At Onions & Davies, we have a number of clients who care for someone who is unable to care for themselves. This may be due to some form of physical incapacity or it may be due to some form of mental incapacity.
Quite naturally, they are worried about what will happen when they die and are therefore unable to continue providing that care.
This Guide aims to provide some basic information for those who wish to look at the best ways of arranging their affairs, so that the person that they care for can be properly provided for after their death.
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Physical and emotional care
It is not possible to appoint a guardian for an adult in the same way that you can for somebody who is under the age of 18. It is therefore important that you look at other ways for the non-financial care that you provide, to be continued after you have become unable to continue providing it. How to do this is beyond the scope of this Guide but we can help you with this if you would like us to.
At the moment, you may be using your own resources to provide financially for the person for whom you care and it is this sort of provision that we will look at in this Guide.
What if I become mentally incapable?
If you become mentally incapable of managing your own finances, how can you be sure that the person you are providing for can continue being provided for?
One of the best ways would be for you to make a Lasting Power of Attorney – Property and Financial Affairs. Under this power, your attorneys are able to continue to deal with your finances in the same way that you have done so and that includes ways in which you have benefited other people.
You can use specific wording within the form to provide necessary directions to your attorneys. Please read our separate Guide regarding Lasting Powers of Attorney.
It would also be possible for you to use some form of trust arrangement, perhaps in conjunction with a specific investment. Trusts are considered later on in this Guide and can be established during your lifetime or after your death through the wording of a Will.
And when I die?
To continue providing for someone after you have died, you cannot use a Lasting Power of Attorney as these are cancelled on death. The most appropriate action you can take is to make a Will.
We have produced a separate Guide on Will-making generally so please refer to that. However, the main reason for making a Will is that, if you do not, the Intestacy Rules will apply and you will get no choice as to how your estate is distributed and who deals with it.
In circumstances where you wish to use your estate to continue providing for a mentally incapable beneficiary after your death, it is extremely important that you choose how that takes effect.
It is worth noting that you may be caring for someone who is older than you, rather than younger than you. You can continue to provide for them through your Will but it is worth bearing in mind that most people would want wealth to pass down rather than up because it would only have to come down again. However, it does depend on what you want to achieve and the comments below would apply equally to all mentally incapable beneficiaries whatever age they are.
It would be possible for you to give a fixed amount or a share of your estate directly to the beneficiary concerned. However, there are two main reasons why you would not wish to do this.
The first is that, if the person does not have sufficient mental capacity to deal with finances, they would not be able to use what you leave to them, without having to involve an attorney of their own (if they have been able to make a Power of Attorney) or the Court of Protection (if there is no attorney).
The second reason is that, if the person concerned is in receipt of means tested benefits, anything they receive from you will affect their entitlement and not only could they lose those benefits, but also the extra passported ones that are related to them. You would therefore not be giving them any added value.
You could decide that it would be better not to leave them anything at all, but not only would you still not be providing them with any benefit, your estate could be contested.
If you have been providing for someone financially during your lifetime and that provision stops when you die, that person, or someone on their behalf could make a claim on your estate for that provision to continue. If the person concerned is vulnerable and in receipt of state benefits, the claim could be made by the DWP and the chances of success are even higher.
Some people decide, particularly where they have several children and one of them is mentally incapable, to leave their estate to their capable children with the understanding that they will use some of the money to benefit the mentally incapable child.
This is not recommended, partly because it still leaves open the chance of a claim against the estate, but also because the other children could keep the money for themselves or something could happen to them (divorce, bankruptcy, death, etc.) which would affect that money.
The best way to ensure that the money you wish to leave is used to benefit your mentally incapable beneficiary, is through the use of a trust.
Trusts are simply an arrangement whereby money or other assets are held by one set of people (the trustees) for another set of people (the beneficiaries). The document setting up the trust sets out the rules as to how the trust fund is to be used and there are many forms of trust available, each having particular characteristics depending on their objectives and differing tax treatments.
The most appropriate form of trust to cater for mentally incapable beneficiaries is a Discretionary Trust. The particular characteristic of this form of trust is that, although there is a range of beneficiaries who could benefit from the trust, none of them is actually entitled to benefit. The trustees have the discretion to pay some or all of the trust fund to any one or more of the beneficiaries as and when they choose.
The trust can be used to provide for the mentally incapable beneficiary without the risk that they will lose their means tested benefits, because they are not entitled to the money and it can be paid out for their benefit in such a way that it never counts as assessable. For example, if your beneficiary likes horse-riding, money can be paid from the trust to the riding school directly.
The DWP could still make a claim against your estate, saying that the beneficiary had not been left anything and that is correct, except that such a claim can easily be dealt with by the trustees, who could say that they have the power to pay every penny of the trust fund to the beneficiary immediately. They would not make that payment for the reasons outlined above but the fact that they could, negates the strength of the potential claim.
Your choice of trustees (you need a minimum of two) is crucial since they have complete power over the trust fund.
As with all executors and trustees, you should choose someone whom you trust and who would be comfortable dealing with administrative procedures. For a discretionary trust, you are also choosing someone who can make the right decisions in the ongoing circumstances.
We would recommend that you produce a letter of wishes giving guidance to your trustees as to how you would like them to exercise their powers. This cannot bind them to a particular course of action but can communicate to them what you would like them to do with the trust fund.
It can be useful having a trustee who has day to day knowledge of the beneficiary’s circumstances and it can be useful having a trustee who is aware of the rules surrounding this area of law. Quite often we recommend a solicitor and a family member to work together.
There must be a range of potential beneficiaries so that the trustees have a genuine choice. One of these will be the mentally incapable beneficiary and the others will usually be other family members, friends or even charities. The letter of wishes will request the trustees to look after the interests of the mentally incapable beneficiary first and foremost.
Quite often, a mentally incapable beneficiary has a shortened life expectancy and it may that they die before the trust fund is used up. You can therefore give direction to the trustees as to how they should distribute the remaining trust fund.
The letter of wishes does not need to be particularly legally worded but should contain as much information as possible to show the sort of things that you would like the trustees to spend the money on, for the benefit of the mentally incapable beneficiary.
It is possible to set trusts such as these up during your lifetime rather than through your Will on your death. Sometimes that is preferable if you wish to dispose of money or assets while you are alive – for tax planning purposes perhaps. If you do set up a lifetime trust, then you can word your Will so that the appropriate part of your estate passes into that trust and adds to it when you die.
Pension plans are types of trust and it may be possible for you to provide instructions to the pension administrators to pay residual amounts into discretionary trusts such as these.
You may prefer to set up a charitable trust, particularly if your mentally incapable beneficiary suffers from a particular illness or syndrome and you wish to provide funds not only for them but for other similar sufferers. Pension fund monies are especially suited to this sort of arrangement.
You can see that it is very important that you make the right arrangements in circumstances such as these. It is essential that you take advice from someone who is properly qualified in this area and experienced, not only in setting up trusts such as this but also in administering them.
At Onions & Davies, we have the expertise to advise you fully and would be happy to help.
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This information refers to the law of England & Wales only, which from time to time changes. In particular, tax information changes annually. It is not a substitute for professional advice, which is up to date and specific to your needs. This information is a summary of the provisions relating to care fees funding and cannot cover every aspect of their operation. It represents our understanding of current legislation in England and Wales but should not be relied upon as an authoritative statement of law nor as constituting advice. We would advise that legal advice be sought in every circumstance.