Special disability trusts: how they work and how to set one up properly

Most parents of a son or daughter with a severe disability carry the same question for years: who will look after them, and how will it be paid for, when we're no longer here? A special disability trust (SDT) is the structure the Commonwealth created in 2006 to help answer it. It lets family put money and property aside for one person's care and housing without that money cutting their Disability Support Pension (DSP), and it gives parents and grandparents of pension age a way to contribute up to $500,000 without the usual gifting penalty.

The trade-off is control. The rules are written by the government, the deed must contain compulsory clauses, and the money can only be spent in set ways. This guide explains how an SDT actually works, who does what, how it fits with the NDIS, when it's the right tool and when it isn't, and the order to do things in so you don't lose the concessions. Our companion guides go deeper on who is eligible and what the trust can pay for and on the tax, gifting and Centrelink rules.

What is a special disability trust?

A special disability trust is a trust that meets the requirements of Part 3.18A of the Social Security Act 1991 (with matching rules in the Veterans' Entitlements Act 1986). Its primary purpose, for as long as the beneficiary lives, is to meet the reasonable care and accommodation needs of one person with a severe disability, called the principal beneficiary.

In plain terms:

• One person, one trust. Each SDT has one principal beneficiary, and each person can have only one SDT. If grandparents and parents both want to provide, they contribute to the same trust.
• The government sets the rulebook. The Department of Social Services publishes a Model Trust Deed. Its compulsory clauses must be in your deed, and nothing else in the deed can override them.
• Services Australia (or DVA) checks it. The beneficiary must be assessed as severely disabled before the trust is treated as an SDT, and the trust reports every year by 31 March.
• In return, the concessions are generous. The beneficiary's home owned by the trust, plus up to $862,750 of other trust assets from 1 July 2026, are ignored under their assets test. Retained income is taxed at the beneficiary's personal rates rather than 47%. And eligible family members can gift up to $500,000 combined without the gift counting against their own pension.

The four concessions at a glance

Who does what in a special disability trust?

Every SDT has the same set of roles. Getting the people right matters more than any clause, because the trust may run for 40 or 50 years.

Individuals, a family company or a professional trustee?

Two individual trustees (say, both parents) is the cheapest start. The weakness shows later: if one dies or loses capacity, a replacement must be found, and every bank account, share holding and land title has to be changed into the new trustees' names.

A family company as trustee costs more up front and has an annual ASIC fee, but the company owns the assets permanently. When a parent steps down, a new director is appointed and nothing else changes. If the trust will own a home or hold investments for decades, this is usually our preference. The company needs at least two directors who each meet the trustee requirements.

A professional trustee can act alone. It suits families with no suitable relatives, or where siblings don't get on. Expect ongoing fees and less day-to-day flexibility.

Key point: The appointor and successor appointor clauses aren't compulsory clauses, so they're easy to leave as boilerplate. They decide who runs the trust after you. Have your solicitor tailor them, and line them up with your wills.

What's in the Model Trust Deed, and what can you tailor?

The DSS Model Trust Deed contains compulsory clauses. If a deed leaves one out, or another clause overrides it, the trust isn't an SDT. Your solicitor drafts the deed (or the will clauses) around them.

How does a special disability trust work alongside the NDIS?

The two systems do different jobs, and one doesn't reduce the other.

• The NDIS isn't means tested. Money in an SDT doesn't reduce an NDIS plan.
• The NDIS funds disability supports. Support workers, therapy and assistive technology in the plan come from the NDIS.
• The SDT fills the gaps. Buying or renting a home, rates and maintenance, medical and dental gaps, health insurance, therapy beyond the plan, and a capped amount each year for everyday living and quality of life.

A sensible rule for trustees: claim from the NDIS plan first, and use the trust for what the NDIS won't fund. Private family money is finite, and it's easy to spend it on supports the plan already covers.

The trust also protects the DSP. Without one, an inheritance left directly to someone on the DSP can push their assets over the cut-off. Inside an SDT, the home and up to $862,750 of other assets sit outside the assets test, and the trust's income sits outside the income test.

Special disability trust pros and cons

Should we use a special disability trust or a testamentary trust?

Often both. A testamentary trust created in your will can pay for anything and help anyone in the family, but its assets are usually counted against a beneficiary on the DSP. An SDT protects the pension but restricts spending. Families with larger estates often have their wills fill the SDT up to what it can usefully protect and send the rest to a flexible testamentary trust.

Living trust or set up in a will?

A living SDT starts now. It's the only way parents can use the gifting concession during their lifetime, and it lets the trust buy a home while parents can oversee the move. A will-based SDT only starts on death, so there are no yearly accounts until it's funded.

Because a person can have only one SDT, two parents' wills that each create a new trust can clash. A common answer is a living trust with a nominal amount now, with both wills (and grandparents' wills) leaving to that trust. Super can't be paid by the fund straight into an SDT, so super death benefits normally travel through the estate under a binding nomination to the legal personal representative. See our guide to SMSF death benefit nominations and the estate planning checklist.

