Lifetime Vulnerable Person’s Trust

What it is

The same protective structure as a vulnerable person’s trust in a Will, but created during your lifetime. Families use it where support is needed now, where several relatives want to contribute to one fund, or where grandparents want to help without putting money into a parent’s hands.

How it works

• Unlike most lifetime trusts, a transfer into a qualifying disabled person’s trust is a potentially exempt transfer. There is no immediate entry charge.
• It sits outside the relevant property regime, so there are no ten year anniversary charges and no exit charges.
• The trustees have the full individual annual exemption for Capital Gains Tax rather than the reduced trust exemption, and there is an uplift in the base value of the trust assets when the disabled person dies.
• A vulnerable person election can bring income tax and Capital Gains Tax down to the rate the beneficiary would personally have paid. The election has a deadline.
• While it remains non taxable, it is excluded from the HMRC trust register.

Where specialist advice matters

• The income and capital conditions are strict. If they are not met, the whole favourable treatment falls away and you are left with an ordinary relevant property trust.
• A trust funded by the vulnerable person themselves is a very different proposition and risks being treated as deliberate deprivation of capital. Funds deriving from a personal injury award are treated differently again.
• Discretionary payments can still affect some means tested entitlements. The aim is to protect benefits, and the manuals are clear that this is not always achievable in full.
• Who the trustees are, and what happens on the disabled person’s death, both need settling at the outset.