What is a Vulnerable Person Trust ?
Quite often, we come across families who have a dependent that is vulnerable in nature, often unable to manage money or themselves through no fault of their own.
This is where Vulnerable Person Trusts (VPTs) come in to save the day and ensure that those we leave behind that are unable to care for themselves are cared for by the finances in our estate. A VPTs is how you can appoint a trustee (the one in charge of administering the Trust) with finances being held by the Trustees (which could be family members, carers etc) that could utilise the money to fund care for the person in question.
How do they work?
Care doesn’t strictly have to come in the form of cash, this advice also goes for the trustees who are managing the funds for the primary beneficiary (the vulnerable person benefiting from the VPT). Everybody is different and have their own way of going about their life, this is no different for vulnerable beneficiaries, it is merely a matter of ability and adjusting to suit their needs.
Say there is an individual who does not have a concept of money, they are unable to recognise its value, but they are still capable of shopping and feeding themselves. A VPT could dispense value to the beneficiary in the form of supermarket vouchers as an example as these can often have the benefit in being limited to what can be purchased with said vouchers, or by paying for services.
The money is managed by a Trustee, they use their best judgement to assess the best way for the funds to provide a benefit for the beneficiary, there is an amazing deal of flexibility in these trusts while staying very strict to ensure the vulnerable beneficiary is protected.
Why should you use Vulnerable Person Trusts?
VPTs provide not only the flexibility of a discretionary trust when it comes to controlling the flow of the benefit, but also allows protection not afforded by a regular discretionary trust as other beneficiaries are limited to their entitlement. Anyone who is classified as a beneficiary under this trust but is not the primary beneficiary would be limited to receiving 3% of the trust/ £3000 (whichever is lower) per tax year between them; usually this would be siblings of the vulnerable person or descendants.
This ensures that the primary beneficiary is to receive the main bulk of the trust, giving it the distinct advantage over other types of trusts where a testator may be worried about their money not going where they would like it to go after their death as seen in regular Discretionary Trust’s (DT).
Following this, a VPT also provides more favorable tax benefits by having no increased tax liability when it comes to gifting money out of the trust. DTs have a charge up to 6% per exit and a periodic charge of 6% every 10 years for the value over £325,000 (this first £325k of their whole estate being tax free).
While we appreciate that many people do not have £325,000 to put into a trust, this is by no means a financial requirement. The special inheritance tax treatment of this trust is simply an additional benefit.
If this is something that you believe will be of interest to you or someone you know, drop us a line or call us and we will talk it through with you.
