As a parent of a vulnerable child, it will have crossed your mind “who will look after my child when I’m gone and how will they cope”.
It’s largely inevitable that you will pass before your child, so planning for their future without you is critical to protect them as much as is feasibly possible.
Part of your planning for their future, needs to be financial planning and with hours of your time spent researching, applying and getting the right government support and benefits in place you definitely don’t want to lose these or affect these in any way.
It’s likely the financial benefits you receive for your child are means tested. Therefore any money given to them either by a gift or bequeathed by a “well-meaning” family member, may only jeopardise those benefits. So whilst done with the best intentions, this could be more of a hindrance than a help.
So what can you do to financially protect your child when you’re gone, without affecting their government welfare payments.
Set up a Discretionary Trust
Gone are the days when a “trust fund” was something only the wealthy would set up to ensure their offspring wouldn’t squander all of their inheritance at once!
These days they are a vehicle for anyone wanting to provide future support to their children when it is required, whilst ring fencing the money from being included by the local authority in means testing for benefits.
The difference between a discretionary trust and a bare trust is that unlike a bare trust where the assets must be distributed to beneficiaries who are over 18 if they ask for them. With a discretionary trust the trustees will distribute the assets as and when they decide.
You as the “settlor” of the trust i.e. it’s your money going into the trust, will decide on who the trustees will be. It’s the job of the trustees to decide who they give funds from the trust to, when and how much. It’s extremely important to choose your trustees carefully and to make your wishes very clear to them about how you would like them to proceed. They are not legally bound to adhere to your wishes so be as sure as you can be that whomever you choose will make the right decisions for your child and follow your instructions.
Trusts for Vulnerable Beneficiaries.
A specific type of discretionary trust is a trust for vulnerable beneficiaries also known as a special needs trust, a trust for disable people or a personal injury trust.
The definition of a vulnerable beneficiary as given by .gov.uk is
“A vulnerable beneficiary is a child under 18 whose parent has died, someone who is unable to manage their own affairs because of a mental health condition. or a disabled person who is eligible for any of the following benefits:
- Attendance Allowance (either the care component at the middle or highest rate, or the mobility component at the highest rate)
- Personal Independence Allowance
- an increased disablement pension
- Constant Attendance Allowance
- Armed Forces Independence Payment
This type of trust comes with a number of advantages.
Some of these advantages are:
- As well as protecting your legacy to your “vulnerable child” it will also protect any funds they have received from insurance or compensation claims and not include these in any means testing calculation for benefits.
- They may receive favourable Income tax savings
- If assets in the trust have appreciated in value and are then sold trustees can claim for a reduction in capital gains tax
- There are some situations where this type of trust will get special Inheritance Tax treatment, one of which is if the “settlor” survives longer than 7 years from the date the trust was set up then there is no Inheritance Tax charge on the estate in the trust and on transfers made out of the trust to the vulnerable beneficiary.
- Trusts with vulnerable beneficiaries are also exempt from the 10 year Inheritance Tax charges.
- You can also gift money into the trust whilst you are still alive, this could help with your own Inheritance Tax planning. Read our article on gifting and trusts to find out more.
The .Gov.uk website is a good place to start to find out more about Trusts for Vulnerable Beneficiaries .
As a parent of a vulnerable child, it’s never too early to start to plan and prepare for the welfare of your child when you are not going to be around. Setting up a Trust can mean your child can continue receiving the government welfare they are due to as well as benefitting from your legacy. It could mean for example, they could stay living in the family home with support, after you’re gone.
To find out more about Trusts and speak to one of our professional advisors fill out our Free Consultation Request Form or call 01342 477 102 and quote “Special Needs Trust”.
This article is for general information only and does not constitute legal advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.