Trusts for Vulnerable Beneficiaries

A beneficiary can be vulnerable in a number of ways - for example, they may be affected by mental or physical illness, they might have dependency issues or they simply may not be particularly good at managing money.

With this in mind, you might be concerned that people may take financial advantage of him or her after your death; or that they may spend their inheritance unwisely. In other circumstances, the beneficiary might be in receipt of means-tested state benefits which could be at risk following an outright inheritance, or they could be affected by relationship problems that make such an inheritance inappropriate.

When it comes to providing for such a person, whether under your Will or during your lifetime, a trust can often be an ideal solution. When used correctly, a trust can "ring fence" an inheritance, so as to protect it from predators and creditors, as well as safeguarding any entitlement to state benefits and enabling the fund to be managed for the beneficiary during their lifetime.

There are many different types of trust and the taxation consequences of each can vary considerably. HM Revenue & Customs (HMRC) have a specific definition of the phrase "vulnerable beneficiary" that broadly covers anyone who is mentally or physically disabled, or a child under the age of 18 who has lost a parent through death. A favourable tax treatment can be available in these circumstances, but a specific form of trust needs to be used to achieve this. In some circumstance, other types of trust which provide more flexibility can be more appropriate.

We have considerable experience in advising on the creation and administration of such trusts, and extensive knowledge on their interaction with state benefits. Our team is able to advise on the most appropriate structure, bearing in mind the beneficiary's personal and family situation and the taxation and legal consequences.