What are discretionary trusts?
Although not exclusively, a Discretionary Trust is often used by families who have a relative with a learning disability, or where for any number of reasons, keeping an element of control is desirable.
Discretionary trusts can be a way of putting in place financial arrangements to help support vulnerable relatives, and are particularly suitable for disabled people.
A Discretionary Trust can also provide a way of owning property. Sometimes
families decide that in the long-term they would like to be able to set up arrangements that allow their relative to continue to live at home with the necessary support.
Discretionary Trusts are used:
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as a way of paying for the things the statutory services may not be able to give, for example a holiday, a new coat or even additional care
- as a means of owning, managing and maintaining a property
- as a way of arranging an inheritance so there is a way of managing money or other assets to avoid benefits and care funding being stopped
Income Support and other means tested benefits such as Housing Benefit stop being paid if a person has more than a certain amount of money. Benefits are withdrawn or reduced until savings fall below the relevant level for the benefit. If Social Services fund a residential care place or care package they may also begin to charge for the care service or stop funding it. A Discretionary Trust can avoid this.
Once assets are put into the Trust they belong to the Trust, not the person intended to benefit. He or she may get gifts or even payments from the Trust but they cannot be said to have any assets themselves. Trusts hold and invest assets. This can include the family home. It may provide a means of managing and maintaining a property.
This is particularly useful when the person lacks legal capacity, ie. sufficient understanding to enter into a contract. Trusts are normally set up as part of drawing up a Will.
Trustees operate trusts. These can be other family members, friends or
professionals. The key points about a Discretionary Trust are:
Trustees have discretion as to how the assets are used. The trustees are free to make all the decisions
The person to benefit from the Trust must not have a right to the income or capital
The intended beneficiary must not be the only person named in the Trust, ie. must not be the ‘sole’ beneficiary
Without these features the
Discretionary Trust is not properly constituted and the person may be treated as though they own the house or have the money.
Care home fees
It is usually inadvisable to transfer your own property to relatives or trusts, if your prime motive is to avoid paying long-term care costs. There are various risks associated with such gifts and the fees may still be payable despite the gift having been made. The ‘Deliberate Deprivation of Assets’ laws can upturn a gift or trust if it can be proven that the sole reason or primary purpose of such a gift was to avoid care fees.
However, it is entirely sensible for you and your partner to each make a provision in a Will, that upon the first death, the deceased’s half-share of the family assets and/or home, is placed in trust for their children or other beneficiaries, instead of passing direct to the surviving partner - for more information on this, see ‘Can I avoid losing my home if I go into care?’ page 45 of the free brochure below.
