Care Bulletin - November 2009

This bulletin covers some of the considerations that care operators and owners should be aware of, with respect to the dependent children in their care.

As care providers in a professional capacity, owners and workers in care homes will often develop a close relationship with the relatives of their residents. These relatives benefit greatly from having the day to day care needs of their child met by the caregivers in their residential home. However, many still have unresolved questions about their child's future and how best to provide for them financially, how to protect their entitlement to any financial help the state may provide and how to ensure an equitable treatment of their disabled child and their other able bodied children.

Asking questions from the parent's perspective, this bulletin is intended to give you some answers to these questions and alert you to the fact that there are solutions and enable you to encourage the parents, grandparents and relatives of someone cared for in a home to be proactive and set their affairs in order.

Q. I don't have time to think about the future or make a will – I am too busy thinking about my disabled child. What's the worst that can happen? It will all go to them anyway.

R. Possibly, that is the worst that can happen. If you are not married and they are your only child, then they will inherit everything you own under the laws of intestacy. If they are in receipt of any state means-tested benefits, then the capital they will receive from your estate will immediately be assessed and will affect her entitlement. Will your child be able to handle a large sum of money? Deal with the probate registry? Arrange to sell your house? Will they now be vulnerable to gold-diggers or fair-weather friends?

Q. So what can I do to avoid this?

R. Everyone's situation is different, so first you need to see your solicitor and describe in detail your personal and financial situation and be advised by them. You can set up a disabled dependant's trust in your will to benefit your child. This would be expressed in wide discretionary terms so that your child would have no right to the income and capital but would be able to benefit if the trustees chose to give it to them. As they would have no right to the capital or income, under current law, the funds in trust would be excluded when assessing her entitlement to means-tested benefits and fees, thus ensuring they receive the maximum support from the state, as is their right.

Q. But who would manage the trust fund? It would have to be someone who knows them and who knows about investments and trusts?

R. You are absolutely right. The key to an effective trust is the choice of trustees. You would probably want to keep the terms of the trust as wide and flexible as possible so that your trustees can respond to changing circumstances either in your child's life or in the taxation and trust legislation. This means then that you need to choose trustees that you are confident will run the trust in the way that you want. You can write a detailed letter of wishes to guide the trustees in how they administer the trust. You can choose lay trustees perhaps a family member with a good understanding of your child's needs or a professional trustee. It is a good idea to appoint both, so that the professional trustee can deal with all the administration and compliance and keep up to date with the law, while the lay trustee brings in their own understanding of the family situation.

Q. But if this trust is set up primarily for my child, yet they never actually owned it, what will happen when they die?

R. The trust will usually be set up as a long term trust, so will continue after the lifetime of the principal beneficiary. You may have other extended family members you want to benefit or you may have a favourite charity. Or you may ask the trustees to decide retrospectively which charity should ultimately benefit, perhaps one or two that have been very supportive of your child's during their lifetime. You can give guidance as to who or which charity should receive the fund after your child has gone.

Q. How can I be sure that my trustees will follow my guidance?

R. The nature of a trust of this sort is that you hand over the responsibility for making all the legal and investment decisions to the trustees. That is why the choice of trustees is so important. But the trustees are required by law to act with a high standard of care and to act only in the interests of the beneficiaries. The trustees will want guidance from you as to how to administer the trust. A professional trustee will invariably follow your intentions unless there any good legal or tax reasons not to, perhaps a change in legislation which gives a consequence unforeseen when you wrote your will. That is why it is important to give your trustees wide powers – so that they are free to respond to unanticipated changes and do what is best for your child.

Q. I have heard that I don't need to decide this now, that my child can do a deed of variation after I die so they could set up the trust then, couldn't they?

R. Yes, if they has sufficient understanding and capacity. But if the only reason they were to change an outright gift from you into a trust was to avoid it affecting their benefits, then they would very likely fall foul of the intentional deprivation of capital rules and be treated for assessment for benefits as having notional capital to the value of the assets given away into trust. The worst case scenario then is that they would have no benefits and no right to income or capital from the trust, leaving them with no financial security.

Q. My own parents are leaving a gift to my child in their wills. Is that sensible?

R. If it is a substantial gift, then you need to talk to them (and any other family member who wants to benefit your child) about leaving the gift in trust. Remember, even if your child isn't in receipt of means-tested benefits now, they may be in the future.

Q. I have one child who has learning difficulties and another child who is now working. They have very different needs and I love them both equally. What should I write in my will to be fair yet respond to those needs?

R. Again you need to see your solicitor to advise on your particular circumstances, but you have many options, for example, you can leave the whole of your estate in trust to benefit both or you can carve it into two halves, leaving one half to one child and one half in trust for the other or you can leave it in trust for the income to benefit one child and the capital passing ultimately to your other child and their children.

Q. I think the trust sounds like a very good idea. Can I set one up in my lifetime?

R. This is a very good idea depending on your finances and needs to be looked at in the context of your own estate planning, to make sure that you retain sufficient to live on. You can give up to the nil rate band (currently £325,000) without incurring any inheritance tax. If you survive the next seven years (without making further chargeable gifts) then you have a new nil rate band available and can set up another trust. Setting up a trust in your lifetime will also encourage independence in your child as they will be able to start using their trust, rather than you their parent, as their first call for financial support, thus weaning them off you and developing the ongoing relationship with the trustees.

Everyone's situation is different but if you take just one key message from this bulletin, it is to encourage parents and caregivers to take advice and act now!