A bereaved minors trust is an essential mechanism for safeguarding assets left to children under the age of 18 following the death of a parent. These trusts are designed to ensure that the child’s financial needs are met while protecting their inheritance until they reach adulthood. However, unforeseen circumstances, such as a child becoming disabled after the trust has been established, can raise unique challenges and considerations for the trust’s administration.
At Blackstone Solicitors, we assist clients across England and Wales in navigating the complexities of trust management, especially in sensitive and evolving situations. In this article, we examine the implications of a child becoming disabled after a bereaved minors trust has been set up, including potential adjustments to the trust and the legal options available to families.
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Understanding Bereaved Minors Trusts
A bereaved minors trust is a specific type of trust established under UK law to hold and manage assets for children who have lost one or both parents. Key features of these trusts include:
- Purpose: To protect and manage assets until the child turns 18.
- Tax Advantages: Bereaved minors trusts are exempt from the inheritance tax (IHT) charges that typically apply to discretionary trusts, provided they meet certain legal criteria.
- Mandatory Distribution: The child must become absolutely entitled to the trust’s assets at the age of 18.
While the trust is primarily focused on financial security, its terms and operation may need to adapt if the child’s circumstances change due to a disability.
The Impact of Disability on a Beneficiary
If a child becomes disabled after the establishment of a bereaved minors trust, this change in circumstances can significantly affect their needs and the way the trust is managed.
Disability may result in:
- Increased Financial Needs: Medical care, specialised equipment, or ongoing support may require additional funds.
- Eligibility for Benefits: The child may qualify for means-tested state benefits, which could be impacted by their entitlement to trust assets.
- Capacity Concerns: If the disability affects the child’s ability to manage their own finances, safeguards may be necessary to protect their inheritance.
These factors highlight the importance of reviewing the trust’s terms and structure to ensure it aligns with the child’s new circumstances.
Options for Adjusting the Trust
If a child becomes disabled, there are several options available to trustees and families to adapt the bereaved minors trust to better meet the child’s needs. These may involve restructuring the trust, creating new provisions, or taking advantage of alternative legal arrangements.
- Creating a Vulnerable Person’s Trust
In some cases, it may be appropriate to transition the assets from a bereaved minors trust to a vulnerable person’s trust. This type of trust is specifically designed to support individuals with disabilities while providing tax advantages and safeguarding their access to means-tested benefits.
Key Features of a Vulnerable Person’s Trust:
- The disabled individual (the “vulnerable person”) must be the primary beneficiary.
- Income tax and capital gains tax are charged at the beneficiary’s rates rather than the higher rates applicable to most trusts.
- Trustees retain discretion over how the trust’s assets are used, allowing for tailored support.
Transitioning to a vulnerable person’s trust requires careful planning and legal advice, as the original terms of the bereaved minors trust will need to be varied.
- Court Applications
If the trust’s terms do not allow for the necessary flexibility, it may be possible to apply to the court for a variation of the trust. The court can authorise changes that are in the child’s best interests, such as:
- Extending the age at which the child becomes entitled to the assets.
- Allowing for distributions to meet specific needs arising from the disability.
Under the Variation of Trusts Act 1958, the court can approve modifications to a trust on behalf of beneficiaries who are unable to consent, such as minors or individuals lacking mental capacity.
- Appointing a Deputy
If the child’s disability affects their mental capacity, a deputy may need to be appointed to manage their financial affairs. Deputies are authorised by the Court of Protection to make decisions on behalf of individuals who lack capacity.
While a deputy does not replace the trustees, they can work alongside them to ensure that the child’s inheritance is managed appropriately.
Considerations for Trustees
Trustees of a bereaved minors trust have a fiduciary duty to act in the best interests of the beneficiary. When a child becomes disabled, trustees must take proactive steps to assess the situation and determine whether adjustments to the trust are necessary.
Key considerations for trustees include:
- Reviewing the Trust Deed: Determine whether the existing terms of the trust provide sufficient flexibility to address the child’s new needs.
- Seeking Legal and Financial Advice: Professional advice is essential to ensure that any changes comply with legal requirements and optimise tax efficiency.
- Communicating with the Family: Open dialogue with the child’s family can help trustees understand the nature and extent of the child’s needs.
- Maintaining Accurate Records: Trustees must document all decisions and actions taken in response to the child’s changing circumstances.
Tax Implications
Adjusting a bereaved minors trust due to a beneficiary’s disability can have tax implications, including:
- Inheritance Tax (IHT): Bereaved minors trusts benefit from IHT exemptions, but transitioning to a different trust structure may affect this status.
- Income Tax and Capital Gains Tax (CGT): Vulnerable person’s trusts offer favourable tax treatment, but trustees must ensure compliance with reporting requirements.
- Means-Tested Benefits: Trust distributions may affect the child’s eligibility for benefits such as Universal Credit or Personal Independence Payment (PIP). Proper structuring can help minimise this impact.
Planning for the Future
To ensure that a bereaved minors trust remains effective in supporting a child who becomes disabled, it is crucial to adopt a forward-looking approach. This may include:
- Regular Reviews: Periodically reviewing the trust’s terms and performance can help identify potential issues early.
- Financial Planning: Collaborating with financial advisers can ensure that the trust’s assets are managed to provide long-term support.
- Involving the Beneficiary: As the child matures, involving them in discussions about their financial future can help build their confidence and understanding.
Conclusion
When a child becomes disabled after the establishment of a bereaved minors trust, it is essential to adapt the trust’s terms and management to meet their evolving needs. Whether through creating a vulnerable person’s trust, applying for a variation of the trust, or appointing a deputy, families and trustees have several options for ensuring the child’s financial security and wellbeing.
How we can help
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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