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Can an Inheritance Affect Your Benefits?

  • Writer: Kylie Cox
    Kylie Cox
  • May 3
  • 3 min read

Updated: Jun 19

How Trusts for Disabled or Vulnerable People Can Help Protect Entitlements

A toucan with glasses ponders at a desk in a jungle setting with question marks and a thought bubble saying "TRUSTS." Logo reads "TOUCAN LAW."

What happens if I receive money while claiming Universal Credit - will it affect my benefits?

If you're claiming means-tested benefits like Universal Credit, receiving a large inheritance or gift – even with the best intentions – can be financially devastating and can severely affect your benefits. For example, savings over £16,000 can disqualify someone from claiming these benefits altogether.


This is exactly what happened in a widely shared story: a father gave his son £90,000, unaware that the gift would immediately suspend his Universal Credit. That generous gesture caused financial harm instead of help. Read about it here. So how do you protect someone you love without jeopardising their safety net?


Why Direct Gifts or Inheritance Can Be a Problem

When someone receives a lump sum – through a Will, gift, or windfall – that money is treated as their own capital. Under benefit rules, this could lead to:


If you want to support a vulnerable person financially – such as a disabled child, a sibling with learning difficulties, or a relative on benefits – there’s a better, safer way.


The Solution: Set Up a Trust

A Trust lets you ring-fence assets for a loved one without handing over control — which protects their eligibility for support and secures their future.


There are two main options:


1. Trust for a Disabled Person

This is a special type of Trust under Section 89 of the Inheritance Tax Act 1984, designed to benefit people with qualifying disabilities.


Key features:

  • Doesn’t count towards means-tested benefits

  • Taxed more favourably than standard Trusts

  • Can be set up in your Will or during your lifetime

  • Trustees manage the money; the beneficiary doesn’t directly own it


Tip: This Trust must meet strict rules – professional legal advice is essential to set it up correctly.


2. Discretionary Trust for Vulnerable or At-Risk Individuals

If your loved one doesn’t meet the legal disability definition, a Discretionary Trust is often the best option.


How it works:

  • No one has an automatic right to the money

  • Trustees decide when and how to distribute funds

  • The beneficiary isn’t seen as owning the money – which protects benefits


Used for:

  • People with addiction issues

  • Individuals with fluctuating capacity

  • Anyone receiving means-tested support


Trustees can pay for essentials (like travel, hobbies or private therapies) without triggering loss of support.


Read more in our Blog:


Why Leaving the Money to Someone Else “To Look After Them” Can Go Wrong

Sometimes families choose to leave an inheritance to a trusted sibling, friend or relative – hoping they’ll “do the right thing” and look after the vulnerable person. While this might feel like a practical or loving solution, it’s fraught with legal and emotional risk. That person could later divorce, be declared bankrupt, or experience their own financial hardship, putting the money – and the vulnerable person’s future – at risk. Even with the best intentions, they might die prematurely, and the money will then form part of their estate, passing to their beneficiaries, not yours. There’s also no legal obligation for them to carry out your wishes – and sadly, intentions don’t hold up in court. Families change, relationships evolve, and relying solely on goodwill could leave the person you were trying to protect in a far worse position. A properly drafted Trust offers certainty, control, and peace of mind – ensuring your loved one is truly safeguarded for the long term.


Why This Matters in Weston-super-Mare & North Somerset

At Toucan Law, we meet many local families who want to leave something behind but are rightly worried about what happens after they’ve gone. Whether you’re planning for a vulnerable adult child, a sibling on Personal Independence Payment, or a partner receiving ESA, you don't have to choose between helping them and protecting their benefits. With the right Trust in place, you can do both.


Quick Summary

🔍 Issue

💥 Risk

🔐 Solution

Direct gift or inheritance to someone on benefits

Loss of Universal Credit or support

Trust for a Disabled Person or Discretionary Trust

📞 Book a Free Consultation with Toucan Law

Don’t leave your loved one vulnerable. Contact our team today, and we’ll help you:

✅ Set up the right Trust structure

✅ Draft your Will with care

✅ Appoint the right Trustees

✅ Ensure long-term financial protection


📍 Serving Weston-super-Mare, North Somerset and beyond

💬 Friendly, expert advice

📞 Call today or book online

📦 Fixed fees, free storage, and total peace of mind

Toucan Law – Planning for What Matters Most - The Bright Way

Other Sources:

Toucan Law brochure featuring author Kylie Cox. Includes contact info, services: Wills, Probate, Trusts. Bright colors, floral design.


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