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Special Disability Trusts (SDTs) were introduced by the Australian Government to help families provide for the care and accommodation needs of a person with a severe disability, while still allowing them to access social security entitlements.
SDTs are a powerful but technical tool: they allow assets to be set aside for the beneficiary without being fully assessed under Centrelink’s means testing, and they come with a valuable gifting concession for eligible immediate family members.
When used well, they provide peace of mind and long-term security. But their complexity means that families and advisers must tread carefully. Here are five practical insights to help make the most of an SDT.
1. Understand the purpose
At its heart, an SDT exists to fund the reasonable care, accommodation, and medical needs of the beneficiary. This can include things like purchasing a suitable home, paying for in-home support, or covering ongoing healthcare costs. What it is not designed to be is a general-purpose inheritance or flexible family trust.
Every dollar spent must align with the strict rules set out in legislation. Missteps, even well-meaning ones, can threaten compliance, affect the beneficiary’s Centrelink entitlements, and jeopardise the gifting concession used by contributing family members.
| Tip: Think of the SDT as a safety net with specific rules. Staying inside those boundaries protects both the beneficiary and the family’s broader financial position. |
2. The rent trap: when good ideas go bad
A common misunderstanding arises around housing. Families often assume it is reasonable for a beneficiary to pay rent to the trust if the SDT owns the property they live in. On the surface, this feels fair as rent could help cover council rates, insurance, and maintenance.
But here’s the catch: any money the beneficiary contributes to the trust is considered a contribution, and contributions from the beneficiary themselves are not permitted. What feels like a practical arrangement quickly becomes a compliance breach.
| Tip: Instead of relying on the beneficiary’s payments, structure the trust from the outset with enough income or assets to fund ongoing property expenses. |
3. Confirm eligibility before you begin
It may sound obvious, but before setting up an SDT confirm that the intended beneficiary meets the eligibility requirements. The definition of “severe disability” is set in legislation and linked to Centrelink’s assessment criteria. The most practical way to do this is by completing Centrelink’s Carer Payment and/or Carer Allowance Medical Report (Form SA332A).
Families sometimes establish a trust first, only to discover later that the beneficiary does not qualify, wasting time and money.
| Tip: Treat eligibility like a pre-flight check. Confirming it upfront avoids turbulence and ensures the trust will achieve its purpose. |
4. Keep records like a professional
SDTs face annual reporting obligations. Trustees must show that funds are used within the allowable categories and caps, such as the annual discretionary spending limit (currently $12,500, indexed).
The simplest way to stay on top of this is by keeping meticulous records. A basic Excel spreadsheet can work wonders if it tracks:
- Date of each expense
- Amount spent
- Category (e.g., medical, accommodation, discretionary)
- Running totals against annual caps
| Tip: Good record-keeping isn’t bureaucracy; it’s insurance against headaches. When the audit comes, you’ll be glad you treated this as a non-negotiable discipline. |
5. Specialists are essential but so is engagement
SDTs sit at the intersection of estate planning, tax law, and social security. This makes specialist legal, tax, and financial advice essential. But outsourcing doesn’t remove responsibility. Trustees remain accountable for decisions and compliance.
The most effective families are those who engage regularly, ask questions, and treat the adviser relationship as collaborative.
| Tip: A financial adviser’s role is to coordinate the moving parts, simplify complexity, and ensure the trust continues to deliver its intended purpose. |
Final thoughts
Special Disability Trusts can provide families with confidence that a loved one with severe disability will be financially supported, without losing critical social security entitlements. The gifting concession adds flexibility for parents and relatives, enabling contributions that would otherwise be penalised.
But beyond the rules and reporting, SDTs serve a higher purpose: they turn financial complexity into clarity, security, and peace of mind.
Done well SDTs are not simply a compliance exercise, but a vehicle for ensuring dignity, stability, and choice for someone who needs it most.
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The Money & Life website is operated by the Financial Advice Association (FAAA). The views expressed in this article are those of the author and not those of the FAAA. The FAAA does not endorse or otherwise assume responsibility for any financial product advice which may be contained in the article. Nor does it endorse or assume responsibility for the information.
