Making a will is a realistic protection for every family. Unless a valid will sets out what is to be done with a person’s assets, after their death money may be wasted through argument or uneconomic sales of property to the disadvantage of those who could have benefited. If a person discusses with a solicitor his/her wishes for the sharing of property, a will can give those wishes the protection of the law. A will makes clear who is to manage the testator’s property as executor, who will share the property, and in what proportion; and perhaps who will see to the support and education of children or incapacitated relatives.
If there is no will, a person’s property is distributed in accordance with the provisions of the Succession Act 1965, under which a surviving spouse (wife or husband) is entitled to two-thirds of the property, and the children inherit the remaining one-third, divided between them. Personal wishes, even if clearly stated in a ‘homemade will’ may lead to legal complications and delays, perhaps to unnecessary family conflict, and to results other than those intended. Consulting a solicitor for the proper drafting of a will is especially important in the case of a family with a member with a learning disability.
In addition to the ordinary considerations in making a will, parents of children with learning disabilities need to take into account:
- the needs of all their children, including the child with a disability;
- the age of the child and degree of disability, and the changing needs for care or service in the future;
- the state benefits to which their disabled child is currently entitled, which they do not wish to jeopardise; and
- the amount and type of assets available, and how to distribute the income from those assets in a cost-effective and tax-efficient manner.
Parents will look to provide their dependent children with legal protection, financial help and someone to take legal responsibility for their physical welfare.
Under the terms of the Succession Act, there is little difference between the succession rights of people with intellectual disabilities and those without such impairments. If it is considered that a child is not provided for fairly in a will, an application may be made to the court (Section 117 of the Succession Act 1965); ‘where the court is of the opinion that the testator has failed in his moral duty to make proper provision for the child in accordance with his means, whether by his will or otherwise, then it may order that such provision should be made for the child out of the estate, as the court thinks just. … The ill health or disability of the child will be a factor which the court will take into account when considering whether proper provision was made’ (O’Neill 1997).
A child may inherit £300,000 from a parent, free of inheritance tax if the death of the parent is on or after 1 December 1999, and provided the child did not receive a benefit since 1 December 1988 from either parent.) (The sum may be reduced if the child has previously received gifts or inheritances within the past decade from some other person). Lower thresholds pertain to gifts from other relatives or non-related persons. It was also stated in Budget 2000 that ‘Capital Acquisitions Tax will no longer apply on the transfer of the family home on or after 1 December 1999, provided it is the principal private residence of the disponer and/or the recipient and the recipient has been living in the home for the three years prior to the transfer and provided the recipient does not have an interest in any other residential property. It will also be a condition of the relief that the recipient does not dispose of the home for six years after the transfer.’
In order to provide for a child with a learning disability without incurring exploitation or unnecessary loss of state benefits, the child him/herself should not be named as a direct beneficiary in the will. If the person who is deemed to be incapable of managing his/her own financial affairs receives an inheritance, it is likely that he/she will be made a ward of court (see below), with unnecessary complications, delays and expense.
A discretionary trust is a mechanism through which the welfare of a family member with a learning disability can be provided for indirectly, and not as a direct beneficiary in a will. Funds within a discretionary trust are administered at the absolute discretion of the trustees, and are thus not under the control of the beneficiary/person with a disability. Thus, with judicious administration, the person will not be liable for tax or loss of state benefits (e.g. Disability Allowance). Parents can establish such a discretionary trust within their will, along with the naming of trustees, or it may be created by deed during the parent’s lifetime–when, perhaps, a lump-sum or windfall is to be invested. A life-cover policy may be paid into the trust to provide some of the benefits. Appropriate trustees may include adult siblings, another trusted relative, a solicitor, a member of a caring agency or a trusted family friend. When parents are considering the establishment of a discretionary trust, they should discuss all the issues involved with their other children and with the potential trustees.
A discretionary trust can be framed in such a way that funds may be spent on items or services for the person, or given to institutions caring for the person, with an arrangement for the distribution of the remainder of the fund after the beneficiary’s lifetime. Parents are advised to include a ‘letter of wishes’ with the discretionary trust–giving direction to the trustees on how payments might be made.
Normally there is a discretionary trust tax of 6% on the value of the fund in the first year and a 1% tax in each subsequent year. However, this tax is not payable where the beneficiary has a learning disability. In order to qualify for this tax exemption, the will or trust deed must state clearly that the trust is exclusively for the maintenance and upkeep of the named beneficiary and for no other individuals, although a body with charitable status may be named as alternative beneficiary without incurring a tax liability.
Parents should seek the advice of a solicitor known to have expertise in drafting discretionary trusts. A spokesperson for the Capital Taxes Advisory section of the Revenue Commissioners reiterates the importance of the actual wording of the trust to ensure that the instrument will allow for the parents’ wishes to be carried out. Unfortunately, imprecisely wording can result in negating the usefulness of the would-be discretionary trust. (It is not the role of the Revenue Commissioners to give advice on inheritance matters. They do, however, produce explanatory leaflets on gift, inheritance and probate taxes, and taxpayers may consult them to have their tax situation explained or clarified. Their address is: Capital Taxes Division, Dublin Castle, Dublin 2; Tel: 01-679 2777, Extn. 48593/48597.)
As mentioned above, care is also required in the administration of a discretionary trust. If trustees dispense a substantial sum to the person with a disability, he/she may lose eligibility for the Disability Allowance or medical card or be liable to income tax on the amount received. However contributions for occasional medical expenses, holidays, etc. should not incur loss of other entitlements.
There is a concern among parents, and in NAMHI, that the Department of Social, Community and Family Affairs may start denying the Disability Allowance and medical cards to beneficiaries of discretionary trusts. Of course, persons who have a substantial regular income (from whatever source) are liable for the same tax as other citizens. But it could be argued that payments from a discretionary trust fund, even substantial payments, spent on the needs of a person with learning disabilities, should be seen by the state as an equivalent saving for the state or care-institution.