Code: F03
Introduction
Parents who are caring for a deafblind child, or supporting an adult with disabilities can face enormous demands every day. So perhaps it is not surprising that for many people, making long-term plans for their son or daughter can be a daunting prospect.
There are no easy solutions to question like these, and each family will want to make the arrangements that suit their situation. There is however, a way that this process can be planned for and made easier. Increasingly, families with a disabled member who is unable to handle their own financial and legal affairs are choosing to set up a trust in a Will. This aims to protect the disabled person’s interests in the future after the parents have died.
The factsheet has been designed as a guide for those who have little or no previous knowledge of trusts and how they work. Follow the links below to the relevant section
Estate Planning
How trusts can help?
What is a trust?
Authorities and Power of Attorney
Executors and Trustees
Other considerations
Finding, and preparing to meet with, a solicitor
Further information and contacts
Glossary – an explanation of the terms used
Estate Planning
When we talk about estate planning, we are really talking about making sure all our affairs are in order before we die. The first consideration is to look at the overall situation of the family and those we care about. We also need to examine both the long and short term financial impact of any changes on each member of the family when a parent or carer dies.
For some people the consequences of poor estate planning has far reaching and damaging financial consequences, which cannot be put right after the fact. Unfortunately, estate planning is one of those things that we do not get a second chance at getting right.
The Will - The first thing that needs to be put in place is a Will. Without a valid Will, you are placing the security of those you love at risk. It is very unwise to rely on information about Wills and inheritance that you think is accurate. You need to find out the facts as they relate to your circumstances, and the best way of doing this is to consult a specialist solicitor.
Think of making a Will as a form of insurance. It enables you to make decisions as to how you want to dispose of your possessions, including property, for the benefit of your family, friends, carers, neighbours, and also include any organisations and charities you admire and respect. Without a Will, you leave everything to the rules of intestacy, chance and possibly the taxman! It is only by making a Will you can ensure that your wishes will be carried out.
When a family member is affected by disability, and is unable to handle their own financial and legal affairs, consideration needs to be given to establishing a Trust in your Will. Without such provision, an application may have to be made to the Court of Protection to appoint a receiver to manage the affairs of this family member. This can cause delays, and will involve expense in fees payable to the Court.
Please read the Sense factsheet: Sense’s guide to making a Will (link) this explains in more detail what you need to consider, the actual process of how to draw up your Will and when to do so.
How setting up a trust can help
Depending upon your individual circumstances, there are a number of ways you can protect the interests of a family member who is unable to look after their own affairs.
Without specialist legal advice which looks at the possibilities of making a trust, it is all too easy to make a Will which could result in:
- Entitlement to benefits from the Benefits Agency being stopped.
- Entitlement to Local Authority funding being stopped.
- A Receiver from the Court of Protection having to be appointed to manage the affairs of the family members, which may result in unnecessary delays and fees which could be expensive.
- Where reasonable provision is not made in a Will for a dependant family member who is receiving local authority funding, a claim may be made upon the estate of the deceased under the Inheritance (Provision for Family and Dependants) Act 1975. The costs of such actions come directly out of the estate.
- The estate being subject to a much harsher tax treatment.
Including a Trust in your Will can ensure that you protect the benefit entitlement of your family member, and thereby guarantee continuity and security of care. The way any trust is structured may mean the difference between seeing all of the assets devoured by the relevant local authority within a few years, or making a long lasting difference to the quality of life of the beneficiary.
Including a Trust in your Will can ensure that you make provision for "extras" that you want your family member to have. These can include things like holidays, and particular equipment to enhance someone’s quality of life.
By setting up a trust in your Will, the future security of a family member who is unable to manage their own affairs, is protected.
What is a trust?
There are a number of different types of trusts but broadly speaking, a trust is simply a parking place for money (or assets). A trust has pre-appointed people (trustees) to decide to whom the money goes (the beneficiaries) and the whole thing is governed by a set of rules (the trust deed).
To put more detail to the explanation – A trust is legal mechanism whereby one or more persons, the trustees, are obliged to look after and deal with assets (the trust property) for the benefit of the beneficiary. The trust deed will establish the obligations of the trustees and how they are to benefit the beneficiaries.
Trusts can be set up to suit the individual need of any family situation. For the purposes of safeguarding the future security of a family member who is unable to look after their own affairs three types of trust are most commonly used:
Discretionary trusts
Discretionary trusts give the trustees power to make gifts of capital and or income to a stated number of beneficiaries. The trustees may be given the discretion to give money directly to the beneficiaries, or use it for the benefit of the beneficiaries.
