Trusts for Vulnerable People: Protecting the Future of those you Love

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July 22, 2021 - Matt Hughes

Trusts for Vulnerable People: Protecting the Future of those you Love

Your children may grow up and leave home, but you never stop worrying about them. For parents with adult children who are vulnerable because of disability or mental illness, the concern about what happens to them when you die can be considerable. Inherited wealth can provide solutions, but it has to be managed. For a child under the age of 18, or an adult with mental or physical additional needs, help is often needed.

A trust can provide some of that structure and security. Set up with a financial adviser and a lawyer, a trust can provide tax advantages. But more importantly, you appoint a trustee (or more than one trustee) who will ensure assets are used or spent as the trust deed specifies. It provides a reassuring layer of guardianship and protection in your absence.

 

What is a trust?

Trusts are used as a way of managing assets (money, investments, land or buildings) for people.  They are set up for a number of reasons, most typically to control and protect a family’s assets. They can provide tax advantages when passing on assets while you are alive as well as on death, and they enable people to gift money with attached rules or clauses.

There are different type of trusts and they are taxed differently. Trusts which are specifically for disabled or vulnerable people, or for children get special tax treatment.

 

Who qualifies as a vulnerable beneficiary for a specialist trust?

A child who is under the age of 18 whose parent has died is classed as a vulnerable beneficiary, as is a disabled child or adult, but they must be eligible (but not necessarily receiving) one or more of the following benefits:

  • Attendance Allowance
  • Disability Allowance (either the care component at the middle or highest rate, or mobility at the higher rate)
  • Personal Independent Payment
  • An increased disablement pension
  • Constant Attendance Allowance
  • Armed Forces Independence Payment

A vulnerable beneficiary can also be someone who is unable to manage their own affairs because of a mental health condition. The person must have a diagnosis that is covered by the Mental Health Act 1983 and a medical professional can help to confirm this.

 

How can I control the money left in the vulnerable beneficiary trust?

A document called a ‘trust deed’ is written which sits alongside the trust. This is used to guide the appointed trustees to make decisions about how to use capital or amounts of income for the beneficiaries depending on their needs.

 

What are the potential financial benefits?

There are a number of tax benefits for those considering setting up a trust.

  • In a trust with a vulnerable beneficiary, the trustees may be entitled to a deduction of Income Tax
  • A reduction in Capital Gains Tax allowances may be applied if assets are sold, exchanged or transferred and they have gone up in value since being put in the trust. The trustee is responsible for ensuring this is paid and the appropriate paperwork is completed.
  • There are situations where trusts for vulnerable people get special Inheritance Tax treatment depending on when the trust is set up.

 

How to find out more

Trusts are complex financial planning tools that require careful thought, planning and a team of experts in both legal and financial planning fields. The rules are complex to protect all involved and to ensure the very best outcome for the vulnerable beneficiary, as well as peace of mind for the parent or guardian who is putting this provision in place. A trust for a vulnerable person will be set up to meet the unique set of circumstances of that situation: the type of trust most suitable will chosen after a detailed fact find and conversations about your wider financial circumstances.

 

To find out more, call Furnley House on 0116 269 6311 and ask to speak to one our Independent Financial Advisers or email info@furnleyhouse.co.uk