Making provisions for vulnerable relatives needs careful planning. As well as safeguarding their inheritance, you will also need to ensure that you take tax and inheritance implications into account so that their legacy is dealt with in the most efficient way possible to protect and provide for them in the future.
Who might be considered a vulnerable person?
A vulnerable person is someone aged 18 or over who is unable to look after themselves or avoid exploitation or harm because of a mental or other disability, an illness or other issue. This includes the following people:
- Someone with a mental or physical illness which affects their ability to deal with everyday life;
- Someone who cannot make their own decisions;
- Someone who cannot report abuse;
- Someone who is elderly or frail or who has dementia.
You may also want to make provisions for someone who you do not feel has the maturity to deal with an inheritance, someone who is not financially sensible or someone who is receiving means-tested benefits who would risk losing those benefits if they were to inherit a lump sum.
Sarah has learning disabilities. She used to live with her parents but decided she wanted to live independently so she moved into sheltered housing. This gave her independence and provided her with the support and supervision she needed as and when as required.
To pay for her accommodation, Sarah receives benefits, Local Authority funding and Personal Independence Payments (PIP).
Sarah has a huge passion for steam engines. She lives, breathes and dreams of steam engines, and will do all she can to go and see them. This passion has seen her travel across the country on various occasions to see famous engines.
Sarah’s parents encourage this passion, and upon their death would like to leave her some money so she can continue to enjoy the thrill steam trains give her. They also want to leave money to Sarah to help maintain her and ensure she is looked after, but don’t want this inheritance to impact the means-tested benefits she receives.
What options are there for ensuring a vulnerable person is provided for?
It is always advisable to seek professional advice when putting provisions in place for a vulnerable adult to ensure that the most tax-efficient method is used and also to ensure they will be properly provided for in the future.
Setting up a discretionary trust or a disabled discretionary trust will mean that money can be left to benefit Sarah but it will be administered by a trustee to ensure the capital is protected. The trustee can give money to Sarah for the things that her parents wanted her to have, including her care and everyday living expenses and also for trips to see steam trains.
Money in a discretionary trust would not affect her benefits, meaning she would not lose this funding.
Routes to avoid
It may be tempting to leave the money for Sarah’s care to a trusted relative, however there are several problems with this option. Firstly, it relies upon the relative’s ongoing integrity in looking after Sarah.
Secondly, the money may not be secure if that relative goes through a divorce or becomes insolvent and owes money to creditors.
Creating a deed of variation should also be avoided. If Sarah has inherited money because no valid Will was in place or because a Will left money directly to her, a deed of variation putting money into a trust might seem a plausible solution. However, the local authority could class this as deliberate deprivation of assets and they could take steps to reverse the deed and stop Sarah’s benefits.
Making sure a vulnerable loved one is provided for into the future is so important you should always consider taking expert advice. It is easy to inadvertently make the wrong decisions which could negatively impact their financial situation and security.
At Elm Legal Services, we can discuss your situation with you and ensure that your relative will be properly protected and provided for in the future.
If you would like to speak to one of our specialist Wills and Probate lawyers, call us now on 0117 952 0698 or Contact Us and we will be happy to explain the options available to you without obligation.