A Vulnerable Persons Trust (VPT), also known as a Disabled Person’s Trust, is a legal structure specifically designed to protect the financial interests of individuals who may be vulnerable due to a physical or mental disability. In the context of estate planning, VPTs offer significant advantages to beneficiaries and families. I am going to provide you with a breakdown of the benefits of incorporating VPTs into Wills.
- Preservation of State Benefits
One of the primary advantages of a Vulnerable Persons Trust is that it allows the beneficiary to receive funds without losing access to essential means-tested benefits. Individuals with disabilities often rely on benefits such as Income Support or Employment and Support Allowance (ESA). Direct inheritance could jeopardise these benefits by putting them over the financial threshold. A VPT can help mitigate this issue. Assets in the trust are not counted as the beneficiary’s personal assets, so they won’t affect eligibility for means-tested benefits. This allows the vulnerable person to benefit from the trust’s income and capital without risking the loss of government assistance that might be critical to their well-being.
- Protection from Financial Exploitation
Vulnerable beneficiaries may face a higher risk of financial exploitation or mismanagement, either due to the actions of ill-intentioned individuals or simply because of their challenges in managing money. A VPT provides a safety net by placing the assets under the control of trustees, who manage and distribute funds in a way that aligns with the beneficiary’s best interests. These trustees are usually trusted family members or professional advisors who are responsible for ensuring that funds are spent appropriately, providing an additional layer of protection. This structure helps prevent potential financial abuse and ensures the beneficiary’s resources are safeguarded and used responsibly.
- Flexibility in Meeting the Beneficiary’s Needs
A Vulnerable Persons Trust is designed to adapt to the unique and evolving needs of the individual it serves. Trustees have the discretion to make financial decisions based on the beneficiary’s changing circumstances. For example, if the beneficiary requires medical equipment, therapy, or other specialised services, the trustees can make funds available for these purposes. This flexibility ensures that the trust is not only preserving assets but also actively enhancing the quality of life of the vulnerable person. Additionally, if the beneficiary’s circumstances or the level of support they require changes, trustees can adjust how the funds are distributed, ensuring that resources are allocated in the most beneficial way.
- Tax Benefits and Efficiency
VPTs offer certain tax advantages, particularly in the United Kingdom, where they benefit from favourable Inheritance Tax (IHT) treatment. Generally, vulnerable persons are taxed at a reduced rate on income generated by the trust and may also benefit from capital gains tax (CGT) relief on assets within the trust. This tax efficiency allows for a greater portion of the trust’s income and assets to be directed toward meeting the beneficiary’s needs, as opposed to being depleted by tax liabilities. Families concerned about the potential tax burden on inheritance can thus see substantial benefits from setting up a VPT. With careful planning, the trust can help ensure that the beneficiary’s inheritance is maximized and that funds are used in the most tax-efficient way possible.
- Peace of Mind for Family Members
Perhaps one of the most significant benefits of a Vulnerable Persons Trust is the peace of mind it provides to family members. For parents or loved ones of a vulnerable person, there is often concern about what will happen to their loved one when they are no longer around to offer guidance and support. A VPT offers a long-term, structured solution to ensure the vulnerable person is taken care of, even when the immediate family is not available. This peace of mind can be invaluable, allowing families to feel secure in the knowledge that their loved one’s needs will be looked after and that their financial future is stable and secure.
Summary
Incorporating a Vulnerable Persons Trust into a Will is a strategic choice for families with vulnerable dependents. This type of trust not only preserves eligibility for means-tested benefits and protects against financial exploitation but also provides flexibility, tax efficiency, and reassurance for loved ones.
Setting up a VPT involves careful planning and legal advice to ensure compliance with relevant regulations and that the trust is tailored to the beneficiary’s specific needs. However, the benefits make it a worthwhile consideration.
If you need any more help, please contact me below.
Charlotte Taylor T.E.P.
Solicitor