These trusts automatically entitle the beneficiary to income tax deductions and capital gains tax exemptions. The aim of these trusts is to reduce the amount of tax payable by the disabled or vulnerable recipient of the deceased’s estate. However, HMRC makes it very clear that the trust should only be used to benefit a disabled or vulnerable person who meets the set criteria.
A beneficiary will only qualify for this type of trust if they meet the strict criteria set by the government. For example, if there is a physical illness or ailment present, they will normally need to be in receipt of a suitable disability living allowance or personal independence payment in order to receive special tax treatment; they’ll need to qualify under a ‘benefits test’.
If a mental disability is preventing them from making reasonable decisions, they may only claim access to this kind of trust on the grounds that they have proof of an accepted mental disorder, such as dementia, bipolar disorder, schizophrenia, depression, Autistic Spectrum Disorder, or a learning disability such as Down’s Syndrome.
Vulnerable beneficiary trusts can also be set up for relative minors – ie, dependants under the age of 18 – who has lost one or more parents through death.
To ‘elect’ a vulnerable person and claim the special tax treatment that’s available to them, we will need to complete form VPE1 (Vulnerable Person Election) and send it to HMRC. The document will need to be signed by both the trustee and the intended beneficiary (or, if they are incapacitated, someone who has been legally nominated to act on their behalf).
The person will be able to claim the special tax relief from the date that’s provided on the form, but they will need to be elected by the trustee no later than 12 months after the 31st January in the year that the trust is due to start.
Clients with disabled beneficiaries will often benefit from using a Lifetime Asset Trust (LAT). By using this arrangement, you can protect the capital value of your house and/or cash savings by placing them into the trust while you’re still alive. All assets within the trust will fall outside of your estate, which means the probate process will be quicker, cheaper and less stressful for your dependents.
Providing a vulnerable or disabled beneficiary with a gift via a LAT stops these gifted assets from being counted for means testing purposes. This means that the beneficiary will still be able to enjoy their statutory support, without losing out on special tax benefits.
The best way to find out if a vulnerable beneficiary trust will be suitable for your situation is to contact Age Legal Services for a free, no-obligation discussion. At your convenience we can arrange a free home visit to those who live within a 25-mile radius of Colchester, and for an affordable fixed fee outside of this area.
Age Legal Services has been vetted and approved by the New Leaf Will Writers Foundation and Essex Trading Standards to visit clients in their own homes. We have also undergone adult and child safeguarding training and work closely with partners/charities to recognise the challenges and dangers faced by older and vulnerable persons in their homes. We have been providing a professional service in the Essex and Suffolk area for over 8 years and our excellent client testimonials on yell.com are a testament of the diligence, professionalism and care that’s shown to each and every client.