Trusts for Vulnerable Persons Print

There is a special tax regime for qualifying Trusts with vulnerable beneficiaries. For these purposes a vulnerable person is regarded as someone who is disabled, or a person who is under 18 and at least one parent has died. A trust is a qualifying trust if it fulfils the following conditions:

In the case of a trust for a disabled person if during the lifetime of the disabled person or until such time as the trust is terminated:

  • That the assets of the trust must be applied for the benefit of the disabled person; and
  • Either the disabled person is entitled to all the income arising, or that no such income may be applied for the benefit of any other person.

In the case of a trust for the benefit of a person under 18 who has lost at least one parent, the trust must be either:

  • A statutory trust arising out of the intestacy of the deceased parent’s estate;
  • A trust created under the will of the deceased parent under which:

The minor will become absolutely entitled to the assets of the trust on attaining the age of 18;

During the intervening period, if any of the assets of the trust are applied for the benefit of a beneficiary, they are applied for the benefit of the minor;

That the minor must be entitled to all the income of the trust, or that no income may be applied for the benefit of any other person.

Where the above conditions are satisfied, and a vulnerable person election is made, the amount of tax payable by the trust is reduced to an amount equal to the tax that would be payable by the beneficiary if the income arises directly to him. This effectively cuts out the need for the trustees to pay over tax that will eventually be recoverable by the beneficiary.

The main use of Trusts is for the protection of capital, and a brief description of the three main types of trust is set out in the following sections:

  1. Discretionary Trusts
  2. Accumulation and Maintenance (“A&M”) Settlements
  3. Interest in Possession Settlements

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