Solicitors Who Specialise in Disability Trusts
If you are caring for someone with special needs, you may want to set up a special needs trust (sometimes referred to as an SNT). This is a type of complex arrangement will protect assets and provide for your relative now and in the future. These legal structures can be funded from a number of sources – including by money you want to put aside for the individual, by inherited money or by a personal injury compensation payment.
These type of legal structures are also sometimes referred to as:
· Disability or special disability trusts
· Personal injury trusts
· Vulnerable persons trusts
An SNT can have several advantages, including safeguarding funds for someone who cannot manage them themselves, ensuring that the trustees spend money only where needed and protecting means-tested benefits.
It will also give you the peace of mind of knowing that you have set up the best possible financial structure to ensure a loved one has the support they need.
Looking for advice from an experienced Special Needs Trust Lawyer? Call us on FREEPHONE 0800 1404544 or one of our local office numbers [see below] for FREE initial phone advice – with no strings attached.
How our Trust Lawyers can help you
Creating and managing an SNT is a complex piece of legal work. Few lawyers specialise in this area.
However here at Bonallack & Bishop, our highly specialist trust solicitor, Elizabeth Webbe used to be a leading lecturer on trusts for solicitors nationwide.
She’s also a Full Member of STEP at the highest of 7 membership levels). STEP, the Society of Trust and Estate Practitioners, is a global professional body, comprising accountants, trustees and lawyers helping families with wealth management. STEP describes its members as “internationally recognised as experts in their field, with proven qualifications and experience”.
So if you’re looking for advice from experienced special needs trust lawyer, you can rest assured that she really knows what she’s talking about.
And although we represent plenty of local clients across Wiltshire, Hampshire, and Dorset from our offices in Salisbury, Fordingbridge, Andover and Amesbury, we also regularly act for clients in creating and managing trusts nationwide.
Who can benefit from a special needs trust?
These kind of specialist legal structures are generally set up for one person, referred to as the principal beneficiary.
Because special disability trusts, referred to by HM Revenue & Customs (HMRC) as trusts for vulnerable beneficiaries, are taxed differently from other types of trusts, you must ensure that the beneficiary qualifies. They need to either:
· have a disability;
· be aged under 18 and have a parent who has died; or
· have a mental health condition
A disabled beneficiary is someone who is eligible for any of the following benefits:
· Adult Disability Payment
· Armed Forces Independence Payment
· Attendance Allowance (AA)
· Child Disability Payment
· Constant Attendance Allowance
· Disability Living Allowance, with either the care component at the highest or middle rate or the mobility component at the higher rate (DLA)
· Industrial Injuries Disablement Benefit
· Personal Independence Payment (PIP)
A vulnerable individual who is eligible is someone who cannot manage their own affairs because of a mental health condition. This includes:
· Dementia
· Mental illness such as bipolar disorder, depression or schizophrenia
· Autism
· Learning difficulties
· A brain injury or Parkinson’s disease that has led to behavioural and cognitive issues
What are the benefits of disabled, vulnerable person’s or special needs trusts?
Creating these type of financial arrangements can have several advantages. It is important to work with an expert trust lawyer to ensure that it is the right option, but protecting funds in this way is often a good choice for those with special needs.
Reasons for creating these kind of arrangements for the disabled or vulnerable include:
-
Protecting assets
The trustees are responsible for investing, administering and distributing the funds. They cannot be accessed directly by a beneficiary or other individuals. They are ring-fenced and not mixed with other funds. The trustees will generally think carefully about how and when they spend the money, ensuring it works in the best possible way for the beneficiary.
Trustees have a range of duties to both their trust and their beneficiaries. By choosing trustees with good financial understanding, assets can be protected and invested in the right way for the beneficiary’s needs. For example, the money made on investments could be reinvested while a beneficiary has lower income needs, but in the future, if the beneficiary requires a larger amount of support, the trustees could switch investments to provide a higher level of income.
