Vulnerable/Disable Trust

Question 1

Conditions under a Bare Trust

Answer 1

Individual is ABSOLUTE beneficiary

Trustees are legal owners of the trust

Can take control from age 18, if possible, if not Trustees will continue to act

On death the trust forms part of their estate and distributed according to the Will or Laws of Intestacy

Question 2

Conditions under a Discretionary Trust

Answer 2

Trustees are legal owners of the trust

Individual is the default beneficiary from Discretionary class of beneficiaries

Death, trust can continue or be distributed

The trust fund will not form part of the estate

Question 3

How could a Personal Injury Trust affect state benefits

Answer 3

Trust is disregarded if only capital taken in an adhoac basis

Regular withdrawals could impact eligibility

Means testing could be relevant in the future.

Only compensation about should go into the trust.

Question 4

What qualifies for the special tax regime for trusts for the vulnerable?

Answer 4

The trust property can only be applied for the benefit of the vulnerable person.

Must be entitled to the income

Question 5

Definition of Disabled?

Answer 5

Definition of disabled according to Section 89(4) of Inheritance Act 1984
Or
Incapable by mental capacity within the meaning of the Mental Health Act 1983, or

Be in receipt of;
Attendance Allowance

Disability Living Allowance

PIP (Personal Independence Payment)

Question 6

Tax treatment of Personal Injury Trust

Answer 6

Requires 2 calculations;

1. Beneficiary’s own marginal rate of tax
2. Based on trustee rate of 45%

Difference is applied as tax against the Trustee Rate of Tax

The same principle applies to CGT

Beneficiary can use full CGT allowance

No CLT charge at 20%

No Periodic or Exit charge

Joint election by trustees and vulnerable person and valid for 1 year.

Election is irrevocable

Question 7

Main duties as a trustee of a Vulnerable Person’s Trust

Answer 7

1. Consider standard investment criteria and suitability of the investment
2. Diversification (especially if a large fund)
3. Obtain advice of Suitably Qualified person or professional
4. Investments reviewed at least annually
5. Manage funds to act in the best interest of beneficiary
6. Invest cash promptly
7. Comply with Trustee Act 2000
8. Keeping proper accounts
9. Consider beneficiary’s tax position and complete annual tax Return
10. Statutory duty of care - invest as if their own
11. Register assets in the trust
12. Register and hold trust doc’s and title deeds and as trustee owns assets