Disabled Trusts: How you can provide for a disabled relative
Abbie Kingdon 13-10-2016
If you have a disabled child or relative, you may wish to consider how to make financial provision for them, whether in your will or during your lifetime. In these circumstances, a disabled trust offers many benefits for you and your dependents.
What is a trust?
In it's simplest terms, a trust fund is a fund comprised of a variety of assets intended to provide benefits to an individual or organisation.
A trust is often established in an individual’s will but may also be set up by an individual during his or her lifetime. It can be a complex process, so a solicitor will help you set up a financial trust. Either way, there will be a trust deed which is a little bit like a rule book, which governs what the trust is for, who can access the money in the trust and how the money in the trust should be used.
The trust deed will name the individuals who are responsible for administering the trust and managing and investing the assets comprised in it (known as the “trust fund”). These individuals are known as the “trustees”. It will also name one or more individuals who may benefit from the assets comprised in the trust, who are collectively known as the “beneficiaries”.
The trust may specifically state which beneficiaries receive the assets comprised in the trust, when and in what amount(s). A trust is often set up for a minor beneficiary who will inherit the assets held in the trust when they reach a specified age.
The trust may alternatively state that the trustees have the power to decide, among a class of beneficiaries, who receives the assets comprised in the trust, when and in what amounts. This type of trust is known as a “discretionary trust”.
What is a disabled trust?
A disabled trust names the disabled beneficiary as the primary beneficiary of the trust fund. It will however also name other beneficiaries, such as the disabled beneficiary’s offspring or siblings.
The trustees of the disabled trust must, during the lifetime of the disabled beneficiary, pay any income arising on the assets comprised in the trust fund to the disabled beneficiary or otherwise apply this income for his or her benefit. Alternatively the trustees may accumulate this income and add it to the trust fund.
The trustees have a similar discretion when it comes to the capital which makes up the trust fund. They may pay capital to the disabled beneficiary or apply it for his or her benefit, however they do not have to do so. It is because the trustees have this discretion that the disabled beneficiary’s entitlement to means tested state benefits is usually preserved.
During the lifetime of the disabled beneficiary, the trustees may only make small payments to the other beneficiaries named in the trust deed. The cumulative value of these payments must not exceed £3,000 or 3% of the value of the trust fund (if lower) each year.
The individual creating the disabled trust will often prepare a confidential letter of wishes to the trustees explaining how they would like them to exercise their discretion to benefit the disabled beneficiary and also what they would like to happen to the trust fund on the disabled beneficiary’s death. A letter of wishes is not legally binding, however it acts as a useful guide to the trustees when carrying out their duties.
The benefits of a disabled trust
Unlike most trusts, disabled trusts are afforded special tax treatment provided that certain criteria are met.
A disabled trust is also a means of providing financial security for vulnerable individuals who may not be able to manage funds themselves due to a physical or mental disability.
The existence of a disabled trust should not affect the disabled person’s entitlement to means tested state benefits.
What are the next steps?
At Samuels Solicitors, based in North Devon, we have a wealth of experience in dealing with the creation and administration of trusts, including disabled trusts. We can help you if you need legal advice about setting up a trust.
Contact us for a free, no obligation, discussion with an expert.