It can be of great concern to individuals
wishing to make financial provision in their Will, for a
dependant who suffers from a mental or severe physical
disability, because not only may they not be able to handle
their own finances, but also more often than not it may affect
their state benefit or have tax implications.
Commonly, the person making the Will chooses one of
three things:
First: not to make any financial provision at
all.
Second: to give money to another person with the hope
that it would be spent on the person with the disability
Third: a Trust or Guardianship
is established.
These options however can lead to a claim by the person with the
disability for an interest in the Estate (whether in whole or in part) limited to their lifetime. This is known as a
"life interest" and will cause the estate to be
apportioned as to income and capital. The income created from
any investments is paid to the disabled person. However,
depending on the amount of money involved this may either reduce
or take the person off certain state benefits and also be
subject to income tax. The other major problem with creating
this sort of Trust is that the income may not be sufficient to
meet all needs, (although a clause can be included to allow for
capital payments to be made out of the investments.
On the death of the disabled person, the life interest is valued
as if it was owned absolutely by the disabled person and added
to his or her own assets.
The alternative to the life interest is the creation of a Trust
where the disabled person has no absolute right to income or
capital. These are known as "Discretionary Trusts" for
the reason that the trustees who administer the trust, can use
their absolute discretion as to whether or not the beneficiary
is given any money from the trust. There are both tax and state
benefit advantages in doing this.
Whatever your circumstances, it is important that everyone makes
a Will as, without one, the law dictates who inherits your
estate, which may mean that those you leave behind are
inadequately provided for. Only with a Will can you choose who
is to administer your estate, who is to benefit and by how much;
who is to care for young children and at what age they are to
inherit, and to prevent sentimental possessions and family
heirlooms being otherwise inadvertently sold, disposed of, or
becoming the center of family wrangles.
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