Leaving Money in Trust
Facts about leaving money to people with a learning disability
As this is meant as a general guide only –
you should seek advice from a legal professional.
Some parents/ carers are worried as their children or those they care for may be unable to deal with money that is left to them by will, or make them more vulnerable to financial pressures from outsiders.
Others fear that their loved ones will lose their rights to benefits of local authority funding (Services) through receiving a substantial sum when their parents or carers die. Parents and carers want to be sure that monies left to their loved ones in addition to their benefits or local authority funded services for the cost of care etc. is still available to them rather than replacing it. Local authorities will provide insufficient care. The money can be used a top up to maintain or obtain better care or provide a different type of care. Parents/ carers can enable their child/ children to remain where they are rather than be forced to move. The trust also enables parents/ carers to permit more choice and options now and in the future.
This fact sheet explains how you can leave money to someone with a learning disability while still protecting them, and without losing their entitlement to benefits, local authority funding of services/ care.
There are three main options that parents/ carers may need to consider.
1. Discretionary trust
2. life interest trust
3. Disabled persons trust
What is a trust?
A trust is a legal arrangement whereby assets (money, investments, property and similar things) are managed by a trustee or trustees for the benefits of others such as people with learning disabilities. The assets can include a house.
A Discretionary Trust
Are set up by a parent/s / carer or other relatives as a way of making long term financial provision for a disabled child. The reason a trust is useful is that the assets once put in trust do not belong to either the donor, ‘settlor’ in legal jargon (parents) or the ‘object’ of the trust (disabled son or daughter who is intended to benefit).
This means that the capital held I trust is not taken into account when assessing entitlement to state benefits like Income Support or local authority obligations to fund care.
If parents leave a will which says words like ‘our son hereby inherits our worldly goods’ and the goods amount to more than about £3,000 the effect will be immediately take their son or daughter out of some social security means tested benefits. Local authority (social services) support may also cease until the value of the inheritance falls below the threshold level. In addition if the disabled son or daughter is unable to manage money then the court of protection can get involved. They will appoint a person called a ‘receiver’ to look after the money and other assets. The receiver may not be the person the disabled person or parents would choose.
Trusts are used to pay for things that benefits and local authority funding will not pay for such as;
Manage and maintain the parental home if put into trust.
Life Interest Trust
Give the beneficiary the right to receive the income from the trust fund during their lifetime, and on their death the trust ends and the capital passes to other beneficiaries or charities.
The trustee/s can also be given power to make advances of capital to the beneficiary should they so wish. However should the beneficiary of the trust be a person with a learning disability and are in receipt of benefits or have local authority funding which is means tested, the entitlement to income will be taken into account.
There may also be adverse Inheritance Tax consequences if the value of the trust fund is higher than the inheritance tax threshold on the beneficiary’s death. This should be discussed with a legal professional.
Inheritance tax threshold information can be sought through HM Revenue & Customs or by following the link
A Disabled Person’s Trust
This is a mix between discretionary and life interest trusts.
They are set up in compliance with S89 Inheritance Tax Act 1984 and are often known as “trusts for the vulnerable”. To set one up, the principal beneficiary of the trust must fall within the definition of “disabled”. The income of the trust can be held on discretionary trust throughout the principal beneficiary’s lifetime so it should not jeopardise any entitlement to benefits or local authority funding, but they are the only person entitled to the income. In relation to capital of the trust, one of the conditions of the trust, one of the conditions of the trust is that at least half of the capital which is paid out (if any) during the disabled persons life is paid to him/ her or for his/ her benefit.
Inheritance tax, capital gains and income tax purposes these trusts benefit from lower taxation rates and exemptions during the lifetime of the trust, although some of these advantages conflict with each other at the end of the trust. Taxation consequences should be discussed with a legal professional.
Trusts can either be created in your will so that it only commences on your death, or it can be created in your lifetime and start immediately. You can leave a further sum of money to the trust under the terms of your will.
When setting up a trust for your child with a learning disability, it is very important that you discuss your personal circumstances with a legal professional to advise you on the most suitable trust to set up – and any tax consequences.