Trusts
What are Trusts?
There are many different types of trusts available for protecting your estate, and many different reasons why you may wish to have a trust setup. Below we have listed some of the most common trusts, which can be included within your Will (known as Will trusts).
Disabled Person’s Trust
If you would like to provide for a beneficiary who is disabled, you may wish to leave assets in a disabled person’s trust. The reason for this could be because you do not think the beneficiary will be able to manage a large sum of money for example. By placing their inheritance in to a disabled person’s trust, your trustees are able to drip feed out the money to them in a more controlled way.
The other main benefit of leaving assets in this type of trust means the primary beneficiary’s means-tested benefits will not be affected in any way. If a primary beneficiary receives a large inheritance outright, the Local Authority will look to re-assess any benefits they are currently receiving and review these which will likely be to the detriment of the primary beneficiary. Placing the funds in a disabled person’s trust also means the trustees can manage the trust fund so the primary beneficiary continues to receive those benefits.
To qualify, the primary beneficiary must be ‘disabled’ as defined in section 89 of the Inheritance Tax Act as a person who is:
- by reason of mental disorder within the meaning of the Mental Health Act 1983, incapable of administering their property or managing their affairs;
- in receipt of attendance allowance;
- in receipt of a disability living allowance by virtue of entitlement to the care component at the highest or middle rate;
- in receipt of personal independence payment by virtue of entitlement to the daily living component;
- in receipt of an increased disablement pension;
- in receipt of constant attendance allowance; or
- in receipt of armed forces independence payment.
Discretionary Trust
A discretionary trust is one which the trustees (people appointed to be responsible for assets in the trust) are given a discretion to pay or apply the income or capital of the assets for the benefit of one or all of the beneficiaries.
The aim of a discretionary trust is to provide flexibility. This could mean that trustees have the flexibility to adapt how the money is paid to beneficiaries in accordance with their changing needs etc.
Some beneficiaries may not be trusted to manage their inheritance and it may be worried that they will spend the money carelessly. A discretionary trust may allow money to be drip fed to the person in question to preserve the fund. This will also protect the money from beneficiary’s creditors or potential bankruptcy.
Similar to above, a discretionary trust may be used to protect a beneficiary from their own improvidence. For example a beneficiary with a gambling, alcohol or drug addiction who you may not trust to inherit a large sum of money.
If you decide to include a discretionary trust within your Will, it is highly advisable to produce a ‘letter of wishes’ to your trustees which outlines your instructions on how you would like the discretionary trust to operate. We can help provide further information on this at your appointment.
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