It can last for up to 80 years, and must contain provision as to who will be entitled to anything which remains in the trust when it comes to an end.
A discretionary trust is possibly the most effective way of avoiding means testing because the beneficiaries do not have a right to receive the income - it is at the discretion of the trustees.
Discretionary trusts are best set up for a number of potential beneficiaries and not identifying too closely the family member unable to deal with their own affairs. In this way, the trustees can distribute income to any beneficiary who is, for example paying for holidays, buying clothes or equipment.
The trustees can also be given power to add suitable people as beneficiaries to the trust e.g. someone who becomes a trusted companion or carer. By the trust being able to help with travel costs your family member's lifestyle will be maintained with the level of support that you would have been providing during your life.
Life interest trusts
Also known as Interest in possession trusts. They are created to give one or more beneficiaries the right to receive the income from the trust's property during their lifetime, after which time the income then passes to other persons or charities.
Any property or funds held in trust for a family member who cannot manage their own affairs will not be treated as a capital resource when entitlement to state benefit is assessed. However, the income received from the trust will be taken into account if the family member is receiving means tested benefits or local authority funding.
Protective trusts
Under a protective trust, money or property is administered by trustees who are instructed that the income from it is paid to the beneficiary for life, or fixed period. Traditionally used by parents who fear their children may be unable to deal with any inheritance wisely.
NB: As from budget day 2006, there are changes in the way new trusts are taxed. It is even more important that you take specialist legal advice to ensure the right choice is made for your circumstances.
Who has authority to manage the money belonging to someone who is unable to manage his or her own affairs?
In many situations, simple authority in the form of a letter (from a Family member/ Social Worker/Doctor/Health Adviser) can be acceptable where the amount of money is relatively small. Increasingly, as financial entitlements become more complex, financial bodies are reluctant to disclose information or participate in discussions without formal authority. These types of authority can include:
An Agent - this could include nominating a third party to collect benefit by signing the authority on the back of the allowance order slip and the agent signs the receipt.
The Benefits Agency - can make the agent an appointee. The appointee is liable personally for any loss of the claimant's money, and theft is a criminal offence.
Appointing a power of attorney - giving legal authority to another adult to conduct certain nominated transactions. The authority can be strictly limited. It is normally valid until you cancel it, or die. If you become incapable of managing your own affairs, it becomes invalid.
Enduring power of attorney - giving legal authority to another adult to manage your affairs (which can be restricted to specific matters). It can take effect now and continue to do so if you should become mentally incapable. Or, it can be stipulated that your Attorney will only be able to take over if you should become incapable at any time in the future. It must be registered with the Court of Protection.
A Receiver - can be appointed by the Court of Protection to manage the affairs of someone who does not have legal capacity and where there is no Enduring Power of Attorney. Receiver's fees are payable.
In order to receive a legacy, the beneficiary (or proper officer) should provide an official receipt to the executors which will then discharge the executors from their responsibilities to that beneficiary. When a person is not capable of managing their own affairs, they are unable to provide such discharge. This can necessitate an application to the Court of Protection to appoint a Receiver to manage the financial affairs of the individual. Fees are payable.
If your doctor or solicitor thinks that you are not capable of making a Will, a formal application can be made to the Court of Protection to draw up a statutory will.
Appointing executors and trustees
Executors:
Before you decide who you wish to be your executors, it is worth remembering what is expected of an executor and what some of their duties are:
- Ensuring that funeral arrangements are in accordance with the deceased's wishes.
- Establishing all the assets of the estate
- Ensuring that all liabilities are met
So, far from it being a compliment to be asked to be an executor, it is worth remembering that before asking, (or accepting!) that this is a job, which requires: Honesty, tact and sensitivity, time to carry out the required duties within the prescribed periods, ability to deal with both beneficiaries official bodies such as Registrar of Deaths.
Up to four executors can be appointed, but it is usual to appoint two. Many people chose to appoint a relative or friend and a professional such as a solicitor. A solicitor will charge a fee for any work carried out, and this will be deducted from the residue of the estate. If both of the executors are relatives or friends they can of course consult a solicitor for professional help and any fees incurred will come out of the residue of the estate.
It is also wise to consider the ages of your proposed executors and whether they are likely to survive you.
