Making financial provision for disabled children

The risks with informal arrangements

Families sometimes rely on informal arrangements as a way of making provision for their disabled children after their death.  For example, a parent may have made a simple Will specifying that another family member is to be the beneficiary instead of the child themselves, on the assumption that the third party will use the inheritance to benefit the child.  Unless a formal arrangement such as a Will Trust is created, there are many reasons why you may want to reconsider relying on an informal arrangement:

• Inheritance Tax. Depending on the size of the beneficiary’s own estate, there may be adverse tax consequences for them both in terms of receiving funds from your estate and subsequently making regular gifts to benefit your child.
• When the third party beneficiary dies, any inherited funds still in their hands would belong to the beneficiaries they had named in their own Will or their heirs on Intestacy if they hadn’t made a Will. It would then be for their beneficiaries to decide whether to retain their inheritance or to honour your wishes (assuming they were aware of the situation.)  The recipients may have little/no connection to you and may not feel any moral obligation towards your child.
• If the third party beneficiary was to divorce, the inheritance they received from your estate could effectively distributed to their estranged spouse as part of the divorce settlement.
• Your estate could be inadvertently distributed to the creditors of the third party beneficiary if they were bankrupt.
• In addition to all of the points above, the third party beneficiary simply might not honour your wishes after your death. They would not be obliged to do so if on the face of it they had inherited your estate with no strings attached. 

How to safely make provision for disabled children

Our recommendation would be that you set up a Trust within your Will.    A Trust is a legal arrangement where individuals are chosen (known as Trustees) to look after assets for your intended beneficiaries.  Trusts can be incorporated into Wills which take effect on death (known as a Will Trusts.)

In creating a Will Trust, the Trustees would have ongoing legal duties to safeguard the Trust assets and to act in the best interests of your chosen beneficiaries.   One type of Trust which is commonly used where there are disabled children is a Discretionary Trust but there are other types of Trust.  Our specialist lawyers would be able to discuss the options available to you.

With a Discretionary Trust, the Trustees would use the assets belonging to the Trust only if and when it was appropriate to do so, ensuring that any distributions made would not affect the beneficiary’s eligibility to receive means tested benefits, for example.  

The team of experts in our Private Client Team would be happy to guide you and help you plan for the future. If you require further information or assistance please do not hesitate to contact one of our experts at York 01904 716000 or Wetherby 01937 583210 or Malton 01653 692247 or email law@warekay.co.uk