KCL Law Estate Group | Estate planning for a child with a disability

If you have a child who receives a Disability Support Pension or will likely receive this pension at a later time, you should consider a Special Disability Trust as a way to financially support them. This article summarises the key benefits of using a Special Disability Trust.

What is a Special Disability Trust?

A Special Disability Trust is a Trust that holds assets for a person with a “severe disability” (‘beneficiary’).

It may be set up by a family member or guardian during their lifetime or in their Will.

are eligible for a Disability Support Pension (which can apply for a physical, intellectual or psychiatric condition that is likely to persist for more than 2 years), Service Pension Invalidity or Income Support Supplement; and
cannot work for more than 7 hours per week earning at least the relevant minimum wage; and
need ongoing support services such as a carer or group home.

they are a person with a severe disability or a severe medical condition; and
their carer has a rating of “intense” under the Disability Care Load Assessment (Child) Determination; and
a health professional has confirmed that they will need personal care for at least 6 months; and
the carer has certified that the beneficiary will require the same care, or an increased level of care, in the future.

Maximising Disability Support Pension entitlements:

The amount that the beneficiary receives from the Disability Support Pension is partly based on the beneficiary’s amount of assets and income. Therefore, if a parent provides funding directly to their child, for instance in the parent’s Will, it may reduce their child’s pension entitlements. Doing so reduces the benefit of the gift to the child and can cause unintended stress to a child who has become reliant on and accustomed to their regular Disability Support Pension payment.

The main advantage of a Special Disability Trust is that the assets it holds (within a limit) and all income it receives is excluded from the beneficiary’s asset and income assessment. The cap of assets ignored from the beneficiary’s assessment is currently $813,250 (from 1 July 2024, indexed annually to inflation) on top of the beneficiary’s main residence.

The assets and income within the Trust must be managed by at least two people other than the beneficiary or by one professional.
The assets and income in a Special Disability Trust can only be used for the reasonable care and accommodation needs of the beneficiary, with the exception of an annual allowance of $14,500.00 (from 1 July 2024, indexed annually) for discretionary spending.
There is only 1 possible beneficiary for a Special Disability Trust, as opposed to discretionary trusts which have a pool of beneficiaries.
There are restrictions on the types of dealings a Special Disability Trust can have with immediate family members and other related parties.
The Trustees managing the Special Disability Trust must disclose its financial statements to Services Australia, to ensure the Trust is compliant and there is no misuse of funds.
If the Special Disability Trust is established during a parent’s lifetime, the assets gifted to the trust will not form part of the parent’s estate, which means they will be protected from any Will dispute.

There is a capital gains tax exemption on a gift of a property to a Special Disability Trust. This can be a significant financial benefit if applicable. For example, if a parent has owned a property (other than their main residence) for many years that has grown substantially in value, the parent will ordinarily incur a substantial tax liability on the disposal of that property, even if gifted to a child during the parent’s lifetime. Similarly, if gifted to a child through the parent’s Will, the capital gain remains but is passed on to that child and the tax is triggered when the property is ultimately sold or transferred by that child. However, if the property is gifted to a Special Disability Trust, the previous gain made on the property value is wiped!
The “main residence” capital gains tax exemption applies to a property held a Special Disability Trust that was used as the beneficiary’s main residence, as though it was held by the beneficiary directly.
There is also a stamp duty exemption for the Special Disability Trust on receipt of a property that is going to be used as the beneficiary’s home. A full duty exemption applies to homes valued at up to $1,500,000. For a home with a greater value, duty will only be assessed on the excess value.