Receiving an inheritance can be a disappointment for a disabled person. Money from an inheritance or a gift will normally be counted as an asset for means-tested benefits or services. For a disabled person who receives benefits and services, this can mean that the gift simply replaces state-funding benefits and services until their fund drops below the excluded capital level, when they go back on to means-tested benefits.
Disabled Person’s Trusts or Bespoke Discretionary Trust’s can be a way of ringfencing the windfall so that means-tested benefits are not affected. This device is rarely used by inexperienced will-drafters, as the qualification and drafting requirements of such a trust can be quite daunting.
Bespoke Trust arrangements for Disabled Persons can ensure that the beneficiary receives the full real benefit from the legacy. Not only can such trusts avoid means-testing, but they also avoid the harsh tax regimes that now apply to UK trusts.
This includes inheritance tax, which confusingly applies to assets put into trust for the benefit of the living. Inheritance tax can result in substantial tax liabilities becoming due on payments in and out of the trust and periodical charges. Income tax, and capital gains tax can also often be charged at higher rates.
The setting up such trusts should be done before the person receives the money, otherwise there may be problems with the DWP deprivation of capital rules. The money should be given to the trust not the person.
It should be noted that there are other complex qualification rules as to the nature of the trust, in particular how income and capital are dealt with. Trust deeds need to be carefully drawn up to ensure qualification, or substantial liabilities may result.
This is a complicated area of the law but recent and coming changes do open up new possibilities for people with disabilities to really benefit from gifts and legacies. Telephone to arrange an appointment with one of our experts, to bring your Will(s) up to date, and ensure that your loved ones receive the full benefit on their inheritance.