Most fundamentally disabled people are in receipt of some form of state assistance, either in the form of benefits or care services. Much of this is means tested, hence if they receive a legacy, it often takes them over the capital threshold. This can result in a person having to pay for their services, or being disentitled to benefits. Their legacy is quickly depleted with no substantive benefit to the family member, without any improvement in their life chances or condition. This is common reason why relatives are left out of wills. However it is avoidable through setting up a disabled person’s trust in the will. This can keep the legacy separate for means testing purposes.
Where that has not happened it is possible to take a claim under the Inheritance (Provision for Family and Dependants) Act 1975, in order to set up such a Trust in the will post-death. Under Section 9 of the 1975 Act, any order made under Section 2 of that Act is deemed to have had effect as of the deceased’s death. The order is therefore retrospective for the purposes of IHT and CGT.
The reason why disabled person’s trusts are preferred to discretionary trusts for larger sums is because a discretionary trust can lead to substantial tax consequences.
There are strict rules as to qualification for a disabled person’s trust, including entitlement to middle rate DLA or PIP. The terms of the trust also have to be set up in a particular manner to ensure qualification. A further condition is that the person has to be disabled when the trust comes into effect. This means that the person has to be disabled at the time of death. Where the person becomes disabled after death, then the person would not qualify.