These kind of complex financial instruments can also protect funds from issues such as divorce and bankruptcy.
-
Providing financial security for someone with special needs
Ensuring funds are not directly accessible by the individual or their attorney or deputy will generally provide a higher level of financial security. Trustees will consider their long-term responsibilities along with the beneficiary’s needs and should ensure that future financial security is provided as far as possible.
Without this level of management, there is a risk that a lump sum might not be used efficiently. Individuals who can manage their own affairs could spend more than is wise, leaving them without sufficient funding for the future.
Attorneys or deputies may not always be the best individuals to manage funds. By placing money in these kind of financial arrangements, you will have the peace of mind of knowing that trustees are responsible for dealing with investments and deciding when it is right to pay money to the beneficiary.
Trustees are subject to a level of scrutiny. They must submit annual accounts and keep detailed records so that they can to justify expenditure.
Having funds protected in these kind of legal structures can also avoid impulse purchases or financial investments which might not be the best use of the available money.
-
Protecting means-tested benefits
If a beneficiary receives means-tested benefits, receipt of a lump sum can mean they are no longer eligible. If money is held within SNTs where the trustees have discretion over how much to pay to a beneficiary and when to pay it, those funds cannot be used by the authorities in calculating whether someone is entitled to benefits.
Trustees need to be aware when someone is receiving benefits and ensure that they do not risk the beneficiary’s eligibility by giving them a sizeable sum of money all at once.
-
Potential tax implications
Trusts for vulnerable people benefit from special tax treatment. If your SNT has more than one beneficiary, the trustees must identify the assets allocated to the vulnerable individual, keep them separately from assets used for anyone else and use them only for the vulnerable person. Only those assets have special tax treatment.
The trustees must complete a Vulnerable Person Election form, Form VPE1 and sent it to HMRC to claim special tax treatment.
-
Income tax
An income tax deduction is available in respect of the income received from the assets held for the vulnerable individual. HMRC calculate this by looking at what the individual would have paid had the income been paid directly to them and not received by the trust. HMRC allows a deduction so that the tax paid equals this figure. This is to ensure that a vulnerable person is not at a tax disadvantage because their funds are protected within an SNT.
-
Capital Gains Tax
There is a tax-free Capital Gains allowance for vulnerable beneficiaries that is generally double that available for trustees.
There is also a reduction on the payment of Capital Gains tax. As with income tax, HMRC bases this on what beneficiaries would have to pay if the gains were received directly by them and not by their SNT. The reduction reduces the amount due to this sum.
The trustees are responsible for claiming the reduction.
-
Inheritance Tax
Inheritance Tax reductions are available in the following situations:
· Where the trustees set up a special needs trust before 8 April 2013 and at least half of the payments from the fund went to the disabled person during their lifetime
· Where the trustees set up these structures for disabled individuals on or after 8 April 2013 and all payments went to the disabled person except up to £3,000 per year or 3% of the assets if that is lower, which could go to another beneficiary
· When someone sets up these kind of structures for their own benefit because they have a condition that is expected to make them disabled in the future
· Where an SNT has been set up for a bereaved minor (a minor who has lost a parent) and they take all of the assets and income on or before turning 18
However, no Inheritance Tax is payable:
· If the settlor (the person putting money into the fund) lives for at least seven years after setting up the fund
· On assets received by a vulnerable person from one of these funds
For a FREE Inheritance tax saving and estate planning consultation , simply call our Lawyers on FREEPHONE 0800 1404544 or one of our local office numbers [see below] for a no strings attached conversation.
How do you set up a special needs trust?
It is essential to speak to an expert special needs trust lawyer if you want to set up these kind of legal arrangements for managing assets. This is a complex area of law and you need advice from someone who fully understands the implications and who will ensure that it is in the best interests of the vulnerable individual.
You will need to decide on who to appoint as trustees to manage the funds. They need to be people with the time to deal with managing the assets and the expertise to handle funds, with professional assistance as required.
