SECTION 10 - TRUST FUNDS

This section does not apply to the Macfarlane Trust, the Macfarlane (Special Payments) Trust the Macfarlane (Special Payments) (No 2) Trust, the Eileen Trust, the Fund, the Independent Living (Extension) Fund or the Independent Living (1993) Fund. See paragraph 8.042.

What is a trust?

10.001 A trust is an arrangement for one person or a group of people (the trustee(s)) to hold and administer capital in the form of money or property for the benefit of another person or group of people (the beneficiary(ies)).

10.002 Examples of capital which might be held on trust are:

• money awarded by a court as compensation

• proceeds of a separation or divorce settlement

• money set aside by parents to ensure a regular income for a person who is unable to support himself by reason of illness or disability

• a bequest under a will

Trustees

10.003 Trustees may be:

• a professional person such as a solicitor

• the parents of a beneficiary who cannot act for himself

• any other responsible person, perhaps appointed under the terms of a will

10.004 Trustees' powers are governed by:

a) the terms of any trust deed;

b) the common law in Scotland and the law of equity in England and Wales; and

c) the Trustee Act or the Administration of Estates Act 1925 in England and Wales or in Scotland, the Trusts (Scotland) Act 1921 and 1961 and the Trustee Investments Act 1961.

Identifying a trust

10.005 A trust is usually set up by means of a trust deed. The deed sets out the terms of the trust, and will contain details of the beneficiaries, the amount by which they should

benefit and when payment or payments should be made. The trust deed could be in the form of a will or Deed of Settlement.

Treatment of Trusts

10.006 A resident's interest in a trust could take one of two forms:

a) he has absolute entitlement to capital or income from the trust (10.008-10.018); or

b) the trustees have discretion to make payments of capital or income (10.019-10.022).

Information needed

10.007 Where a resident is a beneficiary under a trust, find out from the trustees or from the trust document whether:

a) the beneficiary is absolutely entitled to money from the trust;

b) the trustees have discretion to make payments; and

c) the trust is in consequence of personal injury.

Absolute entitlement

10.008 Absolute entitlement means that the beneficiary has an absolute vested interest in capital held on trust (or in a share of capital held on trust), and could call for the whole of the capital and income to be transferred to him at any time. This also applies where the beneficiary is incapable of managing his affairs.

Information needed

10.009 Where the beneficiary is absolutely entitled to money from the trust (ie has an unconditional right), find out whether he is entitled to:

a) any capital held in trust; and

b) any income produced by the trust assets.

Absolute entitlement to capital

10.010 If the beneficiary is absolutely entitled to capital, find out the value of the capital. Where a number of beneficiaries have a shared interest in a trust, divide the total value equally between the joint beneficiaries and treat the resident as owning an equal share. This method of treatment avoids administrative difficulties. Once the resident is in sole possession of his actual share, treat him as owning that actual amount.

10.011 Where the resident is not in possession of capital to which he has absolute entitlement, but the capital would become available to him upon application being made, treat him as possessing an actual capital asset. See Section 6 (Capital).

10.012 Some trusts provide for the beneficiary to become absolutely entitled to the trust capital on a specified date, for example his 21st or 25th birthday. In these cases the beneficiary has a contingent interest. Once the contingency is satisfied, the beneficiary becomes absolutely entitled to the capital.

10.013 The capital asset to be taken into account is the market value, after making an allowance for the value of the underlying assets. It will probably be necessary to obtain written evidence of the value of the trust fund. Where there would be expenses of sale, deduct 10% of the value.

10.014 Where the assessing officer and the resident agree that the value of the resident's total capital, including the value of the trust capital, is:

a) more than £16,000; or

b) less than £10,000

it will not be necessary to obtain a precise valuation of the trust.

Absolute entitlement to income

10.015 Where a trust deed directs that a beneficiary is to receive income produced by the trust capital, the beneficiary has absolute entitlement to the income. The right to receive that income has a value, and the value of the right to receive income is a capital asset. That capital asset is fully disregarded for assessment purposes. (see paragraph 10.017 for treatment of the income).

Schedule 4 para 13

10.016 A person who has a contingent interest in capital (as in paragraph 10.012) becomes absolutely entitled to receive the income from the capital on his 18th birthday, even where the contingency affecting the capital has not yet been satisfied. The value of the right to receive income is fully disregarded as in paragraph 10.015.

10.017 Where a person has absolute entitlement to income from a trust, the income he receives, or which would become available to him on an application being made, should be taken into account in full in the assessment. Where the resident does not receive income to which he has absolute entitlement, but the income would become available to him upon application being made, he should be treated as possessing that income as an actual income. (See Section 8 - Income). In order to treat the income as an actual resource, you must be able to identify the income which should be paid, and to establish that there is nothing which prevents payments being made, such as a legal charge against the fund.

Reg 17(1)

Absolute entitlement to capital and income

10.018 Where the beneficiary has absolute entitlement to capital and income, and is being treated as possessing the capital sum, the income derived from the capital should be treated as capital, and not taken into account as income in the assessment.

Reg 22(4)

Discretionary trusts

Information needed

10.019 If the trustees have discretion to make payments of capital or income, find out whether any payments are made, and if so:

a) how much is paid;

b) how often payments are made; and

c) to whom the payments are made.

Treatment of discretionary payments

10.020 Where payments are made wholly at the discretion of the trustees and there is no absolute entitlement either to capital or income, only take into account payments which are actually made. Do not assume notional capital or income from a discretionary trust (see Sections 8 (Income) and 6 (Capital).

10.021 Payments from a discretionary trust are voluntary payments. Treat them in accordance with the normal rules for the treatment of voluntary payments (paragraphs 8.051 to 8.057).

10.022 Payments from a charitable trust which promotes a public benefit are always discretionary payments. Treat them in accordance with the normal rules for the treatment of charitable payments (paragraphs 8.051 to 8.057).

Compensation for personal injury

Information needed

10.023 Obtain confirmation that the capital held in trust is a lump sum payment of:

• compensation for injury or death (including vaccine damage)

• damages under the Fatal Accidents Act

10.024 Find out whether the beneficiary receives any income from the capital held in trust, and if so:

a) how much is paid; and

b) how often it is paid

Treatment of capital

10.025 Where the capital held in trust is in consequence of personal injury, both the capital and the capital value of any right to receive income are fully disregarded.

Schedule 4 para 10

Treatment of income

10.026 Payments of income from capital held in trust which is in consequence of personal injury is taken into account in full in the assessment for as long as the capital continues to be disregarded.

Schedule 4 para 10