Bequests to Disabled Relatives – Professional Advice is Essential

Leaving money to a disabled relative in your will is obviously a worthy act. As a High Court ruling recently reviewed by Danielle Wane showed, however, in the absence of careful drafting and professional advice, your generosity may have serious and unforeseen legal implications.

The case concerned a disabled young man who lacked capacity to make important decisions for himself. By his will, his mother’s cousin bequeathed him a six-figure sum. A difficulty arose, however, because the majority of his income was in the form of over £50,000 a year in means-tested benefits. His inheritance of such a large capital sum threatened his entitlement to those benefits.

His father launched proceedings seeking judicial permission to place his inheritance in a disabled person’s trust. That, it was hoped, would enable the retention of his full benefits entitlement. In the absence of such a trust, it was said that he would, in effect, receive no practical benefit from his inheritance.

Ruling on the matter, the Court was not persuaded that the creation of a trust would better reflect the relative’s intentions. He had been informed of the possibility of placing the money in trust prior to his death, but had not done so. He was happy that the money should be managed by the man’s parents for his benefit and there was no evidence that he was concerned with preserving benefits entitlements.

The Court did not regard a bequest which has the effect of taking a person out of dependence on means-tested benefits as a waste of time. Even if such a gift conferred no actual financial benefit on the beneficiary, it still deserved to be described as generous.

Rejecting the father’s application, the Court was not in any event satisfied that the proposed trust would have the desired effect. There was a clear risk that the relevant local authority and the Department for Work and Pensions would take the view that any such trust would be illegitimate in that its significant operative purpose would be to preserve the man’s means-tested benefits. In that event, the trust might have to be unwound, creating a risk of negative tax consequences.

The position would have been different had the relative’s will provided for the money to be placed in trust. However, the Court noted that its decision had to be based on what actually happened, rather than what might have happened. There were other disadvantages to the creation of a trust, not least that it would take the only capital available to the man outside the oversight of the Office of the Public Guardian. The Court was, overall, unpersuaded that placing the money in trust would be in the man’s best interests.

We Asked Senior Associate Solicitor Danielle Wane For Her Expert Insight –

‘This case shows the importance of having open and honest conversations with family members of your intentions when preparing Wills and the importance of seeking specialist advice. An outright gift to a person in receipt of means tested benefits, can sadly have a negative impact. (Which was never the intention of the person making the gift) Setting up a trust for the benefit of a person who is in receipt of benefits is often more advantageous, as their benefits are protected, and the inheritance is protected for the benefit of the disabled person and can be released to them when they require additional capital or income.’