Vulnerable People and Inheritance

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There have been a number of claims in recent years brought by children who have been disinherited by a parent due to their benefits position. Each and every case is different but the common reasoning behind this would appear to be the testators understanding that giving their life savings to a child on benefits will only result in those savings replacing the child’s benefits.

In some recent cases the Courts have ruled that the child has a successful claim. It has been suggested that this imports forced heirship and makes a mockery of testamentary freedom. However, the Judges comments in such claims have been effectively that such beneficiaries can enjoy the benefit of the legacy, have a short lived spending spree and then go back to receipt of their benefits. What does not seem to have been considered is the complex regulations surrounding entitlement to benefits.

A legacy is treated as “Notional Capital” and only when that drops under the threshold the benefits can be restarted. However, the notional capital does not diminish by the amount spent but the amount of means tested benefit the person would have been entitled to each week. Therefore, if you reinstated your claim early you would not receive any money until the time by which the notional capital would be diminished by the weekly figure.

Therefore consideration needs to be given to this matter by both the testator at the point of making the Will and also any beneficiary who is entitled to a legacy but also in receipt of means tested benefits.

Protecting Disabled or Vulnerable Family Members through your Will

Receiving an inheritance can be problematic for a disabled person or a vulnerable person who is entitled to benefits. This is because money from an inheritance or a gift will normally be counted as an asset for means-tested benefits or services.

For a disabled or vulnerable person who receives benefits and services, this can mean that the opportunity to lead a fuller or more comfortable life makes little difference. The money simply replaces state-funding benefits and services until their fund drops below the excluded capital level, when they go back on to means-tested benefits.

A Vulnerable Beneficiary Trust or Disabled Person’s Trust can be a very good way of ring-fencing the windfall so that means-tested benefits are not affected. This type of Trust allows for a legacy to be put straight into the trust. This ensures that the beneficiary receives real benefit from the legacy and also strengthens the claim that more than the Department for Work and Pensions (DWP) capital limit should be awarded.

A further excellent benefit to this type of Trust is that they also avoid the severe tax regime that now applies to UK trusts. Setting up such trusts should be done before the person receives the money, otherwise there may be problems with the DWP deprivation of capital rules. The money should be given to the trust not the person. There are some further  complex qualification rules as to the nature of the trust, in particular how income and capital are dealt with and this means the Trust deeds need to be carefully drawn up to ensure qualification, or substantial liabilities will result.  This is something that you should discuss with your solicitor in the course of giving instructions.

This type of Trust does open up possibilities for people with disabilities to really benefit from gifts and legacies and it should be given serious consideration before simply bypassing someone of a legacy due to them being in receipt of means tested benefits.

For further information please don’t hesitate to contact Kirsty McNulty in our Wills, Probate, Tax and Trusts department or alternatively call Freephone 0800 975 2643 or send any question through to Forbes Solicitors via our online Contact Form.

Kirsty McNulty

About Kirsty McNulty

Kirsty McNulty is a Solicitor within the Wills, Probate, Tax and Trust department at Forbes Solicitors. Kirsty’s blogs cover her specialisms of drafting wills and trust Wills, Lasting Powers of Attorney, various Trusts such as PI trusts and Asset Protection Trusts, Court of Protection applications and all other areas of private client law. Kirsty specialises in assisting elderly and vulnerable client’s and is a fully accredited member of Solicitors for the Elderly.
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