What is the difference between a Protective Trust and a Special Disability Trust?

A Special Disability Trust (SDT) needs to meet certain criteria set by the Commonwealth government before it can be established. Most importantly, the beneficiary must be assessed by the Department of Social Services as having a severe disability. The assets held in this type of Trust can only be applied for certain prescribed purposes, including to cover reasonable care and accommodation costs of the beneficiary. A small amount of discretionary spending is allowed each year for things like the beneficiary’s wellbeing, health, recreation, independence and social inclusion.

In contrast, there is no eligibility criteria for setting up a Protective Trust in your Will for vulnerable beneficiaries, including someone with a gambling addiction, drug or alcohol addiction, spendthrift behaviour etc. The assets and income of the Protective Trust can also be applied for broader purposes than the SDT, and the Trustees of a Protective Trust have greater flexibility in this regard.

A key benefit of the SDT is that the assets (up to a certain point) and income earned on those assets are exempt for the purposes of assessing the beneficiary’s government support pension entitlements. The assets in a Protective Trust, however, do not have this same treatment and are generally taken into account when assessing the beneficiary’s government support pension entitlements.