Leaving money to a disabled child

Many means-tested benefits, including Universal Credit and Employment and Support Allowance, have a savings limit, and receiving a lump sum inheritance outright can reduce or stop these payments, sometimes for a substantial period, until the money is spent down. For a disabled child who relies on these benefits alongside care and support, an inheritance intended to help them can end up leaving them financially worse off.

This is rarely what a parent intends, and it comes as an unwelcome surprise to families who assume that leaving money is always straightforwardly helpful. The structure of the gift, not just the amount, is what determines the outcome.

A discretionary trust holds assets that are managed by trustees on behalf of a class of beneficiaries, rather than being owned outright by any one person. Because the disabled child does not own the trust assets directly, in most circumstances the money is not counted when their entitlement to means-tested benefits is assessed, though this depends on how discretion is actually exercised in practice.

Trustees can then use the trust fund flexibly to pay for things that improve the child's quality of life, extra care, equipment, holidays, or day-to-day support, without disturbing their benefits entitlement. This flexibility is the main advantage over a fixed gift or a bare trust.

Where a trust is set up specifically for a disabled beneficiary and meets conditions set out in tax legislation, it can qualify as a 'disabled person's trust' or 'vulnerable person's trust', which can carry more favourable inheritance tax and capital gains tax treatment than an ordinary discretionary trust. The conditions relate to things like the beneficiary's entitlement to certain benefits or their level of care needs.

Whether your child's situation meets these conditions, and how the trust needs to be worded to qualify, is a technical question that depends on current tax rules and your child's specific circumstances. This is squarely solicitor territory rather than something to guess at using general guidance.

Because a trust for a disabled child, particularly a young one, may need to run for decades, choosing the right trustees matters enormously. Consider people who understand your child's needs, are likely to be around for a long time, and can work well together if you appoint more than one, as well as a professional trustee or specialist charity as a backup or co-trustee for continuity.

It is worth writing a detailed letter of wishes alongside the trust, explaining what kind of support and quality of life you want the trust to fund, so trustees have real guidance rather than having to guess your intentions years after you are gone.

A standard online will is not built to draft a discretionary or disabled person's trust correctly, and getting the wording wrong risks the trust failing to achieve either the benefits protection or the tax treatment you were aiming for. This is one of the clearer examples where the cost of professional advice is worth paying, because the consequences of getting it wrong fall directly on a vulnerable family member.

A solicitor who specialises in this area can also coordinate with a Court of Protection deputy or attorney if your child already has one, and can advise on related tools like a letter of wishes for trustees and how the trust interacts with any existing benefits or care funding arrangements.