Inheritance and Entitlement to Means-Tested Benefits
Posted on 14 Jan 2021
For most people, an inheritance can be life-changing, even more so when the beneficiary is vulnerable/disabled. When making a Will, most people wish to provide for their family members, especially if they are in need or vulnerable. Many disabled beneficiaries are long term recipients of means-tested benefits. In these cases, receiving a large inheritance creates a very real risk of good intentions coming to nought. A disabled Beneficiary receiving more than £6,000 (being the current capital threshold for means-tested benefits) may dis-entitle them to those benefits/funding.
Furthermore, a beneficiaries’ disability may mean that they are unable to manage large sums of money. There is also a risk of a beneficiary being financially abused by individuals who do not have their best interests at heart.
There is however a way to protect a vulnerable/disabled beneficiary and their inheritance from the above-mentioned risks.
A disabled beneficiary trust can be set up under a professionally drafted Will for the benefit of vulnerable beneficiaries. The trust works to ringfence the inheritance from any means tests thus preserving the beneficiary’s entitlement to means-tested benefits. The Trust would be managed by Trustees, in the best interests of the beneficiary.
The importance of obtaining professional advice when leaving money to a disabled beneficiary in a Will was highlighted in the recent case of FSS v LMS (2020).
The case concerned a 21-year-old woman with autism who was left £170,000.00 in her grandfather’s will. By receiving such a sum, LMS’ would have been disentitled to means-tested benefits/funding. Attempting to avoid that outcome, her mother, therefore, made an application to the court of protection to retrospectively pass LMS’ inheritance into a disabled beneficiary trust instead.
It was argued that by doing so, it would be against public policy and would amount to a “deliberate deprivation”. A deliberate deprivation is when a person deliberately deprives themselves of an asset in order to avoid liability, in this case, funding their own care. The court argued that setting up of the Trust would not be in the best interest of LMS.
Judge John Beckley ruled in LMS’ favour, authorising the disabled beneficiary trust to be set up, and commenting on her grandfather’s “poorly drafted Will”.
By creating a disabled beneficiary Trust in the Will, the unpleasant experience of court proceedings, together with the incurrence of substantial legal / court costs could have been avoided. A disabled beneficiary trust could have not only financially provided for LMS, but there would also be no public policy objection to the creation of the Trust given that it would have been created for the purpose of LMS’ welfare/education. As the gift into the Trust would also have been made by her grandfather’s Will, the question of deliberate deprivation would not have applied.
A “one size fits all” approach to Will drafting does not work. By obtaining professional, specialist advice, you can be sure that your Will is drafted tailored not only to your own circumstances but also the circumstances of your beneficiaries.