Income / capital / gifts from a trust fund

I’m working with a client who is the beneficiary of a discretionary trust fund. I’ve read quite a bit about how money paid from the trust fund is treated as income or capital depending on whether the payments are regular, and that regular income can be ignored if it isn’t intended for certain types of household expenditure.

Page 317 of CPAG says that any discretionary payment to you is ignored as long as it isn’t intended for rent, food,  clothes, fuel etc. Does this mean that the income is counted for benefits purposes if paid out for any of these listed items, but is ignored if the trust pays out money for a holiday or a new car? This seems slightly strange to me. If, for example, the trust made substantial regular payments to the beneficiary, but the beneficiary could provide receipts to prove that they were spending all the money on cigarettes, alcohol, gambling, country club membership etc, would this really not affect their means-tested benefits?

For irregular payments of money from the trust, perhaps larger payments, it seems like the money will be treated as capital for benefits purposes (CPAG p378). If the total capital paid out by the trust each year was below the capital limits for benefits, can the beneficiary spend the money on whatever they want without being accused of deprivation of capital? For example, if the trust paid out £10,000 in one year (the client is over PC age), blew the money on non-essential items, and then the trust paid out another £10,000 the following year. They would never go over the capital limits for benefits but would be spending a lot of capital.

If someone wasn’t the beneficiary of a trust fund, and their capital was below the capital limit for PC, I assume they could spend their capital on whatever they wanted to because it doesn’t change the amount of PC that they receive. But in terms of deprivation of capital, it starts to look very different when the person spending the capital has the prospect of it being replenished by a trust fund.

One final thing. Everything I’ve read seems to assume that money is paid from the trust to the beneficiary, and the beneficiary then spends it. My client’s trust seems to allow the trustees to buy him things, and therefore the money doesn’t necessarily have to be paid to him, whether it be in cash or paid into his bank account. Would he have to declare items that the trustees have bought him for PC and HB purposes? For example, if they bought him £200 worth of food shopping, is it treated as if the money had been paid to him for this purpose, or ignored because goods are given to him instead of money? My main interest in this point is from a practical point of view: I can see the client having to spend a lot of time submitting receipts to PC and HB to prove what he has been spending the trust money on (and possibly having his benefits repeatedly suspended while PC or HB assess the spending), so I was wondering if he could avoid this if the trust bought him items rather than giving him money to buy items. I obviously won’t advise this if it is illegal or falls into some sort of legal grey area.

Although the beneficiary has no legal control over when or how much money is paid to him from the trust, it seems slightly strange to me that the benefits rules appear to allow someone to receive substantial amounts of money from a trust for non-essential items, whilst still receiving means-tested benefits to pay for essential outgoings. The whole thing doesn’t sit very well with me, to be honest, but if he doesn’t get good advice he could end up in a mess with overpayments and having notional capital applied to his benefits payments. He obviously needs to avoid this because he can’t guarantee himself access to the trust money even if his benefits payments are stopped/reduced.

Interesting question…

Slightly off topic, but in a sense relevant - I had a similar issues several years ago regarding maintenance payments that were paid to a claimant from an ex partner. The claimant was able to disregard all the money as it was not for essential items. I recall there was pet cat expenses, cat insurance and so on. In that case I wrote to the DWP to get clarification on how it would be treated for the purposes of income disregard and the DWP came back confirming it was okay.  So maybe worth writing to the relevant bodies.

Do you have a Tribunal Users Group/Welfare Rights meeting/DWP or LA liaison officer you could ask off the record? - as I know some claimants would rather not prompt any unwanted interest

The logic could be that means-tested benefits are designed to meet essential living costs, so any other income paid for that should reduce your entitlement accordingly. However, if the money is not for those costs, but rather your cat or some other luxury, statutory entitlements are unaffected.

Just a thought.