have been instructed by executors of a will where one of the residual benefactrices (due to inherit in the region of £400K from his late mother’s estate) is a vulnerable individual - living in an assisted living facility currently on disability benefits (who has been fleeced in the past by unscrupulous individuals and basically cannot handle money) .The executors have agreed with the beneficiary that the legacy will be varied to a Discretionary Trust where the vulnerable individual is the sole discretionary beneficiary. The vulnerable individual will be separately represented. Three questions:
If the discretionary beneficiary in the Deed of Variation signifies his agreement in the Deed of Variation is he effectively a Settlor beneficiary and will that have adverse Inheritance Tax effects?(i.e. an immediate charge notwithstanding the legacy arose from an Immediate Post Death Interest ?)
Is it more appropriate advise that the beneficiary should appoint financial attorneys (LPA or Court Deputy )to act for him, invest the monies and give him a weekly allowance.
I think I should also advised that the benefits have to stop as (even as a discretionary beneficiary) he has to disclose the Trust to the Local Authority currently funding him . Would that advice be correct?
Under Section 142 IHTA 1984 the Deed of Variation speaks from the date of death. It would appear, in this case, that the estate benefitted from at least a £650,000 NRB, in which case there will be no immediate charge to IHT upon execution of the Deed of Variation. However, consideration needs to be given to periodic and exit charges after 10-years (from the date of death).
In most circumstances, the Trust envisaged here would only have a £325,000 NRB and, consequently, tax would be payable. However, with the single beneficiary envisaged here, if a Vulnerable Beneficiary election is completed, the Trust will then be exempt from periodic and exit charges. However, the value will be aggregable with any free estate of the beneficiary for IHT purposes on his death.
A combination of the beneficiary being treated as the settlor of the Trust for Income Tax purposes (but not IHT) and the suggested Vulnerable Beneficiary election, the beneficiary will no longer be entitled to means-tested benefits.
I am unable to answer your questions as I am not suitably expert in that area, however I have always been told that you cannot have a discretionary trust with a sole beneficiary, as then there is no discretion that can be exercised amongst assorted beneficiaries. I suggest that there be additional beneficiaries (perhaps a charity or two) to solve the problem… Yours sincerely, Peter Double / Probate Resealing Services
I think your starting point should be to satisfy yourself that the vulnerable Ben retains capacity to execute A DOV and manage his affairs. If he doesn’t, he can’t enter into the transaction and will require a deputy. Strikes me there are also potential issues for deprivation of assets.