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inheritance and income support?(7 Posts)
I have recieved a sum of inheritance which would mean that if I apply to go on to income support, due to having 15,000 capital I would not be entitled to help. I have recently lost my 2 part time jobs and finding another to fit in with childcare is doubtful.
Could I pay the capital off my mortgage and then claim or is that illegal?
If you intentionally deprive yourself of capital to claim means tested benefits then they can treat your claim as if you still had the money. If your mortgage is not in arrears, then they may not accept it as being a valid way to spend the money.
Given the details above, you would more than likely qualify for assistance with childcare costs from tax credits so unless you work nights etc childcare should be easily solved.
Morally, I dont think its right to intentionally dispose of the money rather than use it to support yourself whilst you seek another job.
Wrong Read This!
Inheritance and means-tested benefits
Lynne Bradey, a solicitor with Wrigleys, looks at the opportunities and pitfalls for elderly clients on leaving money under their will to beneficiaries who are claiming means-tested benefits.
More people than you may think are in receipt of means-tested benefits. The main means-tested benefits are income support, pension credit guarantee credit, council tax benefit and housing benefit. It stands to reason that at least some people who are claiming benefits will also be the relatives to whom your elderly clients would like to leave part of their estates. Many clients would not want to leave money to their relatives if they knew that the only beneficiary for several years at least would be the benefits agency. In this article, we look at how to benefit people in receipt of means-tested benefits, how to manage funds that are left to them, and what can and cannot be done to improve the situation.
The author realises that she is at risk of stating the obvious. Unfortunately, however obvious things are, they are not always done. The first thing that is important is to discuss with your clients whether any of their chosen beneficiaries, including their fall-back beneficiaries, are in receipt of means-tested benefits or are likely to be. The second point is to encourage your clients to make appropriate wills during their lifetime. Although the deed of variation is a convenient way of sorting matters out for clients who never quite got round to making tax-efficient wills in their lifetime, it is not a particularly useful method of dealing with benefits problems. The reason for that is that a beneficiary who signs a deed of variation is sending their share of an estate to another individual or to a trust and could, quite rightly, be treated by the benefits agency as having committed a deprivation of benefit. That would mean that the benefits agency could assess them as still owning the money that they have given away under the deed and reduce or even stop their benefits accordingly.
The lower capital limit for income support, housing benefit and council tax benefit is £6,000. A person or claimant unit (that is, a married or co-habiting couple, or couple in a civil partnership) with less than £6,000 in capital will receive the full rate of these benefits. Between £6,000 and the upper capital limit of £16,000, the person or claimant unit will receive a proportion of those benefits. The precise amount is worked out by deeming the person or claimant unit to be receiving an income from the money they hold that is over £16,000.
If a person or a claimant unit has over £16,000 in capital, they will not be entitled to claim income support, housing benefit or council tax benefit. Therefore, unless the inheritance that is being left to a person claiming means-tested benefits amounts to less than £6,000 when added to any other capital they may have, the benefits will start to be affected. If the inheritance when added to other capital is over £16,000, all benefits will be stopped until capital again falls to that level.
The most efficient way of leaving money to a person who is in receipt of means-tested benefits is by way of a discretionary trust. Because the trust is discretionary, it is up to the trustees whether or not they make any payments at all and, if they do, which of the list of potential beneficiaries they decide to make payments to. The person claiming means-tested benefits will be one of the potential beneficiaries. After they have no right to the money in the trust, this money will not be assessed for their means-tested benefits. A letter of wishes can be left by the deceased explaining how they see the assets in the trust being used. This would normally refer to the trustees checking before making payments that these will not cause a reduction in the means-tested benefits available to the recipient. A letter of wishes cannot be binding but can be persuasive. It goes without saying that a good choice of reliable trustees is essential.
What can the trust pay for? The simple answer is that the trust can pay for anything that benefits are not supposed to. For example, if the recipient is in receipt of housing benefit, the trust cannot pay the rent that is to be covered by housing benefit otherwise the benefits claimant will suffer a reduction in benefits. If, however, housing benefit is only paid at the rate of £40.00 a week and the claimant wishes to live in a property that costs £50.00 a week, the trust can pay the additional £10.00.
