A special needs trust is a legal arrangement designed to provide financial support for individuals with disabilities or special needs, without compromising their eligibility for means-tested benefits, such as Universal Credit or other government assistance.
The purpose of the trust is to ensure that the person with special needs can receive financial assistance and resources while protecting their long-term interests.
Key Features of a Special Needs Trust
- Beneficiary: The trust is set up to benefit a person with a disability or special needs, ensuring they have access to funds for specific purposes (e.g., care, housing, or recreation).
- Trustees: Individuals or entities (like solicitors or family members) are appointed to manage and oversee the trust on behalf of the beneficiary.
- Assets: The trust holds assets, which could include money, property, or investments. These assets are managed and used to support the beneficiary.
- Discretionary Nature: Special needs trusts are typically discretionary trusts, meaning the trustees have control over how and when the assets are distributed. This ensures the beneficiary does not have direct control over the assets, which helps preserve their eligibility for benefits.
Why Use a Special Needs Trust?
- Preservation of Benefits: Means-tested benefits like Universal Credit or housing assistance may be reduced if an individual inherits significant assets outright. A trust can protect these benefits.
- Long-Term Support: The trust ensures ongoing financial support throughout the lifetime of the beneficiary, even after the death of parents or caregivers.
- Protection of Assets: By holding assets in trust, they are safeguarded from misuse or exploitation.
- Tailored for Specific Needs: Trustees can use the trust funds to cover expenses that improve the quality of life of the beneficiary, such as therapies, education, holidays, or personal care.
Types of Special Needs Trusts
- Discretionary Trust: The most common type for special needs. Trustees decide how to use funds to benefit the person with special needs.
- Disabled Person’s Trust: A specific type of trust recognized under UK tax law, where the primary beneficiary is someone with a qualifying disability. It has certain tax advantages if structured correctly.
Tax Considerations
- Special needs trusts, particularly disabled person’s trusts, may qualify for favorable tax treatment under Inheritance Tax (IHT), Capital Gains Tax (CGT), and Income Tax.
- For instance, the trust can avoid certain punitive tax rates if it meets criteria laid out in UK tax laws, such as ensuring the beneficiary meets the definition of a “disabled person” under the law.
Setting Up a Special Needs Trust
- Legal Advice: It’s advisable to consult a solicitor or financial advisor specialising in trusts and disability law.
- Trust Deed: A legal document that outlines the terms of the trust, including the appointment of trustees, the beneficiaries, and the management of assets.
- Funding the Trust: Assets can be transferred into the trust through lifetime gifts, inheritances, or life insurance policies.
By setting up a special needs trust, families and carers can ensure that individuals with disabilities have financial security and quality of life, without risking access to vital government support.
If you would like to chat with our banking team about opening a bank account as a trustee of a Special Needs Trust, simply contact us, and we will be very happy to assist you.
