In previous blogs we have covered what a Disabled Person’s Trust is, how it can be used to benefit a disabled person and the advantages and disadvantages of this type of trust. A Disabled Person’s Trust (which some people may refer to as a ‘disabilities trust’) to recap, can only be set up for people who meet the specific definition of disabled. This is usually someone who is in receipt of Attendance Allowance, the care component of Disability Living Allowance at the middle or high rate or Personal Independence Payment (PIP).
Setting up a Disabled Person’s Trust
So now we know what a Disabled Person’s Trust actually is how do you go about setting one up?
A trust is a legal document so it’s important to seek the right legal advice when setting up a trust and selecting the right trust for your own individual and family circumstances.
Deciding on what you place into the Disabled Person’s Trust is also dependent on your individual circumstances, but this can include property, shares, cash etc. You can decide when these assets should go into the trust (see Activating the Disabled Person’s Trust section). However, once you place assets in the trust they are no longer yours. They are under the care of the Trustees.
Starting the Trust
You have set up a Disabled Person’s Trust. It’s likely that you have set this up with £10 in it and you may now like to add other assets into it.
There are three main reasons for starting the Trust now rather than waiting for it to take assets on your death:
- Getting the Trust up and running – you will probably have chosen yourself as the Trustees. As we will explain, there is quite a lot of work to be done when assets come into the Trust. Rather than leave this to be done once you’ve died and assets come into the Trust, you may like to do the reporting and bank account opening work now, thus saving the new Trustees from having to do this when you have died.
- Inheritance Tax planning – you might be in a position where, if you died now, Inheritance Tax would become payable. If that is the case you might like to consider putting some assets in the Trust now, which, after 7 years have passed, will be fully exempt from the Inheritance Tax calculation.
- The probate process delay – you are probably paying for things personally for your child, maybe therapies, nice holidays, days out etc. When you die, your estate is frozen and it takes some time to release your assets. This is often referred to as ‘the probate process’. If that is the case then there will not be any cash assets to continue paying for these things until the probate process is completed and assets released from your estate. That could take months and during this period all of the nice things that you are paying for your child to do will cease. By having assets in the Trust now you can avoid this happening and putting your child under any more stress at what already will be a very distressing time.
What do you do now?
Once you have decided what assets you would like to give into the Trust you need to make that gift to the Trustees. To do this you will need to complete any paperwork necessary to transfer ownership from you to the Trustees.
For example, if you are gifting shares into the Trust you will need to do a stock transfer form and if you are transferring property to the Trust you will need to complete and register the Land Registry Transfer.
Reporting a Disabled Person’s Trust to HMRC
The Trust should then be reported to HMRC. This process is fully digital and is called the Trust Register.
To do this you will need to have all of the information about the Trust to hand, including:
- the National Insurance, passport or driving licence number of each of the trustees; and
- the name, address, date of birth and National Insurance number (or passport number) of any individuals named in the Trust.
HMRC will then issue a unique tax reference number. If you have a Disabled Person’s Trust you can then complete form VPE1 and send this to HMRC claiming the Vulnerable Person’s Tax Election. This secures the favourable income and capital gains tax treatment of the Trust.
Around this time consideration should be given to taking investment advice as to how the Trust assets are invested. You ought to consider taking advice from a professional who specialises in trust investments.
Irrespective of what is done, a Trustee Bank account should be opened as you might need to make more frequent cash-type payments or pay cash to a beneficiary.
At least once a year the Trustees need to review matters such as:
- The investment strategy;
- The needs of the beneficiaries;
- How they have used assets over the past year and how they will be using them over the next year;
- Tax Return(s);
- Preparing Trust accounts;
- Updating the Trust Register; and
- Making sure all legal papers are in order.
Getting assets out of the Trust
At any time when assets are to come out of the Trust the Trustees need to:
- Document the request received for assets to be used or applied for the benefit of a beneficiary;
- Consider it, make a decision and log this decision on a Trustees’ Resolution; and
- Complete a Deed of Appointment to get assets out of the Trust to be used for the benefit of any beneficiaries.
Want more information?
Refer to our Disabled Person’s Trust information sheet here: https://www.renaissancelegal.co.uk/wp-content/uploads/2022/11/Renaissance-Legal-Trusts-for-Disabled-People-Information-Sheet.pdf