A trust for a special-needs or dependent child

The problem it solves

A dependent child — especially a special-needs child — may never be able to manage money or assets. Leaving them wealth outright is risky; leaving nothing is worse. A trust lets trustees you choose hold the assets and provide for the child's care, on a schedule you set, for life.

The tax relief that makes it work

A discretionary trust is normally taxed at the Maximum Marginal Rate (Section 307, old 164). But a trust created by will, which is the only such trust, and/or one for a relative dependent on the settlor, is taxed at ordinary slab rates — a discretionary (flexible, protective) trust without the ~39% penal rate.

How to structure it

• Create it by will (or as a dependent-relative trust), and keep it the only such trust.
• Make it discretionary so trustees can adapt to changing needs.
• Appoint trustworthy trustees and a succession of them for the child's whole life.
• Fund it adequately — investments/property, kept clear of business income.

Also claim

The carer/parent can separately claim the disabled-dependent deduction (Section 127, old 80DD). A trust and these deductions work together.