If the claimant is in receipt of income support, it is important that money from the trust is not used to pay for the normal expenses of daily living. The main categories are as follows:
Normal food shopping;
Ordinary gas, electricity and water bills;
Travel on public transport for day-to-day purposes.
Some of the many items that the trust can pay for without any implications for the recipients benefits are as follows:
Telephone and mobile-phone bills (for some reason these are not classed as the normal expenses of everyday living);
Extra heating needed by the claimant, for example, because of a medical condition;
Food and drink that is more than basic;
Clothes that are not ordinary clothes that is, specialist or even designer clothes;
Holidays and spending money;.
Pets and associated expenses (yes, your little furry darlings smoked salmon and steak can be paid for by the trust);
Motor cars and all their associated running costs (but watch any interaction with disability-living-allowance mobility component);
Outstanding debts (be aware that if a debt is run up every month on the normal expenses of normal living and then paid off by the trust, the benefits agency could infer that a stream of income was available to the person on benefits and reduce or stop the benefits accordingly);
The practical way to handle payments
It is important, particularly if any queries about payments are raised by the benefits agency, to have a good record of what payments were made and why. The author submits that the normal trust accounts will not suffice for this as it is extremely important to show that payments that have been made have not covered the normal expenses of daily living. It is best where possible to make payments direct to the provider of a service. Not only does that save arguments with the benefits agency but it also allows the trustees to be sure that the money they are paying out is being used for the purpose intended.
If, for example, the beneficiary would like a car, make payment direct to the dealership. If a holiday is being purchased, pay the travel agent direct. If property renovations are being done, pay the contractors.
Quite often, the benefits claimant will want to have some money in their own name. That saves any number of little bills being sent to the trustees but also means that they can make small purchases without having to contact the trustees every time. From time to time, it is perfectly acceptable to top this float up although of course when added to the claimants other money should not take them over the £6,000 lower limit for their means-tested benefits. It is good practice to write in the covering letter with the cheque the purpose for which the money has been requested. It is also best to include a statement along the lines of:
I have discussed with you in the past the items that money from the trust can and cannot be spent on. It is extremely important that this money is not spent on items that are classed as the normal expenses of daily living. If you are not sure whether or not something you are intending to buy falls within this definition please contact me as soon as possible.
What if it all goes horribly wrong?
Theory is a wonderful thing. Unfortunately, clients do not always get round to making their wills as soon as they should and quite often a person claiming benefits will inherit a sum of money that is over the threshold for means-tested benefits.
As we have already said, any attempt to disclaim the inheritance or execute a deed of variation is likely to be looked on by the benefits agency as a deprivation of benefit. The benefits claimant will be treated as still owning that money and will not receive their benefits. There are some useful disregards that a benefits claimant in receipt of an inheritance can legitimately take advantage of. It must be stressed that the use of these disregards must be reasonable in order to avoid suspicion from the benefits agency.
The purchase of one Rolls Royce, eight plasma televisions and a gold-plated cutlery set is quite likely to be seen as an attempt to increase the benefits a person is entitled to.
The main disregard that could be suitable is that relating to the claimants home. Perhaps the claimant would be able to pay off all or part of their mortgage with the inheritance, or indeed may want to move to a bigger house and or extend. They may wish to purchase a (reasonable) motor car, insure it and pay the running expenses. Quite often when a person has been in receipt of benefits for some time, there are many items that would fall within the personal-chattels disregard that desperately need to be replaced. It is perfectly acceptable to renew the furniture that is past its best. Often, home improvements will have had to take a back seat and the bathroom or kitchen may need to be updated. As long as this expenditure is reasonable and not a deliberate attempt to reduce the claimants assessable capital for benefits purposes, the benefits agency should have no reason to reduce or stop benefits.
With a little planning and good knowledge of the benefits rules, it is perfectly possible to achieve the clients aims of benefiting a person who is claiming means-tested benefits without causing those benefits to stop. Many clients do not realise that this can be done and this is one piece of good news we can give them in the current climate which seems to be producing quite a lot of bad news.
Lynne Bradey is a solicitor at Wrigleys. She can be contacted at email@example.com
OP-capital rules are £16000 saving.
Not a good idea to pay off some of mortgage.
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