Trust funds are generally established when the beneficiary for whom funds are intended for is not expected to be able to manage them on his own; thus creating the need for a trustee. Through this article, we will explore whether a trust fund affects the state benefits of claimants in the UK and if yes, which benefits are affected by a means test. Additionally, we will also consider different situations that benefits claimants may be faced with regarding their financial situations and assess their impact on the claimant’s access and claim to state benefits previously recieved.

Does A Trust Fund Affect Benefits In The UK?

In the case of a Discretionary Trust Fund, the state benefits received by the beneficiary are not affected.

A Discretionary Trust is one that does not give ownership of funds to the beneficiary; rather they have access to funds (usually through regular periodic payments) to make purchases as and when needed.

This means that in order for a trust fund to not affect state benefits claimed by beneficiaries, it must be discretionary in nature and thus provide for requirements as the ones listed below:

  • holidays
  • care
  • vehicles and  their maintenance
  • eating at restaurants
  • property improvements
  • pets and hobbies
  • additional heating 

To avoid affecting benefits, a trust fund should not pay for the following items for the beneficiary:

  • everyday food
  • regular clothes and footwear
  • utility bills
  • house rent 
  • council tax

Trust funds are set up so that claimants of the following state benefits do not lose on their benefits claim if their capital exceeds £6,000:

  • Income Support
  • Income-based jobseeker’s allowance
  • Pension credit
  • Housing benefit
  • Council tax benefit

Claimants with capital in excess of £16,000 will lose their eligibility to qualify for state benefits.

Why Do People Establish Trust Funds?

Most commonly, trust funds and specifically Discretionary Trust Funds are established by parents of disabled children who want to provide a good quality of life to their children once they are no more. If they were to leave a lump sum amount of money in the form of an inheritance, it would disqualify their child from state benefits and the inheritance will be due for taxation.

By setting up a Discretionary Trust fund through their will, deceased parents can make sure that while state benefits provide for the everyday essentials of their child, they will be taken care of to remain comfortable through the Discretionary Trust Fund provided by them. In this case, the beneficiary will not be able to use the funds as they please and any withdrawals will be managed by a trustee.

A trust fund can include the savings, assets and capital of the deceased. It will not grant access to either the trustee or beneficiary to sell the assets or capital. 

What Are Means-Tested Benefits?

Below is a list of income-based benefits that are affected by your income, savings, assets and investments:

  • Council Tax Support
  • Housing Benefit
  • Income Support
  • income-based Jobseeker’s Allowance
  • income-related Employment and Support Allowance
  • Pension Credit
  • Tax Credits (Child Tax Credit and Working Tax Credit)
  • Universal Credit

When a means test is carried out for benefits claim, the following types of income are taken into account for benefits claim and that too for income-based benefits:

  • Cash
  • Stocks and shares
  • Savings
  • Assets
  • Investments (rent, dividend, interest)
  • Unearned income (pension payments, student income)

Does A Gift Of Money Affect Benefits?

No, a one time gift of money or small amounts of it at varying intervals will not affect your benefits. Additionally, the amount of money that you may receive from friends, family or charitable sources are not included in the means test for benefits.

However, should you incur regular/periodic payments from friends, family or charity, these will be added under the “savings” section for your benefit claim. This is applicable if you receive large amounts of gift money and your total savings exceed £6,000.

Monetary gifts in the form of an annuity are considered as an income and will bear an impact on your benefits claim. However, voluntary payments from a former partner or parent of a child are not considered a gift of money.

Does An Inheritance Affect Benefits?

If you inherit a lump sum amount of money while you are claiming benefits, you must inform the Department for Work and Pensions. An inheritance increases your savings and is counted as a change in circumstances with must be reported to local authorities to re-assess your financial situation.

As a result of this reassessment, there may be changes to your benefits claim. Since your savings are accounted for during a means test for benefits claim, an inheritance can potentially reduce the benefits you currently receive. 

Does Home Ownership Affect Benefits?

Yes, you can claim benefits such as Income Support and Job Seekers Allowance if you own a house; however, you will no longer be eligible for Housing Benefit. The reason for this lies in the fact that to qualify for Housing Benefit, claimants need to be able to fulfil the following criteria:

  • be at least 16 years old
  • have a low income or be claiming other benefits
  • have less than £16,000 in savings

If your house is mortgaged, you can still claim benefits and use the sum of payments received to pay your mortgage interest.

You can also continue claiming benefits if you own a home through the joint ownership scheme. In this case, you will also be able to claim Housing Benefit or Universal Credit Housing Cost element for your monthly rental or mortgage payments. 

If you own a house or you live with a partner who owns their house, you can claim support to help you pay your mortgage interest. This is a repayable interest accrued loan.

Can I Hide My Inheritence To Claim Benefits?

