A recent study has found a heightened lack of parental awareness around the financial benefits of placing inheritance in a Trust, with at least two thirds of disabled children at risk of losing future state benefits and inheritance.
The research, which looked into the wills of 1000 UK parents of disabled children discovered that 66% have no Trust or Trustee in place, leaving their child’s future inheritance unprotected, vulnerable to loss, and at risk of negatively affecting their child’s future disability benefits.
According to the study, nearly half (47%) of parents with no Trust are instead leaving their disabled child’s inheritance to a family member or friend, in the hope that person will care for their child and protect their share of the inheritance following the parent’s death.
A fifth have appointed a family member, 15% another non–disabled child and 13% a friend to look after and manage their disabled child’s share of inheritance.
But with no official provision in the will, like a Trust, protecting their disabled child’s share of the money this can be a risky decision, as Penny Wright, partner in our Inheritance Protection Team explains: “It’s totally understandable for parents in this position to leave their estate to a trusted friend or family member to look after for their disabled child, but as many solicitors are aware, problems arise when this isn’t done properly. For example, if the entrusted person were to divorce and the child’s assets became part of the financial divorce settlement, or if the entrusted person were to die or become incapacitated. This is something we see often.”
From the 1000 parents with disabled children polled, nearly a third (29%) of children receive up to £6,000 a year in means tested state disability benefits, and over a quarter (27%) claim between £6,000 and £15,000 a year. Surprisingly, 40% of parents with disabled children have yet to apply for or don’t believe their child is entitled to disability benefits.
Penny explains further: “Means tested benefits are affected by the amount of money and investments a person has, including inheritance. Under the Inheritance (Provision for Family and Dependants) Act 1975, it’s possible for the local authority to bring a claim on behalf of the child, which may result in an award being made which affects the child’s entitlement to means-tested benefits.
“But when a Trust is set up correctly, the inheritance is not a fund to which the disabled person is directly entitled so, it’s not taken into account when means tested, and therefore does not affect their entitlements.”
A third of parents polled used a DIY or ‘off-the shelf’ will, created without the aid of a solicitor. A further third, who have set up their disabled child’s inheritance in a Trust, are unaware of the type of Trust they have.
Penny adds: “It’s encouraging to see from our report that over half of parents with disabled children sought the advice of a solicitor to create their will, but worryingly, almost half have not. Our report found that 36% of parents have types of trusts – life interest, bare trust and disabled person’s trusts – that can still fall foul of the rules relating to means tested benefits.”