Setting Up a Trust for Aged Care Expenses

Setting Up a Trust for Aged Care Expenses

ByRob Laurie

Table of Contents

Setting Up a Trust for Aged Care Expenses: What Works (and What Backfires)

Last updated: 20 January 2026
When residential aged care comes onto the horizon, many families ask the same question: “Should we put Mum or Dad’s assets into a trust?” It’s an understandable instinct. You’re trying to protect a lifetime of savings, manage cashflow, keep options open, and reduce the risk of one decision accidentally worsening Age Pension outcomes or aged care fees. The hard truth is that trusts are rarely an “aged care fees fix”—and used at the wrong time, they can create more problems than they solve (Centrelink attribution, deprivation/gifting issues, family disputes, tax headaches, and even simple cashflow stress). This pillar guide explains what trusts can do, what they can’t do, which trust types are commonly discussed in aged care, and a practical decision process so you don’t spend money on a structure that backfires.

Key takeaways

  • Most family trust strategies don’t “hide” assets from Centrelink/DVA. Private trust rules can attribute trust assets and income back to individuals who control or contributed to the trust.
  • Moving assets into a trust can trigger deprivation (gifting) concerns if the person doesn’t receive adequate consideration—often defeating the purpose.
  • Aged care fees are assessed through a separate means assessment; trust structures can complicate both the assessment and your ability to actually pay fees on time.
  • Trusts are usually governance and protection tools (control, vulnerability protection, estate planning), not a quick funding hack.
  • Special Disability Trusts are a legitimate niche option for eligible families, but they come with strict rules and compliance obligations.
  • Tax and administration matter: annual returns, distribution resolutions, trustee duties, and family decision-making can become ongoing friction.
  • Good aged care planning still comes first: accommodation choices (RAD/DAP), home decisions, and means testing fundamentals often deliver clearer outcomes than “trust-first” thinking.

What is a trust (and what it actually does)?

A trust is a legal relationship where a trustee holds and manages assets for the benefit of beneficiaries, under the rules in a trust deed (or a will, in the case of a testamentary trust). Trusts are typically used for:
  • Control and protection (who benefits, when, and under what conditions)
  • Managing money for vulnerable beneficiaries (disability, addiction, poor money skills, family law risk)
  • Estate planning (particularly testamentary trusts and succession control)
  • Family governance (documenting “who decides what” when multiple adult children are involved)
What a trust is not: a guaranteed way to remove assets from means testing for the Age Pension or aged care. That’s where families often get caught. If your situation involves complex ownership (companies, multiple titles, or layered structures), read this alongside the trust conversation: setting up a trust for aged care expenses. (You’re here now—bookmark it, because you’ll likely refer back to the checklist later.)

Why families consider trusts for aged care

In our experience, “trust talk” usually starts for one (or more) of these reasons:
  • Preserving an inheritance: “We don’t want the home and savings eaten up by care.”
  • Protecting a vulnerable family member: disability, addiction, poor money management, family breakdown risk.
  • Practical management: one child is acting under Power of Attorney and needs a clear structure and audit trail.
  • Family fairness: a child is providing housing/support and wants the arrangement documented.
  • Existing structures: assets are already in a family trust or company and now aged care is in the mix.
If someone is acting under Power of Attorney, it’s essential to understand what they can and can’t do (and how decisions will be scrutinised): Power of attorney and aged care: what you need to know.

Reality check: why trusts rarely reduce fees the way people expect

Families often assume that once an asset is “inside a trust”, it’s no longer the older person’s asset—so it won’t be assessed. Unfortunately, Centrelink and DVA can still assess trust assets and income under attribution rules in certain circumstances, particularly where there is control or contribution. Just as importantly, even if the legal owner changes on paper, the practical question remains: can the resident actually access enough cashflow to pay daily fees, accommodation costs, and ongoing expenses? A trust can preserve “paper wealth” while leaving the person cash-poor at exactly the wrong time. If your motivation is primarily “means testing outcomes”, start with fundamentals: how aged care means testing works. A trust should be considered after you understand the assessment rules and how decisions flow into fees.

Important compliance note

This article does not recommend hiding assets or misleading Services Australia, DVA, or My Aged Care. Aged care and Centrelink rules can change and are highly fact-dependent. Always verify outcomes with government sources and/or personal advice.

Trust types commonly discussed in aged care planning

1) Discretionary (family) trust

Often suggested for “asset protection” or where the family already uses a discretionary trust for business/investment purposes. In an aged care context, these can be heavily scrutinised under social security attribution rules.

2) Unit trust

Similar concept—assets are held in a trust—but ownership is represented by units. Unit trusts can still be assessed depending on control, contributions, and how the structure is operated.

3) Testamentary trust

Created under a will and commences after death. Usually more relevant for protecting beneficiaries and managing intergenerational outcomes than for reducing the original person’s aged care fees.

4) Special Disability Trust (SDT)

A legislated trust structure designed for the accommodation and care needs of a person with severe disability. SDTs can provide specific social security concessions for eligible families, but strict rules apply.

Discretionary (family) trusts: when they help, when they hurt

A discretionary trust can be a useful family governance tool—but it’s rarely a clean aged care “funding tool”. The key questions are not just legal ownership; they’re about control, benefit, and history.

The questions that matter most

  • Who controls the trust? (trustee, appointor, directors if there’s a corporate trustee)
  • Who contributed assets? (and when—particularly if aged care is imminent)
  • Are there loans to/from the trust? (and are they documented and commercial?)
  • Who benefits from distributions? (and are they consistent with the deed and reality?)
  • Is the trust used as a family bank account? (blurring boundaries increases risk and disputes)

Why “control” is the centre of gravity

In means testing, it’s common for the focus to shift from legal ownership to who effectively controls and benefits. If the older person (or their partner) controls decisions—directly or indirectly—the structure may deliver no means testing benefit and can sometimes create a worse result due to complexity, attribution, or timing. If your trust discussion is being driven by a desire to reduce assessable assets, read this first to avoid deprivation problems: Gifting & deprivation rules and how they affect aged care fees and the Age Pension. For many families, the better first step is to model accommodation funding options (and understand the interest-rate mechanics behind “paying by instalments”): Understanding RAD and DAP in aged care.

Unit trusts and hybrid structures: what to watch

Unit trusts are often used for property or investment structures where multiple parties hold defined interests. In aged care planning, the issues are similar to discretionary trusts—plus some extra wrinkles.

Common pressure points

  • Valuation and liquidity: units may be hard to value and harder to sell quickly when a RAD or fees are due.
  • Related party dealings: discounted transfers, informal loans, or “we’ll sort it out later” arrangements can attract scrutiny.
  • Cashflow mismatch: the resident may have a significant “asset” on paper but little accessible income.
  • Family dispute risk: multiple unit-holders can disagree about distributions, refinancing, or selling assets.
If your family has layered ownership or multiple titles, you may also need to consider the broader property/legal context: Complex home ownership arrangements.

Testamentary trusts (after death): where they fit

A testamentary trust is created by a will and begins after someone dies. That timing matters. Testamentary trusts are usually not the answer if the problem is: “How do we pay for care next month?”

Where testamentary trusts can be powerful

  • Protecting vulnerable beneficiaries (including young adult children or beneficiaries with capacity issues)
  • Second marriages and blended families (balancing a surviving spouse’s security with children’s inheritance intentions)
  • Reducing conflict risk by clarifying who controls assets and how benefits are provided
  • Better estate control than “everything outright to the spouse” in certain family situations
If one partner enters care and the other remains at home, the planning lens changes significantly: Moving into aged care with a partner still at home. And if your trust conversation is really about protecting inheritance outcomes, it’s also worth understanding how accommodation payments can interact with estates: The impact of RAD on estate planning and inheritance.

Special Disability Trusts: a legitimate niche option

Special Disability Trusts (SDTs) are designed to provide for the accommodation and care needs of a person with severe disability. They’re not a general “asset protection trust for aged care”—but for eligible families, SDTs can be highly relevant.

Why SDTs are different

  • They are recognised in legislation and supported by specific social security rules.
  • They can provide concessions for eligible beneficiaries and families (subject to strict criteria).
  • They have compliance obligations and spending restrictions that must be respected.

Important note about thresholds

Some SDT concessions may be subject to caps/limits (for example, gifting concession limits). These figures can change. The commonly referenced SDT gifting concession limit of $500,000 is cited in government guidance, but you should treat it as “current at time of writing” and confirm the latest position with the DSS Social Security Guide and Services Australia. Government references (confirm current rules): Services Australia and Department of Social Services (DSS).

