Do you need a Vulnerable Person Trust?

by | Jun 9, 2022

When you write your will you need to know who you’re going to leave your estate to. That could be simple if your beneficiaries are all financially independent adults, but what if they aren’t? A Vulnerable Person Trust helps you to leave something for the people you love who need a bit of extra support, without leaving them worse off.

What’s a Vulnerable Person Trust?

A Vulnerable Person Trust allows a vulnerable person to inherit without losing benefits or having to manage their finances themselves. Sometimes an inheritance means that the vulnerable person loses their means-tested benefits or care plan, but it doesn’t leave them with enough to live on. A Vulnerable Person Trust avoids this. A beneficiary is eligible if they receive one of these benefits:

  • Attendance Allowance
  • Disability Living Allowance (either the care component at the highest or middle rate or the mobility component at the higher rate)
  • Personal Independence Payment
  • An increased disablement pension
  • Constant Attendance Allowance
  • Armed Forces Independence Payment

They may also be unable to manage their affairs because of a mental health condition.

The money in the trust must be used to benefit the vulnerable person, although you are allowed to take up to £3,000 or 3% out to give to another beneficiary.

What’s the alternative?

There is another option. There’s another type of trust called a discretionary trust which you can create whether your beneficiaries are vulnerable or not. You can use these to help protect the inheritance from long term care, divorce or bankruptcy. You might choose to use this type of trust if you want to include beneficiaries who aren’t vulnerable, and you can still include the vulnerable person. A will writer like me can help you to decide which is right for you.

The main disadvantage of a discretionary trust is the tax, as any income you receive from the trust can be taxed at a higher rate. The rules can be complicated so it’s important to get professional advice.

Tax differences

The main difference between a Vulnerable Person Trust and a discretionary trust is in the tax. There are different rules which means that a Vulnerable Person Trust is more tax-efficient overall. There are differences in terms of income tax, inheritance tax and ten-year charges.

Again, the way this works will depend on your individual circumstances so it’s important to get proper advice that’s tailored to you so you can make an informed decision.

Which is better for you?

A Vulnerable Person Trust is a great choice if you want to make sure your loved one is provided for without losing their benefits or care plan. If you do create this type of trust, you’ll also need to have a plan for when the vulnerable person dies, as the tax benefits end at that point.

You might also have children or grandchildren who aren’t vulnerable but who will still need some money when they go to university or buy their first home. A discretionary trust can give access to the assets and funds. Sometimes a vulnerable person is so well catered for that they don’t need the money, so it makes sense to let other relatives also benefit from it.

Do you need to write a will with the right trusts? Get in touch using the form below or call us on 0116 380 0752.

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