Watch out: An adult child with a disability isn't automatically a tax dependant for super death benefits. They're tax-free only where the child is financially dependent on you or in an interdependency relationship. Many are, but it needs evidence. Ask us to look at it before you rely on it.

How do you set up a special disability trust? The order that matters

Doing these steps in the wrong order is the most expensive mistake we see. Moving a property into a trust that later fails assessment can mean stamp duty, CGT and gifting penalties that can't be unwound.

1. Check eligibility first. Before any deed is signed, work through the beneficiary tests: impairment, care or supported accommodation, and the work test (or the separate test for children under 16). Our eligibility guide sets these out.
2. Model both generations. What happens to the beneficiary's DSP, and to the parents' or grandparents' Age Pension, under each option? This decides living trust versus will, and how much to contribute.
3. Get the beneficiary assessed. Services Australia (or DVA) assesses whether the person has a severe disability. Existing DSP and Carer Payment or Carer Allowance records often help.
4. Choose trustees and appointors. Two individuals, a company with two directors, or a professional trustee, plus a chain of successors.
5. Have the deed (or will) drafted. A solicitor builds the deed on the compulsory clauses and tailors the succession and remainder clauses.
6. Sign, register and open accounts. Settle the trust with a nominal sum, apply for a tax file number, open a bank account in the trust's name, and have Services Australia confirm the trust.
7. Fund it. Only now transfer cash or property. Contributors of pension age ask Services Australia to apply the gifting concession. Check state duty exemptions before any land is transferred.
8. Set up the books. Separate care, accommodation and discretionary spending from day one, so the year-end accounts and the 31 March declaration are a formality.

What it costs

Expect three groups of cost: legal (advice, deed or will drafting, any property transfer), accounting (modelling before setup, registrations, and the yearly financial statements and tax return), and, if you choose one, a trustee company's ASIC fees. Reasonable trust administration costs can be paid by the trust. At BPAG the yearly accounts and return for an SDT can sit inside your family's fixed-price arrangement. See our pricing and our trust tax return service.

What does running the trust involve each year?

• By 30 June: keep spending inside the rules, and track discretionary spending against the yearly cap, which resets each 1 July.
• After 30 June: prepare financial statements (profit and loss, balance sheet, depreciation where relevant) and the trust tax return. The statements must be prepared by a member of CA ANZ, CPA Australia or the IPA (or by a trustee company where one is trustee) who isn't an immediate family member of the beneficiary or any trustee.
• By 31 March: lodge the statements, a copy of the tax return if one was required, and the trustees' statutory declaration with Services Australia or DVA.
• On request: the beneficiary, an immediate family member, a guardian or administrator, or the Department can ask for an audit, and the trustees must have one done.
• When things change: a new trustee, a new home or the sale of trust property should be reported promptly.

Services Australia runs a dedicated special disability trust team (132 717) for questions about the paperwork, and the Department of Social Services publishes the Model Trust Deed and the statutory declaration template trustees sign each year.

Mistakes we see with special disability trusts

1. Transferring property before the beneficiary is assessed. If the assessment fails, the transfer can't simply be reversed.
2. A parent or sibling paid for care or odd jobs. It's banned, even at a fair rate.
3. Buying the beneficiary's home from Mum and Dad. The trust can't buy or rent from immediate family. A gift is allowed.
4. Two wills creating two trusts for the same person.
5. One individual trustee left after a death, with nobody appointing a second.
6. Everyday spending not tracked against the cap, then over it by June.
7. Remainder beneficiaries chosen without thinking about the gifting concession. If the trust ends within five years of a concessional gift, how the assets are split can bring the gift back into a contributor's means test, even when the trust ends because the beneficiary has died.
8. Assuming the DSP or NDIS plan makes someone eligible. They're relevant, but the care and work tests are separate.

How BPAG helps families with special disability trusts

We do the accounting, tax and Centrelink modelling, and we work alongside your solicitor, who prepares the deed or will. Where super or contribution strategies are involved, a licensed financial adviser gives that advice and we work with them.

• Before setup: our Centrelink entitlements agent maps both generations' pensions under each option, and your accountant checks every assumption with you before anything is decided.
• Asset choices: our capital gains tax agent works out what transferring a property or share portfolio would cost with and without the SDT exemptions. Your accountant reviews it and explains it.
• Estate alignment: our estate planning check agent reads your wills, powers of attorney and super nominations side by side and flags gaps for your solicitor.
• Every year: the trust's financial statements, tax return and 31 March package, prepared by a qualified accountant outside your family.

AI agents draft. A qualified accountant reviews and signs off every piece of advice, and nothing is sent to you, Services Australia or the ATO without a person approving it. If you're also planning the rest of the estate, our succession and estate planning service brings the pieces together.

General information only, current as at 18 October 2026. It is not personal tax, legal or financial product advice and doesn't take your circumstances into account. Talk to us before you act. Where a recommendation needs a licensed financial adviser or a solicitor, we work alongside them.