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Disabled Children

When a family member is affected by disability, and is unable to handle their own financial and legal affairs, consideration needs to be given to establishing a Trust in your Will. Without such provision, an application may have to be made to the Court of Protection to appoint a receiver to manage the affairs of this family member. This can cause delays, and will involve expense in fees payable to the Court.

How setting up a trust can help

Depending upon your individual circumstances, there are a number of ways you can protect the interests of a family member who is unable to look after their own affairs.

Without specialist legal advice which looks at the possibilities of making a trust, it is all too easy to make a Will which could result in:

• Entitlement to benefits from the Benefits Agency being stopped.
• Entitlement to Local Authority funding being stopped.
• A Receiver from the Court of Protection having to be appointed to manage the affairs of the family members, which may result in unnecessary delays and fees which could be expensive.
• Where reasonable provision is not made in a Will for a dependant family member who is receiving local authority funding, a claim may be made upon the estate of the deceased under the Inheritance (Provision for Family and Dependants) Act 1975. The costs of such actions come directly out of the estate.
• The estate being subject to a much harsher tax treatment.

Including a Trust in your Will can ensure that you protect the benefit entitlement of your family member, and thereby guarantee continuity and security of care. The way any trust is structured may mean the difference between seeing all of the assets devoured by the relevant local authority within a few years, or making a long lasting difference to the quality of life of the beneficiary.

Including a Trust in your Will can ensure that you make provision for "extras" that you want your family member to have. These can include things like holidays, and particular equipment to enhance someone’s quality of life.

By setting up a trust in your Will, the future security of a family member who is unable to manage their own affairs, is protected.

What is a trust?

There are a number of different types of trusts but broadly speaking, a trust is simply a parking place for money (or assets). A trust has pre-appointed people (trustees) to decide to whom the money goes (the beneficiaries) and the whole thing is governed by a set of rules (the trust deed).

To put more detail to the explanation – A trust is legal mechanism whereby one or more persons, the trustees, are obliged to look after and deal with assets (the trust property) for the benefit of the beneficiary.The trust deed will establish the obligations of the trustees and how they are to benefit the beneficiaries.

Trusts can be set up to suit the individual need of any family situation. For the purposes of safeguarding the future security of a family member who is unable to look after their own affairs three types of trust are most commonly used:

• Discretionary trusts
• Life Interest trusts
• Protective trusts

Discretionary trusts

Discretionary trusts give the trustees power to make gifts of capital and or income to a stated number of beneficiaries. The trustees may be given the discretion to give money directly to the beneficiaries, or use it for the benefit of the beneficiaries.

It can last for up to 80 years, and must contain provision as to who will be entitled to anything which remains in the trust when it comes to an end.

A discretionary trust is possibly the most effective way of avoiding means testing because the beneficiaries do not have a right to receive the income - it is at the discretion of the trustees.

Discretionary trusts are best set up for a number of potential beneficiaries and not identifying too closely the family member unable to deal with their own affairs. In this way, the trustees can distribute income to any beneficiary who is, for example paying for holidays, buying clothes or equipment.

The trustees can also be given power to add suitable people as beneficiaries to the trust e.g. someone who becomes a trusted companion or carer. By the trust being able to help with travel costs your family member's lifestyle will be maintained with the level of support that you would have been providing during your life.

Life interest trusts

Also known as Interest in possession trusts. They are created to give one or more beneficiaries the right to receive the income from the trust's property during their lifetime, after which time the income then passes to other persons or charities.

Any property or funds held in trust for a family member who cannot manage their own affairs will not be treated as a capital resource when entitlement to state benefit is assessed. However, the income received from the trust will be taken into account if the family member is receiving means tested benefits or local authority funding.

Protective trusts

Under a protective trust, money or property is administered by trustees who are instructed that the income from it is paid to the beneficiary for life, or fixed period. Traditionally used by parents who fear their children may be unable to deal with any inheritance wisely.

Governments frequently introduce changes in the way new trusts are taxed. It is important that you take specialist legal advice to ensure the right choice is made for your circumstances.