The answer to this question depends on two main factors; the amount of money your child has inherited and the type of benefits they are receiving.
Effect on means-tested benefits
Benefits are split into two types, ones that are means-tested and those which are not.
Benefits that aren’t means-tested such as Personal Independence Payment and Disability Living Allowance won’t be affected by receiving an inheritance, no matter how much your child inherits.
It is the means-tested benefits that could be affected. These include Universal Credit, Income Support, Housing Benefit, income-based Jobseekers Allowance, income-related Employment and Support Allowance and Pension Credit.
A person’s entitlement to these benefits is based on the amount of capital they have i.e. their savings or investments. You will not be entitled to most means-tested benefits if you have capital of £16,000 or more. If you have capital with a value between £6,000 and £16,000 then your entitlement to these benefits will be reduced on a sliding scale. Only those with capital under £6,000 will be entitled to the full amount of any relevant means-tested benefits.
Therefore, if your child receives an inheritance of more than £6,000 then their means-tested benefits will be affected and their inheritance needs to be declared to the Department for Work and Pensions (DWP).
Is there anything we can do?
If your child is left an inheritance following the death of a friend or family member then they are entitled to receive it and the value must be declared to the DWP.
If your child, or someone on their behalf, were to refuse the inheritance, give it away or spend it quickly, the DWP could determine that there has been a deliberate deprivation of assets. In other words, you are not allowed to deliberately reduce your capital to ensure that you continue to be entitled to means-tested benefits.
Once an inheritance is due, there is very little that you or your child can do to ensure that their means-tested benefits are not affected.
As well as considering the impact on your child’s benefits you may also need to consider whether your child has the mental capacity to manage the inheritance they are due to receive. If they don’t have the mental capacity to manage it then you may need to apply to the Court of Protection for an order to manage the inheritance on their behalf. For more information on mental capacity and the Court of Protection please click here.
How can we prevent problems in the future?
If someone wishes to leave an inheritance to your child, they should consider using a trust instead. A trust can be a useful tool to provide financially for your child throughout their lifetime and ensure that their means-tested benefits are protected. A trust can also allow for others to manage the inheritance for your child.
For more information on the types of trusts that may be relevant to your child, please click here.
If you would like to discuss setting up a trust, applying to the Court of Protection or help with your Benefits our specialist team can help, please contact us.