- within Family and Matrimonial topic(s)
- in United States
- with readers working within the Business & Consumer Services industries
- within Law Department Performance, Finance and Banking and Tax topic(s)
- with Finance and Tax Executives
Trusts for vulnerable persons have been in the news recently, although for different reasons.
This form of trust has been available for many years and is referred to in the legislation as a disabled person's trust. They can be a very valuable tool for parents or guardians who, for whatever reason, find themselves needing to provide long-term financial security and care for a vulnerable person. Importantly, as the assets are held in trust, the arrangements and support can continue after the parents' death.
The advantages of setting up a lifetime trust for a vulnerable person can be significant. As long as the necessary requirements are satisfied, the trust benefits from favourable tax treatment for inheritance tax, capital gains tax and income tax purposes. Although the trust assets are separate from the personal estate of the vulnerable person, they are treated as if they belong to them from a tax point of view.
The person(s) who set up the trust, often the parents of the vulnerable person, can be trustees of the trust and play an active role in the provision of the financial support and care for the child. In addition, they have the added benefit of being able to appoint trusted individuals to act as trustees after their death and the ability to set out their wishes on the future care and support for the beneficiary in a letter of wishes.
To benefit from the favourable tax treatment of this type of trust, the vulnerable person has to be incapable of managing their affairs due to a mental or physical disability and be in receipt of specific state benefits such independence payments or constant attendance allowance.
The trusts are usually structured as discretionary trusts so they can be specifically tailored to provide support for the vulnerable person's individual care requirements without prejudicing their entitlement to access statutory means-tested benefits or local authority funded care.
As the assets are held in trust, the capital of the trust can be protected from undue influence, financial mismanagement and other family events such as bankruptcy and divorce.
This article is part of Vulnerable Individuals: our initiative dedicated to supporting those in vulnerable circumstances, as well as the people who care for them. Find out more here.
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.