How trusts can affect aged care fees and contributions

Residential aged care fees are based on a means assessment process (separate to the pension means test). Your assessable assets and income influence contributions, but the bigger day-to-day reality is often: what cash is actually available to pay fees and accommodate timing pressures?

Trusts can complicate aged care planning in three main ways

  • Assessment complexity: untangling trust interests, loans, distributions, and control can slow clarity and create uncertainty.
  • Cashflow timing: the resident may need funds quickly (entry costs, accommodation payments, ongoing fees), while trust assets may be illiquid.
  • Family decision-making: multiple “controllers” or beneficiaries can create disagreement when quick decisions are needed.
Before you do anything structural, it’s usually smarter to first understand accommodation funding options: RAD vs DAP: which option is more cost-effective? (This often delivers more practical decision-making value than “trust-first” thinking.) Government overview of the process (confirm current requirements): My Aged Care.

Worked example: why a “trust transfer” can backfire

Scenario (example only):
  • Mum is moving into residential aged care soon.
  • She has $400,000 in investments and $60,000 in cash.
  • The family proposes transferring the $400,000 into a new discretionary trust “so it won’t be assessed”.

Step 1: What happens if Mum transfers the investments to the trust?

If Mum transfers assets to the trust and does not receive fair value in return, that can look like gifting/deprivation. Even when families see it as “just moving money around”, the assessment can treat it as a disposal of assets. To understand why this matters, read: gifting and deprivation rules. (This is one of the most common “gotchas” we see.)

Step 2: What if Mum (or her partner) still controls the trust?

If Mum is the appointor, trustee, or effectively controls decisions (or her partner does), Centrelink/DVA attribution rules may still treat trust assets and income as assessable to her. In other words: the trust may not reduce assessable assets at all.

Step 3: Cashflow reality

Even if the trust technically “owns” the investments, Mum’s aged care fees still need to be paid from somewhere. If distributions aren’t made, or if the trust is structured/operated in a way that restricts cash access, the family can end up with:
  • higher stress during entry to care,
  • delays in funding accommodation payments, and
  • ongoing friction between family members controlling the trust and those managing Mum’s day-to-day needs.

Takeaway

A trust might make sense for governance or protection reasons, but using it primarily as a “fees reduction” tool is where families often get hurt. Generally, a clearer first step is to model accommodation and cashflow options: how RAD and DAP work.

Tax implications and ongoing administration

Trusts are not “set and forget”. They come with ongoing obligations that matter even more once someone is in care and capacity declines.

Ongoing responsibilities commonly include

  • annual tax returns and accounting
  • distribution resolutions/minutes (and getting them correct and on time)
  • banking, record keeping, and an asset register
  • trustee duties and dispute management if the family relationship becomes strained
Government reference (general tax administration context): Australian Taxation Office (ATO). (Confirm the current tax treatment for your specific structure with your tax adviser.)

Common mistakes we see

  • Setting up a trust during a crisis entry to care, expecting immediate “assessment benefits”.
  • Transferring assets without adequate consideration, creating deprivation/gifting problems.
  • Assuming a trust hides assets from Centrelink/DVA, then being shocked by attribution rules.
  • Ignoring cashflow: preserving wealth on paper while the resident struggles to pay day-to-day fees.
  • DIY or generic trust deeds that don’t handle capacity planning or family governance properly.
  • Not coordinating trust control with estate planning, especially in blended families or second marriages.
If your family is also making a home decision (sell, rent, keep, or draw equity), that decision often matters more than any trust strategy. Start with: the family home when moving into aged care.

Step-by-step decision checklist

Step 1: Name the real problem (don’t jump to a structure)

  • Is this about paying for care (cashflow and accommodation)?
  • Is it about protecting a vulnerable beneficiary?
  • Is it about family governance and controlling decision-making?
  • Is it about estate planning and second-marriage fairness?
  • Is it about existing trust assets and understanding assessments?

Step 2: Understand means testing and fees before you restructure

Step 3: Stress-test the “trust idea” against three realities

  1. Assessment reality: could attribution rules still assess assets/income?
  2. Timing reality: does moving assets create deprivation/gifting concerns?
  3. Cashflow reality: will the resident have funds available to pay fees and keep a buffer?

