Protecting vulnerable people in your will

Wednesday 14th August 2019

When making a Will to provide for loved ones, many people do not consider whether receiving an inheritance will cause difficulties for those beneficiaries.

Where an individual is deemed to be vulnerable, because of injury or illness, and receives financial assistance from the state, an inheritance may cause that individual distress and financial difficulty.   

A trust for a vulnerable person is an effective way to provide a vulnerable person with long term financial provision without causing any disruption to their existing financial situation.  The trust funds are managed by the trustees for the absolute benefit of the named individual. 

The advantage of the trust as opposed to leaving an absolute gift to a vulnerable beneficiary is that the trust funds are protected from being taken into account in any assessment for any means tested benefits and local authority assistance for the beneficiary.  This means that they will not lose out on what they would ordinarily be entitled to but for their inheritance.  Therefore, if a vulnerable person has a settled a stable home and financial state, the inheritance will not affect this is any way.

A trust can incur a liability to tax.  However, trusts for vulnerable people carry certain income tax and capital gains tax advantages over ordinary trusts.  These advantages can be claimed by the trustees of the trust if the beneficiary is entitled to all the income of the trust.  The benefit is that the tax liability of the trust is reduced to the actual tax liability of the beneficiary, so it will be the same as if the money were in their hands directly.  For example, any income produced on these monies if it were invested would be taxed accordingly depending on whether the individual is a basic rate tax payer or a non-tax payer.

Stacey Walker

Private Client Solicitor