Wills & Trusts for Vulnerable People

What you need to know about leaving money to a person with a disability and how very simple arrangements can make a huge financial difference.

Introduction

Any parent or relative of a child or adult with a disability may have a nagging feeling in the back of their mind that they ought to think about what will happen after they die and how their child or family member will be looked after financially.

But life is busy and there is a lot to do looking after or supporting that person.  It is not easy to find the time to get around to sorting out your arrangements for the future.  Many people are surprised to find that it is in fact not that difficult to arrange your affairs to make sure that the money you want to benefit your child or relative can do so in a very effective way.

What if I do nothing?

Leaving things as they are can do more harm than good. We are often contacted by people who have inherited money from well meaning family members who do not realise that a direct gift can cause a loss of many welfare benefits and care provision.

Can't I just leave my money to someone else in the family?

People often think it is best to leave money to a sibling or other relative in the hope that they would look after the disabled person's interests in the future.  Sometimes people can have a less generous interpretation of what they are supposed to do with the money, especially if they come under financial pressure themselves.  There can be a lot of difficulties if the person who is "looking after" the money becomes bankrupt, gets divorced or dies. 

Can't my family just change my will once I have died?

Although it is possible to do a Deed of Variation to redirect assets from a deceased person's estate for Inheritance Tax purposes, it is likely that any attempt to do this would be seen as a deprivation by the Benefits Agency or Local Authority.  In such circumstances they can refuse to reinstate the entitlement to means tested benefits or care provision.

It is also difficult to put in place a Deed of Variation if the disabled person does not have the mental capacity to make this decision themselves or if they decide they do not want to do it anyway.  They might prefer to have all the money themselves, even if other people are concerned that that puts them in a vulnerable position.  If a person lacks the capacity to make their own decisions then the Court of Protection can become involved, but the process is often time consuming, costly and is no automatic guarantee that the Court will authorise that a Deed of Variation be put in place.

When are means tested benefits affected?

A disabled or vulnerable person may receive means tested benefits and care now or may become entitled in the future, particularly if their family circumstances change.  If they receive money which takes their assets over £6,000 then their benefit entitlement will start to be affected and over £16,000 they will lose those benefits entirely.  Slightly higher limits apply for people in care and for care funding, but the principle is still the same.

So what is the right thing to do?

Instead of leaving funds to a disabled or vulnerable person outright, it would be appropriate to think about using a Discretionary Trust.  You can choose people who you have confidence in to be the Trustees in charge of that money for the future.  It can be useful to appoint a Professional Trustee, often alongside family members, to provide professional advice and support in making decisions about how the money is looked after.  A well run Discretionary Trust can save means tested benefits but can also give protection against anyone who may try to take advantage of the vulnerable person.  Sadly financial exploitation is all too common and financial protection has to be an important consideration.

Is this something I need to do in my will or should I set up a Discretionary Trust now?

You can set up a Discretionary Trust under your will or during your lifetime. 

A Discretionary Trust set up in your will does not take effect until your death so there are no running costs until then and you can change it at any time during your lifetime.

A lifetime Discretionary Trust can be useful if other family members want to make gifts to the disabled or vulnerable person or if you want to move funds out of your estate during your lifetime.  This allows the Trust to start taking action and can also have Inheritance Tax advantages if it is done early enough.

Is there any limit on the amount I can put in?

There is no limit on the amount you can contribute by will, but you should bear in mind that any gift by will only takes effect on your death.  You should also be aware that some of your estate may be subject to Inheritance Tax before the money can go into the Discretionary Trust.

If you want to set up a lifetime Discretionary Trust then there can sometimes be an immediate Inheritance Tax charge. However, if the main beneficiary of a Trust qualifies as a "disabled person" under the Tax Legislation and the Trust is carefully written, then the tax charge will not apply .  This is a complicated area and expert advice is definitely needed before any decisions can be made.

Further Information

For further information, please download a brochure (below) or watch our video on Why Trusts for Disabled Children are Important

July 2016