Protecting Beneficiaries Through Disabled Person’s Trusts
Providing for a disabled loved one following your death is not always straightforward – you want them to have enough money to be comfortable but don’t want to affect their entitlement to state benefits, many of which are means tested. One of the most effective ways of providing for a disabled beneficiary is a trust within your Will. As well as providing protection for the beneficiary, if set up correctly the trust can also avoid certain tax charges normally associated with trusts.
What is a disabled beneficiary?
A disabled beneficiary must be:-
(1) incapable of administering their own property or managing their own affairs as a result of a mental disorder; OR
(2) in receipt of Attendance Allowance; OR
(3) in receipt of Disability Living Allowance at the highest or middle rate.
If the beneficiary meets one or more of the above requirements, a trust set up for that person’s benefit will be eligible for the tax advantages of a Disabled Person’s Trust.
What are the tax advantages of setting up a Disabled Person’s Trust?
Trusts are usually subject to certain Inheritance Tax charges. However, if the trust set up in your Will meets the requirements of a Disabled Person’s Trust, it will be exempt from these charges.
What is involved in setting up the Trust?
There are certain legal requirements for an effective Disabled Person’s Trust and the most straightforward way is to set up what is known as a Discretionary Trust in your Will. This involves simply outlining future requirements in your will, no further action is required prior to your death.
• The trust fund would be held for the benefit of the disabled beneficiary and another beneficiary/beneficiaries
• Distributions to the beneficiaries would be at the discretion of the Trustees appointed in your Will, allowing Trustees to effectively “drip feed” funds to the disabled beneficiary as and when he needs them, taking into account any knock-on effect this may have on means tested benefits.
In order to qualify for the tax advantages of a Disabled Person’s Trust, at least 50% of the trust fund must be used for the disabled beneficiary’s benefit during his lifetime, but the other beneficiaries would also be entitled to payments from the trust at the discretion of your Trustees.
If this is something which affects you and you’d like further information, contact me to discuss further.