Landlords would be well advised to ensure all records regarding their properties are kept up to...
INFORMATION SHEET - CHILDREN WITH DISABILITY
HOW PARENTS & CARERS CAN PLAN FOR THE FUTURE
If you have a child with a disability such as cerebral palsy or autism, planning for their future can seem daunting. Although it may be hard to imagine a time when you won’t be around to care for your child, you will naturally want to ensure that they are taken care of.
In this information sheet we cover some of the things you need to consider:
• Why it is important that you make a will
• What you must consider when having a will drawn up.
• The use of trusts in planning for your child’s future.
With years of experience, we can help by showing you the options available to you so that you take the best course of action for your family situation.
ISSUES TO CONSIDER
Most of us would like to pass on our hard earned money and property to our children. However, if you leave money outright to an adult with learning or development disabilities it can give rise to a range of problems, for them, for their carers and for your executors: -
• If the adult does not have the capacity to deal with their own money, they will be unable to give a legal receipt, to your executors, for it. Unless there is already a deputy appointed to deal with their financial affairs, this will result in someone having to make an application to the Court of Protection to be appointed to deal as their deputy and in turn be able to give receipt for the inheritance and then proceed to manage it on behalf of the incapacitated person.. This can be a time-consuming and expensive process. (Money that could be used for your child’s future ends up being eaten up by court fees). Also once appointed, the Deputy would be expected to declare the inherited money when applying for any state funding, which might result in withdrawal of that funding.
• If your child is able to give a valid receipt for their inheritance, the nature of their condition may me that they do not fully understand the value of money. They may not use it in appropriate ways and may be susceptible to third parties looking to take advantage of them. For this reason it may be best for them not to receive their inheritance into their own hands.
• An outright inheritance may affect means tested benefits. A lump sum of money could mean that benefits are reduced or stopped. If a person has more than £16,000 in capital, they will lose any means tested benefits. So although you may be giving money to improve your child’s finances, it could mean that the inheritance has to be used to supplement the loss of income and thus you may not achieve your intended aims for how to benefit your child.
• Sometimes a client will say that as they can’t see how their money would benefit their child with a learning disability, perhaps if they are already receiving full funding, they will simply make no provision for them and leave their estate to their other family members. However, caution needs to be exercised as if insufficient provision is made, whether through a will or otherwise, then the local authority may take it upon themselves to bring a claim on behalf of your child under the Inheritance (Provision for Family and Dependants) Act stating that you have not made reasonable provision someone that cold reasonably be expected to have been provided for. So it would be unwise simply to ignore the issue.
• Often clients suggest that the money should be given to another family member who “will look after them”. Care is needed here as a gift in this way would be treated as a gift to that person outright and they could use it in whatever way they wanted without any guarantees that they will provide the care promised. What happens if they no longer wish to have the burden of caring for your child, or if their financial circumstances changed through a divorce or bankruptcy, then the money intended to benefit your child could be at risk.
• If you have a property to leave, or you would like a property purchased for your child to live in, how will this work in practice? There will be running costs, maintenance and repair costs. Can your child manage this? If not, a trust may need to be established to give your child a right to reside in the property, whilst the trust has sufficient funds and powers to maintain and repair the property.
• Is your child likely to receive funds from a source other than you? Grandparents often leave money to grandchildren, so this will need to be a consideration in your own planning too because the problems you face in leaving money outright to your child will be the same for anyone else leaving them money as well. Well-meaning relatives often don’t realise the problems that can be caused by outright gifts, so it is useful for them to be educated too and for you to take this possibility into account in your planning.
As outlined, there are many factors to consider when planning for your child’s future. Making your Will is an important part of that process.
WHY YOU NEED TO MAKE A WILL
If you don’t have a Will at all, the intestacy rules will apply. These are legal rules, which determine what happens to your estate when you die based on which family members are in your family at the time of your death.
The rules are complicated and can have unintended consequences. For instance, there is no automatic right for a spouse (or civil partner) to inherit their partner’s entire estate upon death. The rules also provide for anyone over the age of 18 to receive their share outright, so this raises the problems we have already set out earlier. Finally if there are no relatives left in your family, your estate could end up passing to the government! Surely that’s one compelling reason to make a Will.
Your estate could end up paying unnecessary inheritance tax that could have been avoided with proper planning. Inheritance tax is a tax payable upon death if your estate is worth over £325,000 and is not passing to an exempt person/organisation, such as a spouse or a charity. Simple steps can be taken in respect of your assets to reduce your potential IHT liability.
A Will is also important because it enables you to express your wishes about who should receive benefit from your estate. You are making the decisions, not leaving it to chance and hoping the intestacy rules will be suitable. You also get to decide who will sort out your most personal and private belongings and affairs after you are gone.
Using a Will is a great way of planning for the future of an individual with disabilities.
