Setting aside funds in a Disabled Person’s Trust (also known as a Special Needs Trust) for the benefit of another person throughout the course of their lifetime does not affect that person’s ability to receive means-tested government benefits. “Covering expenses” could mean paying for things like rent, food, and care fees. Trusts that provide for vulnerable beneficiaries are taxed in a way that can result in savings relative to other trust structures. In this article, Who Qualifies For A Special Needs Trust, we take a look at these issues in more depth.
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What is the purpose of a special needs trust?
Many people can benefit from establishing a trust, but those who are in need yet lack the mental capacity to manage their own funds may find it especially useful. Trusts established for the benefit of individuals with disabilities are adaptable to meet the changing needs of those who will benefit from them. You can establish a trust either during your lifetime or in your Will to take effect after your death.
What are the mechanics of a special needs trust?
Secondary beneficiaries who are not disabled are permitted in a Disability Trust, but the primary beneficiary of the trust must be a disabled person (such as other children or family members). The Trustees have broad authority in determining which beneficiaries will receive payments and in what amounts. The beneficiaries of a discretionary trust have no legal claim to the trust’s assets but are nevertheless eligible to receive distributions from the trust. The trust fund will ensure that people receiving benefits will not lose their participation in government-funded, needs-based assistance programmes.
Trusts can be impacted by a variety of taxes, including those on income, inheritance, and capital gains. Yet if the recipient is disabled, the trust may be eligible for preferential tax treatment. The trust’s ability to protect assets for the benefit of a disabled beneficiary can be maintained even while the tax burden is minimised under certain circumstances.
Who qualifies for a special needs trust?
The beneficiary of a special needs trust must be a person with a disability. A disabled person is defined as someone who meets any of the following criteria:
Someone who, due to a “mental condition” as defined by the Mental Health Act of 1983, is unable to manage his own finances or take care of his own needs. Among the mental disorders recognised by HMRC are the following:
- Various forms of Dementia (e.g. Alzheimer’s).
- Mental illnesses include bipolar disorder, schizophrenia and depression.
- Disorders on the Autism Spectrum.
- Difficulties in learning, such as those caused by Down syndrome.
- Injuries to the brain and Parkinson’s disease but only if they lead to behavioural and cognitive abnormalities.
To satisfy a “benefits test,” a person needs to be eligible for at least one of the following benefits (even if they aren’t really receiving them):
- Disability pension known as the Personal Independence Payment.
- Allowance for constant attendance.
- Independence payment for the Military Services.
What are the tax advantages for capital gains and income tax?
There are two requirements to meet before you may receive the special treatment:
If the trustee qualifies as described above, the trustees and the beneficiary may jointly file a “vulnerable person election.” This election must be made no later than January 31, 2024, which is 12 months after the ordinary filing date of the tax return for the 2021/22 tax year, if you want it to be effective for that year. Although this election cannot be revoked, it will not take effect until a subsequent election is made.
Each year, the trustees can decide whether or not to make the vulnerable person election in order to receive favourable tax treatment. The trustees usually make this choice while filing the trust’s tax return, but they have until January 31, after the end of the relevant tax year, to change their minds.
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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 Special Needs 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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