When planning a will that includes a beneficiary with disability, special considerations apply to protect their government benefits while ensuring they receive meaningful support from your estate. This guide explains Special Disability Trusts (SDTs), testamentary discretionary trusts, and strategies for effective disability will planning in Australia.
This article is part of WillBuddy's Knowledge Centre, created to help Australians understand disability will planning and protecting Centrelink benefits.
Quick Answer
When leaving assets to a person with disability in Australia, use a Special Disability Trust (SDT) or testamentary discretionary trust so the bequest doesn't strip their means-tested Centrelink benefits. Careful planning lets your loved one benefit from your estate while keeping essential supports.
- SDT exemption: A Special Disability Trust can hold up to $782,650 (2024–25) in assets exempt from the beneficiary's Centrelink assets test.
- Strict eligibility: The beneficiary must have a 'severe disability' and receive a qualifying payment such as the DSP or Carer Payment.
- Care-only spending: SDT funds must be used solely for the beneficiary's care and accommodation; a discretionary trust offers more flexibility when the SDT criteria aren't met.
- Get specialist advice: Disability trust planning is complex, seek legal and financial advice to avoid losing benefits.
Why Disability Will Planning Matters
Key point
If a beneficiary with disability inherits more than the assets test threshold, they may lose their pension and associated benefits, potentially worth $30,000+ per year plus Health Care Card concessions.
The Centrelink Benefits Problem
Many Australians with disability rely on means-tested government payments:
| Payment | 2024–25 Maximum (Single) | Assets Test Threshold |
|---|---|---|
| Disability Support Pension (DSP) | $1,116.30/fortnight | $314,000 (non-homeowner) |
| Carer Payment | $1,116.30/fortnight | $314,000 (non-homeowner) |
| NDIS funding | Varies by plan | Not means-tested (but DSP may be) |
| Commonwealth Rent Assistance | Up to $211.20/fortnight | Linked to income support payment |
The problem: If your beneficiary with disability inherits more than the assets test threshold, they may lose their pension and associated benefits, potentially worth $30,000+ per year plus Health Care Card concessions.
Benefits at Risk
A person losing their DSP may also lose:
- Pensioner Concession Card (PCC) – Healthcare, medications, utilities discounts
- Commonwealth Seniors Health Card benefits
- State concessions – Transport, vehicle registration, utilities
- Rent Assistance
- Pharmaceutical Benefits Scheme (PBS) concessions
- Priority access to public housing, community services
Special Disability Trusts (SDTs)
Key point
A Special Disability Trust can hold up to $782,650 (2024–25) in assets exempt from the beneficiary's Centrelink assets test, but only if the beneficiary has a 'severe disability', receives a qualifying payment, and the funds are used solely for their care and accommodation.
What is a Special Disability Trust?
A Special Disability Trust is a trust structure recognised under the Social Security Act 1991 (Cth) that allows assets to be held for a person with severe disability with favourable Centrelink treatment.
SDT Key Features
| Feature | Details |
|---|---|
| Asset test exemption | Up to $782,650 (indexed annually) exempt from beneficiary's assets test |
| Deprivation exemption | Contributions by immediate family not treated as gifting for Centrelink purposes |
| Principal beneficiary | Only one person with qualifying disability |
| Sole benefit rule | Assets must be used solely for beneficiary's care and accommodation |
| Trustee requirements | Can be individuals or professional trustees |
| Residual gift | Upon beneficiary's death, remaining assets distributed per trust deed |
SDT Eligibility Requirements
Beneficiary Requirements
| Requirement | Details |
|---|---|
| Qualifying payment | Receives DSP, Carer Payment (caring for SDT beneficiary), or DVA equivalent |
| Severe disability | Unable to work 30+ hours/week at relevant award wages for next 2 years due to disability |
| Medical evidence | Two reports from treating doctors confirming disability and work incapacity |
| Age | No minimum age (but must have qualifying payment) |
Who Can Contribute?
