Disabled Discretionary Trust (DPT)

What is a disabled discretionary trust?

A DPT is a Trust set up to specifically benefit a ‘disabled person’ and is largely discretionary in its nature.

WHY HAVE A TRUST FOR A DISABLED BENEFICIARY?

If you have a disabled child or beneficiary who currently receives means tested benefits, then you need to ensure that any inheritance you leave to them is safeguarded.

If you leave money to a disabled person directly, in the form of a gift in your Will, it can affect any means tested benefits they may be entitled to.

The main means tested benefits are: · Income Support · Income-based jobseeker’s allowance · Pension credit · Housing benefit; and · Council tax benefit.

By incorporating a discretionary trust into your Will, protects the means tested benefits of your disabled child or beneficiary under current rules and overcomes these barriers.

The trust is a formal legal arrangement whereby trustees hold money on behalf of the beneficiaries, in accordance with the terms of your will.

The money is protected and if the right kind of trust is used, it will not affect any means-tested benefits.

Where advice isn’t given to people making a Will they may choose to leave money to a third party, such as a sibling, on the understanding that they will look after the disabled beneficiary.

However, if the third party gets divorced or has large debts, they may lose control of the money they were informally holding.

Furthermore when the money is gifted to a third party, there is no obligation on that party to use the funds for the disabled beneficiary. All of this can be avoided by forward planning and including a trust in your will.

The current rules state that, usually, if you have more than £6,000 in capital this will affect your entitlement to means tested benefits including Income Support, Housing Benefit and Council Tax Benefit.

These benefits and Tax Credits are also affected by any income received.

If there is more than £16,000 in capital, your beneficiary will not be entitled to means tested benefits at all.

Setting up the discretionary trust enables your trustees to manage any inheritance on behalf of your disabled beneficiary, which in turn avoids the need to appoint a Deputy.

A Deputy is DISCRETIONARY TRUSTS FOR DISABLED BENEFICIARIES where someone appointed by the Court of Protection to deal with the financial affairs of someone who lacks the capacity to deal with their own finances.

What are the disadvantages of a discretionary trust?

Disadvantages of discretionary trusts – Not all potential beneficiaries are guaranteed to benefit.

As who benefits and by how much is left up to the discretion of the trustees, some potential beneficiaries who the settlor had intended to benefit may not.

How do you qualify for a disability trust?

Disabled persons – For the trust to qualify as a disabled person’s trust, there must be a beneficiary who is disabled at the time assets are settled (transferred) into the trust.

Special Needs Trust

A special-needs trust is a trust for a person with a disability or a child or an adult with special needs. With a special-needs trust, the beneficiary can continue to receive public benefits even if they have assets.

What type of trust is typically used as a trust for a disabled person?

Discretionary Trusts: A discretionary trust gives the trustees discretion regarding how the trust’s income and capital are distributed among the beneficiaries.

This type of trust can be beneficial for disabled people who may not be able to manage their own finances or make decisions about their own care.

What happens to a discretionary trust when someone dies?

If a discretionary trust is set up during the settlor’s lifetime, the assets within that trust may fall outside their own estate if they die at least seven years after putting the assets into the trust.

This will have the effect of reducing down the overall value of their estate when it is assessed for inheritance tax.

Why use a disabled person’s trust?

Funding may come from gifts, an inheritance, and proceeds of life insurance policies.

A self-funded or first-person special needs trust allows people with disabilities to place their own money into a special needs trust and still be eligible for certain benefits under SSI and Medicaid programs.