A disabled person’s trust, also known as a “disabled discretionary trust” or “trust for a vulnerable person,” plays a pivotal role in safeguarding the financial and personal interests of individuals with disabilities. In England and Wales, these trusts are widely utilised to ensure that beneficiaries with disabilities are supported without jeopardising their entitlement to means-tested benefits. However, one of the most common questions surrounding such trusts is whether they can be revoked or terminated.
The answer is not straightforward, as the revocation or termination of a disabled person’s trust depends on several factors, including the type of trust, the trust deed’s provisions, and the circumstances surrounding the beneficiary and trustees. In this article, we will explore the conditions under which a disabled person’s trust can be revoked or terminated, the relevant legal principles, and the practical considerations for trustees and beneficiaries.
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What is a Disabled Person’s Trust?
A disabled person’s trust is a specific type of trust set up to provide financial support for a person with disabilities. These trusts are established to:
- Protect the assets of the disabled beneficiary;
- Ensure that funds are managed prudently and in the best interests of the beneficiary;
- Prevent any negative impact on the beneficiary’s eligibility for means-tested benefits such as Universal Credit or Personal Independence Payment (PIP).
In England and Wales, these trusts are governed by both the common law principles of trust law and specific statutory provisions, such as those found in the Income Tax Act 2007 and the Inheritance Tax Act 1984.
Can a Disabled Person’s Trust Be Revoked?
Whether a trust can be revoked largely depends on its nature. Trusts can generally be classified as either revocable or irrevocable:
- Revocable Trusts: These can be altered or terminated by the settlor (the person who created the trust) during their lifetime, provided they retain the legal right to do so under the terms of the trust deed.
- Irrevocable Trusts: These cannot be easily altered or terminated once they are created. Most disabled person’s trusts fall into this category, as they are designed to offer long-term financial security and protection for the beneficiary.
In practice, most trusts for disabled persons are established as irrevocable. This is because their primary purpose is to preserve and manage assets for the benefit of the disabled individual, ensuring that these assets are not subject to claims or mismanagement.
Revocation by the Settlor
If the trust deed explicitly grants the settlor the power to revoke the trust, then it may be possible to do so. However, such provisions are rare in the context of disabled person’s trusts. Revocation would typically require the unanimous agreement of the trustees, and the process would need to adhere strictly to the terms outlined in the trust deed.
Can a Disabled Person’s Trust Be Terminated?
A trust’s termination is a separate issue from its revocation and occurs when the trust comes to an end according to its terms or by operation of law. There are several scenarios in which a disabled person’s trust may be terminated:
- Fulfilment of the Trust’s Purpose
The primary purpose of a disabled person’s trust is to provide financial support for the disabled beneficiary. Once this purpose has been fulfilled—for instance, if the beneficiary passes away—the trust will usually terminate. The remaining assets will then be distributed according to the terms of the trust deed or the settlor’s will.
- Exhaustion of Trust Assets
If the trust’s assets are entirely depleted, the trust will effectively come to an end. Trustees must ensure that they have managed the trust’s funds prudently to maximise the financial support available to the beneficiary.
- Court Intervention
In some cases, a court may order the termination of a trust if it determines that continuing the trust is no longer in the best interests of the beneficiary or that the trust’s objectives can no longer be achieved. This might occur, for example, if the disabled beneficiary’s circumstances change significantly, rendering the trust unnecessary or impractical.
- Agreement Among the Parties
Under the principle of the Saunders v Vautier rule, if all beneficiaries of a trust are adults with full mental capacity and agree unanimously, they may terminate the trust. However, this principle is rarely applicable to disabled person’s trusts because the primary beneficiary is often deemed legally incapable of providing such consent.
Legal Considerations for Trustees and Beneficiaries
Trustees of a disabled person’s trust must act in accordance with the trust deed, the Trustee Act 2000, and their fiduciary duties. Any action to revoke or terminate the trust must be carefully considered to avoid breaching these duties.
Duties of Trustees
- Acting in the Best Interests of the Beneficiary Trustees are obligated to act in the best interests of the disabled beneficiary. Any decision to terminate the trust must align with this overarching duty.
- Compliance with the Trust Deed Trustees must adhere to the terms set out in the trust deed. If the deed specifies conditions for revocation or termination, these must be strictly followed.
- Seeking Professional Advice Given the complexities of trust law, trustees should seek professional legal and financial advice before making decisions about revocation or termination.
Beneficiary Rights
The disabled beneficiary or their legal representative has the right to challenge any decision by the trustees that appears to conflict with the trust’s purpose or their best interests. Courts can intervene if trustees fail to fulfil their obligations or act improperly.
Practical Steps for Revoking or Terminating a Trust
If you are considering revoking or terminating a disabled person’s trust, the following steps are recommended:
- Review the Trust Deed Examine the terms of the trust deed to determine whether revocation or termination is permitted and under what conditions.
- Consult Legal Professionals Engage a solicitor experienced in trust law to assess the legal and financial implications of revocation or termination.
- Seek Court Approval (if Necessary) If there is any doubt about the legality of revoking or terminating the trust, consider applying to the court for guidance or approval.
- Communicate with All Parties Ensure that all interested parties, including trustees, beneficiaries, and legal representatives, are kept informed throughout the process.
Conclusion
The revocation or termination of a disabled person’s trust is a complex issue that requires careful legal and practical consideration. While most of these trusts are designed to be irrevocable to protect the disabled beneficiary, there are circumstances under which termination may be possible or necessary. However, any such action must be approached with caution to ensure compliance with the trust’s terms and the best interests of the beneficiary.
At Blackstone Solicitors, we understand the intricacies of trust law and are committed to providing tailored advice to trustees, beneficiaries, and families across England and Wales. If you are considering establishing, managing, or altering a disabled person’s trust, our team is here to guide you every step of the way.
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We have a proven track-record of helping clients create Trusts. We are a multidisciplinary firm and have all the expertise inhouse to satisfy the most exacting requirements of our clients. We will guide you through all the necessary legal due diligence in a comprehensive and timely manner. We firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
How to Contact Our Wills and Probate Solicitors
It is important for you to be well informed about the issues and possible implications of creating a Trust. However, expert legal support is crucial in terms of ensuring your wishes are met as you would want them to be.
To speak to our Wills and Probate solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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