THINGS TO CONSIDER WHEN MAKING YOUR WILL
We can help draw up a Will that meets the needs and circumstances of your family.
These are some of the things we take into account:
It’s our job to ensure that the person making the Will has the level of capacity to do it. Often people will put off making a Will and sadly in some cases leave it too late having become ill and unable to express their wishes. It is important to get your planning done as early on as possible while you are healthy, in sound mind and not distracted by other concerns. Should you suddenly become ill or incapable your carers will have enough to deal with without worrying about whether you have a Will or Power of Attorney in place. (See our separate Information Sheet on Powers of Attorney).
It is useful to prepare a list of your assets and their approximate values before you meet with us to make a Will. This list will include properties, money held in savings accounts, death in service benefits, pensions and life insurance policies as well as any family heirlooms. If you are a couple making a will, how are the assets held between you. Are they in one sole name or jointly held? Gathering this information will help at our first meeting since the advice we give will always be tailored to your individual circumstances.
Full details of your family members are also useful. This helps us to quickly understand who is important to you and whom you are likely to want to benefit under the terms of your Will. If you do have a child or dependent with a learning or development disability, you should tell us about this and the extent of the disability. We can then explore the options with you and discuss how you wish to make provision for them.
You will be asked to choose Executors of your Will. These are the people who administer your estate, i.e. sort things out after your death, and ultimately see that the wishes as laid down in your will are carried out. We are often asked whether beneficiaries under the Will can also be Executors and the answer is yes, providing they are adults and have capacity to understand the role.
You may also need to choose Trustees to administer any trusts established in your will. (More information about Trusts will follow.) Often your Executors and Trustees will be the same people.
If you have children who are under the age of 18, it is sensible to appoint Guardians for them in the event you pass away whilst they are still minors. If your child is over 18 then technically they are considered an adult in the eyes of the law.
When considering your will, you need to think about what type of provision you actually want to make. Is there anyone you would like to leave a specific gift to? It may be an item or a sum of money. People often leave small sums of money as a token to family members, friends and charities. Charities in particular rely on gifts like this and what might seem a small amount of money in comparison to the size of your estate can make a real difference to a charitable organisation. There are also inheritance tax advantages to leaving gifts to charity.
You also need to think what should happen to the rest of your estate – what we call the residue. If you aren’t sure how you want to divide things, we can advise on how it can be divided and what people generally do in different circumstances. We can also help work through your priorities to help you determine what the most appropriate division of assets is.
This is the point at which you will need to consider how best to provide for your disabled child, whether a trust is required and, if so, the best type of trust to meet their needs. We will come back to this point shortly.
A point which people often overlook is, what should happen to your assets if all of your named beneficiaries die before you? This can be a problem in small families, as there will often only be 2 or 3 beneficiaries named in a will. Often there may be other family members whom you would wish to leave your estate to but in some cases, there will not. This can be a good time to consider a charity or charities as the default beneficiaries rather than the government.
Once you have made a Will and made arrangements to keep it safely stored, you will no doubt feel a sense of relief. Make sure however that you keep your will under review. We recommend that you get it out of the cupboard, blow the dust off and have a look over it at least once every 5 years. You may not need to do anything with it but if your circumstances have changed e.g. if you have divorced, married or any of the beneficiaries have died, it will need amendment. If any of these events occur before the 5-year review, it is sensible to contact us.
So that’s a brief summary of why you should make a Will and the things that you need to consider in doing so. Now we will discuss how we can resolve these issues and enable you to plan effectively. The answer may be to use some form of trust. A trust is a really useful way to provide for your child as it basically means they will not become responsible directly for any management or investment of funds. Trusts enable provision to be made in a safe and managed way.
USING TRUSTS TO PLAN FOR YOUR CHILD’S FUTURE
Trusts are not just for the incredibly wealthy! There are various forms of trust and generally they are quite simple to understand.
A trust is simply an arrangement, under which one person gives money or property upon trust to A. N. Other or Others (the trustees) to use for the benefit of another individual or a class of people.
Trusts can be established during your lifetime and usually come into effect straight away. These are usually created by a trust deed, which sets out the terms of the trust. Alternatively they can be established through your Will and come into effect upon your death. These are sometimes called Will Trusts. The intestacy rules (where there is no Will) can also establish trusts upon death if there are minor beneficiaries.
Your decision as to when whether to establish a trust in your lifetime or upon death, will depend on your circumstances and what you want to achieve and when.
Lifetime trusts are sometimes established to provide a vehicle into which inheritances can be placed later.
For instance, a grandparent wanting to leave their grandchild with a learning or developmental disability a gift can gift the money to the trust that you have created rather than outright to the child. So sometimes trusts are set up with a nominal amount of money for this very reason.
