Learning disability trusts in wills

Wednesday 29th April 2009

A number of problems can occur when planning for the future of a beneficiary with a learning disability in your Will. It is important to be aware of the relevant law, welfare and social security legislation when deciding on the best structure and approach to adopt for his or her future protection.

Why make a Will?

It is estimated that over half of the population of the UK die without leaving a valid Will. It is important therefore to make a Will, ensuring your assets are left to the family, friends or charities you wish to benefit. A valid Will also ensures you adequately provide for the future of a family member or friend with a learning disability.

Making a Will – The dangers of excluding a beneficiary

There is a tendency for people who have spouses or other family members who suffer from a learning disability to leave their estate to those beneficiaries who don’t. This may be because they feel the learning disability beneficiary will not be able to look after his or her own affairs, or may be open to financial abuse from others.

NOTE: The Inheritance (Provision for Family and Dependants) Act 1975 states that if you do not make adequate provision for dependants in your Will, a claim, either by the disaffected beneficiary or some person or institution on his / her behalf, can be brought against the deceased person’s estate.

Successful claims can be expensive; they can cost thousands in professional fees and the Courts may grant a share of the estate to the beneficiary left out of the Will. All these costs may have to come out of the value of the deceased’s estate.

State benefits

Before means tested benefits are affected, a person can have only fairly modest savings. These benefits can be substantial and therefore very important to the individual.

The question that must be asked is: do you leave a lump sum of money to a person who receives or is likely to receive means tested benefits, which may result in a reduction or complete ceasing of their benefits? Or, do you leave the beneficiary out of your Will, which may result in, for example, the DSS bringing a claim against your estate, which if they are successful and the beneficiary is awarded a sum of money, overturns any planning you think you have carried out?

Possibly, a Discretionary Trust in your Will might be the solution to these problems.

What is a Discretionary Trust Structure? How does it work?

Discretionary Trusts are popular because everything happens at the discretion of the Trustees. No one who is a beneficiary of a Discretionary Trust is entitled to receive income or any part of the capital of the Trust; they simply hope that the Trustees will agree to their requests for monies from the Trust.

The DSS and the means tested benefits legislation views this lack of an outright entitlement to Trust monies as the reason why the value of the Trust is not taken into account when assessing the beneficiary’s capital.

The Discretionary Trust structure works by trustees holding the assets and following the terms of the Trust Deed. They can make distributions periodically to either the beneficiary or directly to third parties on behalf of the beneficiary.

Who should you choose as Trustees? Most of our clients prefer a mix of Trustees. For example, a family member and a professional.

Court of Protection

It is worth noting that if you leave an outright gift to a person in your Will, who does not possess full mental capacity, they cannot receive these monies and the Court of Protection will have control of the monies.

Under the Mental Health Act 1983, the Court has jurisdiction over a person’s finances and welfare. It exercises the right to manage the property of this person, looking after his or her affairs and finances. Such people are known as ‘patients’.

A Deputy can be appointed to act on behalf of the patient. The Court of Protection will supervise the financial dealings made by the Deputy. Larger scale decisions (anything other than day-to-day expenses) however, need to be pre-approved by the Court.

NOTE: The Court of Protection charges annually for its involvement, with these fees coming out of the patient’s assets.

However, by using a Discretionary Trust, the monies remain in the Trust and are never owned outright by the beneficiary, the Court of Protection is therefore not involved.

The structure of the Will

The Trust structure is included in your Will, it does not therefore come into effect until your death. This means you don’t have to give away any of your assets during your lifetime.

If any of the current means tested benefits legislation changes, you can simply execute a new Will and change your planning.

Gordons LLP regularly advises on learning disability trusts in Wills. If you wish to discuss the issues outlined above or any issues concerning tax planning and succession matters, please contact Greg Dixon on 0113 227 0202 or email greg.dixon@gordonsllp.com