What is a disabled person’s trust?
Posted on 24th March 2025
A disabled person’s trust can provide peace of mind that a loved one has financial security after your death.
You could leave some or all your assets in trust for a family member or friend. You might do this because you’re concerned they would find it difficult to manage financially on their own, for example. A trust allows the trustees to manage the assets on their behalf.
What is a disabled person’s trust?
A disabled person’s trust is like a discretionary trust and must have more than one beneficiary. However, you can nominate a primary beneficiary, alongside others.
One important advantage is that this arrangement is that it won’t affect any means-tested benefits they receive. In contrast, a large inheritance from your estate would probably lead to a re-assessment of their benefits by their Local Authority.
Why being a primary beneficiary is important
Making your disabled friend or family member a primary beneficiary of the trust is important. This means the trustees must use any income and capital for their benefit. If you have more than one disabled child, for example, each will need their own trust.
This differs from a discretionary trust where you can’t define a primary beneficiary. In this case you can only provide a non-binding letter of wishes asking to treat someone as the main beneficiary. However, trustees don’t have to follow your wishes.
When the primary beneficiary dies the trust can continue as a basic discretionary trust. Alternatively, the trust might come to an end, with the assets distributed to the default beneficiaries.
How a disabled person’s trust works
It's still a good idea to write a letter of wishes alongside your Will to explain how you would like the trustees to handle the assets. Although this letter isn’t legally binding it will make your intentions clear.
A primary beneficiary must meet some specific criteria as legally ‘disabled’ when the assets transfer into the trust. This could include anyone who can’t manage assets due to a mental disorder or who receives:
an attendance allowance or mid-to high disability living allowance
the daily living component of a personal independence payment
an increased disablement pension
a constant attendance allowance
an armed forces independence payment.
Since 2013, trustees can choose to provide some of the trust’s funds to any beneficiaries annually. Payments can amount to £3,000 from the income or capital or up to 3% of the capital, whichever is lower.
Inheritance tax and a disabled person’s trust
If the trust meets certain legal requirements there are inheritance tax (IHT) benefits. While the primary beneficiary is alive, the trust isn’t subject to anniversary and exit charges.
When they die the revalued trust fund becomes part of their estate for IHT purposes. You can include the family’s main residence as part of a disabled person’s trust. If the primary beneficiary is a direct descendant, this qualifies for the Residential Nill Rate Band (RNRB) allowance.
Please get in touch if you are considering setting up a trust for a disabled family member or friend.
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