My son has health problems and receives benefits. How can I leave him money without it being cut?

I’m in my mid 80s, have a house worth about £450,000 and about £100,000 in savings.

My husband died 18 years ago. I have two children and six grandchildren. I left £200,000 of my estate in trust for my children when my husband (their father) died, which was about 50 per cent of the value of our house at the time.

In my will, I leave 50 percent of my remaining estate to my children and divide the rest among my grandchildren.

My problem is this: my son has health problems and lives on benefits. That is unlikely to change. His house is rented. I had hoped that his inheritance would allow him to buy a small house, so that he would always have security.

However, I was recently told that if he received a sum of around £175,000, his benefits would be reduced or stopped, until he would eventually be left with only around £16,000 in capital.

If he were to buy a house, it would be seen as a way of depriving himself of capital and his benefits would still be cut.

I am wondering if I can or should put the money that would otherwise go to him into a trust. I want the trust to buy him a house where he can live rent free, but after he dies his grandchildren will be the ultimate beneficiaries.

Is this a good idea, or even possible? He is aware of my concerns and thoughts and is happy for me to do what I think is best. SS, via email

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Harvey Dorset from This is Money responds: If you feel that you cannot leave money to your son without him losing his right to benefits, you are in a difficult position.

To ensure that your son can continue to receive his benefits, you cannot simply give him money.

A trust allows you to protect your son’s benefits while giving him access to the money you left him.

The trustees can use your son’s inheritance to pay for things he needs or wants without the money being included in the means test.

It is important to consider who you want to appoint as trustee, not only because managing the trust can be a significant undertaking, but also because your guidelines for using the money are not legally binding.

This is Money spoke to two financial advisors to find out what you should look for to ensure your son gets the support he needs.

Liviu Ratoi, independent financial advisor at Flying Colours, answers: You seem to have quite a dilemma on your hands. Unfortunately, there is no simple and easy solution.

Because your son is heavily dependent on government benefits due to his poor health, giving money in the form of a gift or inheritance could jeopardize this support.

Placing the money in trust to purchase a property for his benefit, along with the other beneficiaries, can lead to a more positive outcome. Some of the benefits of using a trust include:

• Separate legal entity: If the trust owns the property, then the capital belongs to the trust and not directly to your son. This could potentially protect his right to benefits.

• Housing security: Because it was especially important to you that your son had a place to live, the trust can provide him with a permanent home without you having to worry about losing this benefit.

• Future planning: The trust fund also provides opportunities for future planning, as the ownership remains within the family and other family members can benefit from the property or its capital in the future.

Despite the advantages outlined above, the solution also has challenges. The following areas need to be taken into account:

• Legal and tax implications: Setting up a trust comes with a high level of tax complexities that need to be fully considered before embarking on this path. Professional advice should be sought to navigate this minefield.

• Trust management: Trustees have a duty to administer the trust effectively, ensuring compliance with the law and trust terms. I would recommend appointing people you trust and are reliable to take on this role, you can also hire professional trustees.

• Honesty and family dynamics: I strongly recommend that you communicate your plans clearly to all family members to avoid misunderstandings or disputes later on.

Another option to consider is a discretionary trust. This type of trust allows your son to benefit from the assets during his lifetime, while direct control and oversight of the assets or funds remains with the trustees.

Upon death, assets can be sold and the proceeds transferred to beneficiaries.

While I completely understand your desire to help your son, I think it is also important to consider your potential long-term care needs and ensure that you are not exposing yourself to risk by giving away too much of your assets.

As you can understand, this is a very complex issue. I strongly recommend that you consult with a financial advisor or attorney to ensure that the solution you seek is tailored to your needs, and that the trust is structured and administered correctly.

Sarah Hollowell, Director of Tax and Trustee Services at Killik & Co, responds: A trust can be a good solution, but only if it is set up correctly.

To ensure that your son’s income-related benefits are not jeopardised, a discretionary trust is probably most appropriate.

Beneficiaries of a discretionary trust are not entitled to income or capital, but instead have the potential to benefit. This means that the capital sum is not taken into account when assessing benefits.

Likewise, income payments could not be considered. The trustees decide how much and when a payment should be made to a beneficiary, but a well-written letter of wishes can give the trustees guidance on how the trust should be used and who in particular should benefit from it.

However, this guideline is not legally binding. It is therefore important that you think carefully about who should act as administrator.

Administering a discretionary trust can be a daunting task for trustees if they have little or no understanding of their obligations. The trust will need to be registered with HMRC and it is likely that annual tax returns will be required.

You have raised the possibility that the trustees might use the trust fund to purchase a home for your son to live in.

While this is a possibility, there are factors to consider. The most important is that there must be sufficient funds within the trust to pay insurance, taxes, and other expenses.

This can be difficult if the trust owns no other assets.

On the other hand, if the trust funds are invested to generate income, this income can be used to cover rental costs.

Payments of income from a discretionary trust are made net, with the trust paying 45 percent tax on that distribution.

The trustees must then provide the beneficiary with a tax certificate and, if applicable, they can reclaim the tax.

In summary, a discretionary trust may be a good solution. However, you will need to weigh up the costs of running the trust, the trustees, whether the property is actually a suitable trust asset, and the tax implications.

We strongly recommend that you inform yourself as well as possible and seek professional advice.