For many of us, deciding where we would like our Estate to pass when we die is one of the most difficult decisions we will make. Perhaps that is why just 35% of adults in the UK have made a Will, according to consumer research conducted by IRN Legal. This decision can be even more difficult when one or more of our intended beneficiaries is likely to have difficulty in managing monies left to them or is in receipt of means tested benefits. Rest assured, there are ways of protecting the needs of those beneficiaries whilst also ensuring they are adequately provided for.
There are many reasons you may have concerns about someone’s ability to manage an inheritance. Whatever those reasons may be, there are mechanisms to ensure you can provide for a potentially vulnerable beneficiary from your Estate, with the peace of mind that they will have the appropriate support in place.
Similarly, you may be worried about the impact of an inheritance on a loved one’s entitlement to means tested benefits. Whilst it is possible for a beneficiary to redirect their inheritance (read our blog on Deeds of Variation for more details), when it comes to beneficiaries in receipt of means tested benefits, the position is more complicated. A variation of this nature is unlikely to help in so far as their entitlement to benefits is concerned. You should instead consider whether you can have a Will prepared which factors in your wish to benefit this person, without impacting their entitlement to means tested benefits.
In these circumstances, there are certain types of trust arrangement that can be included within your Will, to protect those beneficiaries who may need it;
Discretionary Trust
A discretionary trust names a number of possible beneficiaries, who could benefit from your Estate. A vulnerable beneficiary or beneficiary in receipt of means tested benefits could be named as one of those potential beneficiaries, though they would have no outright entitlement to the funds in the trust.
The Trustees of your Estate, who can be either friends and family or professional trustees (for example, solicitors), are responsible for managing the trust and appointing funds to your beneficiaries. A detailed letter can be prepared, to guide your trustees in exercising their discretion; this can set out what you would like funds appointed out for, when this might be and whether you have a particular beneficiary you would like them to prioritise the needs of. This is known as a Letter of Wishes, and whilst not binding on your trustees can be helpful guidance for them in carrying out their duties.
Since the named beneficiaries of a discretionary trust have no “entitlement” to the trust fund, assets held in the trust should not be considered when assessing a person’s eligibility for means tested benefits.
Vulnerable Persons Trust (also referred to a Disabled Persons Trust)
A Vulnerable Persons Trust, which is also sometimes referred to as a Disabled Persons Trust, can be used where a person you wish to benefit falls within the definition of a “vulnerable beneficiary”.
Those who fall within this definition include those under the age of 18 who have lost a parent, and those in receipt of certain disability benefits. A vulnerable beneficiary may also be a person unable to manage their affairs because of a mental health condition.
As with a discretionary trust, you may choose an appropriate trustee to manage the trust. Vulnerable Persons Trusts, so long as they meet the proper criteria, can qualify for special tax treatment, unlike other similar trust arrangements.
If you are contemplating making a Will to provide for a vulnerable beneficiary or a beneficiary in receipt of means tested benefits, our team at Ellisons are here to help. Please get in touch with our Wills, Trusts & Probate team who will be happy to assist and guide you through the process.
