Leaving money to a mentally challenged niece

bostonerimus

I have a niece who is mentally handicapped and can only handle very basic finances, but I want to leave some money for her benefit in my will. Her Mum and Dad and her eldest sister (ie my eldest niece) share a Lasting Power of Attorney and the plan is for her sister to be responsible for her when their parents die and for them to leave money directly to the eldest sister to be used to look after her. My expectation was that there would be a trust that would hold the money. I live in the USA and I'm not sure about how things work in the UK, but if I was to leave the money for my disabled niece to her sister with the understanding that it be used to care for her disabled sister would there be any potential gift or inheritance tax issues if she pays for things like care costs, living expenses and maybe provided some spending money?

xylophone

https://www.mencaptrust.org.uk/advice-and-support/services-you-can-count/wills-and-trusts-service/setting-up-a-trust-faq

https://www.gov.uk/trusts-taxes/trusts-for-vulnerable-people

https://www.litrg.org.uk/tax-guides/disabled-people-and-carers/trusts-disabled-people

Above may assist - be very careful not to affect any means tested benefits for which your niece may be eligible.

Albermarle

We have the same issue with our son . Our solicitor set up our will so any money left to him will be held in a trust . It was not necessary to actually set up the trust in advance, it could be set up when the time came . We did name two people to be trustees of the trust and we included a statement to the future trustees of how we would like the money to be used . I understood this statement did not have legal standing but was just guidance for the trustees of what our wishes were.
One useful point to note is that in the UK , a mentally ( or physically ) disabled adult ( over 18) is the responsibility of the local social services dept. Once the family can no longer care for them then they take direct control ( they means the local social services dept) . They pay for any care /housing costs and state benefits due to the disabled person go to towards these costs . The money from the trust is normally only used for 'extras' - new clothes , holidays etc but not for day to day costs.
Not sure about the IHT issue.

Sobraon

"Because of the need to ensure compliance with a number of complex but strict conditions, it is essential to take competent professional advice when setting up or administering a trust for someone with a disability"
See LITRG page here.

See Law Society page here to search for a trust specialist, An important question to ask is the impact of the proposal on the persons's state benefits.

I have looked at this type of trust and decided its not "DIY-able".

bostonerimus

xylophone wrote: »

Above may assist - be very careful not to affect any means tested benefits for which your niece may be eligible.

Thanks, that's definitely one of my priorities, which is why I expected a trust to be used. I think my brother is being a bit naive just leaving the money to his eldest daughter to use it for her disabled sister's benefit. But it's a bit tricky telling my brother how to deal with his family finances. If I was in the UK I'd probably set up the trust myself and leave money to it in my will, but being in the US makes that a bit complicated.

bostonerimus

Albermarle wrote: »

One useful point to note is that in the UK , a mentally ( or physically ) disabled adult ( over 18) is the responsibility of the local social services dept. Once the family can no longer care for them then they take direct control ( they means the local social services dept) . They pay for any care /housing costs and state benefits due to the disabled person go to towards these costs . The money from the trust is normally only used for 'extras' - new clothes , holidays etc but not for day to day costs.

Not sure about the IHT issue.

My handicapped niece is in her 30s and is in a residential home that she loves. If her eldest sister has LPA for her I imagine that the rules about gifts and inheritance tax still apply and there would be limits and complications to simply paying for things....or maybe it's different for a vulnerable person, that's whay I'm posting. If the money was in a trust then it wouldn't change any means tested benefits situation but it could be used more freely to pay for things. Also when my niece dies anything remaining could be easily left to others in the family.