02 4324 7699

Disability Trust Lawyers – Central Coast & Gosford

Why Set Up a Disability Trust?

If you care for someone with a severe disability, a Special Disability Trust (SDT) can help secure their financial future while preserving eligibility for government entitlements like the Disability Support Pension or NDIS.

At Brazel Moore Lawyers, our experienced estate planning team in Gosford help families across the Central Coast set up legally compliant trusts that protect vulnerable beneficiaries and provide peace of mind for the years ahead.

Tips and traps

  • Model Special Disability Trust: A Special Disability Trust can be set up either by Will or Trust Deed, but it must include specific clauses to qualify for tax concessions. It is strongly recommended to use the Model Special Disability Trust Deed approved under legislation.
  • Confirm Eligibility First: The beneficiary must meet the legal definition of ‘severe disability’ under the Social Security Act 1991 (Cth). If they don’t, the trust may be assessed under ordinary rules, which could result in loss of social security benefits and tax concessions.
  • Avoid Unnecessary Costs: A beneficiary assessment should ideally be completed before the trust deed is prepared to avoid unnecessary set-up costs.
  • Maintain Compliance: If the trust later becomes non-compliant, concessional treatment may be revoked. This could result in the trust being taxed under standard rules and lead to financial disadvantage—especially for family members who have contributed to the trust within five years of non-compliance.

If you need clear, expert advice on establishing a Special Disability Trust, call Geoff Brazel — Experienced Wills, Estates and Trusts Lawyer since 1981.

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Key Features of The Special Disability Trust (SDT)

  1. The SDT can be established during your lifetime so that it operates immediately from the time it is established;
  2. Alternatively, a SDT can also be set up like a testamentary trust in your Will, in which case it only operates from the time of your death;
  3. Trustees must be Australian residents and otherwise eligible to act as a Trustee;
  4. There can only be one principal beneficiary;
  5. The sole purpose of the trust must be to provide for the current and future care and accommodation of the primary beneficiary;
  6. Beneficiaries over 16 years of age must be eligible for the Disability Support Pension;
  7. Capital invested within a SDT (Maximum: $636,750.00 as at 01/07/2015 & indexed annually) is not subject to Centrelink’s Asset Test;
  8. Any income generated by that capital is not subject to Centrelink’s Income Test;
  9. Note that normal income tax rules apply, however, since 1 July 2008 undistributed income will only be liable to the beneficiary’s marginal tax rate rather than the top penalty rate of 49% that applied before then;
  10. The person with a disability may work up to 7 hours per week in open employment or unlimited hours in the Supported Wage System (SWS);
  11. The SDT may pay for the beneficiary’s medical expenses, including private health fund fees and maintenance expenses for assets including real estate;
  12. An amount up to $11,250.00 per financial year (2015/16) may be expended on discretionary items (eg holidays, furniture, etc) – this amount is indexed annually;
  13. Concessions & benefits for family members (grandparents, parents or siblings) contributing funds to a SDT apply – provided no more than $596,500 (indexed annually) in total is gifted to a SDT – and any gift by a family member receiving Centrelink benefits is not deemed as a deprivation of assets by Centrelink;
  1. This last point also means that provided the family member is of pension age but was not eligible for the Age Pension due to their assets, they can now legitimately divest themselves of assets and possibly qualify for a full or part pension;
  2. The capital gains tax (CGT) main residence exemption now includes a residence owned by a SDT – as long as it is used by the principal beneficiary as their main residence (introduced in 2008/2009 this has been backdated to 2006);
  3. A CGT exemption applies on assets transferred into a special disability trust for nil consideration;
  4. A CGT exemption applies where the principal beneficiary dies and their main residence is distributed to a recipient who subsequently sells the property within two years;
  5. A SDT must not accept any asset transferred by the principal beneficiary or their partner, unless the contribution is funded by a bequest or superannuation death benefit within 3 years of receipt of the bequest or superannuation death benefit;
  6. A contribution to a SDT cannot come from a compensation payment made to the disabled person who is the principal beneficiary of the trust;
  7. Third parties must not benefit from the trust’s expenditure. The exception is an ‘incidental benefit’ – ie, benefit of a non-cash nature that is minor and provided on an infrequent and irregular basis;
  8. The trustee must act in accordance with the terms of the trust – this means investing money with care, applying income appropriately, avoiding unnecessary expenses and seeking professional advice when required; and
  9. When the beneficiary dies, the trust terminates and the trust’s assets will vest in the residual beneficiaries as specified in the trust deed.