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IR ESA and Trust Fund Capital
I have a client in receipt of IR ESA as a couple. His wife is due to receive an inheritance of about £29000. They are looking at this as a “poisoned chalice” because of its impact on the ESA and HB etc. They seem to prefer the security of the benefits system.
If they asked their solicitor to set up a Discretionary Trust Fund with the inheritance, without it ever being paid into their own account, would this legitimately allow them to avoid any reduction in their ESA?
I don’t think that would work - the money counts as his as soon as he can choose to access it - what bank account it is in isn’t necessarily the deciding factor. So it would be deprivation of capital when he paid it into the trust.
Is it possible to set up a discretionary trust for yourself?
Jane
In the absence of any other factors I think it’s highly likely that they would be considered to be depriving themselves of capital with the intention of retaining their benefit entitlement. The ‘notional capital’ figure would be used to refuse any income related ESA or HB entitlement.
i think it will depend on the “operative purposes” of opening up the trust. if a significant one is found to be to keep benefit entitlement then yes they will take it into account.
we set up discretionary trusts regularly and have no issues but our client group are people with a learning disability so there are several other good reasons why a trust would be set up in these cases.
[sun reader] So they want to hide away their inheritance and live off my tax dollar? Outrageous! [/sun reader]
but… really… I’m lost for words!
“They are looking at this as a “poisoned chalice” because of its impact on the ESA and HB etc. They seem to prefer the security of the benefits system”.
How are they going to argue that one away?
the only capital that can be protected by way of a trust is that recovered as a result of a personal injury claim ..
in your client’s case, there is no way of protecting them from the capital being taken into account.
If they don’t want to receive the inheritance, they need to see a solicitor (preferably the solicitor dealing with the will/distribution) as to whether the will can be changed to give someone else the money. but, one would have thought that they would still be seen as depriving themselves of capital in any event
Thanks for all the replies. Clearly the trust fund is not a way of mitigating the affect of the capital on their IR ESA.
There was one other avenue I was looking at which is an Investment which includes life insurance in it. I know such investments are disregarded indefinitely for means tested benefits such as IR ESA. However I assume this only applies where the investment pre existed the benefit claim. Am I right in thinking that placing some of this couples inheritance in such an investment would constitute deprivation, even if technically the capital still exists but in another form. What do you all think?
It appears that intentional deprivation is the key here, and i dont know how they could argue against that.
If they have to pay full rent and council tax for a while then the 29K will soon naturally diminish until it gets to 16K, where HB will be paid again and their IRESA will pay £100 a week (assuming in WRAG) Its not all bad news!
I have a client in receipt of IR ESA as a couple. His wife is due to receive an inheritance of about £29000. They are looking at this as a “poisoned chalice” because of its impact on the ESA and HB etc. They seem to prefer the security of the benefits system.
If they asked their solicitor to set up a Discretionary Trust Fund with the inheritance, without it ever being paid into their own account, would this legitimately allow them to avoid any reduction in their ESA?
There is a way round this, but unfortunately it is too late for your client. The arrangements for the discretionary trust fund need to be made in the will of the deceased BEFORE they die.
I had a very similar case of inheritance a couple of weeks ago where cl felt secure with present life on ESA and didn’t want any upheaval. Only thing I could suggest was disclaimer of gift or - as cl wanted £ to go to children - a variation of the will. There is no way any trust arrangement whether fixed or discretionary in cl’s favour would not disallow them for ESA.
I had a very similar case of inheritance a couple of weeks ago where cl felt secure with present life on ESA and didn’t want any upheaval. Only thing I could suggest was disclaimer of gift or - as cl wanted £ to go to children - a variation of the will. There is no way any trust arrangement whether fixed or discretionary in cl’s favour would not disallow them for ESA.
Would this not still fall foul of the deprivation of capital rule?
Thanks for all the replies. Clearly the trust fund is not a way of mitigating the affect of the capital on their IR ESA.
There was one other avenue I was looking at which is an Investment which includes life insurance in it. I know such investments are disregarded indefinitely for means tested benefits such as IR ESA. However I assume this only applies where the investment pre existed the benefit claim. Am I right in thinking that placing some of this couples inheritance in such an investment would constitute deprivation, even if technically the capital still exists but in another form. What do you all think?
That won’t work either.
http://www.rightsnet.org.uk/pdfs/cis/112_94.pdf
See also R(IS) 7/98
Re disclaimer: this is not deprivation of capital as by disclaiming gift money is never part of legatee’s property. No-one can be forced to accept a legacy (eg they might refuse gift which they find morally repugnant). Of course the money is not theirs to redirect but falls into residue of estate. If there is no residuary legatee you might have to ensure it didn’t get re-routed back to cl under intestacy rules (you can do double disclaimer in such a case).
Variation is written back into will (ie as if testator had made gift) so equally should be no problem. Using this may be able to direct to new beneficiary but some consents may be required.
Re disclaimer: this is not deprivation of capital as by disclaiming gift money is never part of legatee’s property. No-one can be forced to accept a legacy (eg they might refuse gift which they find morally repugnant). Of course the money is not theirs to redirect but falls into residue of estate. If there is no residuary legatee you might have to ensure it didn’t get re-routed back to cl under intestacy rules (you can do double disclaimer in such a case).
It’s called renunciation and that is not straight forward either. It means not just refusing the legacy but giving up your right your right to it also, and, as such, both the legacy and the right to it have a value. As the commentary to reg 51 suggests that there could be deprivation where a person has never physically possessed the capital then renunciation might be ineffective, particularly where the right to receive something is also deemed to be a capital asset. If so, it is always then down to intention. If the only reason for the renunciation was a strong moral or religious one then the claimant might not be caught by the act. Otherwise, he might.