I have a disabled son and I was wondering what steps I should take in the event of my death. (I hope I don’t die soon but I always need to think about it).
I don’t think I can work and I want to give him a comfortable life if I pass. I am separated from his mother.
I plan to leave a house and savings. I have a new partner and plan to build a house together (not sell my previous house as that is where my son lives with my ex).
Are there ways to allow him to benefit from an inheritance but not spend it all from a young age once he turns 18?
Do savings accounts make things worse for you if you need benefits? Would it be better in a pension than in savings? I know I won’t be around when he can claim that.
Are there financial charities that can help you? PH, via email
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Inheritance: This reader wants to ensure that his disabled child has a comfortable life after his death.
This is Money’s Harvey Dorset responds: It’s great to know that you are taking the time to make preparations for your child’s future.
While many other parents will be equally inclined to ensure that their children receive an inheritance when they die, it is understandable why this is so important to you, given your child’s circumstances.
Without a doubt, your child’s disability means that planning for his future will be more difficult, as he will have to deal with the possible loss of some benefits if he leaves you money, as well as issues such as whether he is capable of managing his money himself.
As a result of this, you may need to make use of a trust, as discussed below, to ensure that your eligibility for certain benefits is not questioned.
The good news is that you do have something to leave him, and with a little care you can ensure that he can benefit from it in the future.
This is Money spoke to two financial advisers, one of whom specializes in financial planning for parents of children with special educational needs and disabilities, to find out what you should do to ensure your child gets what they need in the future.
SUBMIT: Rhiannon Gogh created PlanIt to help parents with disabled children plan for the future
Rhiannon Gogh, SJP Partner Practice Director, Planit Financial Future, responds: This can be a difficult topic to deal with, so well done for addressing it in the first place.
Before we begin, there are three key challenges when planning for a child with vulnerabilities, which are essential to understand.
Firstly, someone with additional needs or disabilities may have difficulty accessing their inheritance, especially if they are unable to make their own decisions.
Second, leaving money directly to someone with vulnerabilities can only make them more vulnerable; Speaking from experience, my son certainly wouldn’t understand if he was being taken advantage of.
Finally, an inheritance left directly to a vulnerable person can jeopardize any means-tested care, benefits or support they already depend on.
Therefore, any planning you put in place must provide secure access to funds and, of course, not leave your child worse off if they are unable to work.
I suggest first discussing how your will can be used to protect your child from these challenges.
However, in your individual situation, a “normal” will will not be sufficient. I recommend going to a specialized lawyer to draft a will with a trust. This means that, rather than leaving money directly to your child, your inheritance could be protected by a trust written into your will.
A trust is a legal arrangement that allows someone, the trustee, to hold money on behalf of another person, the beneficiary.
Your trustees act as ‘guardians’ who safeguard the trust fund and will ensure that the money is protected solely for your child. The trustees could control spending, acting as a check and balance.
Crucially, assets held in trust should not affect any means-tested benefits you receive.
It is imperative to appoint an experienced trust attorney to protect the vulnerable.
The will includes your choice of guardians to care for your child if both parents die before he turns 18, and your lawyer may also be able to advise you on how to help your child with financial decision-making in adulthood.
Along with the trust, you must leave a “Letter of Wishes.”
This is a private, non-legally binding letter to your trustees that explains why you created the trust and how it should be used (or not!). It may include wishes about future care or living arrangements, for example.
You might also consider setting up a life insurance policy on your own life to pay a sum into a trust for your child in the event of your death.
This often overlooked tool can be an affordable way to create a protected legacy for yourself.
At age 18, any savings or money in a young person’s name is included in means-tested benefit assessments.
A sum as small as £6,000 affects eligibility for some benefits.
However, the personal pension is usually not included until state pension age. While rules and regulations may change, you should consider whether a pension would fit your overall circumstances and not just its impact on benefits.
There are some fantastic charities you can turn to for support. Your place Parent Caregiver Forum You can offer courses on wills and trusts, a forum where I have taught courses over the years.
charity Contact Provides support to families with disabled children.
Finally, Mencap trust company helps parents organize trusts for vulnerable dependents, offers professional trust services and can recommend trusted attorneys.
Plan ahead: Daniel Hough says writing a will ensures your money is transferred the way you want
Daniel Hough, financial planner at RBC Brewin Dolphin responds: You may currently have a small inheritance tax liability.
Assuming no Partially Exempt Transfers (PETs) have been made in the last seven years, you will be entitled to your full nil rate band of £325,000.
Additionally, as you own your own home and have a direct descendant, you are entitled to a nil residence rate band of up to £175,000, capped at the value of your share of ownership in the home.
This means you have a total allowance of £500,000 as you are not married.
His inheritable tax assets are around £550,000 and under current law exclude his pension arrangements.
There is an ongoing consultation on changes to pensions, which from 6 April 2027 will form part of the inheritance tax regime.
This consultation will end on 22 January 2025, so it would be best to wait until it ends to fully understand how these assets will form part of the inheritance tax calculation.
If you continue to work, your wealth will continue to accumulate, increasing your potential inheritance tax burden.
His intention is to leave his house to his son to live in and he plans to buy a new house with his new partner.
To buy this new home, you may need to raise equity from your Isa portfolio or, if applicable, access some of the tax-free cash from your pension.
Depending on the home you want to buy, you may need to take out a mortgage, so be careful when reviewing your budget and affordability checks.
If you plan to buy a house through your tax-free cash or ‘lump sum allowance’, this will remove money from a current IHT-exempt product and place these assets into your estate, under current law.
When thinking about setting aside funds for your child’s future provisions, you may want to consider a simple trust.
A simple trust may be appropriate to place money as a lump sum for the absolute benefit of your child for future use.
You explained that given the nature of their disability, it is unlikely that they will ever be able to earn a living, so the more they can save now, the better.
More top-ups are allowed, and this is a good start to the seven-year gift rule so that the asset is completely exempt from inheritance tax.
You will be known as the settlor and, in your role as trustee, you will be able to control the nature of the capital or income payments of the trust for the benefit of your child.
If you consider this route, always make sure you have a sufficient contingency fund to fall back on; Six months of essential expenses is usually a good rule of thumb.
You may have this capital available, but some of it may already be reserved for your next new home purchase.
Finally, I would make sure, as a parent, that you have a will and power of attorney (POA) that reflects your current wishes.
This is especially important for blended families as you can ensure that your estate is passed down according to your wishes.
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