Safeguarding the Future: The Importance of Setting Up a Trust for a Vulnerable or Disabled Child

Estate planning is a vital process for any family, but when a child has a disability or is otherwise vulnerable, the stakes are even higher. A well-structured trust can provide long-term financial security, protect access to essential benefits, and ensure that the child’s needs are met with dignity and care. Importantly, grandparents must also be involved in this planning to avoid unintentionally undermining the trust through their own wills.

Why Set Up a Trust for a Vulnerable Child?

A trust is a legal arrangement that allows assets to be managed by trustees for the benefit of a named individual. For vulnerable or disabled children, trusts offer several key advantages:

• Preservation of Means-Tested Benefits: Direct inheritance or gifts can disqualify a child from receiving benefits such as Universal Credit or social care support. Trusts ensure that assets are not counted against these thresholds
• Protection Against Financial Abuse: Trustees manage the funds, reducing the risk of exploitation or poor financial decisions
• Tax Efficiency: Certain trusts, like those for vulnerable beneficiaries, qualify for special tax treatment under UK law
• Long-Term Security: Trusts can be structured to last for the lifetime of the child, ensuring consistent support even after parents or caregivers are gone 

Types of Trusts Suitable for Vulnerable Beneficiaries

1. Disabled Person’s Trust: Designed specifically for individuals who meet eligibility criteria (e.g., receiving Disability Living Allowance or Personal Independence Payment). These trusts benefit from favourable tax treatment and are tailored to the unique needs of the disabled person
2. Discretionary Trust: Offers flexibility by allowing trustees to decide how and when funds are distributed. While not limited to disabled beneficiaries, they can be used effectively when multiple beneficiaries are involved 
3. Vulnerable Beneficiary Trusts: Recognised by HMRC, these trusts offer tax reliefs if the beneficiary qualifies as vulnerable. Trustees must file a “Vulnerable Person Election” form to claim these benefits 

The Role of Grandparents in Estate Planning

Grandparents often wish to leave assets to their grandchildren, including those with disabilities. However, without proper coordination, their well-intentioned gifts can disrupt carefully constructed trust arrangements.

Common Pitfalls:

• Direct Gifts or Inheritance: Leaving money directly to a disabled grandchild can jeopardise their benefits and bypass the trust structure
• Uncoordinated Wills: If a grandparent’s will does not reference the trust or includes conflicting provisions, it may result in assets being distributed outside the trust, causing legal and financial complications for the individual
• Where children of a testator may have predeceased leaving their shares passing automatically and outright to their children instead without the benefits of a protecting trust structure

Best Practices:

• Include Trust Provisions in Wills: Grandparents should explicitly state that any inheritance for a vulnerable grandchild be directed into an established trust or a trust should be set up in their Will as well.
• Consult with Estate Planning Solicitors: Legal advice ensures that all family wills and trusts are aligned and compliant with current laws
• Use Letters of Wishes: These documents guide trustees on how to use the funds to support the child’s quality of life, without being legally binding. The more detailed the Letter of Wishes the more effectively the trustees can support the beneficiary. 

Legal and Tax Considerations

Trusts for vulnerable beneficiaries can offer relief from:

• Income Tax: Trustees may claim deductions based on the difference between trust tax liability and what the beneficiary would pay
• Capital Gains Tax: Special allowances apply, and trustees can claim reductions if gains would have been lower for the beneficiary
• Inheritance Tax: Trusts set up for disabled persons may be exempt from 10-year charges and benefit from favourable treatment if structured correctly 

Conclusion

Setting up a trust for a vulnerable or disabled child is not just a financial decision—it’s a compassionate act of long-term care. Involving grandparents in the planning process is essential to ensure that their legacy supports, rather than disrupts, the trust’s purpose. With proper legal guidance and coordinated estate planning, families can secure a future that honours the dignity and needs of their most vulnerable members.

We work closely with you to understand your goals and tailor your Trust to your needs. Our team has years of experience navigating the complexities of Trust Law and make the legal process easy to understand, so you feel confident in your decisions. Just call us on 01926 354704 or email: pcnewenquiries@moore-tibbits.co.uk.