If the people who you would like to inherit your estate are in receipt of means tested benefits or have difficulty managing their own money, it is important to think carefully about the effect receiving an inheritance may have on them when making your Will.
A beneficiary who receives means tested benefits would be obliged to declare any inheritance that takes the value of their assets above the relevant threshold. Their benefits would stop and the beneficiary would have to re-apply for them once the inheritance had been used up and they regained their entitlement to means tested benefits. This could put such a beneficiary in an even more difficult financial position if they are not aware of the threshold and fail to make a fresh application at the right time.
Although it is possible to redirect an inheritance to others or place it into a Trust within 2 years of a person’s death, a recent Court of Protection decision confirmed that any attempt to do so by or on behalf of the person entitled to means tested benefits would inevitably be reviewed by the Local Authority as a deprivation of assets. This is when you are seen to have deliberately attempted to get rid of your assets to retain means tested benefits, avoid charges or reduce the amount you would have to contribute towards paying your care costs.
Leaving a lump sum of money to someone struggling to manage money could leave them more vulnerable to people seeking to take advantage of their new-found wealth. If money is inherited by a person suffering from an addiction, this could be used to fund the addiction, which might put their health in greater danger.
In circumstances where you cannot be sure that it would be in the interests of the recipient to inherit assets you would like to leave them, it’s sensible to consider incorporating a Trust into your Will to safeguard their inheritance. The idea of creating a Trust is to make sure that someone else is in control of the assets so that money isn’t transferred to a beneficiary without proper consideration of the impact this would have on them.
There are different types of Trust which could be appropriate in different situations. They are:-
- A Vulnerable Beneficiary’s Trust – this allows the Trustees (whom you can appoint) to control how, when and if assets are distributed to the beneficiary or used for their benefit without the normal tax disadvantages of holding assets in a Trust. Examples could include paying for a beneficiary to go on holiday, buying them a car or paying their rent. This money could be used at any time that the Trustees consider appropriate. The beneficiary or someone on their behalf would have to ask for money and explain what they wanted it for and the Trustees would then decide whether this is a sensible request. If they believe it is, they can pay the money to the beneficiary or apply directly for the required purpose.
However, it can only be used for a beneficiary who falls into one of the following categories:-
- A minor who has lost a parent;
- A person who qualifies for certain benefits because of a disability;
- A person who is unable to manage their affairs because of a mental disorder within the meaning of the Mental Health Act 1983;
- A Life Interest Trust – this enables the beneficiary to receive income from the Trust or to use the assets held in the Trust during their lifetime. Unless provision is made within the Trust, the beneficiary would have no right to the capital and would never be able to spend this or have it used towards the payment of care home fees. This is because Life Interest Trusts are often used to protect funds from care home fees. Whilst income could be used towards paying care home fees, the capital would have to be preserved before being passed on to other people on the beneficiary’s death. Your Will would determine how the capital is distributed on the beneficiary’s death.
- A Discretionary Trust – this would require you to name several beneficiaries who would potentially wish to benefit from your estate. The Trustees would consider their needs and circumstances and any guidance you have provided before making decisions about how, when and who Trust assets should be distributed.
If you are considering including a Trust in your Will to benefit a vulnerable relative or loved one, you should always speak to a Solicitor specialising in this area of law, such as a Solicitors for the Elderly (SFE) Member. You can find a local SFE Solicitor here- https://sfe.legal/find-a-lawyer or contact Martyn Prowel Gartsides Solicitors on 02920 470909.