21.01.26

Why change in Disability Trusts must start with families’ needs

Keeping pace with changes in policy and practice is essential when advising families with a disabled or vulnerable loved one. At Renaissance Legal, Disability Trusts sit at the heart of what we do and how we support our client families in planning secure futures, and so we closely follow developments that may affect how these Trusts work in practice.

A recent review from the Institute for Fiscal Studies (IFS), Tax and disability in the UK, has taken a detailed look at the current Disability Trust regime and considers alternative savings options. Reassuringly, the overall message is one of caution rather than upheaval.

A regime that works – and must be protected

The IFS review recognises that the existing UK Disability Trust regime is well-established and generally works well. In particular, it highlights the importance of retaining the favourable tax treatment that applies to qualifying Trusts, where income and capital gains are effectively taxed as if they belong to the disabled person, rather than at the much higher trust rates.

From a family perspective, this is not a technical detail – it’s fundamental. Without this treatment, many Trusts would simply not be viable as a long-term planning tool. The review is clear that any reform must preserve this benefit, and we agree entirely.

Equally important is the continued protection of means-tested benefits. Disability Trusts are often used precisely because they allow families to put funds aside for a loved one’s future without unintentionally stripping away essential state support. The IFS review stresses that this protection must remain at the centre of any future changes.

New savings options – but questions remain

One area explored in the review is the possible introduction of new, more straightforward savings accounts designed for disabled people. While simplification is an attractive aim, the IFS rightly raises practical concerns.

Any new savings product would need to be structured so that it does not affect means-tested benefits. There are also wider questions: who would manage such an account, particularly where the disabled person lacks capacity, and how would safeguards compare with those already built into Trust and Court of Protection law and practice?

As we’ve seen previously, well-intentioned changes can have unintended consequences. We discussed this in our earlier update on the impact of banks scrapping Trust Accounts, where changes in the banking sector created real difficulties for families relying on Trusts for day-to-day support. (You can read that piece here: The impact of banks scrapping trust accounts on disabled people and their families.)

The missing piece: education and awareness

Perhaps the most striking point for those of us working in this area is the IFS’s recognition that education and awareness around Disability Trusts remains limited.

This reflects what we see every day. Families, particularly grandparents, often want to help, but are unaware of the consequences of leaving money directly to a disabled beneficiary. As a result, substantial sums are lost each week when legacies are left outside a Trust, unintentionally putting means-tested benefits at risk and undermining carefully planned arrangements.

Raising awareness of Disability Trusts, and ensuring families understand how and when to use them, remains just as important as any legislative reform.

Our view at Renaissance Legal

Commenting on the review, Philip Warford, Managing Director at Renaissance Legal, says:

“Anything to simplify Trusts has to be good. However, it has to be centred on the needs of the family and ensure the disabled or vulnerable person remains safe, and does not conflict with Trust law. Involving families and experienced advisers in this is fundamental to securing a good outcome.”

The IFS review is a timely reminder that while the current regime is not perfect, it provides vital protections that families depend on. Any future changes must build on what already works, rather than risking those protections in the name of simplification alone.

We will continue to monitor developments closely and keep families and professional referrers updated as this conversation evolves.

If you would like to discuss how Disability Trusts work in practice, or review existing arrangements in light of these developments, please contact us – our team would be very happy to help.