A disabled person is defined as a person who, because of mental disorder, is incapable of managing his or her affairs, or as a person who is in receipt of disability living allowance or attendance allowance. Thus cases of both mental and/or physical incapacity can be covered.
The object of a Protective Trust for the disabled is to preserve the State benefits received by the disabled person but to make available income and, if necessary, capital to supplement those benefits, for example by providing items which the State would not otherwise pay for, such as holidays.
The terms of the Trust create a Discretionary Trust during the lifetime of the disabled person then passing to others on his/her subsequent death. The trust may be for a specific sum or the whole or part of the estate. Careful thought needs to be given as to how much should be put into the trust since there is no point in putting in a large part of the estate if it is unlikely to be needed because the disabled person could live for many years and the Trust fund would effectively be tied up during that period.
A Discretionary Trust is the best vehicle for providing for the disabled person because the trust assets could not be claimed by the State or by the Local Authority nor are they deemed to form part of that disabled person’s assets. Control remains with the trustees rather than with any outside body. Two or more trustees are required to administer the trust.
There are no Inheritance Tax advantages to such a trust established by Will but there are Capital Gains Tax advantages in that the trust is subject to the exemption available to individuals as opposed to the reduced trust exemption.
In addition to naming the disabled person, the trust needs to name the beneficiaries or class of beneficiaries who are to receive the capital (and any accumulated income) that is left on the death of the disabled person.