Disabled Discretionary Trusts
Parents or Guardians of Dependent Children have Special Considerations to make when considering their Will as the Provision for Long Term Care has to be taken into consideration and the Financial Implications this may involve.
Wills and Probate offer Specialist advice on this Provision because without this help and advice it is too easy to make a Will that results in:
· Benefits being Stopped
· Entitlement to Local Authority Funding being stopped
· A Receiver from the Court of Protection having to be appointed to manage the Affairs of your Family member, this may result in delays and expensive Fees, they may also not act as either the Family or their relative would wish.
· Where reasonable Provision has not been made in a Will for a dependent family Member who is receiving Local Authority funding, a claim can be made upon the estate of the deceased under the Inheritance (provision for Family Dependents) Act 1975.The costs of such actions come directly out of the estate.
Including a Trust in your Will can ensure that you make provision for Luxuries and extras that you want your Family member to have e.g. Holidays or Specialist equipment to enhance their ay of Life.
By setting up a Trust in your Will, the future security of your Dependent family member who is unable to look after their own affairs, is Protected.
What is a Trust?
A Trust is a legal arrangement whereby assets, Money, investments, property are managed by one or more Persons (known as Trustees – normally Guardians, Family, or Trusted Friends) for the benefit of the Beneficiary, governed by a set of rules (Trust Deed). The Trust Deed will establish the obligations of the Trustees and how they are to benefit the Beneficiaries.
There are 3 Types of Trusts used for Disabled Beneficiaries:
1. Life Interest Trusts – Also known as Interest in Possessions Trusts.
These are used to give one or more beneficiaries the right to receive an income from the Trusts property during their Lifetime, after which the income passes to other Persons or Charities.
Any Property or funds held in trust for a family member who cannot manage their own affairs will not be treated as Capital resource when entitlement to state benefit is assessed. However, the income received from the trust will be taken into account if the beneficiary is receiving means tested benefits or local Authority Funding.
2. Protective Trusts – Under a Protective Trust, money or Property is administered by trustees who are instructed that the income from it is paid to the beneficiary for life or for a fixed period. Traditionally used by Parents who fear their child may be unable to deal with any inheritance wisely.
3. Discretionary Trusts – The most widely used form of Trust for the more severely disabled and dependent and those with learning difficulties. Assets put into a Discretionary Trust do not ‘belong’ to the ‘object’ of the Trust (usually son or daughter) who is intended to benefit. This means that the capital held in the Trust is not taken into account when assessing entitlement to state Benefits such as Income Support or Local Authority obligations to pay for care.
A Discretionary Trust in your Will covers matters like:
· The Purpose of the Trust
· Who the Beneficiaries are
· Who the Trustees are
· How new Trustees, if needed in the future because a Trustee dies or no longer wants to do the job, are to be appointed.
· How Trustees fees and expenses are to be met if fees are applicable
· What Powers, duties and discretion trustees have including investing, making payments and buying or selling property?
· What happens to funds held in the Trust after the Prime beneficiary dies.
It is important that trustees have discretion, both to satisfy the legal requirements of a discretionary trust and to allow them to adjust to changing circumstances and future legislation.
Discretionary Trusts are set up for a number of potential beneficiaries, not identifying too closely the family member who is unable to deal with their own affairs. Trustees can also be given power to add suitable people as beneficiaries to the trust.
To Sum Up:
· The Relative has no absolute right to either the Capital or investment income from the Trust.
· Trustees have discretion about what payments are made
· The principal beneficiary will not be the only possible beneficiary.
Trustees of Discretionary Trusts
When you draw up a Trust to protect the future security of a Disabled/Dependent beneficiary who cannot manage their own affairs, you need to appoint trustees. You can appoint up to Four trustees and two should be regarded as the minimum.
Trustees should be aware of the needs of the disabled/Dependent beneficiary and be capable of administering the trust. Ideally one of the Trustees should be a family member and another someone who has experience of financial matters. You could appoint a Professional such as an Accountant, Solicitor or Professional Trust Company who will charge for their services from the Trust fund. A Professional Trustee is not compulsory but should definitely be considered for larger estates. It is important the Trust fund contains sufficient capital for any Professional charges to be paid.
Funeral Arrangements of a Disabled/Dependent Son or Daughter
As with every parent your Childs Funeral is not a subject we like to discuss or consider, however, you know that it is best that such decisions are made by those who love and know your son or daughter. If you are establishing a Trust, you can include your wishes to be carried out by the Trustees and give the Trustees specific powers to pay funeral expenses out of the Trust.
None of us wants to consider how our children will manage when we die but it is a considerably greater concern when our Son or Daughter is Disabled/Dependent and not able to manage their own affairs. It is imperative that the best possible arrangements are made for them so that their future life can be enhanced and the quality of their lives can be maintained.
