Making Future Provisions for Vulnerable Relatives

Ensuring the well-being and financial security of vulnerable relatives is a critical concern for many individuals. Making provisions for their future requires careful planning and consideration of various factors, including safeguarding their inheritance and navigating tax and inheritance implications.

At ELM Legal Services, we understand the importance of providing comprehensive support and guidance in these sensitive matters.

Who might be considered a vulnerable person?

A vulnerable person, in legal terms, is someone aged 18 or over who is unable to look after themselves or protect themselves from exploitation or harm due to various factors such as mental or physical disabilities, illnesses, or other issues. This includes individuals who:

• Have mental or physical illnesses affecting their ability to manage daily life;
• Lack the capacity to make their own decisions;
• Cannot report abuse;
• Are elderly, frail, or suffer from dementia;

Additionally, individuals who may lack the maturity to handle an inheritance, display financial imprudence, or receive means-tested benefits may also be considered vulnerable.

What is a Discretionary Trust?

A Discretionary Trust is a legal arrangement where a person (the Settlor) transfers assets to another person or entity (the Trustee) to hold and manage for the benefit of certain Beneficiaries.

Unlike other types of trusts where the distributions are predetermined, in a Discretionary Trust, the Trustee has the discretion to decide how and when to distribute the assets among the Beneficiaries.

Case Study: Safeguarding Sarah’s Future with a Discretionary Trust

Sarah, a 25-year-old woman with Down syndrome, has always been the light of her family’s life. However, her parents, John and Emily, have concerns about Sarah’s ability to manage her financial affairs independently. They want to ensure that Sarah is well taken care of even after they’re no longer around to provide for her.

John and Emily decide to set up a Discretionary Trust as part of their Estate Planning to safeguard Sarah’s future welfare. They appoint Sarah’s responsible older brother, Michael, as the Trustee. The Trust is funded with assets, including savings, investments, and a life insurance policy payout designated for Sarah’s benefit.

Here’s how the Discretionary Trust benefits Sarah:

• Financial Management: With Sarah’s limited ability to manage finances, the Discretionary Trust ensures that Michael, as Trustee, oversees her financial affairs responsibly. He can decide how to invest the Trust assets and manage expenses to ensure Sarah’s long-term financial security.
• Protection from Exploitation: John and Emily are concerned about Sarah falling victim to financial exploitation or undue influence. By placing assets in a Discretionary Trust, they provide protection against individuals who might take advantage of Sarah’s vulnerability.
• Tailored Support: Sarah’s needs may change over time due to her disability or other life circumstances. The Discretionary Trust allows Michael to adapt distributions according to Sarah’s evolving needs, ensuring she receives the support she requires without rigid restrictions.
• Preservation of Government Benefits: Sarah currently receives financial benefits from the government, which are vital for her healthcare and living expenses. Directly inheriting assets could jeopardise her eligibility for these benefits. By placing assets in the Discretionary Trust, John and Emily ensure that Sarah can continue to receive necessary government assistance while still benefiting from the Trust’s assets.
• Asset Protection: Assets held in the Discretionary Trust are shielded from creditors, safeguarding Sarah’s inheritance from potential legal claims or debts she may incur in the future.

Through careful Estate Planning and the establishment of a Discretionary Trust, John and Emily have peace of mind knowing that Sarah’s future welfare is secured.

The Trust provides ongoing support and protection for Sarah, ensuring that she can live a fulfilling and financially stable life even after her parents can no longer provide direct care and guidance.

Routes to avoid

Direct Inheritance

Leaving assets directly to a vulnerable loved one may seem like the most straightforward option, but it can pose significant risks, including:

• Lack of Financial Management: Vulnerable individuals may lack the capacity to manage large sums of money responsibly, leading to mismanagement or exploitation.
• Loss of Government Benefits: Direct inheritance could disqualify the loved one from receiving essential government benefits.
• Exposure to Creditors: Inherited assets could be vulnerable to creditors or legal claims, potentially depleting the inheritance intended for the loved one’s care.

Outright Gifts

Giving assets as outright gifts to a vulnerable loved one can present challenges, including:

• Lack of Oversight: Once gifted, the assets are no longer under the giver’s control, leaving them vulnerable to misuse or exploitation.
• Tax Implications: Large gifts may trigger gift tax implications for the giver, reducing the overall value of the inheritance.
• Loss of Asset Protection: Gifted assets may not be protected from creditors or legal claims, jeopardising the loved one’s financial security.

DIY Solutions

Attempting to create Estate Planning arrangements without professional guidance can lead to various pitfalls, such as:

• Legal Complexity: Estate planning involves intricate legal and financial considerations that require expertise to navigate effectively.
• Inadequate Protection: DIY solutions may overlook critical aspects of asset protection and Beneficiary support, exposing vulnerable loved ones to risks.
• Lack of Customisation: Generic or template-based approaches may not adequately address the unique needs and circumstances of the vulnerable loved one and their family.

In summary, while Estate Planning for a vulnerable loved one, it’s essential to avoid routes that may compromise their financial security, eligibility for government benefits, or protection from exploitation.

Seeking professional guidance and implementing tailored solutions, such as Discretionary Trusts, can help ensure the long-term welfare and stability of the vulnerable individual.

Making future provisions for vulnerable relatives

When it comes to ensuring vulnerable relatives’ well-being and financial security, thoughtful planning and proactive measures are paramount.

At ELM Legal Services, we recognise the intricate nature of these matters and offer comprehensive support tailored to individual needs. By understanding the definition of vulnerability and the challenges it presents, we provide guidance on establishing Discretionary Trusts as part of Estate Planning solutions.

Through real-life scenarios like Sarah’s case, we demonstrate the tangible benefits of such arrangements, from financial management to protection against exploitation and preservation of government benefits. By steering clear of risky routes like direct inheritance or outright gifts and avoiding DIY solutions, individuals can safeguard their loved ones’ futures effectively.

Our commitment lies in ensuring that your vulnerable relatives receive the support they need, enabling them to lead fulfilling and financially stable lives long after their caregivers are gone.

Contact Us

If you wish to discuss Discretionary Trusts and the safeguarding of vulnerable relatives, please contact us at 0117 952 0698 or simply click on Contact Us. We are committed to providing tailored solutions to safeguard your vulnerable relatives’ financial stability and security.

Our experienced team is here to assist you every step of the way, ensuring peace of mind for you and your loved ones. Don’t hesitate to reach out and start planning for your family’s future today.