Special Disability Trust questions: what is an SDT?

A Special Disability Trust is a trust that must meet specific requirements under the Social Security Act 1991 to receive social security means test concessions. The Act sets the SDT requirements and defines the concessions available. Rather than creating the trust itself, the legislation defines the rules a private trust must satisfy to qualify for concessional treatment.

The trust must have a single beneficiary, who must meet the eligibility criteria set by Services Australia. In addition, the trust deed must comply with the model trust deed approved by the Department of Social Services.

Who can be the beneficiary of an SDT?

Eligibility is technical and depends on whether the person meets the legal definition of severe disability or severe medical condition. Services Australia assesses this, and different rules can apply for adults and children.

The assessment covers the nature and permanence of the disability, capacity for work, and the need for ongoing care and support. In most cases, an approved medical professional must provide supporting evidence.

What can the trust pay for?

An SDT is primarily designed to meet the reasonable care and accommodation needs of the principal beneficiary. Permitted expenses generally include:

• Residential care or supported accommodation
• Certain medical, dental and therapeutic services
• Aids and appliances required because of the disability
• Maintenance of trust property assets
• Limited discretionary items within the annual spending cap

There is an annual discretionary spending allowance for lifestyle expenses that benefit the beneficiary directly, such as recreational activities, holidays or personal items.

Special Disability Trust questions: how does an SDT affect Centrelink?

This is the most common question, and it is the main reason families set up an SDT.

For the beneficiary: Assets held inside an SDT are generally exempt from the Centrelink assets test up to the concessional asset limit ($832,750 for 2025/26). A beneficiary receiving the Disability Support Pension can continue to receive it even as the trust grows, provided the balance stays within the limit.

For contributing family members (gifting concession): Eligible immediate family members who are at or over Age Pension age, or service pension age where relevant, may be able to contribute to an SDT using the gifting concession, up to $500,000 combined, without the gift being treated as a deprived asset under Centrelink’s gifting rules. This is a significant concession. Normally, assets given away above the standard gifting threshold are counted in the giver’s assets test for five years.

For the trustee: The trust does not affect the Centrelink position of the trustee, provided the trustee is not also a beneficiary.

Who can establish an SDT?

An SDT can often be established by the beneficiary themselves (if they have legal capacity), or by an immediate family member such as a parent, sibling, child or grandparent. A legal guardian or person with power of attorney may also be able to establish one in appropriate circumstances.

The trust deed must comply with the model trust deed approved by the Department of Social Services. This is not a standard off-the-shelf document. Because it has specific requirements, a deed that falls short means the trust will not qualify for the Centrelink concessions.

Who can act as trustee?

This is an area where families often make assumptions that turn out to be wrong. An SDT must generally have two or more trustees acting jointly. A sole individual trustee does not satisfy the Department of Social Services guidance, except where a professional trustee takes the role. If a corporation acts as trustee, it must have two or more directors who meet the trustee requirements.

Each individual trustee must be an Australian resident aged 18 or over. The beneficiary cannot act as the sole trustee of their own SDT. If the beneficiary has full legal capacity, they may be one of multiple trustees, but they cannot serve as the only trustee.

Trustees carry real legal obligations. They must keep records of all transactions, ensure all spending meets the permitted purposes, and report to Services Australia when required. Poor record keeping is one of the most common compliance issues we see.

What happens to the trust when the beneficiary dies?

When the beneficiary dies, the SDT winds up and the trustee deals with the remaining assets under the trust deed and the relevant social security rules. There may be Centrelink or DVA implications, particularly where gifts went into the trust within the previous five years. For this reason, families should review the winding-up provisions carefully with both legal and financial advice as part of broader estate planning.

Because the winding-up rules involve interaction between the trust deed, social security law and estate law, families should not assume the remaining assets will simply pass to the estate without further implications.

Can an SDT receive an inheritance?

Yes. An SDT can receive an inheritance on behalf of the beneficiary. This is one of the most common ways families use an SDT as part of estate planning. Rather than leaving money directly to a person with a disability, which could affect their Centrelink payments, a parent or grandparent can instead direct their estate to contribute to the SDT.

However, this requires careful planning. The will or estate documents must be structured to direct the gift to the SDT rather than to the beneficiary directly. HFI works alongside estate planning lawyers to coordinate this.

What are the ongoing obligations for trustees?

One of the most important Special Disability Trust questions families ask is what happens after the trust is set up. Trustees take on ongoing compliance obligations that do not end at establishment. These include:

• Keeping detailed financial records of all income and expenditure
• Ensuring all spending falls within the permitted categories
• Lodging an annual financial statement with Services Australia
• Notifying Services Australia of any significant changes to the trust or the beneficiary’s circumstances
• Complying with the trust deed at all times

Failure to comply can result in the trust losing its concessional status. This means the assets become assessable under Centrelink means testing, which could therefore affect the beneficiary’s payments. In some cases, the consequences apply immediately.

SDT versus testamentary trust versus family trust: what is the difference?

Many families ask about this comparison, particularly when reviewing estate planning options.

An SDT is the specific structure designed to provide the Special Disability Trust Centrelink assets test exemption for a person with a severe disability, and also the specific structure that provides the gifting concession for contributing family members. However, it is limited to a single beneficiary and has strict rules about how the trustee can spend funds.

A testamentary trust is established through a will and comes into effect on death. It can benefit multiple people, including a person with a disability. However, it does not carry the SDT’s Centrelink concessions. It may still be useful for other family members or where the beneficiary does not meet SDT eligibility criteria.

A discretionary family trust can hold assets for multiple beneficiaries and offers flexibility in distributions. However, assets in a discretionary trust connected to a Centrelink recipient may be assessed under the means test, depending on control, benefit and attribution rules. It does not provide the SDT concessions.

Is an SDT the right option for every family?

Not necessarily. An SDT is powerful, but it is not the only option and it does not suit every situation. The right choice depends on the nature and severity of the beneficiary’s disability, whether they receive Centrelink payments, the size of the funds involved, and the family’s broader estate plan.

For families where the beneficiary is on the Disability Support Pension and is likely to receive significant funds from the family over time, an SDT is often the most efficient structure available. For other situations, a different approach may produce better outcomes.

A specialist adviser can model the Centrelink and tax outcomes of different structures before you commit to any one approach.

How HFI helps with Special Disability Trusts

HFI specialises in financial advice for people with disabilities and their families, and works with clients across Australia. For Special Disability Trusts, we help with:

• Assessing whether an SDT is suitable for your family’s situation
• Modelling the Centrelink impact for both the beneficiary and contributing family members
• Working alongside estate planning lawyers to structure wills and contributions correctly
• Reviewing existing trusts for compliance
• Advising trustees on permitted expenses and record-keeping obligations

We see families across Australia via phone and video, as well as in person at our Parramatta office.