News & Insights

Vulnerable beneficiaries- Discretionary trusts

How to protect your assets and those of your loved ones during lifetime and on death.

Trusts for vulnerable beneficiaries

Planning for your loved ones after your death is never easy but there are particular challenges where vulnerable family members are involved.  If you wish to leave a gift to a vulnerable beneficiary there will be special factors that need to be considered.  Without proper advice you could make decisions which do not achieve the result you had intended.

Problems with an outright gift

When leaving a gift to a child or a vulnerable adult outright under your Will, there are various risks that should be taken into account.  For a start, a child under the age of 16 cannot give valid receipt for a gift, and this may leave the executors of your Will at risk if that beneficiary later claims that they have not received their entitlement.  Your family’s circumstances may mean that there are other reasons to avoid making an outright gift, a number of which are outlined below.

Giving a vulnerable person control over funds may not necessarily ensure that those funds are spent in that person’s best interests.  For example, a young person may not have the maturity to handle a large inheritance and therefore spend it in a way which they later regret.  Likewise, if a beneficiary is vulnerable they may be more easily influenced by others who do not have their best interests at heart.

A vulnerable person may be unable to make a Will, either because they are under the age of 18 or because they do not have the capacity to do so.  If this is the case, however much of their inheritance they do not use during their lifetime will be left under the terms of their intestacy.  This may not be appropriate in the circumstances.

If someone receives an inheritance but lacks the capacity to manage their own finances then it may be necessary for an application to be made to the Court of Protection for the appointment of a deputy to act on that person’s behalf.  This is a costly process and the deputy who is appointed may not necessarily be someone you would have chosen yourself.

In addition, by making somebody absolutely entitled to a sum of money this will increase the assets available to them and could therefore adversely affect their entitlement to any means-tested benefits which they rely on for their day-to-day care.

Common pitfalls

Many families try to tackle these issues by merely leaving funds to other family members in the hope that assistance will be provided to those who are more vulnerable.  Unfortunately, this can often lead to uncertainty over what is expected of the person receiving the inheritance, and disputes can develop.

Even where such an informal arrangement would otherwise work well, other obstacles may arise.  For example, if the Local Authority responsible for the care of a disabled person believes that you should have made provision for that person under your Will then a claim could be made against your estate.  Such disputes are costly and legal fees will invariably eat into the funds which would otherwise be available to your loved ones.

In addition, it is difficult to protect assets left under such an informal arrangement against events in the life of the person receiving the inheritance, such as divorce or bankruptcy.  Receipt of such funds may also be a disadvantage to that person in affecting their own benefit entitlements, or increasing the amount of tax payable by them during their life or on their death.

Trusts – a solution

In the majority of cases, the best way of avoiding some or all of the pitfalls outlined above is to create a trust for the benefit of your loved ones.  This can either be done during your lifetime or under the terms of your Will and could provide a flexible solution which continues to be relevant to your family’s circumstances despite life’s surprises.

Many people create a trust for the benefit of their loved ones and derive great comfort from knowing that their wishes will continue to be carried out when they are no longer around.  However, where one or more of your intended beneficiaries is particularly vulnerable, the advantages of providing support to them by way of a trust can be even more apparent.

Sue Vandersteen is a partner at Field Seymour Parkes solicitors and specialises in trusts and estate planning matters.  If you would like further information in relation to the above or to discuss what arrangement might be to your advantage in light of your particular circumstances, please do not hesitate to contact Sue on 01189 516282 or by emailing [email protected].