Only immediate family members can contribute to an SDT with deprivation exemption:
- Parents and step-parents
- Grandparents
- Brothers and sisters (including half/step-siblings)
- Legal guardians (past or present)
Note: Non-immediate family (aunts, uncles, friends) can contribute, but normal gifting rules apply to their contributions.
SDT Contribution Limits
| Contributor Status | Contribution Impact |
|---|---|
| Immediate family (under assets limit) | Exempt from deprivation rules |
| Immediate family (over $782,650 total SDT assets) | Normal deprivation rules apply to excess |
| Non-immediate family | Normal $10,000/year gifting rules apply |
| Estate contributions (testamentary gift) | Exempt from deprivation if to complying SDT |
SDT Permitted Expenses
SDTs can only pay for expenses related to the beneficiary's care and accommodation:
Accommodation Expenses
| Expense | Permitted? |
|---|---|
| Rent payments | ✅ Yes |
| Mortgage payments (beneficiary's home) | ✅ Yes |
| Rates and utilities | ✅ Yes |
| Home maintenance and repairs | ✅ Yes |
| Home modifications for accessibility | ✅ Yes |
| Supported accommodation fees | ✅ Yes |
| Respite accommodation | ✅ Yes |
Care and Support Expenses
| Expense | Permitted? |
|---|---|
| In-home support workers | ✅ Yes |
| Therapy services (physio, OT, psychology) | ✅ Yes |
| Medical expenses not covered by Medicare | ✅ Yes |
| Prescription medications (gap payments) | ✅ Yes |
| Respite care services | ✅ Yes |
| Day programs and supported employment | ✅ Yes |
| Transport costs (including vehicle) | ✅ Yes |
| Education and training courses | ✅ Yes |
| Recreation and social activities | ✅ Yes |
| Holidays and travel | ✅ Yes (if primarily for beneficiary) |
Not Permitted Expenses
| Expense | Why Not Permitted |
|---|---|
| Gifts to other family members | Not for beneficiary's care |
| Investments outside trust | Must remain in SDT |
| Loans to family | Not for beneficiary's care |
| Expenses primarily benefiting others | Sole benefit rule |
| Trustee entertainment | Not beneficiary care |
SDT Reporting Requirements
| Requirement | Frequency | To Whom |
|---|---|---|
| Financial statements | Annually | Centrelink |
| Audited accounts (if assets > $500,000) | Annually | Centrelink |
| Asset valuations | Annually | Centrelink |
| Expense records | Keep 5 years | For audit purposes |
Testamentary Discretionary Trusts
When SDT is Not Suitable
Consider a testamentary discretionary trust instead of SDT when:
- Beneficiary doesn't meet SDT severe disability criteria
- Beneficiary doesn't receive qualifying Centrelink payment
- You want flexibility in distributions (not mandatory for beneficiary)
- Multiple beneficiaries with varying needs
- Assets exceed SDT limits significantly
- Beneficiary may recover or improve work capacity
How Testamentary Discretionary Trusts Work
| Feature | Testamentary Discretionary Trust | SDT |
|---|---|---|
| Centrelink treatment | Trust assets generally assessed | Up to $782,650 exempt |
| Beneficiary access | Discretionary (trustee decides) | Must be for beneficiary's care |
| Beneficiary class | Multiple possible beneficiaries | Single principal beneficiary |
| Expense flexibility | Broad discretion | Restricted to care/accommodation |
| Establishment | Created by will | Created by trust deed (lifetime or will) |
Discretionary Trust Centrelink Planning
Even without SDT status, discretionary trusts can help:
- Discretionary access: If beneficiary has no control over distributions, trust capital may not be assessed as their asset
- Controlled distributions: Trustee can limit distributions to preserve pension
- In-kind support: Pay bills directly rather than providing cash
- Exempt assets: Use funds for home modifications, vehicle, prepaid funeral
Important: Centrelink assesses trust structures carefully. Always seek specialist advice.
