A Disabled Discretionary Trust (also known as a Disabled Person’s Trust or a Vulnerable Person’s Trust) can be utilised where a child or other relative has a disability.
There are essentially two reasons why a trust is considered advisable for disabled beneficiaries.
If this person inherits from a Will directly, their entitlement to any means tested benefits could be affected.
Alternatively, depending on the exact disability, the beneficiary disabled person may be unable to manage a large sum of money due. If that person also lacks mental capacity and does not have a Property and Affairs LPA, it is likely that an application would have to be made to the Court of Protection to appoint a Deputy. This is a lengthy and expensive process and incurs ongoing costs and should be avoided.
A disabled person’s inheritance should therefore be placed into a Disabled Discretionary Trust. The disabled beneficiary is the Principal Beneficiary of this trust and, as with any other Discretionary Trust, there must be more than one further beneficiary.
For the purposes of the trust, S89 Inheritance Tax Act 1984 defines a disabled person as a person who either by reason of a mental disorder, is incapable of administering their property or managing their affairs, or is in receipt of, or qualifies for, any of the following:
- A Disablement Pension; or
- Disability Living Allowance by virtue of entitlement to the care component at the highest or middle rate; or
- Personal Independence Allowance by virtue of entitlement to the daily living component; or
- Constant Attendance Allowance; or
- An Armed Forces Independence Payment.
Whilst the Principle Beneficiary is alive, the Trustees are to apply both the income and capital of the trust for the Principle Beneficiary’s benefit as they see fit. This will usually be applied in such a way that they will not affect the benefits that the Principle Beneficiary receives.
As of 17th July 2013 the Trustees may also, at their discretion, benefit the other beneficiaries to a total of either £3000 or 3% of the capital held in Trust, whichever is lower in value, per annum. This amount will be shared between the other beneficiaries.
On the death of the Principle Beneficiary, the trust will continue as a standard Discretionary Trust.
For more information on the trust, please see our WillFact in the members area.