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Trusts

Do you need assistance managing your money so it can be used to help someone after you die or to contribute towards your care in later life? A trust is a great way to do this.

What is a Trust?

Imagine asking a friend to look after some of your money so that it could be used to pay for your care if you fall ill or have an accident. By just giving the money to them you couldn’t be certain that they would use it appropriately and they could spend it on whatever they want. By setting up a trust the money that goes into it has to be used according to the rules decide upon.

A trust is a legal arrangement in which one, or several, people, or a company controls the money or assets, which must be used for the benefit of the beneficiaries. In the example we used of you giving money to your friend, the friend would be the trustee, your money would be the trust property, and you would be the beneficiary (the person who benefits from the trust). You can put assets, investments or just money into a trust. There a variety of ways that trusts may have to pay taxes, depending on what type of trust it is.

When Might You Use a Trust?

A trust may be set up to:

  • Support a person that cannot manage their own money in order to ensure their needs are catered to.
  • Ensure that your money is used to look after you if and when you cannot look after yourself.

Trusts are particularly useful for people with a child that has a mental health condition or learning disability who are worried about supporting their child financially after they die.

Trusts are also of use to people with a mental health condition or learning disability themselves and claim state benefits such as Disability Living Allowance (or Personal Independence Payment), or receiving money from their local social services department.

Benefit payments can be made to the trustees, and they will use them according to the rules set out in the trust.

As you likely already know, many people set up trusts for their children.

Choosing Trustees

When you set up a trust you also have to decide who is going to b the trustees. For many people their trustees will generally be family members or close friends who can be relied upon.

Take the time to carefully consider who to ask, and ensure they’re totally happy to accept the responsibility. You should seek to have two trustees at least, and usually no more than three or four in total.

Alternatively, you can appoint a company as your trustee, for example a bank or a solicitor firm, however you should keep in mind they will charge you for this.

How Does Your Local Authority Treat Your Trust Income and Capital?

If you require long-term care and you are the beneficiary of a trust, your local authority will take into consideration the total income and capital you’re entitled to when they carry out an assessment of your finances for their support. How the local authority treats the money you have in the trust will depend on the terms of the trust.

Absolute Entitlement to the Capital

If you have complete access to the capital in the trust then it will be treated as capital you own by the local authority.

Absolute Entitlement to Income

If you don't have access to the capital in your trust but you are entitled to receive income from it then the capital will be disregarded, but the income is taken into account by the local authority.

Absolute Entitlement to Capital & Income

If you have access to the capital and receive income from the trust then both will be taken into consideration.

Discretionary Trusts

If you trust only grants you payments at the discretion of the trustees then the local authority will only take actual payments received into consideration.

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