Deed of variation from a trust to a new trust

Horace92

I'm a trustee of a disabled person's trust.  It's just received a bequest from a relative and we'd like to make a deed of variation to move some of the funds into a new discretionary trust (not a disabled one) but it would still benefit the disabled person.  Is there any reason this couldn't be done?

Keep_pedalling

If the person has been left the is bequest outright they can’t make a DoV to shift it into a trust that would be deliberate deprivation of assets as far as avoiding loosing means tested benefits is concerned. 

Horace92

No the bequest was left directly to the trust. (Named as the trust in the will).

Keep_pedalling

Horace92 said:

No the bequest was left directly to the trust. (Named as the trust in the will).

Sorry I mis-read the post. Not sure if this can be done you probably need professional advice. 

poseidon1

Horace92 said:

I'm a trustee of a disabled person's trust.  It's just received a bequest from a relative and we'd like to make a deed of variation to move some of the funds into a new discretionary trust (not a disabled one) but it would still benefit the disabled person.  Is there any reason this couldn't be done?

Doubtful. 

Since the will specified the bequest be added to the pre-exsisting disabled persons trust, the beneficiary of that trust would need to be mentally competent to both understand and agree to the variation, bearing in mind they would be technically diluting their entitlement even if the new discretionary trust purported to include them in the beneficial class.

If they are not mentally competent,  cannot see the OPG intervening on the disabled  person's behalf to ratify such a variation, precisely because it would be to the beneficiary's potential detriment. 

It is as well to note that if the current disabled trust fulfils the necessary criteria, the trust assets form part of their estate on death for iht purposes. A full discretionary trust avoids this, but potentially at the cost of 10 yearly IHT charges if the trust value exceeds the nil rate band. There would also be income and capital gains tax disadvantages of a discretionary trust compared to a qualifying trust for vulnerable person.

However i suspect  this enlargement to the disabled person's taxable IHT estate,  maybe the reason behind this proposal?

Horace92

You are correct on your last point.
A house is going into the disabled person's trust so the total value of assets could be quite high.
The disabled person actually has full mental capacity, mostly physically affected.
So you think if they are happy to allow this a DOV would be allowed.
They would also be a trustee, and of course a beneficiary, of any other discretionary trust.

poseidon1

Horace92 said:

You are correct on your last point.
A house is going into the disabled person's trust so the total value of assets could be quite high.
The disabled person actually has full mental capacity, mostly physically affected.
So you think if they are happy to allow this a DOV would be allowed.
They would also be a trustee, and of course a beneficiary, of any other discretionary trust.

I have now had opportunity to see your previous posts related to the trust back in May and June 2024, when you were exploring the possibility of the trust participating in assisting your girlfriend in purchasing a property for your occupation. 

That thread apparently fizzled out, but you were advised to seek professional advice, since amongst other things you are in receipt of means tested benefits and a question of deprivation of assets could be in point . Did you ever take professional advice with regard to what you are allowed to do as trustee/beneficiary of this trust?

I further note you and a family friend are trustees, and  in addition to yourself ( as primary beneficiary) there are further discretionary beneficiaries which you intimate the trustees  are answerable to.

As regard this bequest of a house, would that happen to be the same property you lived in with your mother, and are we to understand it was her testamentary wish that it be gifted to your trust?

It seems to me that you appear to be in an ongoing process of pushing the boundaries of what you are permitted to do with pre existing trust ( in your favour) , whilst at the same time trying to ensure your means tested benefits are not jeopardised. 

Bearing all the above in mind, it now seems to me a DOV of the bequest in question, could be a course of action which would be of considerable concern to the providers of your means tested care package especially if the house in question is the family home you occupy.

For that reason alone and leaving aside any other potential concerns of the discretionary class of beneficiaries  ( which I won't bother to go into), I strongly suggest you and your Co- trustee obtain professional advice with regard to your permissible powers under the terms of trust, and how this interacts with the obligations attached to your care package.  

If you are not careful, you could jeopardise the favourable tax status of the disabled trust,  and potentially leave your co trustee open to legal action, if any of your proposed courses of action are construed as breaches of trust and potentially harmful to contingent interests of the discretionary beneficial class.

Marcon

Horace92 said:

I'm a trustee of a disabled person's trust.  It's just received a bequest from a relative and we'd like to make a deed of variation to move some of the funds into a new discretionary trust (not a disabled one) but it would still benefit the disabled person.  Is there any reason this couldn't be done?

Reading the trust documentation would be a good starting point - and as a trustee, you are expected to be familiar with it, so now would be a good time to get out the wet towel and glass of whatever takes your fancy! Then get professional advice. It almost certainly isn't the slam dunk you're hoping for.

Horace92

Thanks for your concern.  However I can assure you everything is above board and there is no deprivation of assets going on as I do not own and will not own anything in my name.  A dov is irrelevant to care providers because the bequest is not left to an individual.
Actually the motives are solely to reduce iht on my family upon my death so the other beneficiaries, my siblings, receive as much possible

Horace92

poseidon1 said:

Horace92 said:

You are correct on your last point.
A house is going into the disabled person's trust so the total value of assets could be quite high.
The disabled person actually has full mental capacity, mostly physically affected.
So you think if they are happy to allow this a DOV would be allowed.
They would also be a trustee, and of course a beneficiary, of any other discretionary trust.

I have now had opportunity to see your previous posts related to the trust back in May and June 2024, when you were exploring the possibility of the trust participating in assisting your girlfriend in purchasing a property for your occupation. 

That thread apparently fizzled out, but you were advised to seek professional advice, since amongst other things you are in receipt of means tested benefits and a question of deprivation of assets could be in point . Did you ever take professional advice with regard to what you are allowed to do as trustee/beneficiary of this trust?

I further note you and a family friend are trustees, and  in addition to yourself ( as primary beneficiary) there are further discretionary beneficiaries which you intimate the trustees  are answerable to.

As regard this bequest of a house, would that happen to be the same property you lived in with your mother, and are we to understand it was her testamentary wish that it be gifted to your trust?

It seems to me that you appear to be in an ongoing process of pushing the boundaries of what you are permitted to do with pre existing trust ( in your favour) , whilst at the same time trying to ensure your means tested benefits are not jeopardised. 

Bearing all the above in mind, it now seems to me a DOV of the bequest in question, could be a course of action which would be of considerable concern to the providers of your means tested care package especially if the house in question is the family home you occupy.

For that reason alone and leaving aside any other potential concerns of the discretionary class of beneficiaries  ( which I won't bother to go into), I strongly suggest you and your Co- trustee obtain professional advice with regard to your permissible powers under the terms of trust, and how this interacts with the obligations attached to your care package.  

If you are not careful, you could jeopardise the favourable tax status of the disabled trust,  and potentially leave your co trustee open to legal action, if any of your proposed courses of action are construed as breaches of trust and potentially harmful to contingent interests of the discretionary beneficial class.

You're a suspicious lot aren't you!

Keep_pedalling

Horace92 said:

Thanks for your concern.  However I can assure you everything is above board and there is no deprivation of assets going on as I do not own and will not own anything in my name.  A dov is irrelevant to care providers because the bequest is not left to an individual.
Actually the motives are solely to reduce iht on my family upon my death so the other beneficiaries, my siblings, receive as much possible

Do not do this without taking professional advice, discretionary trusts are a pain to administer and are subject to hefty taxation.