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Disabled Person's Trust

If a beneficiary inherits a large sum outright and is in receipt of any means tested benefits, they are in danger of losing those benefits. 

Placing the funds in a disabled person’s trust not only protect's your beneficiary's benefits, but also allows you to appoint Trustees to manage the trust fund. 

If you have a disabled beneficiary and you want to protect their right to receive benefits, and to ensure their inheritance is managed by someone you trust, call our friendly advisors today for a free, no obligation, chat

 

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How does a Disabled Person's Trust work?

A disabled person’s trust is a type of discretionary trust, so there must be more than one beneficiary, however the disabled beneficiary is treated as the primary beneficiary for the purposes of the trust which means while they are alive, the Trustees are required to apply any income and capital in the trust for the benefit of the primary beneficiary as they see fit.  

Who qualifies for a disabled person's Trust?

To qualify for a Disabled Person's Trust the primary beneficiary must meet the definition of ‘disabled’ as defined in section 89 of the Inheritance Tax Act as a person who is:

  • by reason of mental disorder within the meaning of the Mental Health Act 1983, incapable of administering their property or managing their affairs;

  • in receipt of attendance allowance;

  • in receipt of a disability living allowance by virtue of entitlement to the care component at the highest or middle rate;

  • in receipt of personal independence payment by virtue of entitlement to the daily living component;

  • in receipt of an increased disablement pension;

  • in receipt of constant attendance allowance; or

  • in receipt of armed forces independence payment.

Does this protect my beneficiary's benefits?

As your disabled beneficiary doesn't own the asset outright, the inheritance won't affect their existing benefits. 

Who manages the Trust?

The Trust is managed by whoever you name as Trustees. It is advisable to consider appointing a professional Trustee. 

Why do we need more than one beneficiary?

To avoid owning the asset outright, you need more than one beneficiary, however the disabled beneficiary is the primary beneficiary for whom the trust is set up.  The trustees can, at their discretion, apply income and capital to any of the other beneficiaries of the trust but this must be no more than £3000 or 3% of the capital in the trust (whichever is lower in value) per annum. The trustees do not have to apply any income to the secondary beneficiaries, and you can leave your Trustees instructions on how you would like the Trust managed

What happens when the Trust ends?

On the death of the primary beneficiary, the trust will continue but as a basic discretionary trust only, unless the trust itself is dissolved in which case the assets in the trust will be distributed to the default beneficiaries.

Is the trust subject to taxes?

Unlike many other trusts the trust is not subject to anniversary and exit charges.

On the death of the primary beneficiary, the trust fund is revalued and treated as part of their estate for IHT purposes.  If a share in the main residence forms part of a disabled person’s trust, and the primary beneficiary is a direct descendant, it will qualify for Residential Nil rate Band purposes.

If you have a disabled beneficiary and you want to protect their right to receive benefits, and to ensure their inheritance is managed by someone you trust, call our friendly advisors today for a free, no obligation, chat

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