Payments from Discretionary Trusts and Means Tested Bens

Hello,

I was hoping someone could help as I’m getting into a bit of a tangle.

Page 897 of the CPAG Welf Bens book states “charitable and voluntary payments and certain pesonal injury payments are ignored if they are made, or are due to be made, regularly”

Page 948 states “Any payments made [from a discretionary trust] are treated in full as income or capital depending on the nature of the payment”

Can it be argued that a payment from a discretionary trust is a voluntary payment? As this is defined (on page 897) as “one given without getting anything back in return”

We have a client who has a discretionary trust and has asked for the same amount to be paid to him each week for four weeks. The Trustees are concerned this will be seen as income and therefore affect his benefits and are unsure whether to agree to the payment request.

Any help would be, as ever, much appreciated

Thanks

Sarah

Payment is at the trustees’ discretion and the beneficiary cannot insist on being paid, only on being considered.
I have always believed that regular payments out of discretionary trusts are income, though I also beelive that irregular ones are treated as capital. One difference between these payments and the charitable or voluntary (eg, from friends and family) payments is that those are not taxable in the hands of the beenfificary. Trustees paying income to a beneficiary must deduct tax at source and account to HMRC for it, and then the beneficiary must include it in his tax return, getting a refund if he is not a tax payer - or not a higher-rate tax payer, since the standard rate of tax on trust income is 50%: see http://www.hmrc.gov.uk/trusts/types/discretionary-accum.htm

Taxable income is nearly always income for benefits purposes.

I also think that the meanings of the words voluntary and discretionary do not quite equate either.  Trustees pay under an obligation under an agreement even if they are afforded a discretion as to whether to make payments or not whereas the volunteer is under no obligation under anything. 

Trustees have a fiduciary obligation to the beneficiary and are accountable in law.  People who make voluntary payments are accountable to nobody and it is these differences as well as the differences highlighted by Ariadne that allows the statutory context to treat the payments differently.  I know that might sound rather flimsy but I don’t know how else to put it.  Ariadne might help me out here.

Ariadne - 23 March 2012 05:06 PM

Payment is at the trustees’ discretion and the beneficiary cannot insist on being paid, only on being considered.
I have always believed that regular payments out of discretionary trusts are income, though I also beelive that irregular ones are treated as capital. One difference between these payments and the charitable or voluntary (eg, from friends and family) payments is that those are not taxable in the hands of the beenfificary. Trustees paying income to a beneficiary must deduct tax at source and account to HMRC for it, and then the beneficiary must include it in his tax return, getting a refund if he is not a tax payer - or not a higher-rate tax payer, since the standard rate of tax on trust income is 50%: see http://www.hmrc.gov.uk/trusts/types/discretionary-accum.htm

Taxable income is nearly always income for benefits purposes.

Been doing some research on the subject matter, and came across this post, sorry to drag it out again.

Hi Ariadne, been looking into this, for a housing benefit point of view, and I must say there is a lot of confusion on the subject.

As far as I have been able to establish, under a discretionary trust, no beneficiary has the right to payments of income or capital on demand but have a right to be considered for a payment. Regular or irregular payments do not make a difference for means testing because they will count as voluntary payments.

So am I right in saying, as long as the local authority can establish that the trustees have absolute discretion as to the distribution of capital and income from the trust fund any payments are subsequently disregarded?

I know it’s not that simple but in plain terms, as described, I am beginning to think that’s the case. Thank in advance for your response/s.

Has anyone got any input on this please?

My case could make a very huge difference to the claimant and I am very eager to make the right decision but l still can’t find a solution in regs or case law! Frustrating!!

Thank you.

I can’t really add anything more to my previous post as I believe it is self explanatory but, like Ariadne, I’ve always believed that income payments from trusts, discretionary or otherwise (with some exceptions), are not disregarded as a matter of law for means tested benefits.  However, I’d love to be wrong.

Thank you, guess I was just hoping, like you, to be wrong. Thanks again.