How to protect vulnerable and disabled beneficiaries

On behalf of Attwaters Jameson Hill posted in Trusts & Tax on Wednesday, July 18th, 2018

Thinking about how you would like your estate to be distributed on your death and how best to provide for your loved ones can sometimes be hard. This can be especially true if you have disabled or vulnerable family members you wish to protect.

For instance, you may want to provide for a family member or dependant who has a physical disability, illness, learning difficulties or mental health issues, or protect the interests of someone with dependency problems, or who lacks the financial skills to manage money. You may feel that these beneficiaries might not be able to handle an inheritance, and fear that they could find themselves easily influenced by other people who may not have their best interests at heart. You should also bear in mind that receiving a lump sum could mean that their entitlement to means-tested benefits could be substantially reduced.

Some families choose to pass on responsibility for the care of disabled or vulnerable loved ones to other family members, leaving them to do the right thing. However, this could give rise to uncertainty and lead to family disputes. In addition, not making provision for vulnerable or disabled family members could lead to your Will being contested under the Inheritance (Provision for Family and Dependants) Act 1975.

How setting up a trust can help

Creating a trust can play a major part in protecting the interests of loved ones. Setting up a trust means that they will be financially provided for when you are no longer around, and importantly will be supported by someone you have chosen to act as trustee, who you know will be able to carry out your wishes.

A trust is a legal arrangement where assets are looked after by a trustee for the benefit of one or more people, the beneficiaries. A trust can be created during your lifetime, or under the terms of your Will. Discretionary or Disabled Person’s Trusts are the most commonly-used trusts to protect the interests of vulnerable and disabled beneficiaries. In this context, trusts offer several benefits including:

  • The beneficiary’s interests are protected as they don’t have direct access to the assets or funds held in the trust on their behalf
  • The funds held don’t impact on the beneficiary’s entitlement to certain means-tested benefits
  • Funds can be used to provide extra support and services not covered by benefits or social services funding, such as clothing, holidays and equipment
  • A trust can be the legal owner of a property, and so can buy a house or flat for the beneficiary. As the trust, not the beneficiary, owns the property it should be disregarded for benefits and local authority care funding
  • Where the beneficiary meets the definition of a ‘disabled person’ and the trust is a ‘qualifying trust’, an election can be made that means that the assets held in the trust receive more favourable treatment for income, capital gains and inheritance tax.

There are various types of trust that can be used depending on the beneficiary’s circumstances, with varying tax consequences and different levels of flexibility, and we can help you assess which type of arrangement best meets your needs.
If you would like advice or assistance in ensuring that you make the right provision for vulnerable or disabled beneficiaries, then do get in touch on 0330 221 8855 or contact us online.

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