Caring for a vulnerable or disabled family member can bring many challenges, both emotional and financial. Planning for their future and ensuring they have the necessary support after you are no longer around is a top priority for many families. One legal mechanism available in the UK to help safeguard the interests of vulnerable individuals is the use of vulnerable person and disabled trusts. These types of trusts allow families to provide for their loved ones without jeopardising their access to essential benefits and services.
At Blackstone Solicitors, we assist families across England and Wales with the legal intricacies of setting up these trusts. This guide aims to explain what vulnerable person and disabled trusts are, how they work, and how they can benefit your family.
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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.
Before diving into the specifics of vulnerable person and disabled trusts, it’s helpful to have a basic understanding of what a trust is. In simple terms, a trust is a legal arrangement where one party (the settlor) transfers assets to another party (the trustee) to manage on behalf of a third party (the beneficiary).
Trusts are often used to protect assets, ensure proper management, and control how and when funds are distributed. In the case of vulnerable persons or disabled individuals, trusts can be crucial for ensuring their financial security without impacting their entitlement to government benefits.
What Is a Vulnerable Person Trust?
A vulnerable person trust is designed to support individuals who are considered vulnerable due to their personal circumstances. These trusts can be established for people who:
- Have a mental or physical disability that affects their ability to manage their own financial affairs.
- Are elderly and require support with daily living and financial decisions.
- Are minors (under the age of 18) who have lost their parents or legal guardians and need financial management and protection until they reach adulthood.
The key purpose of a vulnerable person trust is to provide financial security for the beneficiary while ensuring that the assets are managed responsibly on their behalf by the trustee(s). The trustee can be a trusted family member, friend, or a professional appointed to oversee the assets in the trust.
What Is a Disabled Trust?
A disabled trust, also known as a trust for a disabled person, is specifically designed to cater to individuals with disabilities. It is a type of discretionary trust that provides for a person who meets the criteria for being disabled under the law. To qualify for a disabled trust in the UK, the beneficiary must:
- Be in receipt of disability benefits such as Personal Independence Payment (PIP), Disability Living Allowance (DLA), or Attendance Allowance.
- Be suffering from a condition that severely affects their ability to manage their own finances or participate in daily activities.
Disabled trusts are particularly useful because they can hold assets for a disabled person without affecting their entitlement to means-tested benefits like Universal Credit, Housing Benefit, or Council Tax Reduction.
Key Differences Between Vulnerable Person and Disabled Trusts
Although both vulnerable person trusts and disabled trusts aim to provide for individuals who require financial support, there are some distinctions between the two:
- Eligibility: Vulnerable person trusts can be used for a wider range of individuals, including children and the elderly, whereas disabled trusts are specifically for individuals with qualifying disabilities.
- Tax Treatment: Disabled trusts often receive favourable tax treatment under UK law, particularly with regard to income tax, capital gains tax, and inheritance tax. Vulnerable person trusts may also receive some tax benefits, but they may not be as extensive as those provided under disabled trust rules.
- Management: Disabled trusts typically require more stringent oversight, given the specific needs of the disabled person. Vulnerable person trusts may offer more flexibility depending on the needs of the beneficiary.
How Vulnerable Person and Disabled Trusts Work
- Establishing the Trust
Setting up a vulnerable person or disabled trust begins with the creation of a legal document, often referred to as a trust deed. This document outlines the terms of the trust, including:
- Who the trustees are: Trustees are responsible for managing the trust and making decisions about how and when to distribute the trust’s assets to the beneficiary.
- Who the beneficiary is: This will be the vulnerable or disabled individual the trust is designed to support.
- The assets in the trust: These can include cash, investments, property, or other valuable assets that will be used to provide financial support to the beneficiary.
It is important to choose trustees carefully, as they will be responsible for overseeing the assets in the trust and ensuring that the beneficiary’s needs are met.
- Discretionary Powers of Trustees
In most cases, these trusts operate as discretionary trusts, meaning the trustees have full control over how the assets are managed and distributed to the beneficiary. The trustees can make decisions about when to release funds, how much should be given to the beneficiary, and whether the trust’s assets should be invested or used to pay for care needs.
This discretionary nature allows for flexibility, particularly when the beneficiary is unable to manage their own affairs. For example, if the disabled individual has fluctuating care costs or unpredictable financial needs, the trustees can adjust the payments accordingly.
- Protection of Means-Tested Benefits
One of the key reasons families set up vulnerable person and disabled trusts is to ensure that their loved ones do not lose their entitlement to means-tested benefits. Without such a trust, a large inheritance or financial gift could disqualify a vulnerable person or disabled individual from receiving state support, as these benefits are based on their financial resources.
By placing assets in a trust, the individual is not considered to “own” those assets directly, meaning the trust can provide financial support while the beneficiary continues to receive benefits such as Universal Credit, Employment and Support Allowance (ESA), or Council Tax Support.
- Tax Advantages
One of the benefits of setting up a disabled trust is the potential for tax savings. Under UK tax law, disabled trusts are given favourable treatment in several areas:
- Income tax: Trustees can claim special rates of tax, known as the disabled person’s tax rate, which can lower the overall tax burden on the trust’s income.
- Capital gains tax: Disabled trusts are subject to lower capital gains tax rates, meaning that any increase in the value of the trust’s assets is taxed at a reduced rate.
- Inheritance tax: Transfers into a disabled trust are generally exempt from inheritance tax, providing significant savings when passing on assets to a disabled family member.
Vulnerable person trusts may also benefit from some tax advantages, though the extent of the savings will depend on the specific circumstances of the trust and the beneficiary.
Setting Up a Trust: The Role of Legal Advice
Setting up a vulnerable person or disabled trust is a complex legal process that requires careful planning. Working with experienced solicitors is crucial to ensuring the trust is properly structured and that all legal requirements are met. Here are some key areas where legal advice is essential:
- Drafting the trust deed: A well-drafted trust deed is the cornerstone of any trust. Your solicitor will ensure that the document is legally sound and tailored to meet your family’s specific needs.
- Trustee selection: Choosing the right trustees is critical. Your solicitor can help you select responsible and trustworthy individuals or professionals to oversee the trust.
- Tax implications: Legal experts can help you understand the tax benefits available to vulnerable person or disabled trusts and how to maximise them for your family’s situation.
- Ongoing management: Once the trust is established, it must be managed in compliance with UK law. Your solicitor can provide guidance to trustees on their legal duties and ensure the trust operates smoothly over the long term.
Conclusion
Vulnerable person and disabled trusts are powerful tools for UK families looking to provide financial security and stability for their loved ones. These trusts offer protection from losing essential benefits while allowing the family to ensure that their vulnerable or disabled relative is cared for.
At Blackstone Solicitors, we specialise in helping families establish trusts that meet their unique needs. If you’re considering setting up a vulnerable person or disabled trust, contact us today for expert legal advice and guidance. We are committed to ensuring your loved one’s future is safeguarded, providing you with peace of mind for the years to come.
How we can help
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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