Some people choose family members, others choose professionals, but many choose a mixture of the two – some who knows the family situation, and others who know the law. The initial choice of trustees rests with the person setting up the trust.
Most people choose between two and four trustees to run their trust.
Disabled person’s trust
Specific trusts are available for disabled persons. These are usually flexible so they can adapt to the beneficiary’s changing circumstances and any future needs that may arise.
They are either called disabled person trusts or trusts for vulnerable beneficiaries.
The trust can be created during the parents’ or guardian’s lifetime or through a will, so that it takes effect on their death.
A disabled person’s trust must have a disabled person as the primary beneficiary.
The trustees have a lot of flexibility and discretion as they will decide which beneficiaries will benefit from the trust fund and to what extent.
As the trust is discretionary, the beneficiaries do not have an absolute right to the trust fund, only the potential to benefit from it.
This is particularly helpful as it means that the trust fund is not considered if the beneficiaries are in receipt of means-tested benefits.
All trusts are subject to tax, be it capital gains tax, income tax or inheritance tax. However, when the beneficiary is disabled, the trust may be eligible for special tax treatment.
There are various conditions that must be satisfied, but ultimately, the aim is to reduce the tax payable by the trust so that funds are preserved for the benefit of the disabled person.
Defining a ‘disabled person’
To set up a disabled person’s trust, the beneficiary must be a disabled person. A disabled person is defined as one of the following:
1. By reason of ‘mental disorder’ within the meaning of the Mental Health Act 1983, someone who is incapable of administering his property or managing his affairs. HMRC accept the following conditions as a ‘mental disorder’:
- Alzheimer’s or other forms of dementia;
- bipolar disorder, schizophrenia, depression or other mental illness;
- autistic spectrum disorder;
- learning disability, eg Down’s syndrome; or
- brain injuries and Parkinson’s disease, but only when they cause psychological, cognitive or behavioural disorders.
2. A person who qualifies under a ‘benefits test’ in that they are eligible for any of the following benefits (even if they don’t receive them):
- personal independence allowance;
- a disablement pension;
- constant attendance allowance; or
- armed forces independence payment.
Conditions that need to be met
The beneficiary must meet the above definition of ‘disabled’. In addition, the trust itself needs to be a qualifying trust.
This means that there must be certain restrictions on who can receive benefits from the trust during the disabled person’s lifetime. These are as follows:
