How to Include a Disabled Person's Trust in a Will

A disabled person's trust is a specific form of trust within a will that allows you to leave money, property or other assets for the long‑term benefit of someone with a qualifying disability. These arrangements protect the disabled person's financial security, help preserve means‑tested benefits, and provide structured support after your death. They are governed by UK trust law and benefit from distinctive tax rules if set up correctly. This article explains how they work, when they might be appropriate, and the practical steps involved in including one in a will.

1. What Is a Trust and Why Use One for a Disabled Person?

A trust is a legal arrangement under which assets are held by one or more trustees for the benefit of named individuals (called beneficiaries). In the context of wills, a trust can take effect on your death and give trustees legal responsibility for managing the assets you leave for someone else.

A disabled person's trust is specifically designed to benefit an individual who meets the legal definition of “disabled” under UK tax law. These trusts help in situations where a direct inheritance could:

• affect a disabled person's entitlement to state benefits or social care support;
• expose them to financial abuse or mismanagement; or
• leave them without a structure to manage significant assets.

2. Legal Eligibility: Who Qualifies as a “Disabled Person”?

To include a disabled person's trust in a will, the intended beneficiary must satisfy the statutory criteria. These criteria are drawn from section 89 of the Inheritance Tax Act 1984, as updated.

Qualifying Conditions

The beneficiary must:

• be incapable of managing their own property or financial affairs by reason of mental disorder under the Mental Health Act 1983; or
• be entitled to certain disability‑related benefits, such as:
  • Attendance Allowance,
  • Disability Living Allowance at middle or higher rates,
  • Personal Independence Payment (daily living component),
  • Constant Attendance Allowance,
  • Armed Forces Independence Payment; and
• be the primary beneficiary of the trust.

Understanding whether someone meets these criteria may require professional advice from a solicitor or specialist adviser.

3. Types of Trusts You Can Use

There are different trust structures that can be included in a will, but the two most common for vulnerable beneficiaries are:

3.1 Disabled Person's Trust

This is a special form of discretionary trust where the disabled beneficiary is treated as the primary beneficiary. This means trustees must use trust income and capital primarily for that person's benefit during their lifetime.

Key features:

• Assets are held by trustees on the terms set out in the will.
• Trustees have discretion to apply income and capital for the disabled person.
• There are limited provisions to benefit other people (e.g., up to £3,000 or 3 % of the trust fund per year).
• The beneficiary's means‑tested benefits are less likely to be affected if managed appropriately.

3.2 Discretionary Trust

A discretionary trust gives trustees broader discretion to benefit several potential beneficiaries (including the disabled person). This can be useful where there are multiple people you wish to provide for. However, it is generally less tailored to the needs of a disabled beneficiary than a disabled person's trust.

4. How the Trust Works on Death

When you die, the trust in your will is activated:

1. Trustees named in your will take legal control of the assets you've placed in trust.
2. Trust administration begins: trustees manage, invest and distribute funds in accordance with the trust terms and general trust law.
3. Primary beneficiary support: trustees apply income and capital as needed for the disabled beneficiary's welfare, education, housing or care.

The remaining assets can pass to other beneficiaries if specified in your will or according to the terms of the trust once the disabled beneficiary dies.

5. Tax Considerations

Disabled person's trusts have specific tax treatment:

Inheritance Tax (IHT)

• Trust assets are included in the settlor's estate for IHT on death and taxed as part of that estate unless special conditions apply.
• While the disabled beneficiary is alive, the trust is treated as benefiting them, and certain trust tax charges (like the 10‑year charge) do not apply.

Income Tax and Capital Gains

• These trusts may attract special tax treatment if they qualify as trusts for vulnerable beneficiaries. This can result in income and capital gains being taxed in a way more favourable to the beneficiary's personal rates.

Tax rules affecting trusts and benefits are complex and subject to change, so it is important to seek professional advice when planning.

6. Choosing Trustees

Trustees are responsible for managing the trust and distributing assets appropriately. They should be:

• reliable and trustworthy;
• capable of understanding the beneficiary's needs; and
• prepared to meet legal obligations of trusteeship.

Often a mix of family members and a professional (such as a solicitor or trust corporation) is appointed to balance familiarity with legal competence.

7. Letter of Wishes: What It Is and Why It Helps

A letter of wishes is an informal document that sits alongside your will. It tells trustees how you would like them to interpret your intentions for the trust and use the funds. While it is not legally binding, it provides context and guidance that can assist trustees in making appropriate decisions for the disabled beneficiary's quality of life.

8. Risks and Practical Considerations

Setting up a disabled person's trust brings advantages, but there are risks and complexities to understand:

• Trust administration can be complicated; trustees must know their duties.
• If trustees distribute too much capital, the disabled person's benefits may be affected.
• A poorly‑drafted trust could fail to meet statutory requirements, losing tax and benefit protections.
• Bank and investment account access for trust assets may be limited or subject to specific requirements.

For these reasons, most people use a solicitor or specialist trust provider to prepare and review the will and trust documents.

9. Practical Steps to Include a Disabled Person's Trust in a Will

Step 1 – Assess eligibility: Confirm the disabled individual meets the statutory definition.
Step 2 – Seek professional advice: Consult a solicitor with expertise in wills and trusts.
Step 3 – Choose trustees: Select appropriate trustees with necessary skills and trustworthiness.
Step 4 – Draft trust terms: Decide whether to use a disabled person's trust or another trust structure and set out clear terms in the will.
Step 5 – Write a letter of wishes: Provide guidance to trustees on how you intend the assets to be used.
Step 6 – Sign and witness the will: Follow legal requirements to make the will valid.

Key Takeaways

Including a disabled person's trust in your will allows you to provide structured and protected financial support for a disabled loved one in England and Wales. To qualify for special tax and benefits treatment, the intended beneficiary must meet specific legal criteria. A disabled person's trust offers focused support and can help safeguard means‑tested benefits. Because of the legal and tax complexity involved, it is strongly recommended to use a solicitor experienced in estate planning and trust law. With careful planning, this form of trust can help secure your disabled beneficiary's financial future while reflecting your wishes clearly and effectively.