Choosing trustees
If you decide to draw up a trust to protect the future security of a family member who cannot manage their own affairs, you will need to choose and appoint trustees. As with executors, you can appoint up to four trustees. In order to safeguard the interests of the beneficiaries of a trust, two trustees should be regarded as minimum.
What are the duties of a trustee?
As the laws governing trusts are very restrictive, it is best to give the trustees wide powers which may include:
- Investing trust monies as they think fit
- Considering any investment strategy they think fit without being required to balance the interests of the income and capital beneficiaries
- Purchasing and acquiring any items as trusts investments and allow the beneficiaries to use them (this avoids means testing)
- administering the trust in accordance with the laws governing trusts
- Responding to any changes in family matters
- Responding to any changes in taxation which may affect the trust
Trustees should be aware of your family member's needs and be capable of administering the trust. Ideally, one trustee should be a family member and the other should be someone who has experience of financial matters like tax and investments. Otherwise, you may consider appointing an accountant or solicitor who will charge for their services from the trust fund.
An executor can also be appointed as trustee. As with appointing executors, the same personal qualities of honesty, tact, time and ability apply.
It is worth remembering that in some cases, there can be potentially conflicting financial interests. Such an example arises where relatives are appointed as trustees who will also benefit from the residue of the trust upon the death of the family member who is unable to manage their own affairs.
Such difficulties can be overcome by appointing a person who is independent of the family, in addition to family members. Some Banks and Trust corporations will act as trustees, on the basis that they can charge for their services. Their fees can be expensive.
It is important therefore that the trust fund contains sufficient capital for any professional charges to be paid. Non-professional trustees can of course seek professional advice at a stage and the cost of such will be met from the trust fund.
How to ensure you have taken everything and everyone into account
There are a great many people and matters to be considered when you are making your Will but the following will help to concentrate your mind on those who should be taken into account.
- The beneficiaries: i.e. all those people, organisations and charities you wish to benefit under the terms of your Will. Beneficiaries can also be referred to as Legatees.
- The Executors: these are the people you appoint to carry out the terms of your Will. It is usual to appoint two people, but you can appoint up to a maximum of four. Executors can benefit under the terms of the Will.
- The Trustees: are those people who you appoint to carry out the intentions of any Trust included in your Will. If your Will includes a discretionary Trust to provide for any family member who is not capable of managing their own affairs, Trustees will need to be appointed to carry out the terms of the trust. Usually the same people as the Executors, Trustees can benefit under the terms of the Will.
You may think that there can be nothing else to consider, but do think carefully about the following:
Who is to benefit from the final residue of your estate?
Once all the terms of your Will have been executed, and the various legacies have been paid, the balance (residue) can amount to a considerable sum. If you do not have a specific beneficiary in mind for the residue, do please consider Sense as a worthy beneficiary.
Similarly, when setting up a trust for a family member who is unable to conduct their own affairs, consider what is to be the long term position under the trust. This must be decided on establishing the trust, and by directing any residue after the expiration of the trust to be made to Sense, you know that any such residue would help and support other deafblind people in the future.
Funeral arrangements of the family member who is unable to conduct their own affairs is a subject we do not want to consider. However, you know that it is best that such decisions are made by those who love and know your son or daughter. If you are establishing a trust, you can include your wishes to be carried out by the trustees.
Funeral expenses cannot be paid out of a trust fund unless the trustees are given specific powers, so it is wise to include this authority.
Letter of wishes to trustees. Though a letter of wishes of itself is not legally binding, it is a very useful method to explain to trustees why you set up a trust, and what you want it to achieve. You can also give fuller explanations and reasons as to why certain clauses or restrictions have been made. The letter should be kept with your Will.
Ensure that you keep your Will in a safe place, and that your Executors know where it is.
Review your Will, including any trust regularly. Every five years is sensible.
To sum up...
None of us wants to consider how our children will manage when we die. It is a considerably greater concern when your son or daughter is not able to manage their own affairs. Therefore, it is imperative that the best possible arrangements are made for them.
Well thought out plans and considerations, when put into a Will have long and far reaching effects. Indeed, bereavement can be less difficult when it is realised that the deceased had made such plans for the future of individual family members and friends. The future lives of those you love can be enhanced and the quality of their lives can be maintained.
