Key points
- What are Special Disability Trusts (SDTs) and how do they work.
- The financial benefits of SDTs ranging from tax benefits and exemptions from asset and income tests.
- The need for professional support in establishing a SDT.
Caring for a loved one with a severe disability is deeply personal, requiring carers and families to balance physical and emotional needs with financial reality.
The financial and administrative complexities of long-term care can sometimes feel overwhelming, but understanding the available options can significantly reduce stress, safeguard financial stability, and ensure the highest quality of life for your loved ones.
A Special Disability Trust (SDT) is one alternative for allowing families to provide for their loved one’s future in a secure, sustainable way while preserving access to government support.
The core purpose of a SDT is to allow ‘private’ funding for reasonable care and accommodation to a person with a disability while minimising the impact on any government concessions, such as tax or Centrelink concessions.
They are intended for the benefit a single individual who meets the eligibility criteria for a severe disability, which can be found in more detail on the Federal Government’s website.
A SDT is a trust structure that can be funded by anyone, although our experience suggests parents or close family members most commonly provide the money.
Importantly, it also creates a separation between ownership of the assets and their use, protecting funds and ensuring they are preserved for their intended purpose.
Families have a certain level of control over how assets are invested and used, while knowing the trust itself is governed by clear, compliant investment rules.
Upon the passing of the individual, the trust must be wound up, and any remaining assets distributed to residual beneficiaries of the trust.
While the SDT concept is simple, the rules governing these trusts are not, which is why families and carers should seek professional support to make sure it is the right structure for now and the future.
Establishing a trust involves upfront legal and administrative costs, and responsibilities include appointing trustees such as individuals or a trustee company, meeting obligations to manage the trust, which includes understanding and complying with strict investment restrictions, and ensuring annual financial statements are prepared and reported.
The rules and regulations are in place to prevent misuse; however, they should not detract from the key financial advantages of a SDT, which include more generous treatment under Centrelink’s asset and income tests.
For example, up to $813,250 (indexed annually) in trust assets is exempt from the assets test, ensuring the beneficiary can retain access to payments like the Disability Support Pension.
This exemption provides families with confidence that the funds they set aside for their loved one’s future won’t compromise much-needed support.
Similarly, gifting rules allow parents or carers to contribute up to $500,000 into the trust without adversely affecting their own Centrelink entitlement – a rare concession for families looking to plan responsibly.
SDTs also offer significant tax benefits. Unlike most trusts, the income generated (even if not distributed) is taxed at adult marginal rates rather than higher trust tax rates, which are currently at 47 per cent.
For a family looking to preserve assets over the long term, this can make a substantial difference to the trust’s capacity to provide for the beneficiary.
Capital Gains Tax (CGT) exemptions also apply. A dwelling owned by the trust and used as the beneficiary’s main residence can qualify for the main residence exemption.
Beyond the financial considerations, an SDT provides structure and security. The trust’s terms can be tailored to the specific needs of the individual it supports, offering a level of flexibility that allows for meaningful long-term care planning.
Ensuring a family member is provided for, including access to care and accommodation, is a deeply personal priority. For families considering an SDT, the value is in its financial benefits and peace of mind.
The right structure can ensure funds are available for future care and accommodation needs without risking support or assets, providing a strong sense of security.
