Protection for the Future - A Guide to Trusts and Wills
We are often asked for advice about protecting children’s, young people’s and adults’ financial futures. This leaflet gives a brief introduction to trusts, wills, and powers of attorney. It has been written with Caroline Bates, a specialist in this area of law and a solicitor with Davidson Mahon Solicitors.
It is important that you get professional legal advice but the following information will hopefully provide you with an introductory guide.
PART 1: Trusts
Trusts are a way of providing ongoing financial assistance to someone with SMA as well as for anyone else you choose. Trusts can be set up during your lifetime or through your will after your death. Anyone you choose to benefit from your trust fund is referred to as a beneficiary.
What is a trust?
A trust is a fund that you have set up and paid money in to that is managed by a group of trustees. Trustees are people you trust, and who you have chosen to deal with the fund in line with the terms of the trust. You can put money, shares and/or property into a trust. It is not generally worth setting up a trust for under £10,000. The aim of a trust is to provide for the beneficiaries you have named.
Why have a trust?
A trust allows your trustees to protect and use the funds for the benefit of your chosen beneficiaries. Most trusts are flexible which allows changing circumstances to be taken into account.
Beneficiaries of most types of trust do not ‘own’ the fund so this money is not included in their income or capital if they are receiving any means tested benefits.
Once a trust is set up, anyone can add money to it. You can view it as a longstanding arrangement that all the family can contribute to if they wish.
Types of trust
There are a few different types of trust and they can change in their nature to suit future tax and family circumstances. Your advisor will help you to decide which one is right for you and your beneficiaries.
The following is a brief summary of the different types of trust that are available:
- Life interest trusts
A life interest trust will provide the beneficiary with the income from the trust for their lifetime. It does not give them any right to the capital of the fund unless this has been expressed in the trust deed. After the beneficiary dies, the trust fund will pass to other named beneficiaries.
A life interest trust can also apply to property held in trust. In this case the beneficiary can either live in the property, without paying any rent, or receive the rental income from it during their lifetime.
With a life interest trust, the beneficiary must be able to manage the income they receive. The income will be taken into account for means tested benefits.
Income is what the trust earns from whatever its funds are invested in. For example: rent from a house; interest from an interest earning account; dividends from shares. Capital is, for example: the house; the invested money; the shares. Depending on the type of investment the trustees have made, the income can therefore be either fixed or it can fluctuate.
- Discretionary trusts
Discretionary trusts are the most flexible type of trust. The trustees have the power to decide who will benefit, when, and how, from a list of potential beneficiaries you have provided them with. The trust fund does not belong to any one of the beneficiaries and so will not affect their ability to claim benefits. Any money paid to a beneficiary can also be controlled to ensure that it will not result in them losing any money if they do receive benefit payments.
Discretionary trusts can be used to provide for needs that aren’t necessarily met by Government-funded support. For example, specialist equipment, holidays, or computers. The trustees are able to purchase these items using the fund so that the beneficiary does not receive the money directly.
Discretionary trusts are, however, subject to quite complex tax rules. It is a good idea to get professional legal advice about this, particularly before making any payments to beneficiaries.
As with the life interest trusts, if the fund is no longer needed, it can be distributed to any other named beneficiaries.
- Disabled person’s trusts
Disabled person’s trusts can be set up for an individual who is defined as disabled under tax laws. These trusts have the same benefits as discretionary trusts, but have less complex tax arrangements and rates. They do, however, have quite restrictive rules on who, other than the disabled person, can benefit from the trust. You should seek advice about your own particular circumstances to see if the restrictive nature of this trust outweighs the tax issues of a discretionary trust.
- Private charitable trusts
Charitable trusts have tax advantages but they are difficult to set up for a single person as they have to be for the benefit of the wider general public. If you want to set up a fund for a particular individual then a private charitable trust will not suit your requirements and you will need to choose one of the previously mentioned trusts.
Choosing trustees, their role and duties
You can appoint any number of trustees but will need a minimum of two. (If you appoint more than four trustees and the trust owns land, only the first four trustees can be the registered owners at Her Majesty’s Land Registry). It is normally best to have two plus yourself. It is recommended that at least one trustee is not a family member. This ensures that there is an independent person to help with the decision making.
