What is a special disability trust?

A special disability trust is a trust established for the express purpose of making financial provision to provide funds for the care and accommodation of an individual with a severe disability.

Often, this type of trust is established by ageing parents looking to provide ongoing financial support to a disabled child or grandchild. Immediate family members include adoptive parents, step-parents, and legal guardians.

An immediate family member (including adoptive, step, and legal guardians) can establish a special disability trust while they are still living, or their estate can create it once they pass away.

A special disability trust can have only one primary beneficiary who must be severely disabled. The principal beneficiary must also be an Australian resident.

Severe disablement is defined in the relevant legislation, and for a beneficiary aged 16 or older, the characteristics that need to be met include:

1. Having a level of impairment that would result in them qualifying to receive a disability support pension, and
2. Having a disability that, if the person had a sole carer, would qualify the carer for a Carer Payment or Carer Allowance, or
3. Living in an institution or group home for people with disabilities, and the home receives government funding, and
4. The disability results in the person not working or having no likelihood of working more than seven hours per week.

Different rules apply where the disabled person is under 16 years of age. 

Additional requirements of a special disability trust include:

1. The trust deed will generally need to contain clauses set out in a model trust deed (available from Services Australia)
2. Have an independent trustee or more than one trustee
3. Provide for the accommodation and care needs of the beneficiary, ensuring the trust provides for reasonable accommodation as defined by the relevant regulations
4. Comply with investment restrictions
5. Provide annual financial statements to Centrelink or the Department of Veterans Affairs annually, and trustees must also sign a statutory declaration confirming the accuracy of the statements
6. Have the trust audited if required.

Trustees are also required to complete a trust tax return each year for the special disability trust.

Special disability trusts offer several vital concessions, particularly from a Centrelink or DVA perspective. 

Firstly, suppose a person establishing a special disability trust is receiving income support, such as the age pension. In that case, they can contribute up to $500,000 to a special disability trust without it being subject to the usual Centrelink gifting rules. This $500,000 is considered a gift from the donor and may be subject to a gifting concession if the trust ceases to be a special disability trust within five years.

In addition, up to $781,250 (2023-24 – indexed annually) of assets held in a special disability trust are exempt from the primary beneficiary’s assets test. This amount is the asset value limit for special disability trusts, and any assets above this limit are assessed as part of the beneficiary’s assessable assets. The value of the principal home held in the trust may be exempt from the asset value limit if it is not rented from an immediate family member. All income of the trust is exempt from income testing.

The income and capital of a special disability trust can only be used to provide for the care and accommodation of the beneficiary; however, up to an additional $14,000 per annum (for the 2023-24 financial year) can be used for discretionary spending, which covers non-essential expenses for the beneficiary.

Special disability trusts also receive favourable tax treatment.  

The net income of the trust is taxed in the hands of the beneficiary at their marginal tax rate. The income is assessed based on the beneficiary’s residency status, and an Australian resident beneficiary may have different tax obligations.

Suppose income is not distributed in a particular financial year, unlike other trusts that have undistributed income taxed at the top marginal tax rate (45%). In that case, undistributed income is taxed at the beneficiary’s marginal tax rate.

Special disability trusts can offer significant social security and tax benefits when making provision for a disabled person.

To receive concessional treatment, a special disability trust must comply with specific rules and regulations.

You can find additional information on special disability trusts by clicking here:

For those wishing to make a financial provision for a family member with a disability, it may be worthwhile to discuss this option with your Collective financial adviser or accountant, or your solicitor. You are also encouraged to seek guidance and helpful information from support services such as Carer Gateway when planning for the future care of a family member with a disability.

Upon the death of the principal beneficiary, the trust’s assets are dealt with according to the trust deed. Any remaining assets are distributed to residual beneficiaries as specified in the trust deed.