Planning Ahead For Children With Additional Needs

In her recent article, financial planner and mother, Fiona Price breaks down her long terms plans for her son with autism spectrum disorder (ASD). Like many parents who have children with additional needs, she knows that there’s a lot of future planning needed to get through the obstacles they may face further down the line.

Every parent’s journey will be different, and navigating through the system can seem like a daunting task. Taking this into consideration, Jessica Beddows, a Partner in our Lifestyle & Estate Planning team provides top things to consider for your child’s future:

Applying to the Court of Protection for managing financial affairs

An application to the Court of Protection would first require an assessment of capacity by a suitably qualified person (such as a medical practitioner/GP, a psychiatrist, social worker or occupational therapist) to ascertain whether your child has sufficient capacity to enter into Lasting Powers of Attorney (LPAs) upon reaching the age of 18 years. If not, an application to the Court would be required for a Deputy/Deputies to be appointed in respect of managing their financial affairs.

A Deputy must be over the age of 18 years, be able to demonstrate they have the skills required to act and also, must declare any criminal convictions or bankruptcy arrangements. Any information relating to the latter may lead to the Court rejecting the application.

There are various standards that a Deputy should meet, the Mental Capacity Act 2005 and Code of Practice provides detailed guidance which a Deputy is required to have knowledge of. It’s important for a Deputy to act in the best interests of the person who lacks capacity and to keep a record of these decisions; to ensure that their own money and property is kept separate and to keep good records of all transactions carried out; to ensure the person is in receipt of all benefits which they are eligible for amongst other obligations. A deputy should also have reasonable contact with the person who lacks capacity.

The Court would require any Deputy/Deputies to submit an annual report detailing what transactions they have dealt with and also have a security bond in place to protect the persons finances.

This is a lengthy process and so it is recommended that the assessment of capacity is carried out as soon as possible after a child has reached the age of 18 years.

Understanding the financial benefits available to your child

Although the benefits systems can seem like they’re in continual flux, the main options available to people with additional needs include:

• Universal credit
• Personal independence payment
• Employment and support allowance
• A reduction in council tax if applicable

A Court appointed Deputy would have the authority to make applications to the relevant Government agencies to deal with any benefits that the person in question may be entitled to. They could then deal with ongoing reviews of these benefits and eligibility.

It’s important to note however, that any Deputy appointed would only be able to manage financial affairs under this order. If there were issues in respect of the person’s personal welfare, the Mental Capacity Act does give powers to medical practitioners and social services to make decisions on behalf of the person who lacks capacity. This could include where that person lives, the care they receive, medication and medical treatment, diet, and dress.

Whilst these orders are not as rare as they once were, a good case must be made as to why the Court should give such authority to an individual.

Who will look after my child if I’m no longer around?

Many people with additional needs go on to live with their parents long into adulthood, relying on their support as carers. But what happens in old age, or in the event of your death? It’s important to have plans in place to cover the potential care costs, and to support their independence.

Consideration to this should be given in a Wills and potentially, setting up an appropriate trust during their lifetimes which could take receipt of not only inheritance but also, lifetime gifting, inheritance from other family members.

Setting up trusts

We often set up trusts for clients as rather than setting up this mechanism via their Wills, a trust could be created and in place, even if it remains dormant for a period. This would allow the parents and any family members to name this trust within their own Wills if they wished for inheritance to pass to the vulnerable person. The parents could also look to make lifetime gifts which would allow for planning.

A detailed letter of wishes is very helpful for the Trustees so that they have guidance as to how the trust fund should be used, what assistance they feel the vulnerable person may need over time and even to provide background that future Trustees may not be aware of. The letter could also provide guidance on who may replace the Trustees in the future and what would happen to the fund after the vulnerable person’s own death.

We have the experience in not only setting up a trust for vulnerable person but also, how this could work practically. We often act as Trustee or advise lay Trustees on the administration of such trusts, how to ensure that the tax efficient treatment of these remains in place.

Is it important that the vulnerable beneficiary remains the primary beneficiary during their lifetime, if the trust is to retain the advantageous tax treatment. The trust deed would provide for a class of discretionary beneficiaries who would inherit upon their death.

If the vulnerable election remains in place, the trust will benefit from special Inheritance Tax (IHT) treatment by way of section 89 of the Inheritance Tax Act 1984. Other forms of trust could be subject to IHT when funds are transferred in, on the ten year anniversary of the trust and when payments are made out (known as exit charges).

While trustees pay income tax at a higher rate, a trust for a vulnerable beneficiary offers more favourable treatment. The income tax due is reduced by the difference between what would have been their liability and what the vulnerable beneficiary’s liability would have been if accrued personally. 

It is important for any Trustees appointed to take advice on which funds are transferred into trust and the tax consequences of this. Whilst the assets could receive favourable treatment within a trust for a vulnerable person, the parents would still need to consider the effect this would have on their own estates for tax purposes.

Summary

We have specialist advisors who can assist with assessments of capacity to determine the correct route, Court of Protection applications and planning for vulnerable people and their families. For more information visit our website.