What is it?
It may be useful to first define some of the key terms which will be used in this article.
- ‘Trust’ – a Trust is a legal arrangement in which assets are held by a person or people (the Trustees) for the benefit of another or others (the Beneficiaries).
- ‘Trustee’ – the person or people holding the assets.
- ‘Trust property’ or ‘Trust fund’ – the assets within the Trust e.g., money, houses or shares.
- ‘Beneficiary’ – the person or people who benefit under the Trust.
A Vulnerable Persons Trust (VPT) is a type of Trust established for the benefit of a vulnerable beneficiary. A vulnerable beneficiary is either someone who is under 18 and has lost a parent or someone who is mentally and/or physically disabled. The aim of a VPT is to provide long-term care and financial support for the vulnerable person who may not otherwise be able to care for themselves or manage their own finances.
This type of Trust can be created by Will to take effect at the time of your death or Deed if you wish to create the Trust during your lifetime. It can also arise on intestacy (when someone dies without a Will) through a Statutory Trust.
What are the benefits?
There are several key benefits to a VPT which make it an attractive option when considering how to care and provide for a vulnerable person.
Tax benefits
Inheritance Tax
There are different types of Trusts, some are subject to a ten-year anniversary charge to Inheritance Tax, but some, like VPTs, are not. Likewise, some Trusts are taxed when assets enter or exit the Trust, VPTs are not subject to this charge.
Capital Gains Tax and Income Tax
When determining the Capital Gains Tax owed by the Trust, typically Trustees can only use half of an individual’s annual exempt amount. However, with VPTs the Trustees have access to their beneficiary’s full annual exemption. Likewise, if the vulnerable beneficiary is a basic rate taxpayer for Income Tax purposes, the Trustees can reduce the Trust’s Capital Gains Tax and Income Tax liability by the difference between what the Trust’s tax liability would be without the vulnerable person element and how much tax would be owed by the vulnerable person if they had received the gain personally.
These tax benefits can be substantial and are important in order to maximise the funds available to benefit the vulnerable beneficiary. However, these tax benefits are not automatic and must be claimed by the Trustees.
Access to means-tested benefits
A key benefit with this type of Trust is that the value of the fund is not considered when assessing whether the vulnerable beneficiary qualifies for benefits. This is because the vulnerable beneficiary isn’t directly entitled to the Trust fund. This means that the vulnerable beneficiary can access means-tested benefits, whilst also allowing them to benefit from financial support from the Trust.
Financial protection
Holding assets within a VPT helps to ensure that they are protected. The Trustees have several duties they must comply with when acting as Trustees. These duties help to ensure that the Trust is effectively administered and that the beneficiary’s interests are both protected and promoted. This is particularly important if they would be unable to manage their finances personally or if their personal finances could be open to abuse.
Personalised care
The Trustees of the VPT can use the trust funds to pay for care, accommodation, therapy and other services which are specific that vulnerable beneficiary’s needs.
In summary
A VPT can be a very helpful tool when seeking to provide protection and support to a vulnerable beneficiary. Whilst the criteria for VPTs are strict, the potential benefits of such a structure make them a valuable asset for vulnerable people and their families. If you think that a VPT could benefit you or someone you know then please contact us to speak to a member of our Private Wealth & Inheritance Team and we would be more than happy to discuss the options available to you
