Financial planning for your disabled child

Most parents worry about what will happen to their children if they die, especially if they are under the age of 18.

However, as a parent or carer to a disabled child the question ‘What happens when I die?’ takes on a whole new meaning. Tackling how they may manage financially without you is a good first step to safeguarding their future and giving you peace of mind.

You may have heard of a Disabled Person’s Trust, but many parents are often confused about putting the right plans in place and whether using these special trusts is relevant for them and their family. My Family, Our Needs has teamed up with Renaissance Legal to set out the key points you need to know.

Why set up a Trust?

A Trust is an arrangement which ensures that your assets (property, savings or investments) are held by trusted individuals (known as Trustees) for the benefit of your selected individuals (known as the beneficiary or beneficiaries).

Putting a Trust in place can give you peace of mind that the assets you’re leaving behind for your disabled child can be managed appropriately and can be used for their benefit throughout their lifetime.

It is the Trustees who decide how to use the assets for the benefit of your child and they are directed by the Trust document and Letter of Wishes; the guidance you provide ahead of time.

A Trust also protects your child’s means tested benefits and funding and ensures they are not financially vulnerable. According to Mencap, even a lump-sum inheritance as small as £6,000 can affect your child’s benefit entitlements in the future.

What is a Disabled Person’s Trust?

This type of Trust can only be set up to benefit someone who is disabled or vulnerable and they must meet certain criteria. For most people this is someone who is in receipt of Attendance Allowance, Disability Living Allowance at the middle or high rate for care or the higher rate for mobility or Personal Independence Payment.

The Trustees are in control of how the Trust will be administered and they will decide how to specifically benefit your child. A Disabled Person’s Trust can have significant tax advantages over other types of Trust. The tax rules are complex and need careful consideration but in many cases the taxes paid in this Trust can be minimal.

Who benefits from the Trust?

With this kind of Trust, Trustees can use the capital or income for the benefit of your child and it is at their discretion as to how this is done. Guidance is provided to the Trustees in the form of a Letter of Wishes which means you can set out how you would like them to provide for your child. The Trustees have flexibility in how they make provision for your child which means that plans can be tailored to meet their needs.

Choosing your Trustees

One of the hardest decisions to make when setting up a Trust is choosing your Trustees. It is an extremely important decision as the people you choose will be responsible for managing the Trust and making important decisions that will affect your child. It can take time to think through your options and come to a decision but it is necessary to do this to ensure your Trust is run as you would like it to. A person must be over 18 to be a Trustee and they must be someone that you feel is responsible enough to carry out your wishes and ensure that all decisions are made for the benefit of the beneficiaries. The Trustee can be a family member, a friend or a professional person. It is also possible to appoint a Trust Company to act as a Trustee.

Is a Disabled Person’s Trust right for my child?

There are a number of factors that need to be considered before this can be answered. It is important to consider issues such as:

  • The age of your child.
  • The nature and the long-term prognosis of their disability.
  • The value and type of assets you wish to place in the Trust.
  • The needs of your child, for example, where they may live, who will care for them, and how this will be funded.
  • The needs of other family members.

Useful Links:

Renaissance Legal
Specialists in working with families and carers of disabled children and helping them plan effectively for the future.

Mencap Will and Trusts – all you need to know
A downloadable guide exploring the difference between Wills and Trusts.