There is no guaranteed way to physically hide one’s inheritance to claim benefits without practising redeemable actions such as keeping one’s money in offshore accounts or deliberate transfer of capital. However below is a list of ways through which individuals may be able to save some money, yet be able to claim benefits by keeping them excluded from a means-test:

  • Property is owned by the claimant but occupied by a relative who has reached pension age 
  • Property is owned by the claimant but occupied by a relative who is incapacitated
  • Property has been left unoccupied due to a relationship breakdown (up to 26 weeks)
  • Property is undergoing repairs or renovation (up to 26 weeks)
  • The claimant has received proceeds from selling their house and intends to purchase another property with them.
  • The claimant has received money from insurance claims (up to 6 months)
  • The claimant is awarded capital from damages and injury 
  • The claimant has life insurance policies that haven’t been cashed in
  • The claimant has state benefit arrears or a pension fund that hasn’t been accessed as yet
  • Purchase of personal possessions such as jewellery, furniture or car
  • Purchase of business assets
  • The value of a pre-paid funeral expense
  • Social fund grant payments

What Happens If DWP Finds My Hidden Inheritance?

Should there be evidence found that an individual has deliberately hidden their savings from inheritance by reducing their capital with the aim to claim state benefits, the government will consider it as notional capital. This means that due to the deliberate reduction in capital, despite not being in possession of the owner, the capital items will be included in their means test and considered to be part of the owner’s possessions.

However, should a claimant be found to be in ownership of any of the following capital items, these will be accounted for and considered as savings by the Department for Work and Pensions as they assess the claimant’s eligibility for benefits:

  • Property (not your main residence)
  • Joint savings
  • Income bonds
  • Premium bonds
  • Stocks and shares

Whether these items are owned by an individual or a partner/spouse who lives with them, they will be counted as savings.

Which Benefits Can I Lose By Hiding My Savings?

While it may be tempting for some individuals to hide savings with the aim to claim benefits (or increase their claim), there are dire consequences of being caught as a result of benefit fraud. Jail for £96,000 benefit cheat and Pensioner to repay benefits after hiding ‘huge’ savings pot are two examples of individuals whose claim fraud was caught and they ended up serving a jail term as well payment of a fine and clearance of dues.

Below is a list of benefits that claimants may no longer be able to claim when found guilty of benefit fraud:

  • Carer’s Allowance
  • Employment and Support Allowance
  • Industrial Injuries Reduced Earnings Allowance
  • Industrial Injuries Retirement Allowance
  • Jobseeker’s Allowance
  • Severe Disablement Allowance
  • Widowed Mother’s/Parent’s Allowance
  • Housing Benefit
  • Incapacity Benefit
  • Industrial Death Benefit
  • Industrial Injuries Disablement Benefit
  • Pension Credit
  • Universal Credit
  • Working Tax Credit
  • War Disablement Pension
  • War Widow’s Pension
  • Income Support
  • Industrial Injuries Unemployability Supplement
  • War Pension Unemployability Supplement
  • War Pension Allowance for Lower Standard of Occupation

Conclusion:

From the above discussion, we may conclude that a trust fund does not affect the benefits claim of a beneficiary especially if it is a Discretionary Trust Fund that allows payments to be made on behalf of the beneficiary without giving them actual ownership or access to funds directly. However, not all benefits stand to be affected by trust funds or inheritance. An increase in one’s assets or capital can only impact means-tested benefits that they claim. 

FAQs: Does A Trust Fund Affect Benefits In The UK?

Is a trust fund considered income?

No, a trust fund is not considered as income. However, the interest accumulated by the trust fund can be considered as taxable income due upon the beenficiary or the trustee.

How are trusts taxed in the UK?

Different trusts are taxed at different rates in the UK. It can range anywhere between 7.5 per cent to 20 per cent.

Can I put my house in a trust?

Yes, you can put your house in a trust. Since your house would carry an ownership title on the property documents, the title would need to be changed to show ownership of the trust.

Do trust funds avoid inheritance tax?

When assets and capital are placed in a trust fund, they belong to the trust and not an individual. In this way, there is no inheritance tax that applies to them.

Who owns the property in a trust in the UK?

Legally, it is the trustees who are the owners of the property (or any other assets) that is put in a trust and thus they are liable for tax payments. However, they must follow the instructions in the will with regard to beneficiaries.

References:

DISCRETIONARY TRUSTS FOR DISABLED BENEFICIARIES

Gifts to Beneficiaries on Means-Tested Benefits- a Rock and a Hard Place

Income from voluntary or charity sources.

How do savings and lump-sum payouts affect benefits? | MoneyHelper

What will affect your Universal Credit payments | nidirect

How-your-benefits-are-means-tested/

Can You Claim Benefits If You Own A House?.

How do savings and lump-sum payouts affect benefits?

How much savings can I have on benefits? | Raisin UK

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John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.