Example We have previously established a lifetime trust for a family with a son with moderate learning disabilities. His parents and grandparents have been setting aside money for his future and the money was simply sitting in a bank account in his father’s name.
The father has his own business and was concerned that this money would not be protected if anything went wrong with his business. Whilst his son can manage small amounts of money, neither parent felt it would be sensible for him to have large amounts of money.
Therefore we established a trust from which the son could benefit and the money has now been transferred to the trust and reinvested for the son.
TYPES OF TRUST
There are a number of types of trust which can be established and each type has its own advantages and disadvantages. Here we will explain the 3 types of trust which are most commonly used in assisting people who have children with learning or developmental disabilities.
INTEREST IN POSSESSION TRUST
Probably the least often used, an Interest in Possession Trust is where a sum of money or asset is set aside, to be held by the Trustees, and a named beneficiary gets all the income that the capital produces. This isn’t a very helpful trust where you want to avoid a build up of income in the hands of the beneficiary. If the beneficiary can’t manage their funds or utilise the income, they might lose their entitlement to means tested benefits.
DISCRETIONARY TRUST
A Discretionary Trust is a very flexible form of trust. It allows your trustees to allocate benefits to the beneficiaries of the at their discretion. You do not set in stone what you want to happen, instead it is left open and the trustees exercise their discretion in making any decisions about who should receive what, when they receive it and how they receive it. They can make distributions from the capital of the trust fund or they can make distributions out of the income which has arisen, depending on what is best in the circumstances.
The advantage of this type of trust is that, if you know who you want to benefit but not in what specific way, you can leave this decision to be made by your trustees in the future. Usually a wide selection of beneficiaries are named, such as “my children and descendants” or particular charities and not just the child you wish to benefit. Being a discretionary beneficiary of a trust gives no entitlement for a person to receive anything from the trust, merely a hope that the Trustees will consider them. This can have benefits if an individual beneficiary is in receipt of means tested benefits. The trustees can also use their powers to make payments to third parties which has a direct benefit to your child for items that statutory funding cannot purchase. This avoids money being paid directly to your child and them having to worry about whether are over the capital threshold for means tested benefits.
In situations where a child’s condition is not so severe or will likely improve in the future so that they may ultimately be in a position to take a more hands on approach in managing their affairs, such a Trust can be useful as the Trustees can effectively wait and see how events unfold. It may be that after a period of time, the Trustees are able to end the Trust and give the inheritance outright to your child.
In order to assist your chosen trustees in making decisions under the terms of the discretionary trust, a letter of wishes is fundamental. This is a letter which explains the reasons for creating the trust, any to express hopes you have for the use of the fund. It also details how the fund should be divided up at the end of the day. These letters are not legally binding but are invaluable for the trustees and should form the first point of reference for Trustees when making their decisions. They can also be updated at any point during your lifetime to reflect current circumstances without necessarily needing to update the Will.
TRUST FOR A DISABLED PERSON
As suggested by its name, this is a specific type of trust which is set up for a person who falls under the legal definition of “disabled”. This basically means a person who is incapable of managing their affairs through a “mental disorder” or a person who is, or would be, entitled to receive attendance allowance or disability living allowance at the medium or higher rate.
It is still a discretionary trust but more specific in that your child is named as the “principal beneficiary” of the trust during their lifetime. The principal beneficiary should receive no less than 50% of any of the capital paid out of the trust and the income.
The advantage of this type of trust is that it limits the trustees’ discretion when deciding to make payments from the Trust and thus gives more certainty to parents who do not like the idea of a completely discretionary trust. If your child is in receipt of means-tested benefits, these trusts enable them to receive capital and income payments and not have these taken into account when they are assessed.
There are also special tax treatment rules for this type of trust, which means it can be advantageous for some people in the right circumstances.
The disadvantage is that there can be a build up of income in your child’s hands and it may not be appropriate for this to happen.
There may also be inheritance tax consequences for their estate, dependent on the value of the trust fund, so careful consideration should be given to whether this is suitable for your needs.
We can advise on the most appropriate trust arrangement to suit your family circumstances.
TRUSTEES
The name says it all! They need to be people you trust, particularly in the case of trustees of a discretionary trust.
You are relying on them to carry out your wishes and to get it right!
How do you decide whom to appoint?
There are 3 types of trustees:-
THE LAY TRUSTEE
This type of trustee is a family member or friend. They don’t get paid for their services. They are often a good choice if they know you, your family and your child well. They will often be closer to the situation than anyone else and understand the emotional aspects as well as the practical ones.
THE PROFESSIONAL TRUSTEE
This is a professional advisor, usually a Solicitor, an Accountant or an IFA. They will charge for their services but will have a greater level of experience than that of the lay trustee. They will also be independent and unemotionally involved allowing them to give an impartial view based solely on the facts of the situation. They can be a good choice when you don’t have anyone in the family to ask to act, or if you want a lay trustee to have knowledgeable assistance.
