Many parents worry about what happens to a disabled son or daughter when they are gone. Leaving money outright often makes things worse. A trust can protect it.
Why a direct gift can backfire
If a person gets means-tested benefits, savings above a set limit can reduce or end them. For Universal Credit that limit is £16,000. A £50,000 inheritance paid directly can leave the person worse off until it is spent, and spent money isn't there when they need it later.
Some disability payments aren't means-tested. Adult Disability Payment and Pension Age Disability Payment aren't. But Universal Credit and other means-tested benefits are, so a lump sum can still cause problems.
How a discretionary trust helps
In a discretionary trust the money is held by trustees, not by the person. The person has no automatic right to the capital. Trustees can use it for their benefit, for example paying for bills, holidays, equipment or the cost of living in a property rent free, and the fund generally doesn't count as the person's own savings.
Payments out need care. A large payment to the person can push their own money over a limit, so trustees often pay for things directly instead of handing over cash.
Trusts for disabled people can qualify for special tax treatment. The conditions are strict, so the trust has to be written with them in mind.
Lifetime trust or will trust
You can set the trust up now or leave instructions in your will. A trust in your will only exists after you die, and you can't pay money into it before then. Neither can grandparents or friends who want to help.
A lifetime trust can start with a small sum, and others can add to it straight away. That lets the whole family contribute over the years, not only through a will.
Choosing trustees
Trustees have complete control over what is paid and when. They can be family, friends or professionals such as a solicitors' firm. For a lifetime trust most people include themselves.
Choose people who understand why you made your decisions, not just what the decisions were. A letter of wishes can explain what matters to your relative: where they should live, what activities they enjoy, who they should see. It guides the trustees but doesn't bind them, and you can update it as things change.
Costs and admin
Setting up a trust costs more and takes longer than a will, and you must use a solicitor. If the trust earns income from investments or rent, the trustees handle the tax returns. They also keep records of every payment. That is a lot for a family member to carry, and a professional trustee is sometimes the better choice.
Planning around it
A trust fits with other arrangements. A guardianship order may be needed if your relative cannot manage their own affairs. Life insurance written in trust can fund the inheritance, as covered in our guide to life insurance in trust. And the 2024 Act sets new duties for trustees.
Richard arranges trusts and wills through our specialist legal partners. Start with our Trusts page.