To protect a child, loved one or family member with special needs, a well defined estate plan is vital. Where you have a family member with a disability, you must plan for the future very carefully. This is particularly important where your children require care into adulthood, which can be the cause of much worry, anxiety and stress for parents particularly as they advance in years. Consideration should be given to setting up a discretionary trust for your child’s benefit and we at McElhinney & Associates can assist you with this process. Trusts are commonly written into the Wills of parents with young children to make provision for the children in the event of the parents’ untimely death. A discretionary trust is commonly set up by parents of children with special needs to maintain their child’s future quality of life when they are no longer around.
A trust, in its simplest form, is a legal agreement where one person (the settlor) give property to another (‘the trustee’) to hold and manage for the benefit of a third party, usually a minor child or one with special needs (the beneficiary). These trusted individuals (trustees) are appointed to mind and manage the assets of the trust for the child’s benefit.
Why set up a discretionary trust for your special needs child?
This important element of estate planning ensures that a plan is put into place for your child’s care and support for a time when you will not be there to provide the much needed care and support to your child. It provides your trustees with the flexibility to utilise the trust fund in accordance with your child’s change in circumstances over time, for example change in medical needs, cost of care or treatment or educational needs.
One of the most important benefits of the trust is that it would protect your child’s Social Welfare and Disability Benefits, which are currently means tested. Therefore, because the assets in the trust are held in the name of the trustee for the benefit of your child, the child does not legally own the trust assets and therefore those assets are not factored into any means tests carried out in determining your child’s eligibility for Social Welfare and/or Disability Benefits. In addition, these types of trusts can benefit from certain discretionary trust tax exemptions that are not available to those without special needs.
Trustees have a fiduciary duty (a position of trust and responsibility) which is imposed on them by law, and they are held to a high standard of care in dealing with trust assets. You may wish to prepare a detailed ‘letter of wishes’ outlining how you would like the assets of the trust to be managed and setting out your preferences for your child’s care. This letter of wishes is not legally binding on the trustee but does serve as a useful guide for the trustee in providing them with an insight into what you would do if you were still making the decisions on your child’s behalf.
The creation of trust can provide you with the much needed peace of mind that your child is provided for after your day. If you fail to take account of this very important element of estate planning, then your child will receive their inheritance outright in circumstances where they may be incapable of managing themselves or an inheritance. In those circumstances, the child may be made a ward of court or may result in family members having to apply to court to become guardians.
Setting up a discretionary trust for a child with special needs ensures that a proper plan is put in place today for a time in the future when you may no longer be in the position to provide the care yourself after your day.