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Parents leaving wealth to disabled children “unaware” of financial benefits of trusts

Parents of children with disabilities are unaware of the financial security and social benefits a trust can offer their children when they’re gone, a study of inheritance has revealed.

According to the research, two in three (66 per cent) parents of disabled children have no trust or trustee in place, potentially leaving their children vulnerable to loss and negatively affecting their child’s access to disability benefits.

Instead, nearly one in two (47 per cent) parents are opting to leave their disabled child’s inheritance to a friend or family member, trusting that they will care for the child and use the money in the child’s best interests.

But without the legal protections of a trust, the authors suggest that inheritance could be at risk of mismanagement and abuse.

“It’s totally understandable for parents in this position to leave their estate to a trusted friend or family member to look after for their disabled child, but as many solicitors are aware, problems arise when this isn’t done properly,” said study author Penny Wright.

“For example, if the entrusted person were to divorce and the child’s assets became part of the financial divorce settlement, or if the entrusted person were to die or become incapacitated. This is something we see often.”

The study also found around a third of disabled children will inherit wealth directly, potentially disadvantaging the child when it comes to receiving means-tested state disability benefits.

“Means tested benefits are affected by the amount of money and investments a person has, including inheritance. Under the Inheritance (Provision for Family and Dependants) Act 1975, it’s possible for the local authority to bring a claim on behalf of the child, which may result in an award being made which affects the child’s entitlement to means-tested benefits,” said Ms Wright.

A legal trust could resolve these issues, however. When setting up a trust fund, the parent can state exactly how and when the cash can be used, eliminating the risk of mismanagement. Likewise, the child is not directly entitled to the inheritance, meaning it may not be taken into account for means testing.

For support and advice on related matters, please get in touch with our expert team today.

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David Webb

David Webb

Director - Head of Wills, Probate & Older Client Services
I specialise in probate and the administration of estates, trust and tax planning, preparation of Wills, Lasting Powers of Attorney and Court of Protection applications.

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