Guardianship and Decision-Making
Appointing Guardians in Your Will
If your child with disability is under 18 or lacks capacity for decisions, consider:
| Appointment | Purpose |
|---|---|
| Testamentary guardian | Makes personal and lifestyle decisions for minor children |
| Trustee | Manages financial assets and trust distributions |
| Suggested guardian | Non-binding nomination for adult who lacks capacity |
Note: For adults with disability, guardianship is determined by state tribunals (NCAT, VCAT, QCAT), not your will. However, you can express wishes.
State Guardianship Legislation
| State | Legislation | Tribunal |
|---|---|---|
| NSW | Guardianship Act 1987 | NCAT (Guardianship Division) |
| VIC | Guardianship and Administration Act 2019 | VCAT |
| QLD | Guardianship and Administration Act 2000 | QCAT |
| WA | Guardianship and Administration Act 1990 | SAT |
| SA | Guardianship and Administration Act 1993 | SACAT |
Factors Tribunals Consider
- The person's wishes (paramount consideration)
- Family and carer views
- Least restrictive option principle
- Supported decision-making before substituted decision-making
- Need for the appointment
Letter of Wishes
Include a separate letter of wishes covering:
- Day-to-day preferences (routines, activities, food)
- Medical treatment preferences
- Accommodation preferences
- Important relationships and contacts
- Religious or cultural practices
- Recreation and hobbies
- Communication needs
Planning Strategies
Strategy 1: Testamentary SDT
Create an SDT in your will that activates upon your death:
- Will directs specific gift or share of residue to SDT
- Trust deed embedded in or annexed to will
- Immediate family contribution rules apply
- No deprivation issues for testamentary gifts
Best for: Parents/grandparents leaving substantial assets to child with severe disability who qualifies for SDT.
Strategy 2: Testamentary Discretionary Trust
Create a discretionary trust in your will with disability beneficiary as potential beneficiary:
- Trustee has discretion over distributions
- Can preserve pension if structured correctly
- Flexibility for changing circumstances
- Can benefit multiple family members
Best for: Beneficiaries who don't qualify for SDT, or when flexibility is needed.
Strategy 3: Direct Gift to Exempt Assets
Leave specific gifts that are exempt from assets test:
| Exempt Asset | Value Limit |
|---|---|
| Principal home | Unlimited (if beneficiary lives there) |
| One motor vehicle | Unlimited |
| Prepaid funeral | Up to $15,000 |
| Aids and equipment | Unlimited |
| Home modifications | Unlimited |
Best for: Modest estates where specific assets benefit the beneficiary.
Strategy 4: Life Interest
Give beneficiary with disability a life interest in property:
- Right to live in property for life
- Remainder to other beneficiaries after death
- May be exempt from assets test if primary home
- Provides secure accommodation without large bequest
Best for: Providing accommodation security without transferring full ownership.
Strategy 5: Professional Trustee
Appoint a professional trustee (Public Trustee or private trustee company):
- Removes burden from family members
- Professional investment and compliance
- Continuity if family trustees unavailable
- May charge 1–5% of trust assets annually
Best for: Large trusts, complex needs, or when suitable family trustee unavailable.
Family Provision Claims
Risk of Unequal Distribution
If you leave less to a child without disability to accommodate the needs of a child with disability, the disadvantaged child may challenge your will.
