Assuming that you are all going to make a Will, there are a number of important issues to consider if you have a child with special needs. Perhaps the most obvious point to make is that any part of your estate earmarked for that child should not be left to the child outright. There are a number of practical reasons for this and some of those reasons are:-

• If the child doesn’t have capacity to deal with his or her financial affairs, then they could not give a valid receipt to the Executor of the Will for any monies they received as part of their inheritance.

• If the child is an adult, to get round this problem, it would be necessary for an application to be made to the Court of Protection for a Deputy to be appointed to deal with the child’s financial affairs. All this is costly and time consuming and basically unnecessary if the Will is properly drawn.

• If the child does receive an inheritance outright, then it could make the child susceptible to people who might want to take advantage of him/her after the death of both parents.

• If the child is in receipt of means tested benefits such as Housing Benefit or Income Support, eligibility for those benefits could be lost or reduced as a result of the child receiving a capital sum outright.

• If, say, a property was left to a child with a learning disability, it would be difficult for that child to carry out maintenance and repairing responsibilities which in all likelihood would go with the property. .

The type of Will you are going to be looking at is not an entirely straightforward one and therefore it is highly likely that you will need to meet with your solicitor for a full discussion of the options available.

I am quite often instructed by the parent of a child with special needs who has other children and wants to leave things so that the other child or children will “look after” the child with the learning disability in an informal way.

One of the main reasons for not proceeding on that basis is that those monies, which are really earmarked for the child with special needs, are vulnerable in that they are unprotected if, for example, a sibling goes through a divorce or makes some bad financial decisions or for whatever reason decides they don’t want to or can’t use the monies for the benefit of the sibling with the learning disability.

It is therefore much more sensible to formally tie up the part of your estate that you want to earmark for your child within your Will, so those monies are ring fenced for the child with the special needs.

The sort of Will you are likely to be looking at is a Will which incorporates some form of trust. Trusts can be set up during someone’s lifetime or in a Will. If set up in a Will the trust does not become active until the death of the testator i.e. the person making the Will.

How does a Trust Work?

What a trust is, simply, is a vehicle which enables monies or other assets to be held by one person/s who has/ve the legal title (the trustee/s) for the benefit of another person/s who is know as the beneficiary/ies. This normally means that the legal title is held by a different person from the person who is entitled to the benefit of the assets.

The separation of the legal and beneficial ownership of assets is the unique characteristic of a trust and they have been used for generations to avoid or solve problems in two main areas, taxation and family matters, for example, they can be used when someone is unable to handle their own affairs because of incapacitation.

One of the first things you need to do is decide who you want to be your trustees. Obviously, the trustees, of whom there should be at least two, but not more than four, should be people who you trust entirely to carry out your wishes after your death.

Type of Trust

There are a number of different types of trust, but the type which you are likely to be most interested in is probably the ‘principal beneficiary (disabled) trust. What this does is to create a form of trust which is discretionary, but names a specified child as the principal beneficiary. However, because there are additional beneficiaries who would be listed, which would frequently include a charity such as MENCAP, the trustees do not have to pay out all of the income to that principal beneficiary. This means that benefits can more easily be preserved whilst capital advances for such things as holidays or assets which the principal beneficiary wants or needs can still be paid for from the capital of the trust. Normally this type of trust would deal with part of the estate i.e. earmark a particular amount or share of an estate for the benefit of the child via the trust. However with these trusts, at least half of the capital which is paid out (if any) must be paid to the Principal Beneficiary.

Mencap Trust

This is a discretionary trust currently used by Mencap in connection with Mencap Trust Company Limited. What it does is set up a trust during a parent’s lifetime which appoints Mencap Trust Company Limited as trustees and a very small nominal amount is paid to the trustees at the outset. It names the principal beneficiary and lists any other non-primary beneficiaries one of which would be Royal Mencap Society. Then on the death of the parent, an additional, more substantial sum is paid into the trust for the benefit of the primary beneficiary. One of the advantages of this arrangement is that other family members such as grandparents, aunts and uncles can contribute to the trust rather than creating separate trusts in their own Wills. There is a minimum amount of £10,000 which must be left to the trust which effectively is inactive until the death of the parent, at which point it is activated for the person with the learning disability.

The principal beneficiary (disabled) trust is appropriate where the beneficiary of the trust is suffering from severe mental or physical disability and the beneficiary must have no absolute right to income. This is defined in s.89(4) of the IHT 1984 as a person who when property was transferred into the settlement was “(a) incapable, by reason of mental disorder within the meaning of the Mental Health Act 1983, of administering his property or managing his affairs, or (b) in receipt of an attendance allowance under section 64 of the Social Security Contributions and Benefits Act 1992 or section 64 of the Social Security and Benefits (Northern Ireland) Act 1992, or (c) in receipt of a disability living allowance under section 71 of the Social Security Contributions and Benefits Act 1992 or the Social Security and Benefits (Northern Ireland) Act 1992, section 71 by virtue of entitlement to the care component at the highest or middle rate”.

Disclaimer

The contents of this presentation do not constitute legal advice. Independent legal advice should be sought before acting upon any of the issues raised in this presentation, the contents of which are based on the current understanding of taxation and trust law which is always subject to change.

Jan Atkinson (TEP) (CTAPS)
Osbornes Solicitors
Livery House
9 Pratt Street
London NW1 0AE

Tel: 020 7681 8678
Fax: 020 7485 5660

janatkinson@osbornes.net