Estate Planning for Disabled & Vulnerable Beneficiaries

Deciding how to provide for your children before they reach adulthood can be a difficult process. Parents have a natural instinct to want to treat their children fairly and this decision can be made even harder if a child is vulnerable or has additional learning needs. In this situation it may not be possible for a child to inherit absolutely as it may have unintended consequences, for example it may impact on means-tested state support and services available to your intended beneficiary or make them susceptible to financial abuse.

In situations where a child is unable to manage their finances it is often decided that putting money into a Trust is the best solution.

Broadly there are two types of Trust suitable to this situation:-

1. Discretionary Trusts

This is the most flexible option. The child would be included as a potential beneficiary, together with a number of additional potential beneficiaries, such as other children, family members or charities for example. Including a beneficiary within this list does not give them any entitlement to the funds within the Trust, instead it would be at the Trustees’ discretion to use the funds to benefit the beneficiary within their lifetime. This would allow the Trustees to provide for a beneficiary with additional learning needs, or who is vulnerable, in an appropriate way.  It is important that a detailed letter of wish is written by the testator (the person making the Will) to sit with the Trust, to ensure that their wishes in respect of the Trust are known to the Trustees.

2. Disabled Persons Trust

This is a form of Trust used to benefit a beneficiary who has a statutorily defined disability within the meaning of the Mental Health Act 1983.

This type of Trust however is less flexible than the discretionary Trust. Although other beneficiaries of the Trust can be included, the Trustees’ discretion to make provision for them is limited to either up to £3,000 per year or 3% of the assets (if that is lower). Whilst this may be an attractive option as it prevents excess funds being used for beneficiaries other than the primary beneficiary, if your estate is substantial then it may be that there is a surplus of funds that cannot be advanced out of the Trust to other beneficiaries.

Trustees

It is important that you give careful consideration to who you wish to appoint as Trustees – they will have wide powers and will be tasked with the administrative burden of managing a Trust. They should also understand the needs of the beneficiaries and be able to work together. It is recommended that you seek professional advice about the role and duties of a Trustee before deciding who to appoint.

Letter of Wish

When a Trust is created a Letter of Wish can sit alongside the Will or Trust to provide guidance to the Trustees. This is not legally binding and does not need to be written in formal, legal language, but will greatly assist the Trustees when they are administering the Trust and exercising their discretion in respect of the funds.

It is important to note that each case is fact specific and therefore professional advice should be sought on the appropriateness of each Trust, relevant to the circumstances of each individual.

For advice in relation to Estate Planning, contact our experienced Private Client team today on 01908 660966/01604 828282 or email wills@franklins-sols.co.uk.