Caring for a loved one with special needs involves not only emotional support but also practical and financial planning. One of the key considerations for families is ensuring their loved one is well-provided for in the future, even when they are no longer around to offer direct care. Disabled trusts, also known as vulnerable person trusts, are an essential tool to achieve this. These trusts allow families to provide for a loved one with special needs in a secure, tax-efficient, and sustainable way.
At Blackstone Solicitors, we help families across England and Wales navigate the complexities of legal planning to secure their loved ones’ futures. In this article, we explain what disabled trusts are, how they work, and why they are a valuable part of planning for a loved one with special needs.
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For a free initial discussion with a member of our New Enquiries Team, get in touch with us today. We are experienced in dealing with all the legal aspects of Vulnerable person and disabled Trusts and once instructed, we will review your situation and discuss the options open to you in a clear and approachable manner. Early expert legal assistance can help ensure you are on the best possible footing from the start and also avoid the stress of dealing with these issues on your own. Simply call us on 0345 901 0445 or click here to make a free enquiry and a member of the team will get back to you.
A disabled trust is a type of legal arrangement that allows assets to be held and managed for the benefit of an individual with a disability or other special needs. These trusts are managed by trustees, who are appointed to act in the best interests of the beneficiary. The trust’s primary aim is to provide financial support to the individual while protecting their access to means-tested benefits and ensuring assets are managed responsibly.
Disabled trusts are specifically designed for individuals who meet certain eligibility criteria, including those with significant physical or mental disabilities. These trusts are recognised under UK law and receive special tax treatment, which makes them particularly advantageous.
- Why Are Disabled Trusts Important?
Preserving Benefits
Many people with special needs rely on means-tested benefits such as Universal Credit, Housing Benefit, or funding for social care. If they receive a direct gift or inheritance, they may lose their eligibility for these benefits. A disabled trust circumvents this issue by holding assets outside the beneficiary’s personal ownership. This ensures they continue to receive vital government support while also benefiting from additional financial resources provided by the trust.
Ensuring Long-Term Support
Disabled trusts are designed to provide for the long-term needs of the beneficiary. They can be structured to pay for essential items such as housing, care, therapy, and daily living expenses. Trustees have the flexibility to adapt the trust’s support to the changing needs of the individual over time, ensuring that they are always cared for.
Protecting Assets
A disabled trust protects the assets placed within it from risks such as financial mismanagement, exploitation, or claims by creditors. This ensures that the resources set aside for the individual are used solely for their benefit and are not depleted unnecessarily.
- How Disabled Trusts Work
Disabled trusts operate through a legal document known as the trust deed. This document outlines the terms of the trust, including how the funds should be used, who the trustees are, and who the beneficiary is. Here is an overview of how the process works:
Setting Up the Trust
The trust is typically established by a family member, such as a parent or grandparent, and can be funded with cash, investments, or property. It can be created during the settlor’s lifetime or as part of their will to take effect after their death.
Appointing Trustees
The trustees are responsible for managing the trust’s assets and making decisions about how to use them for the beneficiary’s benefit. Trustees can be family members, trusted friends, or professional advisors, such as solicitors. Choosing the right trustees is critical, as they play a central role in the trust’s success.
Using the Funds
Trustees can use the trust’s funds to meet a wide range of needs, such as:
- Purchasing specialist equipment or mobility aids.
- Funding therapies, medical treatments, or private care.
- Paying for accommodation or home modifications.
- Covering educational or recreational expenses.
Maintaining Compliance
Trustees must ensure that the trust complies with HM Revenue & Customs (HMRC) regulations, including registering the trust, submitting tax returns, and keeping detailed records of transactions. At Blackstone Solicitors, we provide advice to trustees to help them navigate these responsibilities.
- Tax Advantages of Disabled Trusts
Disabled trusts benefit from favourable tax treatment under UK law, which helps preserve the trust’s assets and ensures more resources are available for the beneficiary.
Income Tax and Capital Gains Tax (CGT)
The trust’s income and gains are taxed at the beneficiary’s rates, which are often lower than standard trust tax rates. This can result in significant savings compared to other types of trusts.
Disabled trusts are exempt from the periodic and exit charges that apply to discretionary trusts. Additionally, assets placed into the trust during the settlor’s lifetime or via their will are not subject to additional inheritance tax, provided the trust meets the legal criteria.
These tax benefits make disabled trusts a highly efficient way to provide for a loved one with special needs, maximising the value of the funds available to support them.
- Choosing Trustees for a Disabled Trust
Selecting trustees is one of the most important decisions when establishing a disabled trust. Trustees must act in the beneficiary’s best interests and manage the trust with diligence and care. Here are some key considerations when choosing trustees:
Trustworthiness and Reliability
Trustees must be individuals you can rely on to act responsibly and ethically.
Financial Acumen
Managing a trust requires a basic understanding of financial management, including budgeting and investments.
Knowledge of the Beneficiary’s Needs
Trustees should have a good understanding of the beneficiary’s requirements and preferences to make informed decisions about how the funds are used.
Availability
Trustees should have the time and commitment to fulfil their responsibilities, as managing a trust can be an ongoing task.
Many families opt for a combination of personal trustees, such as family members, and professional trustees, such as solicitors or financial advisors. This approach ensures both a personal connection to the beneficiary and professional expertise in managing the trust.
- Incorporating a Disabled Trust Into an Estate Plan
A disabled trust is most effective when it is part of a broader estate plan. This ensures that all aspects of your financial and personal affairs are coordinated to achieve your goals. Here’s how to incorporate a disabled trust into your estate plan:
Establishing the Trust in Your Will
A common approach is to create a disabled trust within your will. This ensures that the trust is funded upon your death and aligns with the distribution of your estate.
Funding the Trust
Decide which assets will be placed in the trust, such as savings, property, or investments. You may also want to consider life insurance policies that pay directly into the trust.
Reviewing the Estate Plan Regularly
Circumstances can change, from the beneficiary’s needs to legal and tax regulations. Regularly reviewing your estate plan ensures that the disabled trust remains effective and up to date.
Final Thoughts
Disabled trusts are a vital tool for families looking to provide long-term support for a loved one with special needs. They offer financial security, preserve access to benefits, and ensure that assets are protected and managed responsibly. By incorporating a disabled trust into your estate plan, you can achieve peace of mind knowing that your loved one will be cared for in the years to come.
At Blackstone Solicitors, we have extensive experience in setting up disabled trusts and guiding families through the estate planning process. If you would like to learn more about how a disabled trust can benefit your loved one, contact our expert team today. We are here to provide compassionate and professional advice tailored to your needs.
We have a proven track-record of advising upon all aspects of private client work. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.to incorporate, what kind of ownership
How to Contact Our Private Client Solicitors
It is important for you to be well informed about the issues and possible implications of setting up a Trust. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.
To speak to our Trust 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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