A guide to the advantages of Disabled Persons Trusts for Parents, Carers and Advisors including tax efficiency and protection of means-tested benefits

Introduction

When it comes to estate planning and providing for the future well-being of disabled individuals, a Section 89 Trust, also known as a Disabled Persons Trust, can be a powerful tool. A Disabled Persons Trust offers unique advantages that cater to the needs of disabled people whilst being tax efficient and preventing assets from affecting access to means tested benefits. In this article, we will delve into the key benefits of a Disabled Persons Trust, when created during lifetime or as a gift within a will. We will also explore the legal considerations highlighted by the case of F v R [2022] EWCOP 49. This case is also discussed in Lynne Bradey's article 'Can the Court of Protection save my means tested benefits after I inherit? The sequel...'.

Gifts to Disabled Individuals - Navigating the Need for Special Advice

Gift-giving to disabled individuals necessitates careful consideration and specialized advice. A Disabled Persons Trust offers a strategic solution that can be tailored to the individual's circumstances and also the circumstances of any close family, ensuring that their financial needs are met without jeopardising their eligibility for means-tested benefits. A Disabled Persons trust allows assets to be used for the benefit of the disabled person whilst being managed by the trustees, which is particularly helpful for those who lack capacity or are minors. In the absence of a Disabled Persons Trust a gift to a disabled person either during lifetime or in a Will could have catastrophic consequences for a beneficiary who relies on means tested benefits or who is unable to manage their own finances.

Preserving Access to Means-Tested Benefits

Many vulnerable people receive means tested benefits such as income related employment and support allowance, income related job seekers allowance, income support or universal credit. There are valuable additional savings alongside these, such as free prescriptions and eye tests.

In addition, many vulnerable people will receive payments towards their care from the local authority. They might also receive a payment to help them with their rent. There are capital limits for means tested benefits and care. If the person (or couple) has assets below the lower capital limit, they will receive their full entitlement. If they have assets above the upper capital limit, they will receive no entitlement and – in the middle – there is a sliding scale.

At the time of writing (November 2023), for means tested benefits, the lower capital limit is £6,000 and the upper capital limit is £16,000; for means tested care, the lower capital limit is £14,250 and the upper capital limit is £23,250.

Direct gifts made to disabled persons can inadvertently impact their ability to access means-tested benefits. By utilising a Disabled Persons Trust, these individuals can enjoy financial support without the risk of losing their benefits. The assets within the Disabled Persons Trust are outside of the scope for means tested benefits which means any amount placed inside the trust can be used for the benefit of the disabled person without restricting their access to means tested benefits.

Gifts to Disabled Individuals Lacking Capacity: Addressing Deputyship Orders

Gifts made to disabled individuals who lack capacity can lead to the need for a deputyship order if one is not already in place as they will not be able to manage their finances. An application for a deputyship order will be much more costly than putting in place a Disabled Persons Trust. A Disabled Persons Trust can alleviate this concern by providing a structured and controlled framework for managing the financial affairs of individuals who are unable to do so themselves as the trust will be managed by the trustees rather than the disabled person. This ensures their best interests are upheld while minimising the legal complexities surrounding deputyship.

Redirecting Gifts

It is not possible to redirect a gift to a disabled person from someone's Will into a Disabled Persons Trust after they have died to avoid it affecting means tested benefits. Careful planning and advice should be taken when considering gifts to disabled people within Wills so as to avoid affecting means tested benefits or the need for a deputyship order.

A Case Study: F v R [2022] EWCOP 49

The case of F v R [2022] EWCOP 49 offers a pertinent illustration of the importance of taking advice in relation to gifting to a disabled person.

R, in his thirties, has a lifelong disability and lacks capacity. His mother's cousin (T) had died three years previously and left a third of his estate - in the region of £400-600k - to R absolutely. An application was made by R's father, who is also his property and affairs deputy to re direct the inheritance to a Disabled Persons Trust. The underlying basis of the application was that this change would best match T's intentions and would mean R's means tested benefits would be protected.

HHJ Hilder, after reviewing previous case law refused the application for the following reasons:

  • there was no indication that T had been seeking to preserve R's benefits.
  • the proposal would take R's only capital outside the oversight of the Office of the Public Guardian.
  • The Court cannot bind the local authority or the DWP as respects the benefits implications of the proposal and cannot endorse a proposal whose purpose is to preserve an eligibility for benefits which Parliament has decided does not exist.

While the judge and the OS understood why the application had been made "the Court has to make its decisions on the basis of what is known actually to have happened, rather than what might have happened."

This case highlights the need for careful planning and the potential pitfalls that can arise if suitable arrangements are not made. The verdict underscores the significance of not creating a trust to secure the financial future of disabled individuals and the adverse consequences it can have on access to means tested benefits.

Conclusion

In conclusion, a Section 89 Disabled Persons Trust holds immense potential for securing the financial well-being of disabled and vulnerable individuals. By carefully considering the advantages of such a trust, you can ensure your generosity does not inadvertently hinder access to means-tested benefits. Whether created during lifetime or as part of a will, these trusts offer a comprehensive solution that safeguards the interests of disabled beneficiaries and their long-term financial stability.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.