Special Disability Trusts – Part 3: Choosing the Trustee

Welcome to the third article in our series on Special Disability Trusts (SDTs), where we hope to demystify particular aspects of these trusts, and highlight the benefits, eligibility requirements and restrictions to look out for.

As discussed in our previous articles in this series, the two main benefits of establishing a SDT for a vulnerable person are:

  1. Protecting the person from poor decision making and exploitation from others; and
  2. Preserving the person’s receipt of the Disability Support Pension (DSP).

One of the most important considerations is who will be the trustee (or trustees) of the SDT and manage the trust funds for the benefit of the principal beneficiary.

Choosing the Appropriate Trustees

The available options for who will act as the trustee(s) are generally:

  • family or friends;
  • professional advisors;
  • trustee companies.

When making the decision about who to appoint, the factors that should be considered include:

  • For family and friends:
    • Are they up to the job? Are they reasonably capable of managing their own finances (let alone somebody else’s) and will they seek professional advice if required;
      • The likely timeframe of the role.  How old are the people that are being considered?  Are they likely to outlive the principal beneficiary and be able to manage the SDT in years to come;
      • Succession provisions for the role.  If it is unlikely that the initial trustees will be able to administer the SDT for the lifetime of the principal beneficiary, consideration should be given to nominating a “backup” to take their place; and
      • The impact on the personal relationship between the trustees and the principal beneficiary;
  • In appointing professional advisors and trustees the concern is often around cost and personal investment in the principal beneficiary. 
  • If a professional trustee is being considered, we recommend that you meet with more than one, to assist you in deciding the most appropriate appointment. In addition to discussing their fees, you should also enquire as to how (and how often) they will engage with the principal beneficiary and/or carers to assess how the funds in the SDT are to be used for the benefit of the principal beneficiary.

Legislative Requirements

In addition to choosing who might be well suited to acting as trustee, there are legal requirements that must be considered.

Section 1209Q of the Social Security Act 1991 sets out the trustee requirements that must be complied with if the trust is to be a SDT, which includes that each trustee (or director of a company acting as trustee) must:

  • be an Australian resident;
  • not have ever been convicted of:
    • a dishonesty offence anywhere in the world; or
    • an offence under the Social Security Act 1991, the Social Security (Administration) Act 1999 or the Veterans’ Entitlements Act 1986;
  • not have been disqualified from managing corporations under the Corporations Act 2001.

If the trustee is not a lawyer or trustee company then there must be at least two trustees (or two directors of a company acting as trustee).

The principal beneficiary cannot be a trustee.

The settlor of an SDT established by deed cannot be a trustee.

How we can help

Choosing a trustee to administer a SDT should be given careful consideration. The SDT will in most cases last for the lifetime of the principal beneficiary and will often hold significant funds to be managed.

Look out for the next article in our series, when we discuss the concessions that are available to family members gifting to a Special Disability Trust, which can increase their own eligibility to receive a Centrelink pension. 

For more information or guidance, please do not hesitate to contact us.