily the right structure for every family. There are specific eligibility requirements, rules governing how the funds can be used, and ongoing administrative obligations that need to be considered.
Before establishing a SDT, we recommend obtaining appropriate legal and financial advice to determine whether a SDT is suitable for your circumstances or whether another structure may better meet your family’s needs.
How can we help?
If you’re considering establishing a SDT and are unsure where to start, we would be happy to assist.
We can help you understand the legal requirements involved in establishing a SDT and work with you to determine what is required for your particular circumstances.
If you would like to discuss whether a Special Disability Trust may be appropriate for your family, please get in touch with our Wills & Estates team to arrange an initial consultation.