THE TRUST COMPANY
These are companies established for the purpose of managing and administering trusts professionally. There are numerous companies out there that now provide this service. Again, they will charge for their services and provide independence. Some charities can act in this capacity on a ‘Not for Profit ‘basis, which means that they are very cost-effective.
The most common selection of trustees is usually a lay trustee or trustees together with a professional trustee.
This can give the personal element by the lay trustee but having the back up of the professional trustee’s experience, knowledge and independence.
RESPONSIBILITIES OF TRUSTEES
Trustees potentially have a great deal of power in relation to these trusts; however, they also have considerable responsibility imposed upon them in law.
They are responsible to the beneficiaries of the trust to act properly and in accordance with the terms of the trust. The trustees are usually personally liable for their actions in relation to the trust fund and they should only act in the beneficiaries’ interests and certainly not in their own.
They are ultimately accountable to the court for their actions. In general, as well, they should seek the appropriate investment advice for the trust fund and should keep all investments under regular review. There is a great deal of legislation regulating trustees and their position, meaning that they cannot do what they like and should act within the terms of the trust at all times.
BENEFICIARIES OF A TRUST
In a discretionary trust, you choose a wide class of beneficiaries. Anyone who you may like to receive some benefit should, and can be included.
The most usual are: -
• children and remoter descendants
• family members
• close friends
• charities
There is always a default beneficiary which means that if the trust should come to an end and there are still funds in the trust over which the trustees have not exercised their discretion, then those funds will pass to the default beneficiary.
It is usually suggested that a charity is the ultimate default beneficiary in the event that no other beneficiaries are alive or able to receive the trust assets.
HOW DOES IT WORK IN PRACTICE?
Here is an example to show how all of this fits together:
Doreen and Tom are married. They have 3 children, the youngest being Jane who is 21 and has a learning disability. Jane cannot look after herself and lives with her parents. She receives state benefits and assistance from the state in relation to her care package. Doreen and Tom want to make provision for all of their children in their Wills, including Jane, but want to ensure that she doesn’t lose her entitlement to benefits. They are also unsure as to whether one of their other children will act responsibly with an inheritance.
So what options do Tom & Doreen have?
OPTION 1 - one third of their estate is left for each child. However, Jane’s share passes into a discretionary trust under which the whole family are all names as potential beneficiaries, including, grandchildren and 2 favourite charities. The Trustees could be the two older children and a close family friend and/or a professional Trustee. The trustees will have complete discretion over when and how the income and capital is paid out. Doreen and Tom write a letter of wishes explaining to the trustees that Jane should be treated as the primary beneficiary during her lifetime and ideally the fund should be used to provide Jane with small luxuries, such as holidays, trips and new clothes. Upon Jane’s death, any remaining funds should be divided between the other children (or to their children if they have predeceased Jane) or failing them to be divided between the 2 charities.
OPTION 2 - all of their estate is left into a discretionary trust for the family. Same beneficiaries as in Option 1. This time the letter of wishes states that the fund should be shared equally amongst the children, with Jane’s share being kept in trust during her lifetime. Consideration can then be given by the trustees as to whether a one third share is enough to meet Jane’s needs and if the other children are responsible enough to inherit their respective shares. In this way we have added protection for the other two children by allowing the Trustees to judge their individual circumstances at the date of Doreen and Tom’s deaths.
OPTION 3- one third of their estate is left for each child. Jane’s share passes into a disabled person’s trust. During her lifetime, she is the main beneficiary of the income of the trust and the trustee can apply at least 50% of the capital or more for Jane’s benefit. The class of beneficiaries would also include the other children, grandchildren and the charities. Upon Jane’s death the trust reverts to a fully discretionary trust and can operate as such or be wound up. Again the letter of wishes tells the Trustees what should happen upon Jane’s death.
The best option will depend on the couple’s priorities, estate value, wishes and requirements and this is something that would need to be discussed fully with them.
PICKERINGS SOLICITORS have a strong private client team with considerable experience in advising families in relations to Wills, Trusts, Tax Planning, Powers of Attorney and Care Issues.
We adopt an individual approach, taking time to get to know you and the particular circumstances of your family so that we provide appropriate and cost-effective advice.
We know that by getting proper advice and planning in place at an early stage, a considerable amount of worry, grief and money may be saved in the longer term.
We may also be able to put you in contact with charities and support groups who may assist you. (In certain circumstances charitable aid is available to cover some of the legal cost involved in the planning process.)
For more detailed advice or information, contact our specialist team, led by Emma Harrison on 01827 317070.
They will be happy to advise on ways of planning for your future, will inform you of costs, and answer any questions you may have.
This leaflet is for information purposes only; you should always seek specific legal advice for your own circumstances.
