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Must I Consider my Beneficiary's Circumstances When Making A Will?

View profile for Joanne Gibson
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It is safe to say that when we consider including a beneficiary in our Will, we do so with the intention of wanting that person to benefit in some way from our estate when we have died. However, it is extremely important to consider the personal circumstances of your intended beneficiaries to ensure that your Will is prepared in the most effective way to achieve your intentions. Without careful consideration, it is possible that your Will could be prepared in a way that could unintentionally adversely affect your beneficiary’s personal and/or financial circumstances.

What if my beneficiary is vulnerable or disabled?

A vulnerable person could be a person who is under the age of 18 and whose parent has died. A vulnerable person could also be a person who suffers from a physical or mental illness which has the consequence of them being less able, or maybe incapable, of managing their own financial affairs.

Unfortunately, sometimes people can be vulnerable to financial abuse from others who could take advantage of their vulnerability.

Another consideration is the eligibility of a person to receive means tested benefits to which they are entitled. If a person receives money/assets outright this could have the negative affect of them losing their entitlement to receive such benefits.

Above are just some examples of why it may not be appropriate or effective for a beneficiary to receive assets/money outright from a person’s estate, and why you may want to safeguard the funds using a Trust.

You may wish to consider including a Disabled Person’s Trust in your Will.

What is a Disabled Person’s Trust?

These types of Trusts are set up to specifically benefit a ‘disabled person.’ A person is defined as disabled if one or more of the following apply:

  • They are incapable of administering their own property or managing their own affairs due to a mental disorder within the meaning of the Mental Health Act 1983.
  • They are receiving one of the following benefits:
    • Attendance Allowance
    • Disability Living Allowance (DLA) based on entitlement to the care component at the highest rate, or the mobility component at the highest rate.
    • Personal Independence Payment (PIP)
    • They would be entitled to receive one of the above benefits if they could satisfy prescribed conditions as to residence or presence in the UK
    • They would be entitled to receive one of the above benefits but for being in a state funded institution e.g. care home or hospital

A Disabled Person’s Trust can be used to safeguard the trust assets, as the Trust Fund would be managed by the Trustees on behalf of, and entirely for the benefit of, the disabled beneficiary.

One of the main advantages of a Disabled Person’s Trust is that it receives favourable tax treatment for Inheritance Tax, Income Tax and Capital Gains Tax.

What if my beneficiary is not a ‘disabled person’ but they are still financially vulnerable or having financial difficulties?

Your beneficiary may not qualify as a ‘disabled person’ as mentioned above, but their circumstances may be such that it would be inappropriate of ineffective for them to inherit outright.

You may consider your beneficiary to be financially vulnerable or that their circumstances are such that you do not want them to receive money outright.

If your beneficiary has financial difficulties such as going through a divorce or bankruptcy you may think that providing for them in your Will would assist them in otherwise difficult financial times. However, an outright gift in your Will might not benefit your beneficiary as you intend.

If a beneficiary of an estate subsequently gets divorced, the assets/moneys previously received from a person’s estate could be considered in a financial settlement. You may wish to safeguard the

If a beneficiary of an estate is subject to bankruptcy proceedings, then rather than them receiving the inheritance personally it would be payable to the Trustee in Bankruptcy.

What if my beneficiary has lifestyle choices I don’t agree with?

Some might say that you should not try to control a beneficiary’s behaviour or choices beyond the grave. However, there are sometimes circumstances where a beneficiary’s lifestyle choices are such that you simply would not want them to be able to access the funds and have the freedom to do with them as they wish, whilst their circumstances remain the same. Examples of which could be drug or alcohol abuse, addictions etc.

How can you protect your beneficiary and your estate?

In the absence of your Will providing to the contrary, a beneficiary inherits outrightly and would be free to spend the funds as they choose.

Above are all examples of when it would be extremely important to consider your beneficiary’s circumstances and whether it would be appropriate for them to inherit from your estate outright.

You might consider including a Discretionary Trust in your Will to protect your beneficiary’s interests  and also your estate funds.

In essence, a Trust gives you the opportunity to name Trustees who are responsible for managing the Trust Fund on behalf of, and for the benefit of, the beneficiary/s.

What is a Discretionary Trust?

A Discretionary Trust is a type of Trust that is discretionary in nature.

As with other Trusts, it is the Trustees who are responsible for managing the Trust assets, on behalf of and for the benefit of the beneficiaries.

Discretionary Trusts name more than one beneficiary, some, or all of which may benefit from the Trust assets. None of the beneficiaries have an entitlement to receive funds from the Trust. The beneficiaries are named only as potential beneficiaries and do not therefore have any fixed entitlement.

The Trustees use their discretion to decide how and when the beneficiaries should benefit, and they have flexibility in how to use the income and the capital of the Trust Fund to benefit the beneficiaries.

A Discretionary Trust can be a very useful tool used to ensure your chosen beneficiaries benefit from the Trust, but in a way that is at the discretion of the Trustees, rather than gifting assets/monies to the beneficiary/s outright, which could then become vulnerable in any of the ways described above.