Finding a solicitor
When including a trust in a Will it is not advisable to purchase a DIY Will form, or consult Will making Companies who are not legally qualified. Sense advises that you consult a Solicitor who is specialist in drawing up Wills and is expert in Trusts and Probate matters. You will have the peace of mind knowing that you have had expert legal, taxation and inheritance planning advice
There are two main sources of information for finding out about solicitors who specialise in Trusts and Probate matters. The Law society and STEP – the Society of Trust and Estate Practitioners.
Sense can help you to find qualified solicitors by giving you the names of three firms in your area. It will then be up to you to contact each firm and decide which one you wish to consult. We suggest that when you contact each firm you ask them the following questions that are appropriate to your circumstances:
- Do you do Legal Aid work (you may be entitled to some help)?
- Do you do home visits (if you have difficulty travelling some solicitors may be able to visit you)?
- What are your fees?
- Are you experienced in drawing up trusts?
- What is the name of the solicitor I will be seeing if I consult you?
Preparation before you meet with your solicitor
- Make a list of all your assets (saving income, property, insurance policies, possessions etc.)
- Make a list of all your liabilities (mortgage/loans/credit/chargecards/debts)
- Make a list of those people, organisations and charities you wish to include and how you wish them to benefit. (match the gift to the person)
- Decide who you wish to appoint as your Executors (usually two, but you can appoint up to four). They will be responsible for carrying out your wishes.
- Decide who are to be the Guardians of your children under 18.
- Decide who are to be the trustees (those who are to manage the trust and make the decisions on where the money goes) a minimum of three is usually a good idea.
- Write out a draft letter of wishes, this is a document used as a guide by the trustees as to how you would like them to distribute the trust funds. It can be quite short and informal. Your solicitor will guide you further.
- Write down a list of any questions you would like answered, with so much new information too take in, it is all too easy to forget.
Key points
- Gather as much information as possible to help you make informed decisions.
- Make your decisions and list them in writing
- Consult a specialist solicitor
Further information and links
For further information and support on all aspects of Wills, trusts and charitable legacies and lists of specialist solicitors:
Legacy Fundraising Manager
Sense
101 Pentonville Road
London
N4 3SR
Tel: 0845 127 0060
Textphone: 0845 127 0062
The Registrar, Court of Protection, Public Trustee Office. For information on enduring powers of attorney, dealing with estates of people suffering from mental disorder or whose affairs are managed by the Court of Protection including making a Statutory Will and Court of Protection fees. http://www.officialsolicitor.gov.uk/functions/court_protection.htm
Further information on trusts, specialist solicitors and accountants may be obtained from the following two sites The Law Society and STEP (Society of Trust and Estate Practitioners) www.lawsociety.org.uk and www.step.org
The Mencap Trust Company are a reputable non-profit organisation aligned to Mencap, the learning disability charity, the company will act as managers/trustees for beneficiaries where there are no suitable trustees. Mencap also have advice on setting up family trusts. http://www.mencap.org.uk/html/legacies/mencap_trust_company.asp
Glossary
Codicil A legal document adding to, or altering, an existing Will
Court of Protection - Division of the Supreme Court which exists to manage the affairs of those who are incapable of managing or administering their own financial affairs.
Estate - The total value of all the assets you leave when you die, after all debts, taxes and costs have been paid.
Executors - The people you appoint to ensure that the terms of your Will are carried out.
Inheritance Tax - This is payable if your estate exceeds the current tax threshold (£285,000 from April 2006). It can be avoided or reduced by leaving a legacy to a charity.
Intestate - If you die without a Will, the law declares intestacy and decides how your assets will be distributed, regardless of your wishes
Legacy - A gift, or bequest in your will. There are several types of legacy which include:
Conditional - A gift conditional upon a certain event taking place
Discretionary - Where you allow your Executors or Trustees to choose who will benefit under your Will.
Pecuniary - A gift of money; if it is index-linked it will help retain its value.
Residuary - What is left of the estate after all other legacies, tax debts and costs have been paid.
Reversionary - A gift to someone for their lifetime and after their death to someone else or a charity.
Specific - A gift which is identified - house, car, etc
Trustees The people you appoint to administer and manage the trust you set up.
If you require information in alternative formats including braille, large print, audio or disk then please contact the communications department:
Tel: 0845 127 0060
Fax: 0845 127 0061
Textphone: 0845 127 0062
This factsheet was produced by:
Sense
101 Pentonville Road
London N1 9LG
Copyright Sense January 2007
