When it comes to providing for vulnerable or disabled beneficiaries there are several factors that need to be considered.

It is important to obtain specialist advice as this is a complex area with strict requirements. If these requirements are met, then vulnerable individuals can be looked after and protected whilst avoiding unnecessary adverse tax consequences.

Who might be considered a Vulnerable or Disabled Beneficiary?

A disability can be either a physical or mental impairment. The individual may lack capacity to deal with their own affairs either because they are physically unable to do so or by reason of a mental disorder (within the meaning of the Mental Health Act 1983) which means they are unable to administer their property or manage their affairs. A Vulnerable Beneficiary could be someone who is a minor or isn’t financially secure or is unable to deal with their money for a reason other than a disability.

Tax implications

There are many things to consider before tax and making sure that the arrangement is suitable for your loved ones is high on the priority list. However of course the tax considerations are also important and for some meeting the strict requirements of a Disabled Trust, which means there will be no inheritance tax relevant property charges is their priority. It is also possible if the arrangement is a qualifying trust that income and capital gains tax rates will be those of the individual rather than the Trustee.

Means tested benefits

One major factor for say, parents, who wish to provide for an adult child with disabilities is ensuing that the provision does not affect any means tested benefits. Many parents believe that a simple route is to leave their money to a sibling of the adult child who will take care of them and be able to maintain them after they have both passed away. By not settling the money in a Trust and leaving the money to a sibling can lead to a number of issues. The sibling may die shortly after the parents meaning that the money which he holds in his or her sole name, forms part of his or her estate and passes to the beneficiaries under that Will. This may divert much needed funds from the disabled beneficiary. The sibling may divorce or may get into financial difficulty himself which means they lose this money.

Available options

There are, however, other options available to consider:

1. It is possible to create a wide Discretionary Trust, however this would not provide all the tax benefits but may suit the circumstances of the family best.

2. The parents could choose a Discretionary Trust that qualifies under the Inheritance Tax Act 1984 as a qualifying trust for Disabled or vulnerable individuals;

3. Or alternatively they could choose an interest in possession trust, but one which can qualify as a trust for a disabled and / or vulnerable beneficiary.

It is important to obtain specialist advice as this is a complex area with strict requirements. If these requirements are met, then vulnerable individuals can be looked after and protected whilst avoiding unnecessary adverse tax consequences.

Contact our Wills, Trusts and Probate Solicitors in Ruislip, Middlesex

The locally-based lawyers at The Sethi Partnership Solicitors have been providing specialist legal advice for a diverse range of clients since 1994. Whatever your circumstances, speak to one of our trusted solicitors today to discuss your case.

To arrange an initial appointment, call us today on 020 3856 8156 or complete our online enquiry form and we will be in touch.