Exploring the Benefits of a Special Disability Trust

By Jaye Mankelow
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A Special Disability Trust (SDT) provides families with a structured and secure way to support members with severe disabilities. Designed to offer both financial protection and targeted benefits, SDTs help families plan for the long-term care and quality of life of loved ones with disabilities. By establishing an SDT, families can benefit from tax concessions, asset protection, and eligibility for Centrelink benefits.

Here's a closer look at the key advantages, requirements, and considerations for setting up an SDT.

What is a Special Disability Trust?

An SDT is a type of trust specifically created to support a person with a severe disability. It allows families to set aside funds for a disabled family member's care and accommodation needs without affecting the family member's entitlement to Centrelink benefits.

• Purpose: The SDT is primarily designed to cover the beneficiary's accommodation, medical, and care-related expenses while protecting these assets from financial risks.
• Who Can Benefit: Individuals with severe disabilities, as defined under Australian law, can qualify. This includes individuals whose disability impacts their capacity to work or live independently.

Example: A family setting up an SDT for an adult child with a lifelong disability can ensure that funds are allocated for their child's ongoing care needs, without risking their Centrelink entitlements.

Eligibility Requirements for an SDT

The SDT framework has specific eligibility criteria that apply to both the trust's beneficiary and the types of expenses it covers.

• Beneficiary Requirements: To qualify for an SDT, the beneficiary must meet Centrelink's severe disability criteria, which typically requires them to receive the Disability Support Pension or equivalent and be unable to work more than 7 hours a week.
• Types of Expenses Covered: The trust funds are restricted to certain approved expenses, primarily care and accommodation, with a minor allowance for discretionary spending on non-essential needs.
• Compliant Structuring: An SDT must be drafted by legal and accounting professionals to ensure it complies with eligibility requirements, protecting the trust's tax and Centrelink concessions.

Tip: Consulting with a solicitor and accountant familiar with SDTs ensures that all compliance requirements are met, providing both financial security and eligibility protection.

Tax and Centrelink Benefits

One of the key benefits of an SDT is its ability to provide financial support while offering specific tax concessions and preserving Centrelink entitlements.

• Tax Advantages: Assets held within an SDT are exempt from capital gains tax under certain conditions, and income generated within the trust may be taxed at concessional rates.
• Centrelink Entitlement Protection: For the beneficiary, SDTs allow access to additional resources without impacting their Disability Support Pension or other Centrelink entitlements, providing peace of mind that essential support won't be interrupted.
• Asset Exemptions: Funds contributed to an SDT by immediate family members are exempt from Centrelink's means test, offering greater flexibility in setting aside assets for long-term care.

Example: Parents who contribute $500,000 to an SDT for their child with a severe disability can secure their child's accommodation and care needs while preserving the child's eligibility for government support.

Asset Protection and Compliance Requirements

An SDT also provides an added layer of asset protection, ensuring that funds dedicated to the beneficiary are preserved for their intended use and shielded from external claims or financial risks.

• Protected Funds: Assets within an SDT are generally protected from creditors and other claims, securing the beneficiary's future.
• Compliance and Management: SDTs are subject to strict compliance guidelines, including annual audits and reporting. Setting up and managing an SDT requires collaboration between solicitors and accountants to ensure all legal and financial obligations are met.

Tip: Engaging professionals to manage the setup and ongoing administration of the SDT helps maintain compliance with ATO and Centrelink guidelines, ensuring the trust's benefits are fully accessible.

A Special Disability Trust offers invaluable benefits for families looking to provide long-term care for loved ones with severe disabilities. By securing tax advantages, preserving Centrelink entitlements, and protecting assets, an SDT allows families to support their disabled family members confidently and effectively. However, due to its complex legal and compliance requirements, establishing an SDT should be done in consultation with a solicitor and accountant.

Aspira's advisors, alongside legal professionals, can guide you in establishing a compliant and effective SDT to meet your family's needs. If you're considering this type of trust, reach out to learn how we can support you in securing a stable and secure future for your loved one.

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