Step 4: If the purpose is funding, model RAD/DAP and home options first

Step 5: If the purpose is protection/governance, get the control settings right

  • Trustee / appointor roles (and succession)
  • Capacity planning and POA alignment
  • Clear documentation of family expectations
  • Dispute minimisation: “what happens if…” scenarios

Step 6: If disability is involved, consider SDT eligibility (carefully)

SDTs can be appropriate for eligible families. Confirm the current rules with Services Australia and the DSS Social Security Guide before committing to the structure.

Soft CTA: If you’re weighing a trust because aged care is approaching, we can help you model the practical outcomes (fees, cashflow, pension impacts, and home decisions) before you lock in a structure that’s expensive to unwind. Online consults are available Australia-wide.

FAQs

Will setting up a family trust reduce aged care fees?

Usually not by itself. Trust assets and income may still be assessed under social security attribution rules, and aged care fees depend on your overall financial position and (critically) your cashflow. Start with aged care means testing and then model the choices that commonly have a bigger impact, such as RAD/DAP decisions.

Can transferring assets into a trust cause gifting (deprivation) issues?

It can. If assets are transferred without receiving fair value, the transfer may be treated as a disposal of assets (deprivation) for assessment purposes. Learn more here: Gifting & deprivation rules.

Are trusts taxed more heavily than individuals?

Trust tax outcomes depend on how the trust is set up and operated, including whether income is distributed to beneficiaries. Undistributed income can be taxed unfavourably in some circumstances. Confirm current rules with the ATO and your tax adviser.

What trust is most relevant for disability planning?

A Special Disability Trust can be relevant for eligible families and may provide specific concessions, but strict rules apply. Confirm current requirements with Services Australia and the DSS.

Should we set up a trust when we’re urgently entering care?

Be cautious. Crisis entry is when families are most vulnerable to expensive complexity. Often the best first step is to understand fees, RAD/DAP options, pension impacts and home decisions—then decide whether a trust has a genuine governance or protection purpose.

What if assets are already in a family trust?

Then the question shifts from “should we set one up?” to “how does the existing structure affect assessments and cashflow?” You’ll usually need to map control, contributions, trust deeds, loans, distributions, and liquidity—then model aged care entry decisions around that reality.

Do trusts protect the family home from aged care costs?

Home decisions are often more impactful than trust decisions. Start with: the family home when moving into aged care and consider whether renting, selling, or drawing equity is more practical: using home equity for aged care.

Can a trust help avoid family conflict?

It can—if it’s designed as a governance tool with clear control rules, succession planning, and transparent administration. It can also inflame conflict if expectations and control settings aren’t aligned.

What to do next

  1. Get clarity on fees and means testing first (before restructuring): Aged care means testing.
  2. Model accommodation options and cashflow: RAD/DAP basics and RAD vs DAP.
  3. Decide what the trust is actually for (funding vs protection vs governance vs estate control).
  4. Check deprivation risk before any transfer: Gifting & deprivation rules.
  5. Align legal authority and capacity planning: Power of attorney and aged care.
  6. Confirm current government requirements on: My Aged Care, Services Australia and DSS.

Book an online consult: If you want a clear recommendation grounded in the realities of aged care fees, Centrelink/DVA rules, and family cashflow, an online consult can help you move from “options overwhelm” to a practical plan. We can review documents remotely, model scenarios, and explain trade-offs in plain English – without locking you into a structure that’s difficult to unwind later.

General advice only disclaimer

This information is general in nature and doesn’t consider your objectives, financial situation or needs. Aged care and Centrelink rules can change—confirm details with Services Australia/My Aged Care or seek personal advice. Trust structures are highly fact-dependent; get legal and tax advice before acting.

Related articles

Helpful links (so you can go deeper)

A trust decision rarely sits in isolation. In most families, the “trust question” is connected to aged care means testing, gifting (deprivation) rules, Power of Attorney decision-making, accommodation choices like RADs and DAPs, and what to do with the family home when someone moves into care.

Below are the key pages we recommend reading alongside this trust guide, depending on what you’re trying to achieve.

Start here (most families)

Accommodation payments and cashflow

The family home decisions (often bigger than the trust decision)

Estate and family outcomes

Government sources (to confirm current rules)

Rules and thresholds change. For up-to-date guidance and forms, check:

If your situation is more complex (optional deep dives)

Setting Up a Trust for Aged Care Expenses

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