If you are planning to leave money to someone who receives means-tested benefits, it is important to understand how that inheritance could affect their financial support. Getting advice on trusts and estate planning can help you structure your Will in a way that protects your wishes and supports your loved one.
In the UK, means-tested benefits are determined based on an individual’s income and savings. These benefits include:
Universal Credit
Income Support
Pension Credit
Housing Benefit
Council Tax Reduction
When someone receives an inheritance, it can affect their eligibility for these benefits, as the inheritance is considered part of their capital.
If your total savings (including the inheritance) exceed certain thresholds, you may lose eligibility for means-tested benefits. For example, with Universal Credit, having savings over £6,000 can reduce the amount you receive, and savings over £16,000 will make you ineligible.
It is important to note that your savings should be deemed to include the inheritance, even if it is not in your bank account yet. Therefore, you cannot simply receive your inheritance paid in small sums to avoid going over this limit. You also cannot “vary” the Will with a Deed of Variation to stop the effect of this, as this may be seen as a deprivation of assets, which will potentially disallow you to claim benefits going forward.
A person writing a will wishing to benefit someone who is receiving benefits, but wanting to ensure that they do not lose these means tested benefits, should consider the following:
Trusts: Setting up a trust can be a way to protect your inheritance. A discretionary trust can be created to protect funds passing directly to the person on benefits. It can also be used to provide for the person receiving benefits in other ways, such as providing them rent-free accommodation, that will not affect their benefits.
Professional Advice: Consulting with a financial advisor or solicitor who specialises in benefits and inheritance law is always strongly advised, as they can provide ideas on how to provide for your loved ones whilst ensuring they don’t lose out.
Inheritance and benefits are closely linked, with significant implications for those receiving means-tested benefits. It is essential to understand how your Will and your inheritance will affect your loved ones on means-tested benefits, so that you can prepare and make informed choices about the right thing to do for you and for them in your Will.
When inheritance, benefits and family provision overlap, the right estate planning can make a significant difference. Our Wills solicitors can advise on trust options and Will planning so you can make informed decisions before assets are passed on.
A carefully prepared trust or estate plan can help avoid unintended consequences for beneficiaries who receive means-tested benefits, particularly where a direct inheritance could affect their entitlement.
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