Special Disability Trusts

Trusts for people under a disability

A Special Disability Trust (SDT) is a trust that is set up though a will (a so called testamentary trust) or in a deed with the purpose of protecting your loved ones with a severe disability. Setting up a SDT will ensure your loved one’s needs are met and it creates a plan for their long term care and accommodation needs even after you have passed away.

These trusts require 2 or more people jointly to run the trust including friends and family, except where professional trustees are appointed. All trustees are expected to comply with Australian investment regulations, produce annual financial statements when necessary and conduct independent audits when required.

Setting up an SDT

The first step in obtaining a SDT is to check with the Department of Human Services or the Department of Veterans’ Affairs that the person whose benefit the trust is being created for, meets the definition of someone with a ‘severe disability’ under section 1209M Social Security Act 1991:

Definition of "severe disability" - over 16

  • The person must have an impairment which would qualify them for the Disability Support Pension OR already be receiving a pension or supplementary payment from the Department of Veteran’s Affairs; and
  • If the sole carer of the disabled person would be eligible for Carer Payment / Carer allowance OR if the disabled person is living in an institution, hostel or group home for disabled people, the organisation would be able to receive funding from the Commonwealth, states and territories; and
  • The disabled person cannot work more than 7 hours per week or above minimum wage.

"Severe Disability" - under 16

  • The person under 16 must be so profoundly disabled as defined in section 197(1) of the Social Security Act 1991.

OR

  • Has a severe disability or severe medical condition; and
  • The primary carer of the child under 16 has been given the rating ‘intense’ under the Disability Care Loan Assessment (Child) Determination; and
  • The treating health professional has certified in writing that because of the disability/condition, the child will need personal care for 6 or more months and is required to be given care by a specific number of persons; and
  • The carer has certified in writing that the child will require the same care or a necessary increasing amount of care in the future.

Taxation Benefits

  • Unexpected income transferred into a SDT will be taxed at the personal tax rate of the beneficiary rather than the highest marginal tax rate at 45%.
  • Capital gains tax exemption for assets donated to the SDT.
  • Capital gains tax main residence exemption under the SDT.
  • Capital gains tax exemption for eventual recipient of the beneficiary’s main residence if property is disposed of within 2 years of the beneficiary’s death.

CONCESSIONS

Asset Testing

  • Asset concession per trust is now approximately $717,033 (as at 1 February 2022) and will be disregarded when completing an assets test.
  • When assessing a beneficiary’s assets, principal homes of the severely disabled are disregarded. In other words, the home, which the disabled person lives in PLUS other assets up to the value of approx. $717,033 (as at 1 February 2022) can be ignored.
  • Indexation is applied every year meaning the value of $717,033 and the amount held in trust under the asset concession increases as time lapses.

Gifts

  • Any person is able to make a gift to a SDT except the beneficiary of the trust themselves, their spouse/de facto partner or the settlor.
  • These gifts in excess of the gifting concession will be assessed under the normal gifting rules.
  • Gifts made to a SDT must be unconditional and be free of any expected beneficial return.
  • Gifting concessions per trust is $500,000 (not indexed) and will also be disregarded when completing an assets test.Those funds transferred to the primary beneficiary through a gifting concession must be transferred to the trust within 3 years of receiving the gift
  • Special Disability Trusts may receive gifts for the primary beneficiary only if they are given under a will via estate distribution or other nominated death benefits such as a superannuation death benefit.
  • Gifting concessions may only be given by ‘immediate family members’ such as parents (adoptive and step), siblings, grandparents and legal guardians who are eligible for an age or service pension.

Warning

There are extensive rules which Special Disability Trusts need to comply with and those trusts that fail to comply with the regulations will lose income support concession for the beneficiary and the beneficiary may lose income support entitlement payments.

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