Reducing Claim Risk
| Strategy | How It Helps |
|---|---|
| Document reasons | Write a statement explaining your distribution rationale |
| Ensure adequate provision | Don't entirely disinherit any eligible person |
| Consider inter vivos gifts | Give during lifetime (but beware deprivation) |
| Use binding nominations | Super and life insurance bypass will |
| Professional drafting | Ensure will is valid and defensible |
| Letter of wishes | Explain your reasoning and family dynamics |
State Family Provision Legislation
| State | Legislation | Claim Period |
|---|---|---|
| NSW | Succession Act 2006 (Ch 3) | 12 months from death |
| VIC | Administration and Probate Act 1958 (Part IV) | 6 months from grant |
| QLD | Succession Act 1981 (Part 4) | 9 months from death |
NDIS Considerations
NDIS and Inheritance
The NDIS itself is not means-tested, participants don't lose NDIS funding due to inheritance. However:
- DSP (which many NDIS participants receive) IS means-tested
- Losing DSP may affect other linked benefits
- SDT or trust planning still valuable for DSP recipients
NDIS Coordination with SDT
| SDT Expense | NDIS Funding |
|---|---|
| Disability support workers | May overlap, coordinate to avoid duplication |
| Therapies (OT, physio, psychology) | NDIS may fund; SDT fills gaps |
| Assistive technology | NDIS priority; SDT supplements |
| Vehicle modifications | Both may contribute |
| Home modifications | NDIS has SDA; SDT can supplement |
| Recreation and social | NDIS capacity building; SDT can pay extras |
Key principle: SDT funds can supplement NDIS but shouldn't replace reasonable and necessary supports.
Tax Considerations
SDT Taxation
| Tax Aspect | SDT Treatment |
|---|---|
| Income tax | Trust income taxed at beneficiary's marginal rate |
| Capital gains | 50% discount available if asset held 12+ months |
| Trust distributions | No present entitlement issues (unlike discretionary trusts) |
| TFN withholding | Standard trust rules apply |
Testamentary Trust Taxation
| Tax Aspect | Testamentary Discretionary Trust |
|---|---|
| Adult beneficiary income | Taxed at marginal rates |
| Minor beneficiary income | Adult tax rates apply (up to $416 tax-free) |
| Undistributed income | Taxed at top marginal rate (47%) |
| Franking credits | Flow through to beneficiaries |
Choosing the Right Structure
Decision Flowchart
- Does beneficiary have severe disability and receive DSP?
- Yes → SDT may be suitable (proceed to step 2)
- No → Consider testamentary discretionary trust
- Is beneficiary's work capacity permanently limited?
- Yes → SDT eligibility likely met
- No/Unsure → Seek medical assessment
- Are you immediate family?
- Yes → Contribution exemption applies
- No → Normal gifting rules apply
- Will bequest exceed $782,650?
- Yes → Consider combination of SDT + discretionary trust
- No → SDT alone may be sufficient
- Do you want flexible distributions?
- Yes → Discretionary trust preferred
- No → SDT provides structured support
Legislation and Official Resources
Will-making in Australia is governed by each state and territory's own succession legislation. The core statutes include:
- New South Wales: Succession Act 2006 (NSW)
- Victoria: Wills Act 1997 (Vic)
- Queensland: Succession Act 1981 (Qld)
- South Australia: Succession Act 2023 (SA)
- Western Australia: Wills Act 1970 (WA)
- Tasmania: Wills Act 2008 (Tas)
- Australian Capital Territory: Wills Act 1968 (ACT)
- Northern Territory: Wills Act 2000 (NT)
Because requirements differ between states and are amended over time, always confirm the current rules for your state, or seek advice from a qualified legal professional.
Related Guides
- Blended Family Will Planning – Complex family structures
- Minor Children in Your Will – Trusts for children
- How to Update Your Will – Making changes
- Will Executor Role – Executor responsibilities
Further Reading
- Services Australia – Special Disability Trusts
- NDIS
- DSS – Disability Support Pension
- State Trustees Victoria – Special Disability Trusts
- NSW Trustee & Guardian
Getting Professional Help
Disability will planning is complex. Consider consulting:
- Estate planning solicitor with disability trust experience
- Financial planner specialising in Centrelink and NDIS
- Disability advocacy organisation for beneficiary's perspective
- Accountant for tax implications
WillBuddy helps you create a will foundation, but for Special Disability Trusts and complex disability planning, we recommend seeking specialist legal advice to ensure your loved one is properly protected.
Reviewed and current as at 12 June 2026.
This article is general information only and is not legal advice. Laws change over time and vary between Australian states and territories, so always confirm the current position and consider advice from a qualified legal professional for your specific circumstances.