Discretionary Trusts For Disabled Persons As A Means Of Ringfencing

Kimberley McGhie, Senior Associate | David Wedgwood, Partner Court of Protection | February 4, 2022

Disabled people tend to have limited life chances and income. This means that if they were to receive an inheritance it could provide them with a once-in-a-lifetime opportunity that could make a real difference to their quality of life.

However, many disabled persons are long term recipients of means-tested benefits. If they were to inherit an amount in excess of the means testing capital thresholds outright, the individual may find that they are no longer entitled to support. This might include not only their weekly benefits, but also the social care and some elements of their treatments. Their inheritance would simply replace their subsistence entitlements. This often puts people off leaving a legacy to a disabled person in their will.

We have worked on many cases where a disabled person has been excluded from a will. This problem can be avoided by setting up a discretionary trust in the will which would keep the legacy separate for the purposes of means testing. In such cases, we apply for a variation of the will under the Inheritance (Provision for Family and Dependants) Act 1975. This ringfences the award for the purposes of means testing and guarantees that the individual receives real substantive benefit from the gift.

It is important that the trust is set up correctly. The trust should be set up first and then the monies should be paid in straight from the estate. If this is not followed, and the person receives monies directly from the estate or before the trust is set up, there may be problems with the DWP deprivation of capital rules.

There are complex qualification rules as to the nature of the trust, such as how income and capital are to be dealt with. The trust deed needs to be thoughtfully drafted and structured to ensure it also qualifies as a disabled persons trust, otherwise substantial tax liabilities will result. This is a complicated area of law and it is essential that the trust is set up correctly.

At Anthony Gold, we have a wealth of experience in this area of law. If you would like our advice, please contact the Contentious Probate Department at Anthony Gold on 020 7940 4000.

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