Discretionary Trust/Right of Occupation? Retaining Housing Benefit

My client is a Widow, no children. She lives in rental property.

Her mother-in-law lives in property owned by my client. Mother-in-law receives Housing Benefit and pays this to my client.

My client, although not expected to die before mother-in-law, wishes her mother-in-law to be allowed to live in the property, until she moves into care. My client wants to know whether her mother in law will still be able to claim Housing Benefit, which I imagine would be paid to the Trustees? She would like this to be the case.

Is this possible? Is a Discretionary Trust the answer as opposed to a Right of Occupation. In terms of tax, mother in law doesn’t have any assets to speak of and not expected to survive 10 years- although you never know. Property approx £300k.

Many thank in advance.
Siân Maund
ADLAW

My understanding is that Housing Benefit is to assist in the payment of rent, with claimants needing to prove the existence of a tenancy upon application.

If the client lies in rented accommodation, as the question suggests, unless her mother-in-law is a co-tenant the tenancy is likely to terminate upon the client’s death. Should the tenancy be an assured tenancy or succession rights apply, the mother-in-law might be able to claim a successive tenancy.

If the property is owned by the client, then unless the mother-in-law is a tenant, it is unlikely HB will; continue to be paid. If she is given a right of occupation, she would not be occupying as a tenant, but as a beneficiary unless the terms of her occupation required she was granted a tenancy at less than market rent, although the benefit entitlement would likely be affected by the level of rent.

Is it an imperative that HB continues to be received?

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

Thank you for your reply Paul. Much appreciated.

It is not imperative but I said I would look into it.

To make my original message a bit clearer…

My Client rents property 1. She pays her own private rent. After her death any dealing with this property will cease. Mother in Law rents rents property 2 belonging to my client. Rules changed to allow property to be rented to relatives and family members. There is an Assured Shorthold Tenancy which allows mother in law to apply for and receive Housing Benefit on property 2.

My initial thought is if a Discretionary Trust is set up the Trustees could be the Landlords to property 2 and the tenancy continued.

Siân Maund
ADLAW

Thanks for the clarification.

The assured shorthold tenancy does not terminate on the client’s death, so that the mother-in-law’s tenancy can continue either until her death or a notice of termination is served.

Provided the riles for housing benefit do not change so as to exclude the mother-in-law from entitlement, there is no reason her entitlement to that benefit might cease during the continuance of the tenancy.

If the mother-in-law is without resources, then it will also be necessary to consider how expenses, such as insurance, repairs and maintenance will be funded. Creating a discretionary trust of only the property may be financially unsound as, even if the mother-in-law is an object of the discretion, if the sole asset is the house and rent (less tax at 45%), if any significant work is required there may be a strong likelihood of a cash deficiency within the trust. In which case, consideration could be given to including a cash sum as a “maintenance fund” within the trust, which can assist the mother-in-law in meeting repair costs, etc.

If the residuary beneficiaries can be trusted to look after the mother-in-law’s interests, then might the property just be part of residue, with commentary within the will making it clear that the testatrix does not want the tenancy terminated during her mother-in-law’s lifetime.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals