Types of financial provision

Carers may wish to leave a capital sum to which the dependant can have recourse or to generate income to pay for clothing, out-goings (or a suitable combination) repairs to accommodation, etc. Carers will probably consider the following options when deciding how best to deal with their estates:

• No provision at all

This assumes that State Benefits will cover the cost of care of the dependant. This is not a recommended course of action.

There is no guarantee at all that the State will always provide for the dependant or provide sufficient funds for the dependant to be at the home which the carer would have chosen. There is also a possibility that those faced with the obligation of providing for the dependant i.e the State or local authority, may on the dependant's behalf make a claim under the Inheritance (Provision for Family and Dependants) Act 1975 against the carer's estate. If this is done then any successful claim will mean that the funds will become the dependant's funds absolutely free of any Trust and these funds will then be treated as the dependant's for the purpose of assessing entitlement to State Benefits.

It is also possible for a dependant who feels personally aggrieved and is still mentally capable in the legal sense to make a claim under the Act with similar unfortunate consequences. It would therefore be wise when making alternative arrangements to try and get the dependant's understanding if at all possible.

• By leaving sums of money directly to the dependant

Again this is not a recommended course. While the dependant is a minor, the parents or guardian of the dependant will be able to manage these sums but once the dependant attains the age of 18 years, they will lose control. The dependant will be entitled to deal with the money directly or if the dependant is incapable of managing and administering his or her property and affairs, the Court of Protection will appoint a Receiver to manage them.

Secondly, even if the carer is confident that the dependant could wisely handle the sums he or she has given, consideration should be given to the limits imposed by the Regulations upon the income and capital which the dependant may hold without affecting entitlement to State Benefits. Clearly, to lose State Benefits entirely is a serious matter as enormous capital would be required to provide the equivalent.

As a general rule, all unearned income adversely affects means-tested benefit. Note however that income used specifically to top up the cost of board and lodging is not affected. It is also possible for the dependant to receive limited voluntary payments. Certain benefits in kind or payment for them can also be given. Irregular voluntary payments can be treated as capital rather than income. The position with regard to any non means-tested benefits that may be available should always be gone into carefully.

If a dependant is placed in residential accommodation, which is funded wholly or in part by the local authority, then the position is different. Although charges are at the discretion of the Authority, a dependant provided with accommodation is generally required to pay for it in accordance with his or her resources but note that currently there are uncertainties in the law in this area – check before making commitments. The rules in respect of assessing a dependant's contribution are in some respects in line with Income Support rules but in others, more onerous. Further advice will need to be taken in any particular case.

Although it is possible to leave a house to the dependant (and this does not affect Income Support if the beneficiary lives in it) thought should be given to the fact that with age that person may have to move into local authority accommodation and then the capital value of the house can be taken into account to reduce benefit. Moreover local authorities have the power, in certain circumstances, to put a legal charge on such a house. In this way the local authority can recover its charges with interest when the house is eventually sold.

It should always be borne in mind that gradually there are more and more restraints on benefits. Benefits, which are now not means-tested, could become taxable or means-tested.

• Leaving sums of money secretly for the dependant

If there is a secret Trust in existence, any claim made for State Benefits or local authority financial support without disclosing existence of the secret Trust would be fraudulent and upon the disclosure of such a Trust, there might be criminal proceedings and a very large claim against the Trust fund by the Social Security Fund or local authority for overpayment of benefits.

Also the estate could be open to a claim made for the dependant under the Inheritance (Provision for Family and Dependants) Act 1975 if the fund were not disclosed and no other provision had been made.

• By leaving funds to other members of the family for the dependant

With a moral obligation for the family to provide for the dependant. Because there is no legal obligation, the member of the family must be carefully chosen. There is the major disadvantage also that if the family member dies or becomes bankrupt or becomes involved in divorce proceedings, then such monies will be treated as the family member's own property. Some voluntary payments to the dependant are allowed without causing a reduction in State benefits.

Such a voluntary arrangement can provide useful additional benefits but is not recommended for anything other than comparatively small payments.

