People choose to set up trusts for a wide variety of reasons, but if you have a vulnerable person in your life, we understand that you may wish to protect them and provide for them in some specific way. One such way is to set up a vulnerable person’s trust, which can provide both financial and administrative support. This area of the law can be complicated, but in this article, we aim to provide an overview of why you might want to set up a vulnerable person’s trust, what a vulnerable person’s trust is and the process for setting up such a trust.
A vulnerable person’s trust is a broad term that applies to a trust that has been created for a beneficiary who needs financial support as well as assistance to manage their affairs because they lack the capacity to do so themselves.
In Scotland, a trust for a vulnerable beneficiary will either be classified as a “disabled person’s trust”, or a “trust for a bereaved minor”. These classifications help determine the tax treatment of the trust. Where the trust could fall into either category, it will be categorised as a disabled person’s trust as this will allow the trust to continue after the beneficiary reaches adulthood. What makes this type of trust different from other types of trust is most often the purpose of the trust and the nature of the primary beneficiary.
A trust can be a useful way to support and protect a vulnerable person by providing them with both financial means, but also administrative assistance. There are also several inheritance tax, income tax and capital gains tax provisions that may apply to a vulnerable person’s trust. For example, with regard to inheritance tax, a disabled person or a bereaved minor will not normally invoke tax charges during the life of the trust but there can be inheritance tax charge when the trust comes to an end.
Setting up a vulnerable person’s trust can be complicated, and you should seek the advice of a specialist solicitor. There are very specific qualifying conditions to allow you to set up the trust and benefit from the special tax conditions that apply to these types of trust. You can set up a trust in your lifetime using a trust deed, or leave specific instructions in your Will.
Murray Beith Murray Partner, Andrew Paterson, is an expert in all aspects of ‘adults with incapacity’ legislation and specialises in trusts. If you have any questions about the issues covered here, or if you wish to discuss any other legal matter, please complete our contact form or call us on 0131 225 1200.
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