Establishing a disabled trust, also known as a special needs trust, is a vital step in ensuring the long-term care and financial security of a loved one with disabilities. Not only does it provide the financial backbone to support an individual with special needs, but it also grants peace of mind to those who care about them. This short article will guide you through the process of setting up a disabled trust in the UK, elucidate on the qualifications necessary, delve into its tax advantages, and shed light on its ongoing management. It concludes with how AES International can help you establish and manage a disabled trust proficiently.

Setting Up a Disabled Trust

Establishing a disabled trust requires careful planning and an understanding of the legal requirements. The process generally involves the following steps:

  1. Define the Beneficiary: The primary qualification for a disabled trust is that the beneficiary must be deemed as disabled under the definition provided by the Department for Work and Pensions (DWP). This is generally determined by their entitlement to specific disability benefits.
  2. Select a Trustee: The trustee is responsible for managing the trust’s assets on behalf of the beneficiary. They could be a family member, a friend, a solicitor or a company.
  3. Draft the Trust Deed: This is the legal document that sets out the terms and conditions of the trust. A solicitor is often involved in drafting the deed to ensure it complies with all legal requirements.
  4. Fund the Trust: The trust can be funded with a variety of assets including cash, property, or investments. It’s important to carefully consider which assets to include.

Qualifications for a Disabled Trust

To qualify for a disabled trust, the beneficiary must meet certain criteria. In the UK, they must be unable to manage their financial affairs due to a mental disorder or be in receipt of disability benefits. The key qualifications include:

  • Entitlement to Disability Living Allowance (DLA), Personal Independence Payment (PIP), Armed Forces Independence Payment (AFIP), Constant Attendance Allowance, or any other disability related benefits.
  • Inability to manage their own financial affairs due to a mental disorder.

Tax Advantages of a Disabled Trust

A disabled trust offers significant tax advantages, including:

  • Income Tax: The trust income is generally taxed at the standard rate, not the higher trust rate. This is provided the income is mandated to the beneficiary or used for their benefit.
  • Capital Gains Tax: The trust enjoys an annual exemption for Capital Gains Tax (CGT), much like an individual. This means that any gains realised from the sale of trust assets up to this threshold are tax-free.
  • Inheritance Tax (IHT): Disabled trusts are generally exempt from the 10-yearly charge to IHT that normally applies to trusts, as well as the exit charge when assets leave the trust.

Ongoing Management of a Disabled Trust

The ongoing management of a disabled trust is a crucial responsibility held by the trustee. The trustee is tasked with managing and investing the trust assets wisely, always acting in the best interests of the beneficiary.

Proper management includes regular review of the trust’s performance, making prudent investment decisions, and ensuring tax obligations are met. It is also important to maintain open and regular communication with the beneficiary to understand their evolving needs.

How AES Can Help

AES International is well-equipped to support you in setting up a disabled trust and ensuring its successful ongoing management. Our team of experts understands the intricacies of trust law and the specific needs of disabled individuals. We can provide comprehensive guidance throughout the process of establishing the trust, selecting the most appropriate assets, and handling all legal formalities.

Our services don’t stop once the trust is set up. We offer ongoing management, ensuring that the trust is compliant with all tax obligations and regulatory requirements. We will also conduct regular reviews to ensure the trust continues to serve the best interests of the beneficiary.

Whether you’re just starting to consider a disabled trust, or you’re seeking assistance with an existing one, AES International is here to help. Contact us today to arrange a fee-free initial meeting. Let us help you secure the financial future of your loved ones.

Beyond the initial setup, the ongoing management of a disabled trust involves a delicate balance of preserving the capital while providing for the beneficiary’s current needs. Trustees must keep a close eye on the investment landscape, adjusting the trust’s holdings as necessary to preserve capital and generate income. They also need to keep track of tax changes that could affect the trust. At AES, our experienced professionals can help trustees navigate these challenges.

Our dedicated team will help you understand the complexities of managing a trust, guiding you through decisions about how to invest the trust’s assets to provide a stable income for the beneficiary while also aiming for long-term growth. We can also assist with record keeping, ensuring all required reports and accounts are accurately maintained. We provide regular updates to keep you informed about the performance of the trust and any changes in relevant laws or regulations.

In addition to asset management, our team at AES can advise on other important aspects of managing a disabled trust. For example, we can guide you on how to use trust funds in a way that doesn’t compromise the beneficiary’s eligibility for means-tested benefits. We can also help you plan for the future, preparing for significant life events or changes in the beneficiary’s circumstances.

As the beneficiary’s needs change over time, it might be necessary to review the trust arrangements. The trustees need to be proactive in addressing these changes. AES can help with this too, providing advice based on our in-depth understanding of special needs planning.

At AES International, we pride ourselves on our personalised service. We take the time to get to know each client and understand their unique needs. This enables us to provide bespoke advice, tailored to the needs of each trust and its beneficiary.

Trustees carry a great deal of responsibility, but they don’t have to do it alone. Whether you’re setting up a new trust or struggling to manage an existing one, AES can provide the support you need.

In conclusion, setting up and managing a disabled trust is a complex process, but it’s crucial for protecting the interests of a loved one with disabilities. With the right planning, a disabled trust can provide financial security for the beneficiary and peace of mind for their family. With AES International by your side, you can be confident that your loved one’s future is in safe hands.

To learn more about how we can help with the setting up and ongoing management of a disabled trust, contact us today for a fee-free initial meeting. At AES, we’re committed to helping you make the right decisions for those you care about most.



About AES Adviser

AES Adviser advises expatriate clients worldwide on all financial planning matters including wealth management, estate planning, offshore bank accounts, savings and investment, insurance, multi-generational wealth transfer and generating income, from wealth accumulated, to support retirement.