What parents need to know about leaving money to a disabled or vulnerable child
This article highlights ways to arrange your affairs to ensure the money you want to benefit your child can do so in the most effective way possible.
As a parent of a child with a disability or other vulnerability you will probably be fully occupied dealing with your child’s day to day needs and, in the current climate of cuts, making sure that your child’s support from the local authority meets their needs as far as possible. Maybe there is a nagging feeling in the back of your mind that you really ought to give some thought to what happens after your death and how your child would be looked after financially.
The aim of this article is to highlight ways to arrange your affairs to make sure that the money you want to benefit your child can do that in the most effective way possible.
Getting it wrong can do more harm than good. We are often contacted by people who have inherited money from well meaning family members who did not realise that a direct gift would cause loss of benefits at best and a great deal of heartache at worst.
So what do you need to consider?
- Your child may be in receipt of means tested benefits and care at the moment and is probably even more likely to need those benefits if you are no longer around. If they have assets of over £6,000 their benefits will start to be affected and over £16,000, they lose those benefits entirely. Higher limits apply for care funding but the principle is the same.
- Instead of leaving funds to them outright, think about using a discretionary trust. You need to choose trustees you are confident in and a professional acting as trustee or ‘handholding’ family trustees can be very useful. A well run discretionary trust can save means tested funding but also give much better protection against anyone who might try to separate your child from their money. Sadly it does happen.
- If you are planning to put an amount of more than the Inheritance Tax Nil Rate Band (£325,000 for 2014/15) there can be an immediate tax charge of 20% on the excess unless you use a type of trust called a disabled trust. If your child receives or could receive certain benefits at certain rates, mainly Disability Living Allowance or Personal Independence Payment, and the trust is drafted as a qualifying disabled trust, the 20% tax charge will not apply. Expert advice definitely needed!
- You can set up the trust under your Will or in your lifetime. A Will Trust does not take effect until your death so there are no running costs until then, and it can be changed. A lifetime trust can be useful though if other family members might want to leave funds to your child but without putting a full blown discretionary trust in their Will. A lifetime trust can also be useful if you want to move funds out of your estate for the benefit of your child in your lifetime, both so you can see the trust in action and there will be Inheritance Tax advantages for you too.
This is a very brief outline of what you will need to think about for the future.
The information in this article is necessarily of a general nature. Specific advice should be sought for specific situations. If you have any queries or need any legal advice please feel free to contact Wrigleys Solicitors