A big worry for our clients with disabled children, or any other disabled beneficiary, is what will happen to them after they’ve died. Their financial legacy, and how its managed, is obviously a big part of that.
The Will, as usual, is where it always starts. A disabled beneficiary can have their share of the estate left into a Vulnerable Person’s Trust (VPT).
Benefits of a Vulnerable Person’s Trust
- Protection and SecurityA VPT helps manage the money for vulnerable individuals who may not be able to do so themselves, ensuring their financial security.
- Tax Savings: Capital Gains Tax and the income for the disabled beneficiary are charged at their prevailing rate rather than the trust rate. This can mean a big tax reduction. Assets left into a VPT still allow an estate to claim the Residence Nil Rate Band. This can potentially save up to £140,000 in inheritance tax.
- Benefits Eligibility: The money in a VPT doesn’t count against the disabled beneficiary when they apply for government benefits, allowing them to receive additional support.
- Flexibility: Trustees have some flexibility to make decisions that best fit the changing needs of the disabled beneficiary.
Drawbacks of a VPT
1. Trustees. Suitable trustees, usually family members, must be found.
1. Trustees. Suitable trustees, usually family members, must be found.
2. Qualifying. Not all disabled people qualify for the tax reliefs under a VPT. Click here to see why.
3. Flexibility. It’s more restrictive than the more common standard discretionary trust as only the disabled person can benefit from the capital or income.Other options
Sometimes using a standard discretionary trust in the Will, with other beneficiaries also named can give a lot more flexibility when it comes to benefitting vulnerable people. It also gives the trustees two years to work out the best way to distribute and / or manage the inheritance while still keeping any tax advantages.If this raises any questions for you in relation to your own situation, please give us a call. FOr more information about VPTs and range of other odeas, have a look at our Information Centre.
3. Flexibility. It’s more restrictive than the more common standard discretionary trust as only the disabled person can benefit from the capital or income.Other options
Sometimes using a standard discretionary trust in the Will, with other beneficiaries also named can give a lot more flexibility when it comes to benefitting vulnerable people. It also gives the trustees two years to work out the best way to distribute and / or manage the inheritance while still keeping any tax advantages.If this raises any questions for you in relation to your own situation, please give us a call. FOr more information about VPTs and range of other odeas, have a look at our Information Centre.
Stephen Wilkes, Adv Cert in Will Prep (E&W)
Director
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