Discretionary Trusts allow for a lot of flexibility, again by being discretionary by nature. The Trustees can make decisions regarding the management of the Trust depending on the circumstances, and they can continue to make and change decisions with changing circumstances, changing requirements, and changing needs of the beneficiaries.

The tax treatment of Discretionary Trusts needs to be carefully considered. There can be charges to Inheritance Tax when the Trust is set up, on every 10-year anniversary, and exit charges payable when payments are made from the Trust.

Income Tax is charged at a higher rate of 37.5% on dividend income and 45% on other income. The treatment of Capital Gains Tax is also less favourable.

Can I give guidance to the Trustees?

You can prepare a Letter of Wishes to accompany your Will Trust, offering guidance to your Trustees in how you would like them to manage the Trust Fund. You could set out several different factors you would like the Trustees to consider and prioritise such as the care needs of the beneficiary, living arrangements, how any payments from the trust may affect the beneficiary’s entitlement to means tested benefits, personal circumstances and possibly the desire for certain conditions to be met before a beneficiary receives funds such as being free from drugs or alcohol for a certain period of time.

What if my beneficiary is a first-time buyer?

First time buyers have several advantages and incentives to help them get onto the property ladder, such as the first time / lifetime ISAs which can increase your savings by up to 25% when used towards the purchase of your first home.

What does this have to do with your Will?

To qualify for the first-time buyer status you must not own, or have owned a dwelling. It would be reasonable to assume that this would mean that you have not previously bought a property. This is not the case, the restriction applies if you have ever owned property, regardless of how you come to own it.

A first-time buyer must never have acquired an interest in residential property. There are number of ways in which you could acquire an interest in a property, these are as follows:

  1. Buying a property, freehold or leasehold;
  2. Being gifted a property, such as a property purchased by a parent on behalf of a child;
  3. Inheriting a property under a Will or under the rules of intestacy (if there is no Will);
  4. Being a beneficiary of a Trust, which owns property;
  5. Property bought by a financial institution on a person’s behalf;
  6. Grant or assignment of a lease (with a minimum of 21 years left).

Consequently, if a person inherits a property under a Will, or even a tiny share of a property, they would no longer be considered as a first-time buyer and they would lose their eligibility for first time buyer status. This too would be the case if the a person is named as a beneficiary of a Trust which owns property, even if they have not yet become entitled to it under the terms of the trust.

This may be an important issue for you to consider if your beneficiary/s have not yet purchased their first home and they do not wish to lose heir first-time buyer status.

What if my beneficiary has their own wealth?

It is worth considering that when a beneficiary inherits under a person’s estate and they already have their own wealth, the increased value of their estate could give rise to increased Inheritance Tax liability on their death.

Under these circumstances the person making the Will may consider redirecting the inheritance to alternative beneficiaries, such as grandchildren instead of children.

Should a beneficiary inherit under a person’s estate, and they themselves wish to redirect the inheritance they are entitled to, a Deed of Variation can be prepared within 2 years of the date of the deceased’s death, altering the distribution of their estate.

Do I need a bespoke Will?

A Will is a bespoke document, each tailored to a person’s own circumstances and requirements. Some would argue that a Will is the most important document you will ever prepare, because not only does it dictate what happens to your estate on your death, but it can significantly affect the financial security of your loved ones after you have died.   

It is extremely important to seek specialist legal advice when preparing your Will to help you consider and understand the potential issues relevant to yours and your family circumstances and to ensure that your Will is prepared in the most effective way possible to achieve your desired outcome.

If you would like assistance with the preparation of your Will, please contact one of the team here at Thornton Jones and we would be more than happy to help.


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About the Author

Joanne joined Thornton Jones Solicitors in May 2022, bringing a wealth of experience to our Private Client department.

Since qualifying as a Solicitor in 2009 Joanne has worked in the private client sector and has become a specialist in many areas of non-contentious private client work, particularly Wills, Estate Administration, Lasting Powers of Attorney, and Court of Protection applications.

After leaving her hometown to study at University and Law School in Surrey, Joanne returned to her roots here in Yorkshire to settle down and loves being able to work within the local community and helping local people.

There are never two days the same in the life of a private client lawyer and I enjoy the variety of work. I enjoy helping people from all walks-of-life deal with a variety of legal matters, often during extremely emotionally challenging times.

At home Joanne is kept more than busy with her daughter, her dog and her tripod cat. Any free time she has, she enjoys long walks with the dog, socialising with friends and family, dreaming of holidays in the sun and being an Alzheimer’s Society Dementia Friend.

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The content of this blog post is for information only and does not constitute formal legal advice and should not be relied upon as advice. Thornton Jones Solicitors Limited accepts no liability for any such reliance upon this content. Where the post includes links to external websites, Thornton Jones Solicitors Limited accepts no responsibility for the content of such sites. Any link to a third party website should not be construed as endorsement by Thornton Jones Solicitors Limited of any content, products or services which are outside our direct control. 

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