• Trusts

    The below information has kindly been supplied by Cairn Trust Management

    If you are the parent or partner of someone who has reduced capacity or who is in receipt of means-tested benefits or community care, there are things you can do to help safeguard their financial security.

    How can I avoid these problems?

    By writing a will and setting up a trust, you can make sure the people you care about will get the right financial support and protection when you are no longer around.

    You can also protect their entitlement to means-tested benefits and community care.

    What is a Trust?

    In basic terms, a trust is a legal arrangement where assets are transferred to someone else ('trustees') to be used for particular purposes and to benefit specific people ('beneficiaries').

    A trust can be set up during your life or it can be included as part of your will.

    Your will or trust deed will say...

    Who are to be trustees Who are the beneficiaries How the money/property is to be managedWhat the money can be used forWho gets the money/property when the trust comes to an end

    There are different types of trust, for use in different situations, so it is important to get advice about your circumstances.

    What is a Discretionary Trust?

    As the name suggests, Trustees have discretion about how assets are used, if and when payments are made and to whom.

    Discretionary trusts are often suitable for people with impaired or fluctuating capacity; particularly where they are in receipt of means tested benefits and/or community care. This is because money or property held in this type of trust does not affect means tested benefits. It is also disregarded when calculating how much someone should pay towards care services. Even if the person is not receiving any benefits or services just now, remember this could change in the future.

    What is an Interest in Possession Trust (known as a' liferent' in Scotland)?

    The income beneficiary is entitled to trust income, or to live in a property. The capital beneficiary becomes entitled to the capital of the trust when the liferent ends.

    This might be useful if you want someone to have the security of having a regular income. However, this type of trust may not be suitable if the beneficiary receives means-tested benefits or community care.

    I'm worried that my son would struggle to manage an inheritance and the effect this would have on his benefits but a trust sounds a bit scary. Can't I just leave all of my estate to his sister and ask her to look after him?

    Relatives of people with additional support needs often consider disinheriting that person to protect their entitlement to benefits or because their worried that they might spend funds inappropriately. There are many reasons why this may not be the best thing to do.

    If your daughter's circumstances change she may find it difficult to fulfil this role. Your son could be disadvantaged should she ever divorce, go bankrupt or die without making a will (or fail to make suitable provisions in any will she does make).

    Bear in mind that, in Scotland, children (including adult children) have a legal right to inherit a share of their parents' estate. If you disinherit a child, there is a risk that another relative or event the local authority could contest your will. This can happen regardless of their ability to manage money or how it would affect their benefits.

    You can avoid these pitfalls by setting up a Discretionary Trust in your will.

    What can the money held in trust be used for?

    The person setting up the trust decides how the assets of the trust can be used. The will or trust deed will say who funds can be spent on and what they can be used for. Normally, it is a good idea for trustees to have wide powers to spend the money on anything that will benefit the beneficiary.

    What happens to any money left at the end of the trust?

    The person setting up the trust decides what should happen to any money left in the trust when the beneficiaries die. This is set out in writing in the trust deed or will.

    Many people provide that any remaining funds are paid to other family members. You might also like to consider a gift to charity.

    Choosing Trustees?

    Choosing the right trustee(s) is crucial:

    Trustees have specific legal duties and responsibilities (including maintaining trust accounts & submitting tax returns) and many people prefer not to burden friends and family with these.

    Changing circumstances can also result in individual Trustees being unable to fulfil the role due to geographical location, ill health or even death.

    Organisations like Cairn Trust Management (in Scotland) can act as professional trustees or give your family and friends some support and help in managing a trust.

    We would like our child to continue to live in the family home after we die, can we leave our house in trust?

    Yes, but you should make sure you leave enough money in trust to maintain the property throughout your child's life. There are also other options that give your child a right to continue to live at home that you might want to consider.

    My child has reduced capacity and his grandparents want to leave him some money in their wills. I'm worried this could affect my child's benefits – what should I do?

    You or your parents could set up a 'pilot' trust for your child now. You can do this with a nominal sum, say £10, but it doesn't actually start until a larger sum of money is received. Your parents, you and other members of your family (or friends) could then also leave money to the trust in their wills.

    Solicitors

    When you have a dependent with additional needs, it is extremely important that you take specialist legal advice when writing your will (and/or setting up a trust).

    Scotland: Cairn Trust Management (www.cairntrusts.co.uk) can provide you with contact details of a suitably qualified solicitor in your area.

    England & Wales: Information will be coming soon