TrustsWillsDisabled/Vulnerable Person’s Discretionary Trusts

10 December 2015by WillPack2

The Disabled/Vulnerable Person’s Discretionary Trusts

These are useful trusts to use when your client has a child or another relative with a disability and who needs constant support. If this person inherits from a Will directly, this may affect what disability benefits they may receive. We can put the assets into a Discretionary Trust with the disabled beneficiary as the Principal Beneficiary. As with any other Discretionary Trust, there must be more than 1 appointed beneficiary.

The main reason for this is because whenever a person in receipt of disability benefits receives an inheritance, the Local Authority will want to assess them. This means if they hold over a certain threshold (this can vary) the Local Authority can cut the benefits that person receives.

If the estate of the testator is due to pay any IHT. This will need paying before the assets are passed into the Trust, at 40% of what’s over the Nil Rate Band, £325,000. Whilst the Principal Beneficiary is still alive, the assets held in the Trust are not subjected to Anniversary charges every 10 years or any Exit charges. However, once the Principal Beneficiary passes away, their estate is taxed at 40% of what was held in the Trust that is over the Nil Rate Band.

As of 17th July 2013 the Trustees, in their discretion, can benefit the other discretionary beneficiaries a total of £3000 or 3% of the capital held in Trust. Whichever is lower in value, between them per annum; whilst all other assets, including income, must be applied for the benefit of the Principal Beneficiary. This allows the trustees to claim exemption from the Anniversary and Exit charges.

After the death of the Principal Beneficiary, the Trust continues as an ordinary Discretionary Trust. At this point, the Trust will continue without Anniversary or Exit charges running up for 5 years after the death of the Principal Beneficiary.

by WillPack

Please note that we are only insured to provide advice to our partners. If you require any advice we would recommend contacting the Society of Will Writers on [email protected] or 01522 687888 who will be able to put you in contact with a will writer local to you.


  • J Leslie

    11 February 2016 at 10:53 am

    Why would there be no anniversary or exit charges after the death of the principal beneficiary?

    • WillPack

      11 February 2016 at 1:41 pm

      There is a grace period of 5 years, which is in place to allow the trustees to wind up the trust if they don’t wish for it to carry on as a standard Discretionary Trust, this lets them take any money and distribute to their discretion without any additional charges. If they decide to keep the trust set up then exit charges begin at the 5th year and the first Anniversary charge will apply 15 years after the principal beneficiary’s death and every ten years from there.

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