Trusts for vulnerable or disabled individuals

A trust is an arrangement whereby trustees hold and control assets, such as property or money, for the benefit of others. Trusts can be created in lifetime or by Will.

One area where trusts are commonly used is for the protection of assets for a vulnerable or disabled person. There are various types of trusts but for these purposes the most common groups are discretionary trusts or interest in possession trusts.

When running a discretionary trust the trustees have the full discretion as to how income and capital are distributed. In this way no beneficiary has any entitlement.

An “interest in possession trust” means that the vulnerable person has an absolute right to the income.

Where relevant conditions are met the trustees can apply to HMRC for the trust to be classed as a “qualifying trust”. Such trusts receive more favourable tax treatment.

Benefits of vulnerable or disabled trusts include the following:

  • The beneficiary does not have direct access to the trust fund. The fund is protected if the beneficiary is at risk from financial abuse.
  • Funds in a discretionary trust are normally disregarded for care fees assessment and certain means tested benefits.
  • Funds in the trust can be used to “top up” care plans without affecting care funding or benefits.
  • The trustees are responsible for maintaining any property held within the trust. A vulnerable or disabled person might have difficulty to do that for themselves.
  • This sort of arrangement is ideal if the beneficiary is unable to carry out banking procedures.
  • Some trusts qualify for special tax treatment.

If any beneficiary of yours is vulnerable or disabled please contact us to arrange for one of our Consultants to visit you and discuss the benefits of such trusts.

We have met some prospective clients over the years who have decided to leave their estate to their fully abled children on the basis that these children will “look after” their vulnerable or disabled sibling. This is usually an unwise strategy. If one or more of the fully abled siblings divorces or dies before the vulnerable or disabled child dies then the fund can disappear, leaving the vulnerable or disabled child without “their fund”.

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