Even if you set up the trust initially and are one of the trustees, you cannot control the trustees’ decisions or have a deciding vote. You can, however, provide guidance on how the trust fund should be used by giving the trustees a letter of your wishes. This is not legally binding, but the trustees can use it to guide their decision making. This letter should be prepared at the same time that the trust is set up and should be updated from time to time.
It is helpful to have a good balance of trustees, some who have an understanding of the needs of the beneficiary, and others who may be better suited to dealing with the administration of the trust. Solicitors, some banks, and other trust corporations can act as professional trustees but they will charge a fee. In most circumstances there is no need for a professional trustee but they can be a useful choice.
Being a trustee is a serious responsibility. Trustees need to act impartially, unanimously and in the best interests of the beneficiaries at all times. Provision can be made to allow for majority, rather than unanimous decision making, but this must be specifically noted in the trust deed.
Trustees must also: comply with the terms of the trust; keep the fund separate from their own accounts; keep detailed records of all transactions; make sure the funds are invested wisely; and make sure the taxation of the trust is kept up-to-date with Her Majesty’s Revenue and Customs (HMRC).
Trusts can last up to 125 years so it is important to choose people who get along with each other and who make sensible decisions, particularly when they need to appoint a new or replacement trustee.
PART 2: Wills
If you have already set up a trust, you might want to consider making a will as well. If you haven’t set up a trust you can state in your will that you want one to start after your death. Making a will ensures that your wishes are carried out, whether or not you want a trust.
Making a will doesn’t have to be expensive, but it is best done properly and with the help of an experienced adviser such as a solicitor or will writer. Always check their credentials. Also make sure they have experience in advising on wills that include provision for a beneficiary with a disability. A good adviser will always discuss and agree the costs with you upfront, so make sure this happens prior to going ahead.
For help with finding an experienced local solicitor you can contact The Law Society of England and Wales, The Law Society of Northern Ireland and The Law Society of Scotland. Contact details are at the end of this leaflet.
Before writing your will you may need to consider the following:
- Choosing a guardian(s)
If you have children under the age of 18 then you might want to consider appointing a guardian(s) who, in the event of your death, would take responsibility for your children’s upbringing and welfare. In your will you can specify your choice of guardian(s) and also include guidance on how you would like them to look after your children. You would need to discuss and agree this with your chosen guardian(s).
- Choosing executors
Executors have a similar role to trustees, but their job is to administer the financial aspects of your estate after your death. This includes paying any debts and distributing your money and/or belongings to your chosen beneficiaries.
- Choosing who to benefit
In your will you need to list any people and organisations who you would like to leave something to. If you would like specific items or amounts of money to go to specific people or organisations, this will need to be stated.
- Keeping your will up-to-date
Once in place, it is important to keep your will up-to-date, particularly if your or your beneficiaries’ circumstances change. If this happens, you should seek advice to ensure that your will is still suitable for your needs. For example, if you were to remarry, any existing will is automatically cancelled.
PART 3: The legalities of managing someone else’s finances
Managing the personal and financial affairs of a child does not normally require any legal form of authority and parents are able to do this without much difficulty. This changes once a child is 18 and legally becomes an adult. If the young adult’s funds are already held by a trust, then the trustees will carry on managing the fund for them. If, however, the young adult has assets, for example a house, shares, or investments in their own name, then family members or friends will have no automatic legal right to manage their affairs for them.
There are a number of options available if the young adult is viewed as a vulnerable person. The Department of Health defines a vulnerable person as someone “who is or may be in need of community care services by reason of mental or other disability, age or illness; and who is or may be unable to take care of him-or-herself, or unable to protect him-or-herself against significant harm or exploitation” (Department of Health, 2000).
In this situation the following options may be possible:
- Appointee for benefits
It is possible for a parent, or close companion, to apply to the benefits agency to be approved as an appointee. The appointee will then receive and manage the vulnerable adult’s benefits for them. Further information on becoming an appointee is available from the Government’s website which is listed at the end of this leaflet.