Your lawyer will draw up the trust deed. The trustees must set up a bank account to hold any cash assets. Funds are then transferred into that account and invested as appropriate. A detailed letter of wishes can be written, setting out how you want the trustees to act when dealing with assets and helping the beneficiary.
The trustees must register the SNT with HMRC’s Trust Registration Service. A lead trustee must be nominated as the main point of contact. Details of the trustees, the settlor and the beneficiaries must be provided, along with a list of the assets that the trustees will hold and their value. You can obtain professional assistance with this.
If the trustees invest money from personal injury compensation, they must set the SNT up within one year of receipt of the first compensation payment. If funds are not invested in this way within a year, then they will be taken into account by the authorities if they carry out an assessment for means-tested benefits.
Who should be trustee for a special needs trust?
A trustee will often manage an SNT for as long as it lasts, so it is important to choose them carefully. Ideally, it will be someone who is able to understand financial investment and how to manage money. By choosing someone younger than the beneficiary, you reduce the risk of needing to find a replacement trustee in the future.
Those in personal financial difficulty cannot be a trustee.
A relative, friend or a professional trustee, such as a trusts lawyer, is generally chosen. A trustee must act in the best interests of the beneficiary and exercise sound judgement.
If a trustee decides they no longer want to continue in the role or they become unfit or incapable of doing so, it is possible to replace them. There should be two trustees in case one of them has to stop being involved or dies.
Professional Trustees – Our Specialist Trust Administration Service
Administration of these kind of structures can be a taxing role both for those with busy lives, as well as those who experience dealing with special needs beneficiaries difficult or upsetting.
And it’s sadly not unusual for settlors to make mistakes when choosing trustees purely based on the strength of their personal relationships. You need to choose someone who understands finances, is entirely trustworthy and is happy to take on the role. Be particular careful if you think of appointing one of your children as a trustee – it’s not unusual for this to create suspicion amongst other beneficiaries.
And those are just some of the reasons why you might consider appointing an independent Professional Trust Administration service.
Here at Bonallack & Bishop we regularly act as professional trustees.
Click here to read more about our Professional Trustee Solicitors could help you
What assets can you put in a special needs trust?
You can put a range of assets into special needs or disabled person’s trusts, including funds from a personal injury compensation payout, inherited money, life insurance payments and gifted money. These funds can hold money in savings accounts and investments as well as shares, property and other assets.
Who owns the assets in a disabled person’s trust?
The fund’s assets are owned by the fund and administered by the trustees, who must follow the directions set out in the trust deed. The trustees are the legal owners of the investments and other assets held in the fund, with the power to buy, sell and manage them. However, the beneficial interest belongs to the beneficiaries and the trustees must act in the beneficiaries’ best interests at all times.
When will a trustee pay money in a special needs trust to a beneficiary?
Vulnerable beneficiaries may have a range of needs that the trustees will fund, including:
· Accommodation
· Day-to-day living expenses
· Care fees
· Therapy and treatment not provided by the NHS
· Transport
· Mobility equipment
· Home adaptations
Trustees will need to consider future requirements when deciding how much to pay to the beneficiary. Where funds permit, other expenses can be paid, such as holidays, going to events and meals out.
How is a special needs trust administered?
In addition to managing the funds and providing for the beneficiary, trustees are responsible for sending a tax return each year and reporting income and gains made by the asset. They must keep SNT funds separate from their own funds and keep clear records of all transactions and investments.
Trustees should choose to have professional investment advice if the fund is a significant size.
Any changes must be reported to HMRC, such as changes in trustees and changes in the personal details of trustees and beneficiaries.
Trustees should also provide information relating to changes to the beneficiary, as well as annual financial statements. This does not mean that they should always prepare full accounts. For example, if there is a part of the SNT in which they do not have an interest, the trustees do not have to share information about this.
Beneficiaries have the right to ask trustees to account for their actions in dealing with the funds they hold, although not the reasons for their decision to make distributions to beneficiaries.
Acting as a trustee is a responsible position.
