Trusts are commonly used to protect the interests of vulnerable or disabled beneficiaries. Their formation will often arise through the Will of a testator whom wishes to pass assets to a disabled or vulnerable friend or relative. However, a trust may also be set up by way of deed during one’s lifetime.
Discretionary and disabled person’s trusts (DPT) are the most commonly used trusts to protect the interest of vulnerable and disabled beneficiaries.
A discretionary trust ensures that the assets and any income arising within the trust will be applied and managed entirely at the trustee’s discretion. In this way, the beneficiary has no entitlement to the capital or income and it is entirely up to the trustees’ discretion as to whether the beneficiary should receive anything and how the fund should be applied.
A DPT can be a discretionary trust (and commonly is set up in such a way) but can also be an interest in possession trust i.e. where the disabled person has an entitlement to income. Where the relevant conditions are met, namely, the beneficiary meets the definition of a ‘disabled person’ and the trust is a ‘qualifying trust’, an election can be made so that it receives more favourable tax treatment in respect of income, capital and inheritance tax.
There are many benefits to using the above trusts for vulnerable or disabled beneficiary. For example:
- They are useful where a beneficiary is unable to, or will have difficulty managing funds and assets themselves;
- The beneficiary has no direct access or power to access the trust fund themselves. As such, a level of protection is provided to a vulnerable or disabled beneficiary whom might be more at risk of financial abuse or misappropriation;
- It provides a means of helping to manage important financial affairs and providing financial support, which is particularly important where one’s mental capacity or ability to manage a large or complex assets is questionable;
- Funds held on discretionary trust should be disregarded by social services funding care or for certain means tested benefits;
- The money held in the trust can be used without impacting on benefits to buy extra things which might not be covered by benefits or social services funding; such as holiday, clothing, gifts, equipment, extra activities and so on;
- Funds can also be used to top up care and support without effecting care funding or benefits. Social services will often only meet a basic level of care and may therefore conclude that a beneficiary needs a much lower level of support in comparison to what they have received from the deceased if they were a close relative;
- A trust can be the legal owner of a property. As such, the trust fund can be used to buy a house or a flat where the beneficiary can reside. As the property is owned by the trust, and not by the beneficiary, again, it should be disregarded for benefit purposes and local authority care funding;
- The trustees will also be responsible for managing and maintaining property it owns which the beneficiary may find difficult to do themselves;
- Some trusts for disabled people or vulnerable beneficiary’s get special tax treatment.
It can be seen that there are many advantages to using a trust for a vulnerable or disabled beneficiary. However, where the value of the trust is substantial and the assets within the same are complex it can become burdensome and difficult to manage, particularly for a lay trustee.
Being a trustee is an important responsibility and in particular, managing a trust for a disabled or vulnerable adult comes with an added layer of complexity. In addition to the general management tasks, consideration will also need to be given to how the fund can be applied to meet the longer term needs of the beneficiary.
Trustees may therefore find themselves making financial decisions dependent on a disabled or vulnerable beneficiary’s care needs particularly where their needs might often change or as they increase. As such, steps will need to be taken to liaise with the relevant social and health services to obtain the necessary support and recommendations regarding care. Further, consideration will also need to be given to the beneficiaries views and their capacity to make decisions and skills to manage larger sums of money.
We act as a professional trustee for many vulnerable and disabled beneficiaries and we have extensive experience in managing complex and high value trusts. We can assist and advise a trustee on the management of a trust for a vulnerable or disabled beneficiary.