Aside from the IHT and CGT advantages of a Disabled Person’s Trust, these trusts can be effective in ring fencing legacies from means testing. This is despite the DWP and local authorities having wide powers to challenge some arrangements, under the Deprivation of Capital rules.
The DWP or local authority do have a discretion to treat any capital monies or assets as notional capital if at any time it belonged to the person. Any deliberate Deprivation of Capital can lead to the disabled person being treated as having notional capital, which in turn gives rise to deemed income to the extent that it exceeds the capital limits. Whilst this notional capital does diminish by the deemed income, these rules can take away much of the benefit that a legacy was intended to give. Indeed the notional capital can persist after the legacy has been spent, leading to a difficult period before benefits are reinstated. A trust can be an effective way round this problem.
If a trust was not set up in the deceased person’s Will, then it is possible set one up after the event by making an application to Court.
An example of a case in which a Court set up such a trust was the case of Hambury v Hambury  2ELR255, where a substantial award, in excess of the £10,000 left under the Will, was settled into a trust. Whilst this case was not one on Deprivation of Capital, it is confirmation that the Court will make such awards.
There is no record of the position taken by the DWP or local authority as to whether this award, or part of it, such as the £10,000 that was left in any event, amounted to notional capital under the Deprivation of Capital Regulations. Indeed in practice, it is very rare for such cases to end up in Court or a tribunal.
In such circumstances we do recommend that the proper trust is set up, although no one can guarantee the local authority or DWP’s stance, in relation as to whether the arrangement amounts to a Deprivation of Capital. We can only say that we have seen no record of a successful challenge by the authorities.