Later life planning for and protecting children with needs

When thinking about your will and estate planning, you need to consider not only how much you leave to your loved ones, but how and when they will receive it. This becomes especially important where children or other beneficiaries may be vulnerable – for example, due to illness, disability, addiction, or difficulties managing money.  Without proper planning, an inheritance intended to provide security could be spent too quickly or inappropriately.

‘Parents sometimes come to us unsure how best to protect a child who may not be ready, or able, to manage a lump sum inheritance,’ explains Sarah Cladingboel a Partner in Furley Page’s Private Client Team. ‘The right legal structures can make all the difference, ensuring your wishes are carried out and your loved one’s needs are met in a safe and sustainable way.’

Understanding a vulnerable beneficiary

In an estate planning context, a vulnerable beneficiary might be someone who has long-term health or care needs, struggles with an addiction such as gambling or substance abuse, lives with mental health difficulties, or has a history of poor money management and financial exploitation.

Recognising these vulnerabilities at the planning stage makes it possible to put the right safeguards in place to protect both the individual and their inheritance. One of the most effective ways of doing this is through the use of a discretionary trust or a vulnerable person’s trust, which can help ensure that family wealth is managed responsibly and securely for the future.

Discretionary trusts

A discretionary trust allows you to place assets under the control of chosen trustees, who then decide how and when funds are distributed. This flexibility can be invaluable where a beneficiary’s circumstances may change over time or where giving them direct control could be harmful.

One of the main attractions of a discretionary trust is the flexibility it offers. Trustees are able to adapt the way funds are distributed to reflect the changing circumstances and needs of the beneficiaries, rather than being bound by rigid rules. At the same time, the trust structure provides an important layer of protection: assets can be kept safe from the reach of creditors, the impact of a divorce settlement, or the consequences of poor financial decisions by beneficiaries.

Discretionary trusts also open up valuable tax planning opportunities, as trustees can exercise control over how income and capital gains are allocated, helping to manage the overall tax position of the trust and its beneficiaries.

By way of example, a parent might set up a discretionary trust for a child with a gambling addiction.  Trustees could pay rent directly to a landlord, cover living expenses, or fund education costs without ever handing over a lump sum that could be lost.

Vulnerable person’s trust

A vulnerable person’s trust – also known as a disabled person’s trust – works similarly to a discretionary trust in that trustees have the flexibility to decide how and when to use income and capital for the beneficiary. What sets this type of trust apart, however, is that it is specifically designed to benefit a ‘disabled person’ and can offer significantly more favourable tax treatment across inheritance tax, income tax, and capital gains tax.

For a trust to qualify as a disabled person’s trust, the primary beneficiary must meet one of the following criteria: they are incapable of managing their property or financial affairs due to a mental disorder defined in the Mental Health Act 1983 (check with a medical professional that it is covered) or they receive certain disability-related benefits.

Once the trust is established correctly and meets HMRC’s conditions (including making a vulnerable person’s election), trust income and gains can be taxed as if they belong personally to the disabled beneficiary. As a result, the trust may benefit from their available personal tax allowances and lower rates.

However, eligibility is narrower than for discretionary trusts, so professional advice is essential to ensure correct set up and ongoing compliance.

Controlling access and protecting against risks

One of the biggest advantages of using a trust, whether discretionary or a vulnerable person’s trust, is that it allows you to prevent a lump sum from being misused or causing harm. Trustees can, for example, delay access until a certain age, or provide funds in stages to encourage financial maturity. They can also restrict how capital is applied, ensuring that it is used for essential purposes such as education, housing, or medical costs. In addition, the trust structure itself provides valuable protection, shielding family assets from creditors, financial exploitation, or the effects of a relationship breakdown.

Choosing trustees

The success of any trust depends heavily on the people appointed to run it. Trustees should be individuals you trust implicitly, with the skills, judgement, and willingness to make sometimes difficult decisions. Many clients choose a combination of family members who understand the beneficiary’s needs and a professional trustee, who brings legal and financial expertise. This balance can help ensure decisions are both compassionate and practical.

Letters of wishes

Alongside the trust deed itself, a detailed letter of wishes is strongly recommended. While not legally binding, it acts as a vital guide for your trustees in setting out how you would like the trust to be managed in practice. This might include prioritising housing or healthcare needs, discouraging cash payments except in limited circumstances, or making clear how different beneficiaries should be supported. A well drafted letter of wishes can give trustees clarity and reduce the risk of family disagreements later on.

Balancing fairness for the wider family

Estate planning should balance the needs of the vulnerable beneficiary with fairness to other children or dependants. This often involves careful drafting and clear communication to avoid misunderstandings or disputes after your death. Trust structures can help achieve this by providing for the vulnerable beneficiary during their lifetime, while preserving capital for the wider family in the future.

How we can help

Our experienced private client team can:

• advise on suitable trust structures, including discretionary trusts and vulnerable person’s trusts;
• draft wills and letters of wishes tailored to your family’s circumstances;
• support trustees with the ongoing management of trusts; and
• help ensure vulnerable beneficiaries are cared for without jeopardising their financial security.

We understand the sensitivity of planning for a loved one’s future care and wellbeing. With the right advice, you can make sure your estate provides lasting support in the way you intended.

For expert advice about making or updating your will to protect vulnerable beneficiaries, contact our private client team on 01634 828277 or get in touch here.

This article is for general information only and does not constitute legal or professional advice.