In our latest blog series our specialist Trusts Team aim to cover some of the most common issues when navigating the administration of Trusts, with this month's topic focusing on vulnerable beneficiaries. 

In estate planning, ensuring the welfare of vulnerable beneficiaries, such as those with disabilities or capacity issues, demands careful consideration. The straightforward inclusion of outright gifts in Wills, while well-intentioned, can present significant challenges. Attempts to alter these legacies later on, for the protection of the beneficiary's inheritance, may face objections from authorities like local councils or benefits offices. This blog explores potential solutions to mitigate such risks, including the establishment of Discretionary Trusts or Vulnerable Beneficiary Trusts. Understanding these alternatives is crucial in navigating the complexities of estate planning for vulnerable individuals.

What is the issue?

If beneficiaries with disabilities or capacity issues are provided with outright gifts in Wills, there can be difficulties if attempts are made to vary their entitlement to protect their inheritance.

Are there solutions?

• A Deed of Variation could be challenged by the local authority or benefits office in the future.
• Rectification can only rectify a mistake in a Will due to drafting errors – an outright gift will not normally be considered such an error.
• A Lasting Power of Attorney or Deputyship Order could be used to manage funds, but this will not prevent benefits being affected.

What can be done to avoid this?

Two potential options:

Discretionary Trust – usually established in a Will.  Need to consider tax implications but wider powers to benefit other family members or rent property to a vulnerable beneficiary.

Vulnerable Beneficiary Trust – usually established as a “pilot trust” separate to a Will so funds can be moved at any time (or pension/ death in service benefits to avoid passing through estate).  Favourable tax treatment provided any other beneficiaries can only benefit from the lower of £3,000 per annum or up to 3% of the Trust fund.  No need to register with the Trust Registration Service (TRS).  Wide definition (at time of establishing Trust):

- incapable of managing affairs due to a mental disorder within the meaning of the Mental Health Act 1983.

- receipt of attendance allowance, disability living allowance by virtue of entitlement to the care component at the highest or middle rate or the mobility component at the higher rate, personal independence payment, increased disablement pension, constant attendance allowance, armed forces independence payment. 

How can we help? 

Porter Dodson’s Trusts Team can provide advice in connection with setting up lifetime Trusts for vulnerable beneficiaries and prepare the relevant settlement deed. 

Our Private Client Team can advise in relation to such trusts being incorporated in a Will and also prepare Lasting Powers of Attorney, whilst our Court of Protection Team can assist with Deputyship applications for the vulnerable beneficiary. 

Whatever your requirements, Porter Dodson's Trust experts are here to help.