• To leave a house to a family member with a provision for the dependant to live there rent-free (or at a rent)

Properly worded this is valid in law but again there is a problem if the family member dies, becomes bankrupt or divorced. Great care is always required in all matters concerned with housing.

• By leaving money in a Trust or settlement for the benefit of the dependant

The principal object of a Trust or settlement would be to provide a secure fund for the dependant which will not prevent access to State Benefits or local authority financial support which would otherwise be payable. Any such Trust should therefore not contain any provisions whereby the capital of the Trust fund could be deemed to be that of the dependant unless that is what is intended. The Trust should also provide sufficient discretion for the Trustees to control the income and capital receivable by the dependant so that it does not exceed the maximum sum currently permitted under the Regulations.

The actual details of the Trust will depend upon the family circumstances and the ability and needs of intended beneficiaries including the dependant.

Detailed thought should also to be given to the identity of the Trustees (who need not be the same as the executors) since in these particular circumstances it is desirable to have at least one professional trustee who is experienced in managing investments e.g a family solicitor or accountant, and also to have a member of the family or close friend who is likely to be in regular communication with the dependant and is aware of his or her needs.

However it should also be borne in mind that denying mentally ill persons sums to which they feel entitled can lead to many problems and if this is a consideration then it is desirable to have two professional Trustees. In choosing Trustees personal factors can be important. How, for example, will the trustee deal with an enquiring and possibly persistent dependant? Will the trustee be sympathetic but reasonably firm? Mainly because of such difficulties Rethink has set up a Trusteeship scheme.

There are a number of different types of Trusts and settlements which a solicitor may advise when making your Will. For example there is a discretionary Trust, a life interest Trust, a protective Trust, a charitable Trust or any combination of the same. The carer's solicitor should advise which of them would best suit the needs. These arrangements can also be entered into during the carer's lifetime.


One of the difficulties for people wanting to make some kind of provision for mentally ill or handicapped dependants was the effect of certain “deeming” provisions of the Income Support Regulations on discretionary Trusts. The effect of these provisions was to take into account not only capital belonging to the dependant but also capital that the Trustees had the power to give him or her, whether they used the power or not - however there has been a relaxation and under the regulations currently in force, only income and capital actually received by the dependant is taken into account but any person wishing to establish a Trust would be well advised to bear in mind that the provisions may be re-instituted by a future administration. Until April 1993 the older rules still applied if local authority accommodation was involved but the rules are now broadly the same as with Income Support. This is a change for the better.

On the other hand, new claimants for Income Support requiring more than the personal and comparatively low residential allowance will have to apply to local authorities and may well experience greater difficulties in other ways. There will be an even greater need for private Trusts to top up the funds that the authorities might provide.

It should be mentioned however that there can be income tax disadvantages with a discretionary Trust. Such Trusts have their own rules e.g Trustees may pay an additional 11% income tax but this is recoverable if distributed to a beneficiary who is taxable only at the basic rate. More restrictive rules apply if the Trust income is derived from share dividends. Also there are different rules on Inheritance Tax which can be adverse or sometimes beneficial. Similarly with Capital Gains Tax.

The Inland Revenue generally grants no special treatment to the disabled or mentally ill. However this may have to be accepted in order to get flexibility and protection. It is another reason for obtaining expert advice.

• Gift to a Charity

It is possible to give all the money which the carer wishes to provide for the dependant to a charity. However the carer must be fully confident in the charity which says it will look after the dependant for his or her lifetime and provide for his or her needs. In this situation, the following matters should be taken into consideration:
 - The carer cannot make a binding contractual agreement for the Charity to provide such a service for the dependant as this is against what are commonly known as "the bargain/bounty rules" and may endanger the charitable nature of the gift. Also any tax advantages would be lost.

 - The dependant may at some time during his or her lifetime fail to meet the criteria laid down by that Charity.

 - If the dependant leaves the care of that particular Charity, the gift cannot be unmade and the dependant may then become dependent on the State.

There is also a possibility that a claim may be made on behalf of a dependent under the Inheritance (Provisions for Family and Dependants) Act 1975 if the carer does not make adequate provision for the dependent.