The importance of trusts for vulnerable beneficiaries
Why use a trust?
A trust is a powerful legal tool that can provide significant benefits when passing money to vulnerable or disabled individuals.
Protection of assets: A trust ensures that the assets are managed and used according to the beneficiary’s best interests. This is particularly important for vulnerable individuals who may not be able to manage their finances independently.
Control and flexibility: Trusts allow for specific instructions (usually contained in a letter of wish) on how the assets should be used, providing control over the distribution of funds. This can be particularly useful where trustees have flexibility over the distribution of funds.
Guidance for trustees: A letter of wish provides trustees with insight into the intentions and preferences regarding the management and distribution of trust assets, as well as how best to assist a beneficiary. For example, it can include detailed preferences about how to support a vulnerable or disabled beneficiary in education, career support or independent living and provide details of their support network.
Peace of mind: Establishing a trust provides peace of mind for families, knowing that their loved one’s financial future is secure and managed by trusted individuals or professionals.
Trustee requirements in the UK
Legal responsibilities: Trustees have legal responsibility for the management and administration of the trust. They must act in the best interests of the beneficiary, ensuring that the trust’s assets are used appropriately and effectively.
Statutory duties: Trustees must comply with statutory accounting and reporting requirements. They should demonstrate that the trust is well-run and compliant with relevant laws.
Collaboration: Trustees often work closely with financial advisers and solicitors to ensure comprehensive management of the trust’s assets and legal compliance.
The power of collaboration: financial adviser and solicitor
Working together, a financial adviser and a solicitor can provide comprehensive support for a vulnerable or disabled beneficiary. Here’s how this collaboration can lead to the best outcomes:
Safeguarding assets: A solicitor can help protect the beneficiary’s assets through legal mechanisms, while the financial adviser focuses on growing and managing these assets. This dual approach ensures the beneficiary’s financial security is robust and well-protected.
Tax efficiency: Both professionals can work together to develop strategies that minimise tax liabilities, ensuring more funds are available for the beneficiary’s needs. This includes understanding and applying relevant tax laws and benefits.
Crisis management: In the event of unforeseen circumstances, having both a financial adviser and a solicitor ensures expert support to navigate any legal or financial challenges that arise, providing a safety net for the beneficiary.
Case study: securing a strong financial future for Ben
Background:
Ben is a 28-year-old man with a cognitive disability that affects his ability to manage finances independently. His parents, concerned about his long-term financial security, decided to seek professional help to ensure Ben’s needs are met throughout his life.
Step 1: setting up the trust
Ben’s parents consulted with a solicitor to establish a discretionary trust in their Will. This type of trust allows the trustees to make decisions about how the trust’s income and capital are used for Ben’s benefit. The solicitor ensured that the trust was set up correctly, with clear instructions on how the funds should be managed and distributed.
Step 2: comprehensive financial plan
On their death, once the trust was established, the trustees worked with a financial adviser to create a detailed financial plan. This plan included:
- Medical expenses: Estimating current and future medical costs, including therapies and treatments.
- Long-term care: Planning for potential residential care or supported living arrangements.
- Lifestyle needs: Ensuring funds were available for Ben’s hobbies, social activities, and other personal interests.
Step 3: investment strategy
The financial adviser developed an investment strategy tailored to the trust’s objectives and Ben’s needs.
- Investment expertise: Navigating the investment landscape can be daunting. A financial adviser has the knowledge and experience to select appropriate investment vehicles that align with the beneficiary’s risk tolerance and financial goals, ensuring a balanced and diversified portfolio.
- Peace of mind: Managing finances for a vulnerable or disabled beneficiary can be stressful. A financial adviser offers peace of mind by handling the complexities of financial management, allowing the family to focus on providing care and support.
Step 4: ongoing management and collaboration
The trustees, financial adviser, and solicitor maintained regular communication to ensure the trust was managed effectively. This included:
- Annual reviews: Conducting annual reviews of the financial plan and investment strategy.
- Legal compliance: Ensuring the trust complied with all legal requirements and reporting obligations.
- Crisis management: Having a plan in place for unforeseen circumstances, such as changes in Ben’s health or financial needs.
Outcome:
By setting up the trust and working collaboratively with a financial adviser and solicitor, Ben’s parents gained peace of mind knowing that his financial security was in expert hands.
How can we help?
If you have any questions in relation to the subjects discussed in this article, please contact Zoe Till (Partner & Chartered Financial Planner) in our expert Investment Management team or Tom Glenister (Senior Associate) in our expert Wills and Probate team. Please contact the team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online form.
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