- Power of attorney
A power of attorney is a separate document to a will or trust that allows a person to appoint trusted people, called attorneys, to act on their behalf. At the time they agree to it , the person granting the power of attorney must be mentally capable of understanding the document and be able to sign the power of attorney document.
We all hope we will never be too unwell or lack sufficient mental capacity to deal with our own affairs but it can happen to any of us. If a condition affects their mental capabilities, a person can become vulnerable to financial difficulties or abuse.
Mental capacity is a person’s ability to make decisions for themselves. If they are unable to do this due to a mental impairment then legally they can be said to lack mental capacity. The impairment may be either temporary or permanent. More information on mental capacity is available from the Mental Health Foundation whose details are listed at the end of this leaflet.
If a person does not have sufficient cognitive understanding to enter into a power of attorney, an application has to be made to the Court of Protection for the power to make decisions on their behalf. Having a deputy appointed by the Court is time-consuming and expensive. The individual will also have no input into choosing the deputy who will manage their affairs, although this can generally be a family member or the Local Authority.
If an individual wants someone else to manage, for example, their bank account on a temporary basis, then this can usually be arranged by filling in a form at their bank or building society. If it is going to be a long-term arrangement, then they will need to apply for an ordinary power of attorney. This is a document where one person appoints another to manage a matter for them, such as a bank account or a property transaction. This could be because they are out of the country, or are physically unable to attend appointments due to a disability / illness. An ordinary power of attorney is not used if the individual lacks mental capacity.
Although people with Spinal Muscular Atrophy have physical rather than any cognitive impairments, it is still important for them to consider having a power of attorney. Their chosen attorney can then assist with their finances and their personal welfare and medical decisions if at any time they are not able to make these decisions for themselves.
A lasting power of attorney enables an individual to have protection in place in case they become impaired and there is a change in mental capacity in the future.
There are two types of lasting power of attorney (LPA). You can have one or both of them:
- A property and financial affairs LPA
This allows an attorney to deal with an individual’s finances and any property that they own. It can only be used after it has been registered with the Court of Protection. Once registered, an attorney can deal with financial matters on the individual’s behalf, whether or not they have mental capacity. This means that they have the option of asking their attorney for help, even if they are still able to deal with matters for themselves. This can be useful if there is an aspect of their finances that they don’t want to deal with anymore, or if they are physically unable to. If an individual has a change in their mental capacity then their attorney will ensure that their finances are dealt with appropriately, on their behalf, and in their best interests.
- A health and welfare LPA
This enables an attorney to deal with an individual’s healthcare and personal welfare. This can include decisions regarding their day to day care, where they live, and their medical treatment. It can only be used if it is registered with the Court of Protection, the individual has lost their mental capacity, and they are unable to make these decisions for themselves. All aspects of an individual’s personal welfare are covered by this type of lasting power of attorney and their attorney must always act in the individual’s best interests.
For more information on lasting power of attorney and to apply online, please see the Government’s website listed at the end of this leaflet. Applications can also be made through a solicitor, or an experienced adviser at a Citizens Advice Bureau (CAB). For details on how to contact the CAB, please see the information at the end of this leaflet.
Citizens Advice Bureau (CAB)
Mental Health Foundation
Office of the Public Guardian
The Office of the Public Guardian is responsible for: registering lasting power of attorneys; appointing and supervising deputies; making sure an attorney or deputy is carrying out their duties properly; dealing with complaints and objections about attorneys and deputies.
England and Wales: 0300 456 0300 www.gov.uk/government/organisations/office-of-the-public-guardian
Northern Ireland – The Office of Care and Protection: 02890 724 733 www.courtsni.gov.uk/en-GB/Services/OCP/Pages/default.aspx
Scotland: 01324 678 398 www.publicguardian-scotland.gov.uk
The Law Society of England and Wales
0207 320 5650
The Law Society of Northern Ireland
02890 231 614
The Law Society of Scotland
0131 226 7411
Authors: Caroline Bates – solicitor, Davidson Mahon Solicitors and SMA Support UK Information Production Team
Fully updated: February 2018
Full review due: February 2021
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