9 March 2023

Your inheritance: could it cause more harm than good?

By Miranda Marshall, Director, Hayes + Storr.

When making your Will, if the person who you would like to inherit your estate has difficulty managing money, or is in receipt of means-tested benefits, it is important to think carefully about the effect receiving an inheritance may have on them.

A beneficiary who receives means-tested benefits is obliged to declare any funds that take the value of their assets above the eligibility threshold. Their benefits would then stop (including additional help that they were receiving). Once the inheritance has reduced their savings to below the threshold, they must apply for the benefits to be reinstated in order to regain their entitlement. This might well leave them in an even more difficult financial position; especially if they are not aware of the threshold and fail to make a fresh application at the right time. It could cause a lot of extra bother and worry.

It is possible for the recipient to vary or disclaim an inheritance either to other persons or into a trust within two years of a death. However, a recent Court of Protection decision said that any attempt to do so by or on behalf of a person entitled to means-tested benefits will be viewed by the Local Authority as ‘deprivation of assets’. ‘Deprivation of assets’ is a technical legal term with a specific meaning. It happens when there is a deliberate attempt to dispose of assets to try to be in a position where means-tested benefits can be claimed. Deprivation of assets occurs if a person reduces their assets, so they do not have to contribute to their care costs.

Leaving an inheritance to someone struggling to manage money could leave them vulnerable to unscrupulous people who seek to take advantage of their newfound wealth. If money is inherited by a person suffering from an addiction, this could be used to fund the addiction, and put their health in greater danger. More simply, it might just attract undesirable friends or develop expensive tastes that cannot be sustained once the money runs out.

If you cannot be sure that it would be in the best interests of the recipient to inherit assets on your death, it is wise to consider putting a Trust into your Will to safeguard the inheritance. The idea of a Trust is to make sure that someone sensible (Trustee) is in control of the assets, so that money is not transferred to the beneficiary without proper consideration of the impact this would have on them.

There are different types of trust, which might be right for you and your family, depending on the situation: A vulnerable beneficiary’s trust (VBT), a life interest trust and a discretionary trust: about how, when and to whom trust assets should be paid.

Trustees: You need to choose your trustees carefully and may wish to appoint your lawyer as a trustee, perhaps with family members or good friends. The lawyer can ‘take the flak’ about unpopular decisions and can make sure that tax and other compliance is in order. This is technical work, so if you are considering including a trust in your Will to benefit a vulnerable relative or loved one, you should always speak to a specialist lawyer.

For further information, please contact Miranda Marshall on 01263 712835 or email miranda.marshall@hayes-storr.com.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.