When making a Will, many clients who have a child with a physical or mental disability are concerned with putting the right structure in place. This usually involves setting up a Discretionary Trust. A Discretionary Trust gives Trustees absolute discretion about when, how and to which children of the Trust they may appoint capital or income of the Trust.
The Discretionary Trust does not tie the hands of the Trustees and gives them the power to make decisions as they deem appropriate about when and how much money is appointed out of the Trust.
This is important because many of the supports and allowances available are means tested e.g. disability allowance and medical card . Therefore the Trustee can ensure that the thresholds for qualifying for these resources are not breached.
A charity which supports the child may also be named as beneficiary of the Trust. This allows payments to be made from the Trust to the charity, which may help reduce a possible Capital Acquisition Tax liability of the child.
Many people shy away from using Discretionary Trusts because of the potential liability to Discretionary Trust Tax. Currently there is an initial 6% charge and an annual 1% levy thereafter. A rebate of 50% of the initial 6% levy is available if all the trust funds are distributed within five years of the applicable valuation date.
However there is a full exemption available for Trusts set up in these circumstances under S 17 of the CATCA 2003, when certain conditions are fulfilled.
As with all trusts and estate planning, Capitals Gains Tax, Income Tax and Capital Acquisitions Tax must also be considered .